Book Extract: To The Market
Myth Breaker - Kiran Mazumdar-Shaw And The Story Of Indian Biotech: How Kiran Mazumdar-Shaw worked towards getting Biocon listed in the stock market
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Once the Unilever hangover was behind her, Kiran’s scramble for capital started again. Lovastatin was growing reasonably well in the labs and it needed a place of its own – in a large submerged fermenter. With no bank willing to lend, she called Kashyap for raising money. ‘Can I see the business plan?’ he asked. ‘What business plan?’ she snapped. ‘I know there’s a huge potential in statins; we have cracked it but I need money to build a plant.’
Kashyap went around selling the idea. A California fund, DLG, which showed interest with a cool shrug – ‘Of course we understand biotech, we are from the Bay Area’ – discussed the term sheet but did not honour the commitment. Mumbai’s Infrastructure and Leasing Financial Services too shied away over some minor issue. The saviour was ICICI Ventures, which, in its earlier lending avatar of TDICI, had already invested in Biocon and this time it came around once again with $4 million for a share of 20 per cent. The understanding was that the private equity would get an exit in five to seven years, either through a public offering or some secondary route that would yield at least 25 per cent return.
In a storied corporate shuffle, most of the top management at ICICI Ventures left in 2001. Renuka Ramnath took the leadership position that Nitin Deshmukh had vacated but she seemed to carry the rumble to Biocon, and into its board meetings. Once seated at the table, she did not like how business was conducted, particularly how the chairman of the audit committee, Neville Bain, oversaw matters.
Soon after taking charge at ICICI Ventures, Ramnath also invested in a freshly minted biotech, Avesthagen, started by an agriculture scientist, Villoo Morawala-Patell, and would often compare the two Bengaluru women entrepreneurs at Biocon meetings. ‘She thought I did not know how to run the company or report numbers. She would tell me, “I think you are not very intelligent, Villoo is much smarter. I am on the board of these two companies and I can see the difference. You watch it, Villoo will overtake you,”’ recalls Kiran.
Investors can push a company on to the most adventurous paths. By 2002, Biocon began to understand that. Ramnath wanted an exit; Kiran, not having got along particularly well with her, was keen to oblige when one of the former’s third-party buyers got Deutsche Bank to evaluate the deal but did not eventually buy. Once again, the onus fell on Kashyap, who was by then a partner at a boutique investment bank, Allegro Capital, to look for an investor. This time it wasn’t hard for him. Biocon’s growth story was emerging – insulin and novel molecule programmes had taken root and revenues were growing rapidly on the back of statins which were selling at ridiculously high margins – never known before and never to be heard of later.
Meanwhile, Kiran’s vision had become grander with the Biocon Park, but she did not want to run the private equity gauntlet again. Going to the stock market was the only option and the board began to discuss it in all earnestness. That made it easier for Kashyap as he went back to the American International Group (AIG) which had earlier refused investment because they did not understand biotech. ‘I told them that this time they must invest. They agreed for two reasons: one, the company would go public; two, they said that since they did not understand the story, they would want a “downside protection”, a “clause to protect their principal”,’ said Kashyap. Finding a middle ground, he said Biocon promoters would give downside protection but the American investor would have to give ‘upside protection’, which meant if the investor made any money, it would be shared with the promoters.
This says something about the cult of private equity and the legendary appetites of this risk-faring tribe. Here was a seller who knew the company was to go public, yet wanted to exit. And there was a buyer, who, knowing that a public offering was in the works, wanted its principal protected. Both had their wishes fulfilled. Ramnath exited with 156 per cent return when American International Group scooped up 10 per cent of the company in 2003 along with Gary Wendt Capital, now called India Value Fund, which took a minority stake in one of its first India investments. (If Ramnath had stayed until the public offering, she would have made sixtyfold returns.)
Around the same time, Kiran went on a branding blitzkrieg. The tagline ‘Working with Nature’ was dumped. She wanted to move from something that made Biocon seem like an Ayurvedic company to something that was in vogue, even scientifically. For the rebranding, she wanted the chic branding and design consulting firm in the city, Ray+Keshavan (now part of Brand Union of WPP), but in an odd coincidence, its founder Sujata Keshavan had just taken on Avesthagen as a client and could not sign up Biocon due to conflict of interest. From among some experienced agencies, Kiran finally chose tsk Design. A few years earlier, in 1999, she had given its founder Tania Khosla her first break when she was setting up a design studio; but all she had then by way of portfolio was some academic work from her master’s programme at Yale University but no real work for clients.
In her second coming, though, Khosla had an interesting challenge. She had seen the enzyme business, she had watched the early pharmaceutical business take off, but the brief she got from Kiran – ‘We want to be one of the top ten biotech companies of the world’ – was way beyond anything her creative eye could foresee. ‘It was a huge leap in every sense of the term. We had to come up with a future-proof brand; it had to look like a global biotech which could be from any geography. We had to capture the DNA of the company because, however sophisticated the technology might get, a biotech will always work with the genetic material,’ said Khosla. After several months, she came up with the idea of ‘Dynalix–Dynamic helix’, because ‘Biocon derives from Kiran’s personality which is dynamic, bold and agile’. The double-stranded DNA structure became the corporate logo, with a strap – The Difference Lies in Our DNA.
Governance in Place: Among other things, Kiran needed a heavyweight board of directors for the IPO.
At a wedding reception at Taj Westend Hotel in Bengaluru in 2013, Kiran and Shaw met Suresh Talwar, held his hand, and they made him promise that he would come on board when the company went public. A seasoned corporate lawyer, Talwar had served on multiple boards, including a few pharmaceutical companies and the textile company Madura Coats where Shaw was the managing director. Importantly, he had seen the listing of pharmaceutical companies like Merck, Glaxo, Burroughs and Solvay on Indian bourses. Talwar had also guided Kiran when she was negotiating a buyout of Unilever-ICI shares and knew her well – well enough to notice that ‘she did everything in style’. ‘She is an unusual Gujarati in that sense,’ he joked.
After securing Talwar, she turned to Charles Cooney, who, even as an academic at MIT had been swift in taking biotech discoveries into new manufacturing processes. As an industry-inclined professor, he was associated with Genentech for the first full decade of its existence and later, in 1982, he was involved in the founding of another biotech legend, Genzyme, where he continued as a director for the next thirty years.
‘Since I was deeply involved in the American biotech industry, I could see some parallels. The way Biocon was evolving, it was similar to Genzyme, which was more of a manufacturing company making drug substances for rare diseases, and not an early-stage discovery company,’ Cooney recounted. ...Biocon was building on technology-driven innovation, rather than the discovery-driven science of Western biotechs. During the Plafractor development days, he would grill Shri and Tambe, but also back them when the board would debate or be divided over sharing the always scarce funds for research.
In addition, Cooney had the experience of corporate governance, so he joined the Biocon board as a non-executive, independent director. In his decade-plus association with Biocon until then, he had found ‘there was always the excitement of a new thing, new opportunities’. ‘What was clever was to go to Cuba, which nobody else in the world could do. I had been in Cuba in the early 1990s and had seen what the country had done in spite of the American embargo. We were all cheering for her then,’ recalls Cooney.
From the promoter’s side, it was brother Ravi and sister-in-law Catherine Rosenberg on two board seats. ‘I don’t think we are on the board because of our understanding of life sciences. We are very clear and Kiran is very clear about that too. We sit as observers and give our honest opinion,’ says Rosenberg, who considers it is her ‘role in life to tell Kiran the truth’, which, after 2004, extended to the boardroom too.
A professor at the Waterloo University in Canada, Rosenberg works with telecom companies in France and the United States as a specialist in wireline and wireless networking and knows how boards, certainly the scientific ones, work. ‘You have to know who was going beyond their call of duty and so you also have to know why you want them,’ she says in her casual, no-nonsense way. Which is why even outside the board, she is the messenger. ‘Anybody in the family wanting to tell Kiran something tough or unpleasant will ask me to break the news.’
Over time, theirs became a role of more than just loyal observers. ...When at times the company got too focused on its strategy in the United States, Ravi got it to rethink the ‘fixation of being validated by America’. ‘There are so many other markets where Biocon can make a difference,’ he said. Recognizably French (his wife, Rosenberg, is French and so are his mathematician collaborators), Ravi’s approach made business sense as regulated markets dragged their feet on biosimilars regulation.
Along with the board of directors, Kiran assembled some luminaries for a scientific advisory board. Some were figureheads, like the highly decorated Chintamani Nagesa Ramachandra Rao, who, though a fountain of chemistry know-how, hardly had any interest in pharmaceuticals. Others like Anthony Allison, inventor of the immunosuppressant micophenolate mofetil, added pomp to the product portfolio of Biocon, one of the few generics manufacturers to make the full range of anti-transplant rejection drugs.
However, there was one scientific advisor who turned out to be unique: later in the year, Bala Manian was inducted as an additional director to the board.
In the mid-1990s, ICICI’s Vaghul introduced his brother Manian to some eminent industrialists and executives like Ratan Tata, Azim Premji, Hindustan Unilever’s Ashok Ganguly and others in the hope that Manian, a successful entrepreneur in California who had built and sold multiple companies, would find a reason compelling enough to develop some technology in India. Kiran was one of Vaghul’s hopes, and as it turned out, the only one who struck up a formal and long-term relationship with Manian.
After selling his first company in 1984 to Matrix Corp, Manian thought he had so much money, he could retire. So, for the next three years, in return for co-investing opportunities, he did consulting for three venture capitalists in California and one of the investments he made was in Amgen, along with a few other companies in life sciences. Most of his biology learning was self-taught, though he had an advantage – he was married to a physician. ‘I still have my chart of Amgen stock appreciation – sixtyfold between 1985 and 2005. That’s what patience is,’ he said. Other than the life sciences investing connection, it was his own inventive career and technology tinkering in Silicon Valley garages that Kiran found useful, even inspirational. Manian had worked with the first three employees of Pixar – the pioneering computer animation film studio that Steve Jobs acquired for $10 million and, years later, sold to Disney for $7.4 billion – where he invented special effects technology that got him an Oscar, a technical achievement award from the Academy of Motion Pictures Arts and Sciences. Through the life cycle of Pixar, closely watching Jobs infuse life into the start-up, Manian learnt ‘you have to give breathing space for innovation to happen’. At Biocon, he ensured he was Kiran’s ‘co-conspirator’ in carving out that breathing space.