"GVK BIO has designed a scalable company, as one of the few players that operates out of five sites, one of which is located in the US. All of GVK BIO's sites run on the same operating systems, making information easily accessible across locations."
Taking into account the global market for pharmaceuticals, could you situate GVK BIO in the current landscape, highlighting the direction of development taken by the company?
India is regarded as the 'pharmacy of the world', with a fast growing pharmaceutical services sector. From a macro perspective, the global market for pharmaceuticals is estimated at US$1.6 trillion, of which, approximately 10% goes into research and development and about 15% goes into manufacturing. Off that 10% (which amounts to about US$160 billion) invested in research and development, approximately US$65 billion is outsourced to partners like GVK BIO and others in USA, Europe, China and other parts of the globe. The biggest companies are in the West, but there is an upsurge of companies in countries like China and India. The growth of the pharmaceutical industry will result directly in the growth of the market for GVK BIO. The outsourcing percentage will grow directly proportional to this market movement due to the increasing market penetration by new companies. Currently, GVK BIO is running at capacity and is investing in more labs. A new plant in Vizag has been completed and is currently operating at 65% capacity, which is expected to rise to 80% within the next six months. More labs have also been set up in in Bangalore and Hyderabad.
Demand in CRO in India is forecast to grow at a rate of 12% year on year, according to some forecasts, with India emerging as a top destination for outsourcing services. What are some of the underpinning factors that lead to this trend?
There are a few factors behind this trend. First, global biotech funding continues to increase. To my knowledge, three new companies are being set up every week in Boston. These companies are usually virtual, originating in academic institutes like Harvard, MIT, and others, and they look to outsource to CRO providers. Secondly, Big Pharma companies continue to outsource in more areas. India is becoming a preferred destination, benefiting from a labor force 25% cheaper than China. Furthermore, India can leverage on a language advantage, as opposed to China where all operational records need translation. Shutting down of Chinese companies (more than 2,000 in the last 2 years) because of their environmental clean-up endeavors has also led to a lack of reliability in their supply chain, further leading to a negative ripple effect on the global supply chain.
GVK BIO stands out as a pioneer in the CRDO model. What are some of the key distinguishing solutions that add value to the services offered by the company?
GVK BIO has uniquely branded itself as a Contract Research & Development Organisation (CRDOTM), looking to trademark the aforementioned term. The core purpose of GVK BIO is to accelerate the research and development of its global customers, helping them bring better medicines to the healthcare market. Therefore, GVK BIO differs from other companies in two ways: The first distinction is that GVK BIO deals primarily and purely in services. Unlike many of our competitors, whose service offering is tertiary to their core business or are owned by larger pharmaceutical companies, GVK BIO has remained independent and entirely dedicated to its services. GVK BIO's main philosophy has always been to nurture partnerships with its customers. Secondly, up to 96% of the revenue comes from exports rather than local markets.
GVK BIO has designed a scalable company, as one of the few players that operates out of five sites, one of which is located in the US. All of GVK BIO's sites run on the same operating systems, making information easily accessible across locations. Through the standardized Project Management Capability, newly branded XLrateTM, our Project Management Professionals (PMP) act as the 'voice of the customers' and the main point of contact with customers.
What are the core markets of operation and the profile of GVK BIO’s clientele?
About 60% of GVK BIO's revenue comes from the USA, approximately 25% is sourced in Europe, 10-11% is based in APAC (Japan, Korea, Australia) and the remaining 4-5% revenue is domestic. In India, the market for innovators shall expand together with the IT culture, but the risks of undertaking research and development in an innovative molecule are strong deterrents in the domestic market at the moment.
GVK BIO works with about 430 customers. While most of these are smaller companies, GVK BIO works with 14 of the top 20 pharmaceutical companies in the world. In terms of monetary volume, the bigger companies tend to draw up larger contracts, but in terms of volume of orders, it is the smaller companies that stand out. GVK BIO is able to serve its customers irrespective of size. The CSO of a biotech company or the research and development teams of a pharmaceutical company are considered as core customers of GVK BIO. GVK BIO has a highly scientific and white-collar culture, boasting a pool of nearly 300 PhD graduates.
What are the main drivers for growth for GVK BIO?
GVK BIO is poised to grow at a rate of more than 20% this year and is expecting to be around US$230-250 million in a few years. Our strength is in discovery solutions, as the largest company in the country engaged in this service. The company shall continue to try and maintain this leadership status. Moving forward, the focus will fall on GVK BIO's development business. GVK BIO's third growth vehicle is the biologics division, which has grown at approximately 20% last year in San Francisco, USA.
How are tensions between the US and China playing out in India?
Prime Minister Modi is in USA at the time of this interview, having recently met President Trump in Houston to discuss tactics to counter global terrorism. Beside discussing the similarities in the democratic administration of their respective nations, they also reviewed strengthening ties between the two countries. In the wake of the current trade war between USA and China, the Finance Minister of India announced last week the biggest tax cut in the corporate sector yet, going down from approximately 35% to approximately 25% (average). Also, any company coming into existence from October 1st, 2019 will have a 17% tax payable on the condition of a commencement of operations by the year 2023, a provision applicable for 10 years. This move has been targeted at international companies, preparing the most favorable conditions for companies to choose India over other destinations. These developments illustrate the trajectory taken by India to capitalize on existing global dynamics.
What are the priorities of GVK BIO in exercising its Corporate Social Responsibility?
Every company in India is obliged to spend 2% of their profits on Corporate Social Responsibility, and our take on CSR is to re-invest this money in the sciences. Our scientists themselves are teaching in schools funded by GVK BIO. In the future, it is our vision to create a mobile laboratory (Lab on Wheels) that can be used to travel and teach chemistry at different schools and institutions across India to increase the engagement in the sciences.