With four businesses to boot, why GSK Velu is placing his highest bet on medical technology
Gomathy SK Velu, one of the boldest entrepreneurs in health care, is fidgety on the sofa. In the residential lane of Abhiramapuram in Chennai, Trivitron’s office is quiet; the staff would arrive after 9.30 am. Inside the boardroom, impressive with stacked awards and citations, Velu finally settles after a short question-answer session. Then he is on a roll. Still, over the course of the two-hour conversation in which he gives a graphic flashback of the industry, the restless streak is evident. Perhaps this is what characterises a serial entrepreneur, a “compulsive risk-taker”. At 45, he has four businesses to boot and Velu doesn’t rule out additions.
“I am not a serial entrepreneur,” he says, laughing. “I am a parallel entrepreneur; I haven’t sold any of my businesses yet.” The word ‘parallel’ comes as a surprise; we don’t hear entrepreneurs use such a classification. But what’s in a name?
It was in 1997 that Velu started Trivitron as a small medical equipment and instruments distribution company. A year later, he founded a diagnostics business, Metropolis Healthcare, with his partner Dr Sushil Shah, a pathologist. By 2006, Velu consolidated Metropolis, topping it up with private equity investment from ICICI Ventures. Then he turned his attention to Trivitron, raising a separate round of PE funding for med-tech.
By 2010, when Warburg Pincus entered Metropolis with an $85 million investment, Velu had passed on the baton to Shah’s daughter and got busy turning around Trivitron. Since then, he has transformed it from a trading company to a brand-toting manufacturing firm. With Rs 400 crore in funding from Fidelity Growth Partners, it already has a few acquisitions under its belt, notably the Finnish group Labsystems Diagnostics. In the last three years, Velu has gone further and founded two health care services businesses—Apollo White, a dental and dialysis care hospital, and eye care chain Maxivision.
Sceptics may snicker that his breakneck expansion is non-synergistic. But many are already envying him for replicating the Metropolis business model to quickly get new speciality businesses off the ground. In fact, it’s his expertise in managing inorganic growth that drew the Apollo Hospitals group to partner with him after they failed to repeat their super-speciality health success story in day- and primary-care ventures. It took Metropolis nearly 15 years to get to the Rs 400-crore mark, but now, says Velu, it’ll take Maxivision and Apollo White just 4-5 years to gross this revenue.
Velu is buoyed as well as blasé about hospital business. For him, they can run on autopilot if the foundation is set right. For his group, they just form one of the growth engines. What keeps him ticking, perhaps even on his toes, is the scope and challenges in medical technology.
“Pharma is our big brother. Even though no single ministry or department recognises us, today med-tech is where Indian pharma was 20 years ago,” he says. “But this industry is being kicked around like a football; the buck is passed from one department to another —from science and technology to electronics, biotechnology to IT, commerce to finance, ministry of health… ,” he trails off.
The irony is, until two years ago, New Delhi didn’t even know how big this industry was, loosely estimating it to be Rs 1,500 crore. But professional estimates now raise that figure to at least Rs 25,000 crore, more than 75 percent of which is imports. With a few policies in place, Velu believes med-tech business could grow the way pharmaceuticals trailblazed in the previous decade.
“His is one of the more successful med-tech businesses and he is one of the more vocal champions of the local industry who draws attention to the skewed duty structure that hinders manufacturing,” says fellow Chennai entrepreneur S Nandakumar, founder of Perfint Healthcare.
In 2012, Boston Scientific, one of the few hundred medical technology companies that sell wares in India, severed its distribution ties with Trivitron. This came despite its Indian partner doing a good job of ramping up revenue from Rs 20 crore to nearly Rs 200 crore. “With MNCs, you get terminated if you do badly; you get terminated if you do well,” quips Velu.
In this case, Boston Scientific chose to run its own distribution. While the breakup scrapped Rs 200 crore from Trivitron’s sales revenue, keeping it away from the coveted Rs 1,000-crore mark in 2013, the company isn’t new to such trading vagaries. It has had near-death brushes in early days when Fresenius and Hamilton pulled out. Trivitron learnt from it and improved its contractual agreements. After Boston Scientific, it has put a few MoUs on hold to get the right compensation clause inserted, says Sameer D Saral, director of operations.
Besides, India has no regulation that encourages traders to take up local manufacturing. Actually, it doesn’t even have a regulator for med-tech. Some 14-odd medical devices, mostly implants that come under the Drug Controller General of India, are regulated. The rest is left to ‘self-regulation’. So, while nearly all of the top 500 med-tech companies in the world have set up manufacturing facilities in China, where the government incentivised local manufacturing and penalised trading, they all import their stuff to India.
Milind Shah, managing director of Medtronic India, says low volumes make local manufacturing expensive in India. It was for this reason that Medtronic, which manufactured heart valves locally in the late 1990s, decided to stop it.
Besides being five to six times bigger in size, the Chinese market, says Shah, is far more predictable with a supporting environment. While companies like his invest there in core business areas like physical infrastructure, R&D and field force, in India, they have to invest in market growth, in business models, doctors’ training and so on. In short, improving the “care pathway efficiency” becomes more important here, says Shah.
It’s a skewed market. India can’t even count a dozen local med-tech companies whose turnover is more than Rs 100 crore. The progressive ones, TransAsia, Perfint or Kiran Medical Systems, are already looking outside India for maximising profits. Those having reached Rs 50-100 crore wait it out to be acquired. Earlier this year, London-based Smith & Nephew, the $4.1 billion med-tech provider, bought Pune’s Sushrut Surgicals. Trivitron itself receives feelers from smaller companies for acquisition. It still has that appetite, but with global aspirations, especially after buying the Finnish company which it wants to groom as its Europe R&D hub, it is likely that he may scoop up companies overseas.
The Uphill Climb
Velu dreams of making Trivitron an “India-born global story”. Nowhere is his ambition more on display than at his 25-acre Medtech Park in Sriperumbudur, 35 km from Chennai, right next to the sprawling 500 acres that Hyundai occupies. Two manufacturing facilities, in joint ventures with Hitachi-Aloka of Japan and BioSystems of Spain, are operational; two more are under construction. Velu plans to have at least 15 such factories churning out products for the Indian and global market in the next five years. His bullishness is not misplaced. Within two years that Trivitron began serious manufacturing, it accounts for 50 percent of its revenue and 80 percent of profits.
As Sameer, Velu’s close associate from college days at BITS Pilani, gives a quick tour of the ultrasound facility, a staff member sneaks into each hall as we leave. Turns out, the staff here doesn’t lose a minute in switching off the lights when not needed. But electricity isn’t the only hope-crusher. In the absence of a regulator and quality control, it’s a free-for-all in the market. Many companies in the unorganised sector place devices in the market that are unsafe and do not meet the relevant standards, says P Manickam, lead auditor, quality management system and regulatory assessments, UL India.
For example, low-cost devices such as IV sets and the plastics used here need to meet bio-compatibility requirements specified in global standards. But the awareness in this segment is such that if you were to ask these manufacturers and suppliers of components, a large number may even ask, “What is bio-compatible?” says Manickam.
“Many times, when we export our devices, the regulators in other countries want to know how the home country regulator is monitoring it. Since we don’t have any, we lose out on that front,” says Perfint’s Nandakumar.
Another anomaly is customs duty that snuffs local manufacturing. Companies have to pay higher duties for import of raw materials and components as compared to finished products. China did just the opposite, and today is import-independent, says Velu. Medical technology largely comprises small and medium enterprises and hence needs a supporting environment. Europe has 22,500 med-tech companies with €95 billion in sales, with nearly 85 percent being SMEs.
The Indian pharma industry took off in true earnest when the Department of Pharmaceuticals was set up under the Ministry of Chemicals and Fertilisers that promoted its cause. So unless a department of medical technology is set up and the Drugs and Cosmetics Act of 1947 amended, many believe that no government agency is going to take ownership. It’s an industry that uses products from pharma, biotech, electronics, IT and mechanical engineering. Two draft bills on med-tech are ready to be placed before Parliament but nobody knows when those will move forward.
This hardly deters Velu. “Once he makes up his mind, no one can dissuade him,” says Sameer who has been with Trivitron since the start.
In September 2012, in a prize catch, Velu persuaded GS Bhuvaneshwar, widely known as India’s “valve man”, to not only join the board but even lead Trivitron’s innovation programme. Having spent a lifetime at Sree Chitra Tirunal Institute for Medical Sciences and Technology at Thiruvananthapuram, Bhuvaneshwar is one of the rare achievers in India who not only built heart prostheses from scratch but compelled MNCs to reduce prices. “Commercialisation of the Chitra valve showed why we need indigenous technology,” he says. At the institute, he transferred 18 medical technologies, 12 of which are in the market. At Trivitron, Bhuvaneswar will lead new product development and co-ordinate tie-ups with CMC Vellore, IIT Madras and the Chitra Institute.
The idea behind the R&D initiative is to move to yet another level—from manufacturing to developing new technologies. Of the few under development, a large-scale retinal screening technology that can screen people for diabetic retinopathy at public places is undergoing clinical trials. If all goes well, it could enter the market later this year.
Innovation for us, says Velu, is about access and affordability. That’s where, he is confident, India and China (where he spent two years as the Ciba Corning country head in 1992) will play a role. “MNCs know how to build expensive equipment; they’ll continue to do that. It’s like a poor man can become rich and be happy, but a rich man can never become poor and still be happy,” he says. Some of these global companies are facing flak from other Asian countries where prices are higher than India. Still those like GE and Philips are aggressively using their India centres to innovate.
These companies, he argues, will always cater to the high-end market whereas Indian companies can make their mark in low-to-medium segments. For instance, in ultrasound machines, while GE is number one with nearly 50 percent market share, Philips is at number two, and Trivitron comes at number three with 14 percent market share. It expects to notch up 22 percent market share when its new entry-level Doppler scanner is launched in August.
At a little over Rs 700 crore in revenue, Trivitron may be the largest Indian med-tech company but it sees itself where “Infosys and Biocon were a decade ago” in cheering their respective sectors. In 1980s, big corporates, including the Tatas, Birlas, HCL, Dr Reddy’s Laboratories and Lupin had med-tech businesses. They exited by the late 1990s as the industry had neither focus nor profits. Now they will come again, once they know it’s no longer a trading industry but a technology play, avers Velu.
India has reached the inflection point. “With government, [the growth] will be faster, without the government, it’ll be slower. But it’ll happen. Whether it’ll be the Coke-Pepsi way, [multinational dominated], or through the domestic industry, remains to be seen.”