Shantha Biotechnics, an Indian biotech firm started by K. I. Varaprasad Reddy with $1.2 million of angel funds, was acquired last year by Sanofi-Aventis of Paris for €571 million. Since developing a copy of the hepatitis B surface antigen subunit vaccine—one of the first recombinant products to be 'home grown' in India—Shantha has been on a tear, bringing 11 products to market. Much of the company's success can be attributed to the vision of its management, which brought its first product to market in only four years, reinvested revenues into internal R&D and built a state-of-the art manufacturing capability. This not only enhanced the company's ability to address local health needs, but also built its global reputation—all of which has subsequently proved good business.1

After attending a conference in 1992, Varaprasad, an electrical engineer by training, recognized the urgent need for an inexpensive Indian hepatitis B vaccine; over 100,000 Indians die every year from the viral infection, with 4% of the population carriers. Prices were as high as $23 a dose with primary suppliers being Merck and SmithKlineBeecham (now part of GlaxoSmithKline). With most Indian families living on $1 a day, with multiple children and three doses required per child, vaccination was simply unaffordable. Varaprasad saw the possibility of a local venture that could supply an affordable version.

After recruiting local talent and two expatriate scientists in 1993 (see Supplementary Tables), the company took only four years to develop and register Shanvac-B, a version of the vaccine produced in Pichia pastoris. Shanvac-B was launched at $1 a dose and was an immediate success. Indian consumption of hepatitis B vaccine rose from a few hundred thousand doses in the early 1990s to tens of millions today with prices dropping as low as $0.25.

Rapid uptake of the vaccine was partly helped by a confidential partnership with a large pharmaceutical multinational, which provided manufacturing/regulatory acumen and also resold the vaccine. Shantha followed Shanvac-B with Shanferon (interferon alpha 2b), which it also produced in P. pastoris. The company's development of a purification process compliant with International Conference on Harmonization regulations led it to become the first Indian company to have a hepatitis B vaccine prequalified by the World Health Organization (WHO; Geneva). The initial investment in quality control helped accelerate approval for its other products.

The company's growing reputation for manufacturing excellence and regulatory expertise in recombinant vaccines also helped to secure business from entities in other developing countries, such as the International Vaccine Institute (IVI; South Korea) for low-cost oral cholera vaccine, and the Pediatric Dengue Vaccine Initiative (South Korea).

This success led to international attention in 2006 when Mérieux Alliance (Paris, France) acquired a 60% stake in Shantha after its Omani investors sought an exit. The acquisition further bolstered Shantha's reputation internationally as well as opening new markets. In 2009, the firm was awarded a $340 million United Nations International Children's Emergency Fund (UNICEF) contract for pentavalent vaccines from 2010–2012. Soon after, rumors emerged that multinationals were interested in bidding on Shantha, ultimately culminating in the takeover by Sanofi-Aventis the same year.

The case of Shantha shows developing world biotech innovators can maintain a balance between local health impact and financial returns by keeping four principles in mind. First, identify therapeutic areas where cost efficiencies can be achieved locally and combine this with strong leadership skills. Varaprasad leveraged India's homegrown scientists, lower labor costs, process innovation and a low-margins business strategy to exploit this opportunity.

Second, seek investments/partnerships from non-traditional and international sources. Shantha embraced collaborations with research institutes such as the US National Institutes of Health (Bethesda, MD), and with competing multinationals for regulatory guidance.

Third, focus on innovation and reinvestment. By plowing back significant profits toward R&D, Shantha has recently released new products every year or two. This initial focus on process and quality innovation may have delayed Shanvac-B's launch, but it allowed Shantha to become the first WHO-prequalified Indian firm for hepatitis B vaccine, and opened the door to large international contracts, including contract research. However, experience with Shanferon suggested that India's regulatory environment had challenges in conducting complex clinical trials. Other innovators in developing countries should not insist upon home-grown manufacturing or clinical trials if it entails compromise on quality for the sake of patriotism.

Finally, Shantha shows integrated business models are viable in developing countries. Pre-acquisition, Shantha would not invest in any products for which it did not have internal capacity to execute on a significant part of the project. This contrasts with the developed world, where it is becoming increasingly popular to develop a 'virtual' business model, whereby clinical trials and even early stage work is outsourced to contract research organizations. Shantha shows the virtual model may not make sense for an innovative biotech in a developing country because the risks of low quality and delays in outsourcing are too great. By maintaining internal development capabilities, Shantha and other developing country firms can also capitalize on earnings generated by contract research work for other companies.

By combining cost-efficiency with focused R&D, biotech firms like Shantha are creating a new source of innovation for global health.

Funding

This work was funded by a grant from the Bill & Melinda Gates Foundation through the Grand Challenges in Global Health Initiative.