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Outsourcing research - in Conversation

Kolkata,India - May 09, 2006 - While The Chatterjee Group (TCG) - a US-based investment entity set up by Dr Purnendu Chatterjee — poured money into Haldia Petrochem on one end, it has also been building scale in the contract research space through TCG Life Sciences on the other. SWAPAN BHATTACHARYA, the head of the company and TCG director, tells Business Standard how it is slated to emerge among the top three life science research companies in the country.

How is the business structured today? I believe TCG Life Sciences is a company incorporated in the US.

Yes it is. That company has three wholly-owned subsidiaries in India — Chembiotek (for synthesis of new or improved chemical entities), SilicoGene Informatics (for software development) and Clininvent (for clinical trials). We have also set up a Centre for Genomic Applications in partnership with the government.

What is the client profile of these companies?

We started operating in 2001 with Chembiotek. We have 35 clients today spread across US, Europe and Japan. Of the top 20 pharma firms globally, 15 are our clients. The opportunity is huge.

With spends of $80 billion in this area, we don't see why $20-25 billion could not be outsourced relatively soon. Scaling up will happen in the next 3-5 years. Our plan is to gain critical mass in this area so that capacity does not hinder our ability to grow.

How would you define “critical mass”?

We have a team of 500 today comprising scientists, engineers and IT professionals. Our goal is to be 1,000 people strong by March 2007 and increase that to 2,000 in the next phase. We would like to believe that at some point we could have 5,000 people working. We started with 20 chemists.

Now we are in every stage of the pharma chain. At some point in the future, we may choose to integrate this chain by merging these separate companies to provide a one-stop-shop for contract, or rather, collaborative research.

What are the typical margins in this business?

Operating margins are about 20 per cent. I think this is a sustainable margin.

Who do you identify as your competitors?

Syngene (of Biocon) and GVK Biosciences are the large players in this market, and the third will be us. In terms of the integrated model, we are ahead.

Will we be debating captive research versus outsourcing in this field soon?

It is not very far away. Companies will choose to get dedicated operations set up on a build-operate-transfer (BOT) basis as Lilly has done in China though it has not exercised the “T” or transfer option. It will happen here too though we do not see it as a threat.

With a presence in every step of the pharma chain, why do you stop short of owning a product and marketing it?

There are companies which do it. We do not, as that requires a different set of skills, structure and funding. We can do research and development, but art of selling is difficult. Only large pharma is involved there.

All the work that we do is on the request of clients and we have no intention of changing that, though there are contract research companies that have become drug discovery companies. It does not seem to be a very viable model.

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