Healthcare entrepreneurship: An evening with Dr Varaprasad Reddy

On Dec 24, we had a fascinating session by Dr Varaprasad Reddy, Chairman of Shantha Biotech.

Dr Reddy began his career as a research scientist with DRDO. He then worked with APIDC. After a short entrepreneurial stint with Hyderabad Batteries, he started his own venture, Shantha Biotech in 1992.His vision was to develop affordable vaccines that would meet international standards. In the last 30 years, Dr Reddy has pioneered the development of various vaccines. He was awarded the Padma Bhushan in 2005.He has supplied Rs 18 crores worth of vaccines free and Rs 17 crores worth of subsidized vaccines. Dr Reddy has a keen interest in Telugu literature and Carnatic music.

The importance of entrepreneurship

Dr Reddy began by emphasizing the importance of entrepreneurship. After our education is over, most of us want to take care of our family by picking up a job. There is nothing wrong with this thinking. Unfortunately, over time, the number of job seekers in the country has started to greatly exceed the number of jobs available. Leave alone generating jobs, the public sector today has surplus staff. Hardly any new public sector enterprises are being set up. In fact, PSU disinvestment is on the top of the agenda. The government instead of trying to encourage the creation of new businesses and jobs, is keener on giving doles. A lot of free money is being given away in the name of welfare. People are being spoiled. The need of the hour is new thinking. Students should turn into job providers. There is a lot of scope to do this.

Entrepreneurs vs Industrialists

Dr Reddy drew a distinction between an entrepreneur and an industrialist. While an entrepreneur is struggling and trying to find his feet, an industrialist has attained status and dignity in society. An entrepreneur is not rational, is in a hurry, not satisfied with the status quo and is always looking for new products, markets and improvements. On the other hand, an industrialist is cautious; logical, selfish and calculating. An industrialist thinks in terms of risk, CAGR, ROI, ROE, etc. An industrialist looks for easy ways to make money. If he can find one customer, say the government and one person in the customer organization who will be willing to oblige, the job is that much easier! An entrepreneur does not have an empire and is always running and trying to achieve something. What society needs are entrepreneurs and not industrialists.

One reason for the hesitation of people to become entrepreneurs is: Who will save me if I get into trouble? Dr Reddy emphasized that if our intentions are good, nature will make our dreams come true.

How he set up Shantha Biotech

In 1992, when Dr Reddy set up Shantha Biotech, there were no vaccines in India, based on high end technology. India was mostly producing conventional vaccines. Biotech was more or less absent in India. Mostly, vaccines in India were produced with imported technology or imported in bulk and repacked.

Meanwhile, with humanity abusing the environment, new viruses were emerging. One such virus was Hepatitis B. The vaccine for protection from this deadly disease was made only in two countries, the US and the UK with recombinant DNA, a somewhat difficult technology to absorb. The vaccine was also very expensive. In the US, it cost $ 300 for three doses of the vaccine. Because of the high cost, the Indian government was not willing to include it in its immunization program.

Meanwhile, the disease was spreading fast among the population in various ways: through direct contact, usage of common objects such as vessels, comb and through saliva. Some 1% of the people who contracted the disease became afflicted with cancer while 30-40% became sick and led a terrible life. Yet the government focused more on spreading awareness about AIDS which had no cure and did nothing for Hepatitis B. There were more Hepatitis B deaths in a single day than the number of AIDS deaths in a full year.

Dr Reddy approached industry veterans such as Dr Anji Reddy to do something about this. But they were not too keen on producing the vaccine as biotech had not really taken off in India. Dr Reddy jumped in even though he had no domain expertise. (He explained that for entrepreneurs, domain expertise is not mandatory. Think of the Tatas. They have set up steel, aeronautical, and automotive industries without any prior expertise.)

It was a struggle for Dr Reddy. Government officials did not give him an appointment. There were no testing protocols, no standard manufacturing processes, and no finance available. Dr Reddy was looking for government support. But that was not forthcoming. Today, the government is splurging money to get vaccines. But those days, no money was available to Dr Reddy. Meanwhile, the Americans were not willing to share the technology.

Dr Reddy did not give up. He developed the vaccine after 5 years of painstaking research. He achieved his dream thanks to his perseverance, tenacity, and sense of commitment to make the country a better place. His success opened our eyes and made us start believing in ourselves.

Dr Reddy emphasised that we must increase our commitment to building IP. Our software techies are working for hourly wages with foreign companies. True, they are earning a lot of money for the country but there is no IP to talk about. Now with 100% FDI allowed, we may see MNCs coming and taking control of activities. A new form of the East India Company.

Dr Reddy concluded by stating that we must do much more to encourage R&D and entrepreneurship in the country. Every university must have an incubator centre. During the Q&A, Dr Reddy added that the government can do much more to help entrepreneurs to protect their IP. We have a lot of brains. But we typically work for others and the IP belongs to them. It is important that we pay more attention to generating and safeguarding our IP.

We should not be content with degrees and jobs. We must persevere for a worthy cause. If we do that, everything will fall in place.

Q&A

On his journey

Each of the career moves Dr Reddy made was because he felt demotivated and unhappy at what he was seeing around him. In DRDO, various interesting products were being developed by the scientists to substitute imports. But they remained prototypes and the imports continued.

At APIDC, the mandate was to set up joint ventures between the government and entrepreneurs. But the people who were signing up were not really entrepreneurs. They pursued unethical practices and inflated project costs so that they did not have to bring in their 50% share of the capital. HBL was a good venture which aimed at producing batteries for the defense sector. But Dr Reddy fell out with his partner and had to make an unceremonial exit.

Dr Reddy had decided to go back to his farm in Nellore. At that time, on a trip to the US to meet his brother, and subsequently to Geneva for a presentation to WHO, he came to know about the opportunity to develop the Hepatitis B vaccine. When he returned to India, he began discussions with other industry leaders like Anji Reddy on producing the vaccine in India. But when they were not willing to join hands, he decided to jump in. The message from Dr Reddy was that when we are frustrated, we must not give up. We must try out new things.

On the Sanofi acquisition

In 1992, when Dr Reddy set up Shantha Biotech, finance was not easily available. Dr Reddy did not want to do an IPO with so many stock market scams (like Harshad Mehta) prevalent those days and small investors getting hurt in the process. He preferred to bring in private equity. That is how he roped in an investor from Oman who took a 50% stake. After Shantha Biotech had established itself, this investor wanted to withdraw and suggested that the company would be better off with a strategic investor with deep pockets and with strong capabilities in technology, infrastructure and exports. That is how Sanofi entered the picture. Against a fair valuation of Rs 400-500, Sanofi was prepared to pay Rs 2345 per share.

For about 10 years, things went smoothly. But after a new management took over, more recently, the focus shifted to charging high prices for the medicines. Dr Reddy was not comfortable with this new strategy. So, he decided to sell his stake though he remains the Chairman. Employees who had been given options when the company was set up, benefited tremendously. At the end of the day, it was a win win situation for everyone: for the scientist community (who began to believe in themselves), for the country which saved a lot of forex, for society which got access to affordable drugs and for the employees who made windfall gains. Dr Reddy has been requested to remain as Chairman to maintain the image of the company. But given the chance, he would like to quit.

On traditional knowledge systems

Dr Reddy regretted that there is little support for them. In fact, we should look at them as the main medicines and allopathic products as alternative medicines. We should be proud of traditional medicines such as Ayurveda. Unlike allopathy, which only treats the symptoms, these traditional medicines go to the root of the problem. That said, people who practice traditional medicine should standardize their processes and embrace modern technology. If they make small amounts of medicines sitting in their homes, they will not be taken seriously.

On naturopathy

Naturopathy is the best form of treatment. it does not involve medication and depends on the body’s self-corrective mechanism. Too often, we try to interfere with this mechanism and create problems for ourselves. But this method needs belief (no medicines are given) and patience (as it takes time).

On imports of bulk drugs

For more than three decades, we did not develop our own APIs (active pharmaceutical ingredients). We were happy to import them from outside and produce formulations. Essentially, this is a kind of screwdriver technology in operation. The government too did not encourage indigenous R&D. Look at China. In 1997 they accounted for only 3% of the world’s APIs. Today, they account for 97%. The Chinese have moved far ahead of us even though we have more FDA approved facilities and a large pool of trained manpower. If China bans exports to India, we will be in deep trouble. The government should have been more proactive and listened to experts. It is high time the government banned or at least restricted the imports of APIs.

While on the subject, Dr Reddy pointed out that in 2018, out of 30 lakh patents filed internationally, China accounted for 65% while India had 2530 to its credit. China spends 7% of its GDP on R&D while India spends 0.3%. All our sectors put together spend about $ 6 bn on R&D while Pfizer alone sends $ 5 bn. The budget of the NSF (National Science Foundation) in the US is $ 27 bn while that of DST (Department of Science and Technology) is $ 0.3 bn. Our priorities are wrong, and our budget allocations need to be changed drastically.

On profiteering

Big pharma has been accused of profiteering. This perception has been reinforced during the pandemic. Dr Reddy felt that big pharma will continue to focus on maximizing profits. There is nothing wrong with making profits. But they should be ploughed back into the business not into real estate, etc. If companies keep charging high prices, the common man will suffer. In India, many people do not have insurance and the common man on an average foots almost half the medical bill. There should be stringent laws to contain the cost of healthcare.

On dealing with negativity

Dr Reddy made it clear that entrepreneurs should be frustration proof. The government on which entrepreneurs depend on for many approvals, works at its own pace. We must recall that there were only 5 Pandavas and 108 Kauravas. So, we must find out the good people in government and take their help. We should keep searching for the Pandavas. But if we are compelled to deal with bad people, we should remain stubborn and not compromise.

When Dr Reddy was about to start his operations in 1992, he needed a certificate from the pollution control board. For three months, despite repeated visits, the officer in charge refused. Dr Reddy decided it was time to meet the officer himself. He assured him that he would be glad to help if the officer had some emergency expenditure to be met. But he made it clear that he would not give any cash. The officer responded arrogantly that he was not a “beggar” and it was his “right” to be paid in cash. When Dr Reddy stood his ground, he tore the certificate in front of his face and asked him to wait for the committee to meet again after 6 months. Dr Reddy had to pay the staff salaries for 6 months even though there was no production. Finally, the officer was transferred, and a new officer quickly issued the certificate.

When the Lahore bus from India to Pakistan started operations, Pakistan requested India to supply the vaccines made by Shantha Biotech. Dr Reddy supplied 1 million doses free of cost. But the government did not include the vaccine in the country’s immunization program. A senior government official demanded a huge bribe. It was simply impossible for Shantha with its limited resources to distribute the vaccine along the length and breadth of the country. In fact, for 11 years, this state of affairs continued. Many other countries were importing this vaccine, but India was not using it.

On the role of healthcare entrepreneurs

Healthcare is a very different kind of industry. Profit making should not be the primary objective. Drugs should be affordable. Is it fair to charge Rs 100,000 for a dose of Remdesivir?

Dr Reddy went on to share his philosophy in detail: Doctors get trained at the expense of society. They have a duty to pay back.

Indeed, all of us are obligated to society and have a duty to pay back. Only then we will attain salvation.

Advice to entrepreneurs

We should never harm anyone. Not everything is a bed of roses. There will be hurdles. But we must look at these hurdles as opportunities to refine our skills and improve. If there are no hurdles, we will not improve. There is nothing called impossible. We are only constrained by our thinking.

When we fall, there is nothing to feel ashamed. We should feel bad only if we do not try to rise again. Failure and success are not opposites. Failure is the stepping stone to success.

We should not give up too easily. Think of the struggles which Lord Rama and the Pandavas went through.

On the role of the student community

They should become aware of their social responsibilities. They can be stationed in hospitals for a few hours every week to guide patients to the right department, to procure medicines and explain the dosage given in the prescriptions.

We thank Dr. Vedpuriswar for bringing out the highlights in the form of this note