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Kiran Mazumdar-Shaw, the feisty chairman and managing director of Bangalore-based Biocon, is out to woo again. In 2004, the first- generation entrepreneur persuaded hard-nosed public investors to buy into her relatively obscure biopharmaceutical firm’s IPO (initial public offering) with spectacular results. Her latest overture, a bid to buy Siro Clinpharm, India’s largest homegrown clinical trials management company, is similarly ambitious.

Mazumdar-Shaw has to convince the Mumbai-based Siro’s owners, private equity (PE) investors Kotak Private Equity and 3i Group, who own nearly 70 per cent, and the Daftary family, who own the rest, to sell. As BW’s website reported earlier this week, the deal is still far from being tabled and Mazumdar-Shaw may have an extended courtship ahead.

The objective, it appears, is to unlock value from Biocon’s research and development (R&D) services business, concentrated in two subsidiaries — Syngene and Clinigene. Syngene does contract research for pharma and agrochemical companies, and Clinigene, like Siro, manages drug trials for a fee.

The Logic Behind The Deal
Cobbling together the three entities could enable Mazumdar-Shaw to replicate the biopharma business’ success in the growing pharma R&D outsourcing space. Five years ago, she leveraged investor excitement around the promise of biotechnology to raise Rs 300 crore and build a biotech drug business. At the time, Biocon only made industrial enzymes and bulk statins (the active drug in certain heart pills made by a number of companies). It has since launched products such as human insulin and a monoclonal antibody against cancer.

This time, however, Mazumdar-Shaw is doing the buying and she has to be careful that she does not end up paying a hefty premium. PE investors are well-known for their ability to drive hard bargains. And to complicate matters, Siro’s PE investors are comfortable holding on to their stakes for a couple of years at least.

When contacted, Mazumdar-Shaw denied any acquisition plan. “We are only in discussions with Siro for a possible alliance to bundle some complementary services (of Siro and Clinigene),” she said. “There is no prospect of a stake sale,” she said, adding that Syngene did not figure in the discussions. Siro chairman Gautam Daftary declined to comment. Nitin Deshmukh, CEO of Kotak Private Equity, and Anil Ahuja, head of Asia, 3i Group, could not be reached for comments. But a source close to one of these investors said, “Nothing has been signed or formalised yet. Things are still at the negotiation stage.” Mazumdar-Shaw is believed to have roped in investment bank Allegro Capital, which earlier advised her on the acquisition of German firm Axicorp, as advisor to the deal.

Mazumdar-Shaw has shown her intent to float the research services business, which had a combined turnover of Rs 225 crore in FY09, as a separate entity on several occasions. The global meltdown in 2008 forced Biocon to can plans to list Syngene, the bigger and more successful of the two arms.

Global economic conditions have put pressure on rates charged by companies such as Syngene, says one consultant who has advised such companies. Besides, at the best of times, contract research is a competitive business with numerous contenders from India, China and East Europe. Siro, with revenues at about Rs 200 crore, manages trials of new drugs for pharma companies on human subjects in hospitals and doctors’ clinics. Drugs can only come to market if they convincingly pass these trials. This is a multi-billion dollar business globally. In India, it is worth $250-275 million, notes an Ernst & Young study. Indian companies such as Siro score by offering the India advantage — low costs, a huge patient pool, doctors and the English language to western drug companies.