Anuradha Acharya, the founder of Hyderabad based Ocimum Biosloutions, an outsourcing company in the genomics space, is not a worried woman. Her company, which netted $23.5 million in private equity funding in the last two years, raked in as much revenues last year alone, which was a 75% growth from the previous year. She thinks the business of genomics outsourcing will weather the tough times as the value proposition is that the clients can save capital by not setting up a genomics infrastructure of their own. The right strategy for a liquidity starved business environment. Acharya is also looking at diversifying into other areas of applications of genomics such as metagenomics and Ag genomics instead of just pharma. Ocimum has also started attracting a lot of scientists who are returning to India, looking for greener pastures. The company plans to raise another round of funding for bankrolling the diversification and geographical expansion, Acharya tells VCCircle’s Shrija Agrawal in an interview. Excerpts:
Where does Ocimum stand in pharma outsourcing business?
We are in a subsection of the pharma outsourcing sector – in the genomics space. That’s a space beginning to come up in a big way now. It has moved from a small scale outsourcing of certain services in genomics space to a model like ours, for instance, we do everything (in that space) and the companies who outsource to us don’t need to have an infrastructure.
We have acquired a company in the US and a majority of our US clients are serviced from there. But we also know that most of the companies that we work for are big pharma companies and they have offices across the world. When they are doing clinical trials in India, the US or Europe, they should also have access to the same kind of quality of labs and data. So our model is different. We will have labs all over the world. A lot of it will be done from India, though, and the idea is to have consistency and make sure you are available globally rather than saying we will offshore everything to India.
What exactly is your model?
In the beginning, the big pharma companies invested a lot in genomics whether it’s sequencing or gene expression and initially a lot of things were done inhouse. Now we know there are all the more reasons for them to do that especially with biomarker and such things coming up. They need a lot of technologies in the genomics space, but they don’t necessarily have to do it inhouse. Because when you give it outside to someone who is a global player and understands this better, you are essentially removing the need of having any genomic infrastructure internally.
Because this is a field so evolving, with new technologies coming up every now and then, it’s difficult for even large pharma companies who could potentially invest. It’s not only about buying an instrument, you need to make sure you have the right kind of technicians and the right kind of people to analyse the data. And then there are software licences. It’s an ever evolving field. So there is a need of genomics infrastructure which we can provide to them by being close to them.
So if there is a big pharma company in the US, which has offices in New Jersey, they can send their samples to us there. They also have offices in India or Europe, or they would be doing a clinical trial in India. What we are saying is that because we are present globally, all these samples can be processed anywhere in the world and can hope for the same quality of results. Right now, we have offices in Hyderabad, the Netherlands and the US. There are many companies in India who are doing some portion of it, but we are offering a lot more services. There is one company in Bangalore which offers agilant based micro array services. We have competitors in the various subsets that we do. But our value proposition is that our clients don’t really need to have anything internally, or if it’s a four member diagnostics company, they need not even start investing in constructing a lab, they can outsource everything to us.
What are your expansion plans?
We are building a five acre campus in Hyderabad, which would be completed by September-October. Right now we have a very small lab in India, while in the US, we have a very large lab. We want to make sure that the labs that we have in India are of the same or better standards than anywhere else in the world.
You have raised $23.5M in total as VC funding. Do you think you are well capitalised to ride the current crisis?
Yes I think we are. We raised $17M from Kubera Partners and $6.5M from IFC (the PE arm of World Bank). The funds from both went in mainly for acquisitions. Right now, because we are a profitable company and the fact that our services division is growing so rapidly as well as others, we have done much better than anybody else in the market.
What are the challenges that you are facing now, especially for companies like yours who follow a service model. Is there any reduction in your client base or growth numbers or topline?
For us, there are two or three main things that are happening right now. Look at the pharma space, there are huge mergers happening. They look at outsourcing as a potential way of making their businesses more efficient post merger. However, what a merger does is to delay a lot of decisions. But it will help them a lot more if they outsource. The focus for a lot of pharma companies now is to increase their pipeline, and to make efficient use of time because ultimately everyone has to prove that they have to get the next blockbuster out. So the more they optimise on time by looking at efficient partners the more it helps them in the long run.
Secondly, the biggest driver this year has been the business from smaller biotech firms. Some of these firms are now under a lot of pressure. It makes sense for them to make the best use of the funds by outsourcing. I have seen in the last month and a half, a lot of smaller biotech firms have been raising Series A, Series B rounds of funding which is obviously good news for us. Because more money they have, the more they are likely to spend.
Last year was the worst in terms of IPO for biotech companies. But since February, I think the pace has increased, March saw a lot more than we saw in February. There’s definitely a positive sign. But there’s also a lot of (cost) optimisation, how people have started to use their funds. Earlier biotech companies would get, say, a $100 million and they would spend a lot of money in building a brand new infrastructure, to create a genomics lab or to create something new and so forth. Now, what is happening is you are getting a lot lesser in funding than what you were getting earlier. So you are trying to make the best use of what you have. It’s not that the funding has completely dried up. You are getting smaller amounts now, so what you do is to look for out of the box ideas, and realise that you don’t really need $3 million for creating a genomics lab, but you could spend $200,000 in giving this work out to somebody else, because then you can essentially carry that forward a lot more. For instance, for a small diagnostics company, this makes a lot of sense.
So, somewhere slowdown is affecting you in a positive way.
It definitely does. But at the same time there are some companies which are completely out of cash and at the verge of bankruptcy, and they are not really looking at genomics. What we are looking at is also a diversification from just pharma, there are other applications of genomics. We have been looking at other industries where you can use genomics. Because it’s a technology, you don’t really need to completely change all the instruments that you have rather look at different applications of the same technology. There are other areas like egg, cosmetics and many other areas that are fully functional businesses that could really benefit of using genomics as a technology. We have started to see a very diverse kind of customer base getting on board. Luckily for us because majority of our customer base is big pharma, in the very short term, we are fairly safe. In the long term, we know that technology can be used in many different areas. Then we are also looking at diversification in terms of our geographies and so on.
Could you explain more on what kind of diversification are you looking at ?
Till now the focus has been pharma and biotech industries, what we are looking at and saying is that there are many other applications in businesses for e.g. we have a collaboration with EPA, Environmental Protection Agency. We know that there are a lot of applications in those areas, so there is some amount of infrastructure building or people in those areas like chemical, agricultural, environmental, cosmetics and even lately we have started to see a lot of fossil genomics coming up. There is a lot of interesting applications of that coming. We are evaluating opportunities in that area to go after. While we don’t really have to invest that much in changing a lot of what we have, we are just strengthening our ourselves in these new areas. In pharma and biotech, we have 65 patents that came through the acquisition of Genelogic.
We are also looking at diversifying geographically particularly into Europe, where we have lot of academic customers. We are also building more infrastructure in Europe on the genomics service side, so there will be more investments required in creating a similar lab in Europe as well. Because in India we are already doing that. Also, a lot of our customers are coming in from Japan and other countries where we have started to see a lot more growth within the world. So those would be the areas we can target at.
So would you be raising more capital for expansion?
We probably will be raising some. It could be either for just growth or diversification in new areas or it could be for acquisitions. If we are not doing acquisitions, we will be looking at a much smaller round, so it will be less than a $10 million round.
What about the revenue numbers?
Last year, we were $15 million in revenues and this year we should be closer to $25 million. Numbers are obviously lower than what we anticipated in the beginning of the year. But, we still closed fairly strong, and most of the revenues are postponed than completely lost, which is a good sign.
How do you see the potential of contract research outsourcing?
If you look at the crisis that is going on, a lot of global players are looking at India and China as real markets for them. If you look at last year, we saw a lot more MNCs setting up a shop in India. It’s a sign that they look at India as a real market and also look to leverage other things that you could do in India. Also a lot of scientists are looking at getting back to India, which has been great for us. We have hired some of them. What was missing initially was the talent pool, but the dynamics are changing now. A lot of people are looking at coming back to India.
What is the endgame for Ocimum?
Initially, thoughts are for an IPO and plans are for 2011-2013. But if things don’t change, then we can obviously look at some other options, we will continue to grow till we see the right kind of exit for the company.