4 Ocimum Biosolutions

Genomics Outsourcing in India

Amanda Knauer

Figure 4.1 Ocimum Logo

Anu Ancharya was destined for a career in science. The daughter of a physics professor, she grew up in Bengal, India, doing science experiments with her three siblings under the supervision of her father. “My dad recorded an interview with us every year, asking us why we wanted to do what we wanted to do,” she recalls:

Lacking money for studying an MBA at an American university, she decided to apply for a physics Ph.D. program, and was admitted at the University of Illinois. After a year, she persuaded the head of the Management of Information Systems (MIS) department to accept her in its master’s program. The head of the program, who was Indian, took Anu aside and asked why she was abandoning her doctorate. “At the time I told him that I wanted to really start a business of my own and to do that I needed to study MIS; that in five years I would start a business, and I first wanted to work for a startup. It was more to convince him, but it turned out to be what happened,” she says with a laugh.

Five years later, in 2001, Anu Ancharya founded Ocimum Biosolutions, a global leader in genomics outsourcing.

Forming a Company

Knowing that she wanted to start a company, Anu and her husband Subash Lungareddy began exploring and pursuing a range of ideas, including a unified voice, fax, messaging service and a bandwidth trading site. “We realized it wasn’t about the idea. If you get three people in a room, you get an idea. The real value is in the execution.” They were looking for a business that would allow them to leverage the low costs of operating in India, mostly afforded by an inexpensive, educated workforce. In 1997, Anu’s friend Dr. P. Sujatha, a molecular geneticist working with a rice company at the time, wanted to develop software to examine a rice genome. Two years later, the three revisited the concept, and determined that it met their criteria. “It seemed like a field that was rapidly emerging . . . The trends were very positive.” Once they had decided that it was a solid business idea to pursue, they returned to Hyderabad, India, and founded Ocimum with about US$300,000 of their own startup capital.

Anu’s warm and outgoing personality positioned her well for the role of CEO. Of her husband Subash, on the other hand, Anu says that “he’s a very quiet sort of person. He’s detail oriented, but he wouldn’t like to go meet strangers at conferences. When he goes to a conference, he comes back with 20 business cards. When I go, I come back with 250.” Subash took the position of CFO.

A classified ad proved both India’s wealth of human resources and lack of biotechnology specialists: in 3 days, they received 2,000 résumés and made four initial hires, including HR and IT managers, and two developers. Despite the number of eager candidates, few were trained in both biological sciences and IT. “Very soon, we realized that getting the right people to build the product was going to be a nightmare,” said Anu. The challenge presented an opportunity: with a 1-year development timeline and a need for cash flow, they created a training institute to cross-train students in life science and IT. “So the revenue challenges were met through training.”¹ Furthermore, the institute created a healthy pipeline of individuals trained to fit Ocimum’s hiring needs, and about 10 percent of its top students were offered jobs with the company.

With this human infrastructure in place, they built Biotracker, a resource planning product which handles samples and research processes for scientists in academic labs, allowing them to manage workflows and data. “The first product I sold to a customer before it was completely ready, like everyone else does,” Anu says with a laugh. Delivered on time, the product sold for US$30,000 to an academic lab in India.

Over the next 2 years, the company created a gene expression product as well as an innovative RNA software product, iRNA Check, to aid researchers in the silencing of certain genes, the first product of its type on the market. By that time, Ocimum had grown to about twenty-five employees in India. “At that point, we wanted to build scale,” says Anu. With about $1 million in revenue at the time,

Growth through Acquisitions

Reflecting on the founding and growth of Ocimum, Anu observes that “there is a very small border between taking a lot of risk and being stupid.” Back in the early days of her venture, she had to figure out exactly where that dividing line lay.

In 2004, Ocimum acquired the microarray division of a client, MWG, a genomics products and services company based in Germany. Microarrays are a series of microscopic DNA spots attached to a solid surface, which is later used to analyze the genes. MWG was the leading genomics company in Europe at the time, and the acquisition made Ocimum an international player. “Everyone was wondering who was this little company out of India intent on buying a large European company. We received publicity worth around US$1 million,” said Anu. With little planning, Ocimum acquired MWG’s microarray division in an asset buyout. The microarray technology had cost MWG some 8 years and more than US$15 million to develop (though the value depreciates quickly with time). Ocimum purchased the asset for $220,000, without any outside financing. With a physical presence now in Germany, Japan, and the U.S., Ocimum opened a lab in India, where it transferred much of the technology from MWG. The acquisition opened up the entire European market to the still-small Ocimum. In addition, the company, formerly selling predominantly through Anu at trade shows, acquired MWG’s professional sales team.

Armed with the microarray technology, Ocimum now planned to become a leading company in India in the field of oligonucleotides or lab genetic consumables. With an equity and debt deal from the International Finance Corporation (IFC), the private equity branch of the World Bank, Ocimum purchased the Biomolecules Division of Netherlands-based Isogen Life Sciences in 2006. The company was too small to achieve scale, however, and was ultimately unsustainable. Anu said, “I didn’t feel excited enough to spend too much time there.”

Still focused on the plant sciences at the time, in 2007, Ocimum wanted to enter the pharmaceutical market and looked for a third acquisition that would give them access to this profitable field. U.S.-based Gene Logic, which Anu described as “one of the darlings of the genomic era,” had a market cap of $2 billion, a 15-year working relationship with most of the big pharmaceutical companies in the U.S., and gene databases unique to the industry.

Gene Logic’s gene databases were created about 10 years ago, from blood and tissue samples from ninety-one different medical centers around the U.S. Aggregating gene expression studies, Gene Logic created a database of these samples that cost the company nearly $150 million. At the time, many pharmaceutical companies used the data for early drug discovery; today, a lot of customers use it for clinical trials for discovery validation or biomarkers. (Markers are used to determine if an individual suffers from a specific disease.)

“It was a company that seemed a little out of reach, at least at the beginning years of Ocimum,” said Anu. Eager to acquire its databases and leverage its U.S. client list to expand into the services sector, Ocimum purchased the genomic assets division of Gene Logic for $10 million.

Anu describes some difficulties with the acquisition, driven largely by the fact of a young Indian upstart acquiring an established American company. “It was one of the harder transitions for the employees there.” To help with the transition, Subash and Anu spent about half of their time at the Gene Logic offices in Maryland, with the sixty-five new Ocimum employees. First among the challenges was to get the Gene Logic employees to reduce their spending and adapt a startup spirit; those who could not adapt were let go. “You don’t know how cheap I am,” Anu says with a laugh. For example, using Priceline to book hotels, Ocimum spends US$50 for rooms at the Hilton, compared to US$160 that they would spend if they booked through traditional means at corporate rates. “Those are the kind of changes we needed to bring in.”

An Expanding Line of Products and Services

“Some of our products are multi-hundred-thousand-dollar products, some are hundred-dollar products,” says Sowmya Vel, assistant vice president of marketing, branding and outreach. “The people you sell to are different, too, sometimes scientists, sometimes technicians.” In a matter of just a few years Ocimum has built a bewildering array of products and services.

One of Ocimum’s first products, Biotracker, is a software program that allows research labs to track samples, workflows, and information output. The product is licensed mostly to academic life sciences labs for between US$200,000 and US$300,000 per year, and requires customization for each client. The purchasing decision is usually left to the head of the IT department of the lab or institution.

explains Kolanu Reddy, an assistant vice president. “Then the team comes back to India [and] we translate those requirements to technical specifications that are understood by programmers.” The process takes anywhere between 3 and 12 months. Ocimum charges the client about US$40 per person per hour worked, and the occasional large pharmaceutical contract can cost about US$1.2 million.

The company has also ventured into databases. With DNA from 22,000 patient tissue and blood samples, Ocimum’s gene expression databases and interfaces, branded BioExpress, are used by academic and industry labs for early stage drug discovery in large disease areas: oncology, inflammatory diseases, cardiovascular, and central nervous system. Full access to the database can cost up to US$5 million for a perpetual license, with sixteen of the top twenty pharmaceutical companies and half of the top twenty biotech companies using the product. For smaller labs with limited needs, the annual license to limited database access plus maintenance costs US$5,000. Pricing is not fixed as solutions are typically customized for each client.

Ocimum’s database, purchased in the Gene Logic acquisition, is considered the largest and most comprehensive in the industry. There are a number of public databases available that lack the ease of use and reliability of information of BioExpress. Competitor databases have public data, of which 90 percent is not trustworthy. Vel explains that “public databases require a lot of cleaning before a dataset is considered accurate enough to use.” Without any additional investment, the database will be useful to Ocimum for just another 2 years.

Ocimum has also entered the lab consumables (oligonucleotides) business. First level techniques used in most biological labs, oligonucleotides are PCR reactions, or amplifications of a single piece of DNA to create small primers needed for experimentation. These small DNA fragments have a variety of uses in a lab, including bacterial cloning. High-levels of PCR reactions need to be outsourced. Most labs are too small to justify the expense of the machines required to make oligonucleotides, which cost a few hundred thousand dollars, so they typically outsource this part of the research process. Oligonucleotides being a volume business, Ocimum charges between a few cents and a dollar per base. Oligonucleotide customers tend to be mostly academic labs. Ocimum is one of the biggest suppliers to academic labs in India.

After experiencing a few years of exponential growth, the markets crashed in 2008, curbing Ocimum’s expansion plans. Having spent the previous 4 months strategizing to acquire its biggest competitor, Ocimum suddenly could not raise the capital to fund the acquisition, forcing the company to throw in the towel. Furthermore, the new economic conditions left the company cash constrained. Anu took this significant barrier to Ocimum’s growth-by-acquisition model in her stride: “We always have to figure out a way to adjust.” The founders successfully convinced board members to increase their investment and keep the company afloat.

Branding and Sales

Branding your business after growing via acquisitions requires a great deal of care. After the Gene Logic acquisition, the “Gene Logic” brand name was maintained to “capitalize on the genomics goodwill which was associated with the brand.”² Today, both the Ocimum and Gene Logic brand names are displayed on corporate materials. Vel explains that branding is important even in an industry often driven by commodities:

Ocimum has separate direct sales teams for services, IT, and lab information products. These teams are comprised of Ph.D.s with deep understanding of the company’s products and services. All direct sales teams in the U.S. are supported by a parallel team in India that handles account work, including searching for and identifying potential customers and contacts. Each member of the sales team has sales targets and individual incentives for performance. The company enforces strict consequences if sales targets are unmet.

Ocimum exploits the Gene Logic brand name to increase sales in the U.S. To sell to a new client, a service team sales executive will first introduce the company as Gene Logic and give an overview of its services. The client usually responds by auditing Ocimum, examining its processes and implementation of certain projects. If satisfied, the client will grant Ocimum a pilot project. After that, “once you get a customer interested, you go to their friends,” said Anu.

The acquisition of Gene Logic was instrumental in giving Ocimum access to the large pharmaceutical companies, and now drives its business growth. “You have a pre-existing relationship with a lot of pharma companies; we look at the top 50 companies and make sure that they are all customers,” says Anu. “When something new is happening, you want to be there very early.” Ocimum is also eliminating customers that generate less revenue. “We want to be more focused.”

Ocimum's Corporate Culture

The Ocimum offices in Hyderabad are accessible by dark elevator in a rundown building. A friendly young receptionist warmly greets visitors and invites them to wait on a worn love seat, which appears to have been acquired second-hand when the company was founded 10 years ago. A shelving unit featuring a number of plaques of recognition for the speedy growth of the company is the only hint of Ocimum’s success.

The office itself is dark, predominantly brown, and lacking any kind of intentional decor other than a few sketches of Parisian scenery acquired and hung by Anu. A young-looking workforce sits before rows of computers, focused intently on the screens in front of them.

Ten years after founding the company, Anu continues to run Ocimum like a startup, bootstrapping and maintaining an entrepreneurial culture as she manages 200 people in two offices in Hyderabad. In July 2011 the company moved to a brand new, 5-acre campus ten times the size of its current office (Figure 4.2).

The founders have tried to create a culture of fun and openness at their Hyderabad HQ. “What made me stick here for so long was the culture,” explains Kolanu Reddy.

Initially, the founders tried to limit the flow of information, but they soon realized it was better for the employees to be more open, communicating the bad news along with the good. “Sometimes people don’t like it, they always want to hear good things, but it is important that they know,” said Anu.

The independently elected Sunshine Committee is responsible for organizing monthly employee events, including participation in 10-kilometer races, community service, poetry readings or dance events. “Typically, we work pretty hard, but we also have fun,” says Anu. Twice a year, the Sunshine Committee hosts an all-day event for all employees, like a cricket match or a day at a resort, followed by a fun-filled awards ceremony; these biannual events last until 4 a.m.

The culture in the company’s India offices has been more difficult to export to acquired offices, which have older employees. “In the beginning,

Figure 4.2 The New Ocimum Campus in Hyderabad, India

Source: Ocimum Biosolutions.

when we tried to do that in Gene Logic, we found the late night partying did not work there,” Anu said with a laugh.

Anu is especially sensitive to the difficulties of being a woman in a male-dominated workplace. About 30 percent of Ocimum’s Indian employees are women, and many of them are much quieter than their male counterparts. Anu aims to get them to be more assertive. Every Women’s Day, she takes the women in the office out for a party. The all-female peer group emboldens the women: “Typically we find the behavior of the women to be very different when they are in this group.”

Finally, Ocimum offers its employees generous marriage and maternity leave policies, with 3 months of paid maternity leave. “It’s a very good place to work, especially for ladies. We have flexible office timings,” says Jaishree Ravi, assistant vice president of quality systems and one of Ocimum’s first employees. “If we have a PTA meeting to attend, I can go out and come back; all I have to do is log in nine hours of work.”

The Fuzzy Divide between the Personal and Professional

“I know I have someone who is always there. I am getting all the support not just from a husband but also from a friend and partner,” Anu intimated.

While the ambiguity in the definition of their roles might benefit Anu and Subash, employees mentioned that lack of clear job division creates the occasional difficulty in working for the husband-and-wife team. The swapping of responsibilities creates confusion about to whom employees should be reporting, and one half-joked, “I don’t know who my boss is.”

Help at home makes the entrepreneur’s busy lifestyle manageable. A mother of two small girls, Neha and Akhila (aged 8 and 2), Anu says that they are used to her hectic travel schedule. “My kids now are pretty much used to the fact that I am not available half of the time.” The family lives with Anu’s in-laws, who help raise the girls.

“I sleep very little. In the last ten years, I haven’t slept much,” says Anu. “I like to do a lot of things. Sleep gets sacrificed. I sleep for four hours a night. I can go without sleep for a few days and be fine.”

Looking Forward

In 2011, pharmaceutical companies in the U.S. faced the expiry of patents on ten blockbuster drugs that generated a total of US$50 billion in combined annual revenue. With a narrow R&D pipeline of potential replacements, the industry was undergoing massive layoffs (a total of over 100,000 jobs lost in 2009 and 2010), and drug companies have been forced to redesign their innovation streams.⁴ According to Anu, this is obliging almost every pharmaceutical company to shift the way they do their trials and discovery, from using chemistry and more traditional means of looking for a protein for a blockbuster drug, to drug discovery for smaller portions of the population, or “personalized medicines.”⁵ Most pharmaceutical companies now run between 30 and 40 percent of current trials in that form, and are increasingly looking for partners in the R&D process. These developments may bring new opportunities to Ocimum. “Pharma companies need someone who can take them through the entire process,” predicts Anu.

Over the past decade, Ocimum built its business on four very different products and services that serve different customers, with a variety of competitors, across the globe. Today, the company is readying itself to leverage that product diversity as the drug industry looks for more complete outsourcing solutions. With its unique array of products and services, Ocimum wants to position itself as a one-stop shop for bioresearch services, “a next-door lab that could provide services across the spectrum at the right time and a friendly price.”⁶ The intention of the RaaS strategy is to take the databases, samples, and IT that Ocimum currently offers individually, and package these as a complete solution. According to Anu, the move is timely as the industry shifts away from outsourcing pieces of drug discovery and development to outsourcing larger chunks of the process to an “outsourcing partner,” and will allow pharmaceutical companies to reduce costs.

Anu lists the various advantages of such a partnership, including a reduction in drug development time and ultimately reducing time-to-market, lower costs from outsourcing to companies in India or China, and a reduction in risk by allowing pharmaceutical companies to extend their R&D pipelines.⁷ In theory, Research as a Service (RaaS) would also ease the development process and facilitate project management by integrating multiple software platforms into a single interface for the user. “Researchers have to interact with many different vendors; it is a logistical and managerial nightmare,” asserts Vinay Kumar, Ocimum’s vice president. “The RaaS scenario is to have a researcher enter in requirements for the kind of study he wants to do, what he wants the final study to look like, and everything else is taken care of by Ocimum.”

Anu plans to continue on the path of growth through acquisition. She aims to grow Ocimum to US$100 million a year in revenue over the next 5 years. Despite the tremendous growth of her company, Anu says she still hasn’t reached the point where she feels successful, in spite of a series of awards and distinctions she has won over the years. In 2006 she was elected by Red Herring Magazine to the list of “25 Tech Titans under 35.” In 2008 she was named by Biospectrum “Entrepreneur of the Year,” and given the Astia Life Science Innovators Award; and in 2011 the World Economic Forum selected her as one of “190 Young Global Leaders.”