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Globalization and Health 2011, 7:9 doi:10.1186/1744-8603-7-9

Justin Chakma (justin.chakma@mrcglobal.org)

Hassan Masum (hassan.masum@mrcglobal.org)

Kumar Perampaladas (kumar.perampaladas@mrcglobal.org)

Jennifer Heys (jennifer.heys@mrcglobal.org)

Peter A Singer (peter.singer@mrcglobal.org)

ISSN 1744-8603

Article type Research

Submission date 5 February 2010

Acceptance date 20 April 2011

Publication date 20 April 2011

Article URL http://www.globalizationandhealth.com/content/7/1/9

This peer-reviewed article was published immediately upon acceptance. It can be downloaded,

printed and distributed freely for any purposes (see copyright notice below).

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© 2011 Chakma et al. ; licensee BioMed Central Ltd.

This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0),

which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Indian vaccine innovation: the case of Shantha


Justin Chakma1, Hassan Masum1, Kumar Perampaladas1, Jennifer Heys1, Peter A


1McLaughlin-Rotman Centre for Global Health, University Health Network and

University of Toronto, 101 College Street Suite 406, Toronto ON, M5G 1L7 Canada

§Corresponding author

Email addresses:

JC: justin.chakma@mrcglobal.org

HM: hassan.masum@mrcglobal.org

KP: kumar.perampaladas@mrcglobal.org

JH: jennifer.heys@mrcglobal.org

PAS: peter.singer@mrcglobal.org

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Although the World Health Organization had recommended that every child be

vaccinated for Hepatitis B by the early 1980s, large multinational pharmaceutical

companies held monopolies on the recombinant Hepatitis B vaccine. At a price as

high as USD$23 a dose, most Indians families could not afford vaccination. Shantha

Biotechnics, a pioneering Indian biotechnology company founded in 1993, saw an

unmet need domestically, and developed novel processes for manufacturing Hepatitis

B vaccine to reduce prices to less than $1/dose. Further expansion enabled low-cost

mass vaccination globally through organizations such as UNICEF. In 2009, Shantha

sold over 120 million doses of vaccines. The company was recently acquired by

Sanofi-Aventis at a valuation of USD$784 million.


The case study and grounded research method was used to illustrate how the

globalization of healthcare R&D is enabling private sector companies such as Shantha

to address access to essential medicines. Sources including interviews, literature

analysis, and on-site observations were combined to conduct a robust examination of

Shantha’s evolution as a major provider of vaccines for global health indications.


Shantha’s ability to become a significant global vaccine manufacturer and achieve

international valuation and market success appears to have been made possible by

focusing first on the local health needs of India. How Shantha achieved this balance

can be understood in terms of a framework of four guiding principles. First, Shantha

identified a therapeutic area (Hepatitis B) in which cost efficiencies could be achieved

for reaching the poor. Second, Shantha persistently sought investments and

partnerships from non-traditional and international sources including the Foreign

Ministry of Oman and Pfizer. Third, Shantha focused on innovation and quality –

investing in innovation from the outset yielded the crucial process innovation that

allowed Shantha to make an affordable vaccine. Fourth, Shantha constructed its own

cGMP facility, which established credibility for vaccine prequalification by the World

Health Organization and generated interest from large pharmaceutical companies in

its contract research services. These two sources of revenue allowed Shantha to

continue to invest in health innovation relevant to the developing world.


The Shantha case study underscores the important role the private sector can play in

global health and access to medicines. Home-grown companies in the developing

world are becoming a source of low-cost, locally relevant healthcare R&D for

therapeutics such as vaccines. Such companies may be compelled by market forces to

focus on products relevant to diseases endemic in their country. Sanofi-Aventis’

acquisition of Shantha reveals that even large pharmaceutical companies based in the

developed world have recognized the importance of meeting the health needs of the

developing world. Collectively, these processes suggest an ability to tap into private

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sector investments for global health innovation, and illustrate the globalization of

healthcare R&D to the developing world.


For many years, Western investors were attracted by the prospect of outsized returns

in the biotechnology industry. Amgen’s initial investors received returns of almost

100 fold after only 3 years [1], while Genentech’s patents generated hundreds of

millions of dollar in royalties [2].

Even as early enthusiasm for biotechnology’s potential commercial returns cooled in

the West over the past decade [3], the globalization of biotechnology spurred the

creation of a range of biotechnology companies in emerging markets. This select subset

of the developing world including China, India, Brazil and South Africa

experienced marked economic development over the last two decades, and now has

significant scientific and financial capital under the stewardship of relatively stable

political systems.

In India, an industry-led biopharma sector emerged, with large companies like

Ranbaxy in the 1970s and 1980s leveraging recognition of process rather than product

patents from the Patent Act of 1970 to rapidly expand and become internationally

known for manufacturing generic drugs [4, 5]. However, India also has dozens of

lesser known small to mid size innovative biotechnology companies, most of which

have developed since 1990 [6, 7]. These companies have grown to play a pivotal role

in ensuring access to medicines globally by serving as a low-cost source of global

health innovation, particularly in the vaccine arena.

In this article, we describe and analyze the history and lessons of one of these vaccine

innovators, Shantha Biotechnics. In late 2009, in a landmark deal for the Indian

biotech industry, Shantha was acquired by the multinational giant Sanofi-Aventis

(France) at a valuation of USD$784 million [8]. Founded by Dr. K.I. Varaprasad

Reddy in 1993, Shantha was one of the first Indian biotechs to create a recombinant

product, obtaining World Health Organization (WHO) prequalification for its

Hepatitis B vaccine in 2002 [7]. Since then, the firm has grown to 750 employees and

brought 11 novel products to market. In 2009, Shantha sold over 120 million doses of

Hepatitis B vaccine to dozens of developing countries around the world, had revenues

exceeding USD$90 million [9] and maintained a sophisticated pipeline of biologics

including human monoclonal antibodies.

We begin by describing the history of Shantha’s unique evolution from a start-up to a

significant vaccine player, noting key challenges and decision points in the process

with respect to financials, corporate strategy and health impact. We then analyze the

Shantha case as a whole as an illustration of the globalization of healthcare R&D, to

draw out key lessons for scientists, entrepreneurs, and policy-makers. The goal of this

description and analysis is to accurately describe the case, and suggest observations

and lessons that may be applicable to those who wish to start, partner with, or invest

in R&D-intensive private-sector firms in emerging markets that tackle global health


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This analysis is based on multiple site visits and face to face interviews with key

members of the Shantha Biotechnics team over the past five years, as well as analysis

of secondary material. Where not specifically noted or referenced, the report is based

on these interviews.

We chose a combination of the case study and grounded research methods as the most

appropriate ones to examine complex phenomena in context [10]. Shantha Biotech

was chosen on the basis of being identified by previous studies as one of the first

innovative Indian biotechs, and one of the few to be acquired by a large foreign

pharmaceutical multinational company [8]. It was part of a set of fourteen casestudies

focused on healthcare product development and investment occurring in India

and Africa (see e.g. [11]). This particular case-study also builds on other case-studies

of biotechnology innovation in emerging markets that our research group has

published [6]. We have published a significantly abbreviated version of the case-study

in another journal [12]

Interviewees were selected based on purposive sampling. We analyzed transcripts

from semi-structured, face-to-face interviews that took place in Hyderabad with a

total of 16 Shantha representatives on four separate occasions (January 2005, 2006,

March 2008, October 2008). Interviewees included Dr. K.I. Varaprasad, Shantha’s

CFO N. Rajasekar and CSO Ashok Khar as well as Georges Hibon (a Director of

BioMerieux Alliance). These were followed by email follow-ups with Shantha and

BioMerieux executives in August-October 2009.

We also analyzed background documents on the Indian biotechnology industry from

the peer-reviewed literature and news reports; books published by biotechnology

industry and innovation academics; Indian and USPTO patents filed by Shantha,

reports and presentations from the Government of India, World Health Organization,

and World Intellectual Property Organization; institutional websites such as PATH,

NIH, International Vaccine Initiative; and firm websites of Shantha, Sanofi-Aventis

and BioMerieux. The firm was asked to fact-check the data derived from our analysis

prior to submission to ensure it was up-to-date and accurate. Analysis of transcripts

was supported by qualitative data analysis software ATLASti and NVivo. This study

was approved by the Office of Research Ethics of the University of Toronto.


The Hepatitis B Tragedy

Over 100,000 Indians die every year from Hepatitis B infection [13]. About 40

million individuals are chronically infected, and 4% of the Indian population are

carriers. As a serious liver infection, it is transmitted through exposure to infectious

blood or bodily fluids, including during childbirth. By the early 1980s, the WHO

recommended that every child be vaccinated for Hepatitis B, but inexpensive

recombinant vaccines had not been developed. Merck and GlaxoSmithKline (formerly

SmithKlineBeecham) had developed recombinant vaccines in 1986, and they held a

monopoly with over 90 other patents covering manufacturing processes such as

isolation and purification [14]. In the late 1980s, prices were as high as USD$23 a

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dose. Plasma-derived vaccines had been produced in India since 1981, but concerns

arose around the capacity to produce large quantities of plasma-derived vaccines, and

about their safety since they are derived from human blood [14]. With most Indian

families living on USD $1 a day with multiple children and three doses required per

child, vaccination was simply unaffordable [15].

An Engineer with a Cause

Dr. K.I. Varaprasad Reddy reported that he discovered the extent of the issue when he

attended a WHO conference in 1992, and learned that what was needed was an

inexpensive generic biotech vaccine. He felt that the vaccine would have to be

produced in-country rather than imported. The Indian biotech industry at that time

was focused on generic pharmaceutical products, and was not yet involved in

innovative biotechnology [4]. Recombinant technology did not exist within the

country [6]. When Dr. Varaprasad approached a Western firm for a technology

transfer he was told that, essentially, “India cannot afford such high technology

vaccines. India does not require vaccines. And even if you can afford to buy the

technology, your scientists cannot understand recombinant technology in the least.”

Despite being trained as an electrical engineer with no biotech R&D experience and

just an MBA, Dr. Varaprasad was motivated by this challenge and felt that the science

was something he could delegate to an experienced team of scientists.

Building the Dream

With an idea in mind and strong convictions, Dr. Varaprasad began to seek capital for

this new venture. Although he visited every major Indian bank, they were unwilling to

fund early-stage start-ups with no revenue, and had little understanding of the biotech

industry at large. But Varaprasad persisted, and raised $1.2 M USD by selling his

father’s properties, and seeking investment from family and friends. As Dr.

Varaprasad himself had no experience in biological research, he contacted hundreds

of expatriate Indian scientists, two of whom he persuaded to join him. Shantha was

founded in 1993 with few resources, but much hope. As one of the scientists, M.K.

Sudhir, stated: “If you ask me if I would go through it again, I would have to think

twice. At that point, it was a missionary zeal. There was no precursor for this kind of

product in India.”

Shantha incubated inside Osmania University at Hyderabad, but the company was

relocated because of perceived institutional politics. By 1995, Shantha had exhausted

its initial investment and was on the verge of bankruptcy. Dr. Varaprasad fortunately

found an unexpected ally in the Foreign Minister of the Sultanate of Oman, H. E.

Yusuf Bin Alawi Abdullah, who wanted an affordable vaccine for his own citizenry.

Oman injected $1.2 million USD in equity for a 50% stake in the firm, which allowed

Shantha to move into a new facility at the Centre for Cellular and Molecular Biology

in Hyderabad. This investment carried them forward to 1997 [See Table 1].

A Process Innovation

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After four years of supporting his scientists, Dr. Varaprasad’s patience paid off. In

1997, Shanvac-B, India’s first home-grown recombinant product, launched at a price

of about USD $1 a dose. The vaccine was produced in Pichia pastoris, a yeast system

different from that used by the original inventors of the vaccine. Although at the time

Pichia pastoris was being used for research purposes, Dr. Varaprasad was told by the

manufacturers of the expression system that Shantha was the first company to use

Pichia pastoris to produce a commercial product [16]. Its Shanvac-B process

innovation earned them two process patents, a beneficiary of India’s preferential

treatment of process patents over product patents in its Patent Act of 1970 [17].

According to Dr. K. V. Sudhir, one of the pioneering scientists, “in hindsight… [it]

was a major factor in us being so successful” because it led to better yields and more

efficient purification compared to even multinational processes [16].

From Lab to Village

According to the annual reports of Shantha, analysts projected first year sales of only

$100 000 USD given Shanvac-B’s low price, but actual sales in 1997 exceeded $1.6

million USD. Shanvac-B was launched at around USD $1 per dose because, in Dr.

Varaprasad’s words “…my gut feeling [was], unless it is made for one dollar, nobody

can afford this.” But it was not a charitable act - net profit margins were reported to be

around 20% [18].

Initial sales were financed almost entirely by the private-sector as the public health

agencies in India did not have a mandated vaccine schedule yet, and most healthcare

services were (and continue to be) provided by private healthcare. The price was a

fraction of that charged by the competition [19], based on Dr. Varaprasad’s desire to

make the vaccine affordable to Indian citizens rather than charging what the market

would bear. Consumption of vaccine increased from a few hundred thousand doses in

early 1990s to over 30 million doses in November 2008 with increasing involvement

of donor and public health agencies [20]. Prices in the Indian market reportedly

dropped from about $15 to as low as $0.23 USD [6, 14].

Revenues exceeding $90 million USD in 2009 have validated Shantha’s high-volume,

low-margin strategy [21]. This rapid success was partly due to mentorship from a

large multinational pharmaceutical for developing good manufacturing practices and

regulatory acumen. Pfizer (New York, NY) was impressed enough with the quality

that it agreed to co-market Shantha’s Hepatitis B vaccine under the HepaShield brand

in India in 2002 [6]. In 2000, Morgan Stanley and the State Bank of India Mutual

Fund invested USD $10 million in a private round of equity raising to build

manufacturing facilities.

A Tradition of Innovation

Shantha continued to employ process innovations for subsequent products. Its second

product, interferon alpha 2-b (Shanferon), was also produced in Pichia pastoris

reportedly marking the first time this molecule was produced commercially in yeast

rather than the traditional bacterial system [22]. Shanferon was reportedly priced at Rs

300 ($USD 6.50), which was also substantially lower than the then imported price of

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Rs 1200 ($USD 26.00) [23]. Shantha was one of the first biotechs to produce

erythropoietin in serum-free media, which quelled safety concerns regarding serum

use in manufacturing [24]. In using these new processes, Shantha’s scientists not only

had to alter the method by which they produced their product, but also the entire

purification process. Although it took additional time to develop good manufacturing

practices that adhered to ICH-WHO norms, the decision to focus on process

innovation right from the beginning led Shantha to become the first Indian company

to be prequalified by the WHO [6]. The initial investment in quality control helped

accelerate approval for its later vaccines: Shantha now has four vaccines that are

WHO pre-qualified [25]

After Hepatitis B, Shantha started development programs for interferon alpha 2-b,

vaccines for rotavirus, HPV, pneumococcal viruses and oral cholera, and set up a

subsidiary in the United States to develop monoclonal antibodies for cancer

indications [26, 27]. This was only made possible by Shantha’s commitment to invest

12-25% of its profits back into R&D every year [28] – a number higher than its

typical Indian compatriots, and an ambitious goal to keep new products coming onto

the market every one or two years. “The criterion was simply to look at products that

were relevant to India and the other developing country’s needs,” said Shantha’s CSO

Ashok Khar.

Shantha facilitated this pipeline expansion through not only home-grown efforts, but

also partnerships with the US National Institutes of Health, Bill & Melinda Gates

Foundation, John Hopkins University, and PATH [29]. By building a close

relationship with the Center for Cellular and Molecular Biology (CCMB) and other

Indian research institutes [30], Shantha has also benefited from access to local

scientists and R&D ideas for novel expression vectors. For example, it worked with

the International Center for Genetic Engineering in Biotechnology in New Delhi,

India for novel kinase inhibitors for cancer with the potential for revenue sharing.

Its focus on innovation and quality to meet WHO prequalification standards led to a

higher cost structure than its domestic competitors who did not meet these standards.

In recent years, this has limited domestic sales. However, Dr. Varaprasad believes

Shantha is able to compensate through greater access to international markets. This

focus on innovation and quality was demonstrated when a multinational competitor

ran a campaign that questioned the quality of its Hepatitis B vaccine [31]. A doubleblind

comparative study showed that Shanvac-B was equivalent or superior to the

competitor’s product on all counts – immunogenicity was found to be higher, side

effects fewer, and seroconversion was high enough that only two doses of the vaccine

were required in contrast to the three doses required by the competition [32].

Joined, but Not Beaten

The success of Shanvac-B was arguably an important step for the country’s health

technology sector. It provided a proof of concept that scientists working in India were

able to conduct advanced biotech R&D. Since then, several companies have followed

in its footsteps. There are now five Indian companies that produce the Hepatitis B

vaccine [33], and as noted by Shantha’s Executive Director Mr. Khalil Ahmed,

“Everybody and their cousin have started a biotech company in India.” The Indian

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biotech sector, which was almost non-existent in the early 1990s, is on track to

generate at least $7 billion in annual revenues by the end of 2010 [34, 35].

Marketing proved critical to maintaining competitiveness. Shantha has a sales force of

175 people that market drugs directly to doctors using conferences and seminars to

reduce mark-ups through distributors that were said to reach up to 200% by the time

the product reaches the public. Although Shantha conducted vaccination and

education camps to increase public awareness with regards to the importance of being

vaccinated, Shantha’s Executive Director Khalil Ahmed observed that Indian doctors

felt that this is the “dirtiest thing companies could do, by selling cheaply to endusers.”

Given the respect that doctors command in India, Shantha executives felt

having their support was critical. Marketing to physicians allowed Shantha to

distinguish itself from the counterfeits and justify its premium. This was reflected by

Pfizer’s decision to purchase and sell Shanvac-B as a branded generic by leveraging

doubts and concerns among Indians about counterfeit or low-quality drugs [6, 36].

As Shantha’s reputation has grown, several emerging markets have engaged Shantha

in R&D and clinical collaborations for recombinant vaccines. The International

Vaccine Institute (South Korea) asked Shantha for help conducting clinical trials in

Kolkata and co-developing its own new-generation oral cholera vaccine [37]. Despite

recommendations from the WHO for use of these new vaccines in 2001, only

Vietnam was locally producing oral cholera vaccines [38]. However, an analysis of

this vaccine showed that for it to comply with WHO guidelines, the vaccine needed to

be reformulated and its production technology modified. The one internationally

licensed cholera vaccine, Dukoral produced by Crucell/SBL Vaccines, was too

expensive at $18/shot in India. Following successful reformulation in early 2009,

Shantha was selected by IVI to manufacture this new vaccine, and the price has since

reportedly dropped to $2/shot [39]. Similarly, Shantha has partnered with Pediatric

Dengue Vaccine Initiative (South Korea) to run a Phase I clinical trial for its dengue

vaccine [40].

The French Attraction

Shantha’s success led to international attention in 2006 when Merieux-Alliance

(France) acquired a 60% stake in Shantha after the Omani investors sought an exit

[41]. However, Dr. Varaprasad stated that he had no intention of ending up as a

“glorified employee of a multinational company.” Shantha insisted on maintaining its

focus on providing affordable vaccines to the poor, and being able to retain its Indian

characteristics such as the company name, management, and philosophies. The

transition led to Shantha sharpening its focus on vaccines. Its monoclonal antibody

development program wound down, and Shantha moved away from performing

contract research services. Dr. Varaprasad warns fellow entrepreneurs in emerging

markets to be aware of these challenges in striking a balance between health impact

and firm value. He admitted that the transition led him to think about retiring,

although he does concede that Merieux is focused on the welfare of Indians. “They

don’t want to take risks like an entrepreneur does.”

The acquisition helped Shantha to further build its reputation internationally and open

new markets. Almost 60% of Shantha’s revenues came from exports at the time

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because the Indian Government had not added the Hepatitis B vaccine to its national

immunization schedule. In 2009, the firm was awarded a USD$340 million UNICEF

contract for pentavalent vaccines through 2010-2012, and in parallel, India adopted

the vaccines for its immunization schedule at the recommendation of the WHO [42].

This access to international markets proved useful again in 2009 when rumors

emerged that GlaxoSmithKline and other multinationals were interested in bidding on

Shantha [43]. These rumors culminated in an announcement on July 27th, 2009 that

Sanofi-Aventis had acquired a controlling stake in Shantha at a valuation of $784

million USD.


Our analysis based on interviews and the existing body of published secondary

literature finds that Shantha’s commitment to local health problems helped it to

achieve its financial success. The late C.K. Prahalad identified the existence of a

significant market among the lower-income populations of the world – the so-called

“bottom of the pyramid” [44, 45]. While the market size is certainly large, the process

of actually reaching these customers is difficult for large firms, let alone a small startup

with serious short-term financial concerns. It is a delicate balancing act between

developing affordable health solutions for the poor and increasing firm valuation.

While Shantha managed to achieve this balance—having provided affordable

vaccines both domestically and internationally, while still being financially

successful—questions remain regarding the degree to which it can continue to do so

under foreign ownership, and the road to be followed by other biotechs in emerging

markets with strong economic growth and stable political environments that wish to

emulate its successful balance.

As one of the first innovative biotechs in emerging markets to be acquired for a

significant valuation ($768 million USD) by a major pharmaceutical multinational, it

remains uncertain whether Shantha will be able to maintain its low prices and

commitment to the local health markets under foreign ownership. We outline several

lessons for how these biotech innovators in poorer but rapidly developing countries

such as India (whom we term Southern innovators in light of their traditional

geographic location) might successfully achieve this balance between local health

impact and financial returns.

First, Southern innovators should identify a therapeutic area where cost efficiencies

can be achieved for reaching the base of the pyramid, and combine this with strong

leadership skills [44, 45]. The idea that the poor are a sustainable and ideal initial

market has been a common thread in previous studies describing successful Southern

innovators, especially vaccine manufacturers including Indian Immunologicals and

the Serum Institute [4, 6, 11].

Dr. Varaprasad recognized that expensive multinational recombinant vaccines had

minimal market penetration, and had not tapped into the full potential of the vaccine.

He realized that he could leverage India’s homegrown scientists, the lower cost of

labor, process innovation, and a low-margins business strategy to exploit this

opportunity. Executing this insight ultimately depended on Dr. Varaprasad’s strong

management skills, and reflects why venture capitalists often emphasize the

importance of the management team [46]. In spite of his electrical engineering

background, Dr. Varaprasad was able to build a successful biotech. In fact, it may

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have been because Dr. Varaprasad was outside the mainstream that he was able to

attempt something truly bold; he said: “A lot of scientists need reality checks…

science is one part of the whole thing.” Ultimately, his commitment to the local health

needs, ability to build a strong R&D organization, and vision were key ingredients to

Shantha’s success.

Second, Southern innovators should persistently seek investments and partnerships

from nontraditional and international sources. Domestic early-stage financing still

remains scarce even fifteen years after Dr. Varaprasad created Shantha Biotech [6],

especially given India’s current stage of economic development, where manufacturing

and service-oriented businesses have significant potential for high return on

investment with relatively lower risk compared to pure R&D-oriented businesses.

International investors from more R&D-intensive economies may be more receptive

to investing in R&D-intensive start-ups than local investors, because such

international investors have previously committed to and experienced such

investments. This difficulty in finding financing is not entirely dissimilar to that faced

by biotech innovators during the 1970s in the United States, who often had to

bootstrap themselves from non-traditional angel and NIH financing (although these

firms had the benefit of being preceded by semiconductor start-ups that established a

critical mass of astute domestic tech investors, and liquid capital markets for such

investments). Shantha was forced to grow in parallel and compete for financing with

the nascent Indian IT industry during the 1990s, which offered much quicker returns.

Varaprasad was so passionate about solving the Hepatitis B challenge that he was

willing to sell his father’s own property. This commitment was evident to the Omani

Foreign Minister and the local universities that provided free lab space. Dr.

Varaprasad says that “We had a lot of sympathy from many institutions. ‘These

people are struggling. They want to do something on their own. No technology

transfer from any country, and they want to do it on their own. Wonderful. And if

they ask any help, let's do that.’”

Shantha embraced partnerships with not only research institutes such as the NIH, but

also potential competitors in the form of a multinational pharmaceutical for regulatory

guidance. These principles of collaboration among domestic and foreign competitors

have been embraced through the founding in 2003 of the Developing Country

Vaccine Manufacturers Network (DCVMN), whose members collectively supply over

half of UNICEF’s vaccines [47].

Third, Southern innovators should focus on innovation and quality Shantha invested

in innovation from the outset, which yielded the crucial process innovation that

allowed its Hepatitis B vaccine to succeed. By continuing to invest a significant

proportion of its profits towards R&D [7], Shantha was able to develop a new product

every one or two years - a “tick-tock” strategy similar to semiconductor manufacturer

Intel’s approach (Santa Clara, CA) [48]. This initial focus on process and quality

innovation may have delayed Shanvac-B’s launch, but it allowed Shantha to become

the first Indian firm to receive WHO prequalification, and opened the door to large

international contracts [See Table 2]. Obtaining this quality certification also allowed

Shantha to subsidize its R&D operations through contract research work for large

pharmaceutical companies. Pfizer was even willing to sell a branded generic version

of Shanvac-B (HepaShield) [6].

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This focus on quality also led Shantha to recognize that for certain types of clinical

trials, India’s regulatory expertise was insufficient to conduct them at home [49]. For

its monoclonal antibody trials for lung metastasis in melanoma, Shantha set up a San

Diego-based subsidiary (Shantha West) for a reported $9 million USD in 2000 – only

three years after the launch of Shanvac-B [50]. In silico development was conducted

in San Diego, while wet lab work was conducted in India. Southern innovators should

be realistic about capacity for home-grown manufacturing or clinical trials, and

consider if it makes business sense. Approval processes in India can be slow, which

has in the past resulted in uncertain regulatory processes [50]. Until recently India did

not have clinical data protection as mandated by the TRIPS agreement. However,

following the implementation of TRIPS, there was a significant inflow of clinical trial

outsourcing to India due to its cost advantage and genetically diverse population [51,


Fourth, Southern innovators should realize that integrated business models are still

viable in developing countries, and are arguably critical for reaching the base of the

pyramid. Before its acquisition, Shantha was a fully integrated biotech that would not

invest in any products for which it did not have internal capacity to execute on a

significant part of the project. In the developed world, a popular business model is to

become ‘virtual’, whereby biotechs outsource their clinical trials and even early-stage

work to contract research organizations (CROs) in both mature and emerging markets

[52]. Such virtual biotechs rarely develop a sales force and other downstream


This model may not make sense for firms like Shantha, because the risks of low

quality and delays in outsourcing to another domestic firm are too great. By

maintaining internal development capabilities, firms are able grow from retained

earnings generated by contract research work and other revenues, as Shantha did.

Marketing and downstream capabilities are also critical for Southern innovators to

justify the premium of their drug to potential purchasers, and to distinguish their drug

from counterfeits.

While the dataset discussed in this article is limited to a single Indian vaccine firm,

there are a few other Indian biotechs that are following a similar trajectory including

Bharat Biotech, whose rotavirus vaccine is currently in Phase III trials, Panacea

Biotech, with over half a dozen single or combination vaccines against locally

relevant diseases such as cholera, encephalitis and meningitis, and Serum Institute of

India, which is the world’s largest producer of measles and DTP vaccines [53]. Much

like how Amgen and Genentech provided a pioneering model centred on recombinant

manufacturing of known biologics for over a half-dozen biotech entrants in the United

States, Shantha’s pioneering integrated vaccine R&D model may prove applicable for

biotech firms in emerging markets over the next decade.

Further case study research on firms like Bharat Biotech, Serum Institute of India and

Panacea Biotech may prove useful to deepen the lessons generated from Shantha.

Although Bharat has yet to be acquired like Shantha, Bharat’s reported 2007/2008

revenue was only ~ $2 million USD less than Shantha’s [23]. Another limitation of

the generality of our study may be Shantha’s large domestic market in India, which

was similarly true for China and Brazil’s domestic vaccine innovators. Vaccine

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innovators in smaller countries will likely have to seek international markets sooner,

but this may still be a viable path to success, given that the majority of Shantha’s sales

occur abroad and that it faces intense competition in the local Indian market that has

lowered profit margins.


Shantha’s founder, Dr. Varaprasad, emphasizes the importance of Southern

innovation [54]:

My strong claim is in developing countries these initiatives are necessary.

Absolutely necessary. And if there was no such initiative, the Indian populace

would have remained not using the vaccine, and consumption would have

remained at 180,000 doses. Today it is possible. The government has not done

that – we have created awareness. We have conducted mass vaccination

camps, and we are giving it at 23 cents which made all people buy it from

private doctors. 100 million doses are being consumed. Awareness is there,

and the children are protected.

While initial focus on generics and contract research, as well as reduced patent

protection for drugs, has allowed the Indian biotech industry to build expertise and

capacity, without incentives and focus on innovation the industry risks falling into the

trap of focusing on low risk and profitable drugs rather than important health

challenges. As of early 2008, of the 424 home-grown Indian biopharma companies,

only 57 (<15%) held US patents [55]. Among biotech firms, this study reported a total

of 19 US patents filed from 2001 to 2010. Among these only 2 (11%) were

characterized as ‘product,’ with 9 (47%) being process patents, and seven (37%) both

‘product and process’ patents and only one (5%), a design patent [55]. With the Indian

government having adopted the WTO-TRIPS agreement that emphasizes product

patents over process patents, Indian firms will be forced to innovate as they may be

unable to afford the royalties to Western products while keeping their prices low [56].

It may become significantly more difficult for new Indian biotechs to emulate Shantha

with the higher barriers to innovation for market entry, and existence of a large

critical mass of competitors. In 2007, over 15 companies were found to be involved in

the marketing of 50 brands for 15 different vaccines in the Rs 3053 crores ($USD 745

million) vaccine market [55]. The cost advantage that India has enjoyed is also

diminishing. Home-grown innovative engines like Shantha remain critical; the

Global Alliance for Vaccination Initiative (GAVI) continues to resist requests by

countries with generic industries for supporting the transfer of patented vaccine

technology [13, 57] Varaprasad therefore believes that the Indian biotechnology

industry cannot afford to continue along the road of generics, or merely serve as an

outsourcing shop for Western biotechs.

However, these fears concerning the inability of Indian biotechs to innovate and/or

maintain domestic access may have been overstated as studies by GAVI following the

implementation of TRIPS in 2006 revealed that all five major Indian vaccine

manufacturers had novel vaccine projects for local markets [54]. Moreover,

governments maintain the option to use provisions of the Doha Declaration on TRIPS,

as well as protections within the TRIPS agreement itself to maintain access to new

priority vaccines [58]. Technology transfer is continuing to occur through initiatives

- 13 -

such as the Meningitis Vaccine Project, which oversaw the transfer of polysaccharide

conjugate technology to local manufacturers, and the Developing Country Vaccine

Manufacturers’ Network (DCVMN) [59].

GAVI financing has also ensured low pricing by guaranteeing markets for suppliers –

when it first began there was only one Haemophilus-influenzae type b (Hib)-

containing vaccine available, while there are now four available with three

manufactured in emerging markets such as India [60]. And even if prices of vaccines

increased due to the need to absorb the increasing cost of innovation, studies show

that vaccine introduction by governments often proceeds independently of moderate

price differences, and rather depends on national prioritization based on disease

burden, competing priorities, and ability to demonstrate meaningful health impact

[59]. Moreover, over 95% of drugs that are sold in India are already off-patent, so

even if product patents were to eventually raise prices of biologics, the impact would

be minimal [56]. These results suggest that the changing intellectual property

environment is unlikely to impede the ability for Indian vaccine manufacturers to

innovate, or limit access to vaccines by governments.

The globalization of healthcare R&D activities has made it possible for some parts of

the developing world to begin to innovatively solve their own health problems. The

case of Shantha Biotechnics shows that a billion dollar biotech can be built not only in

the developing world, but for the developing world. More critically, it may be an early

sign of the shift of global healthcare R&D away from rich countries to emerging

markets. A recent study found that not only do vaccine producers in emerging markets

account for over 60% of traditional childhood vaccine doses globally, they now also

account for over 20% of innovative products such as combination vaccines – and this

latter fraction appears to be growing [60]. Indeed, increasing interest in emerging

markets from multinationals, orphan drug-like legislation and innovation platforms

reveal that both global health and global wealth might be pursued in parallel [61].

Shantha’s affordable high-quality vaccines have already reached hundreds of millions

of children globally. The open question that Shantha and Varaprasad have always

struggled with is balancing the need for affordable solutions for domestic health needs

with focusing on what will increase firm valuation. Governments in the developing

world similarly struggle in finding the right balance to reward long-term domestic

health innovation, while promoting cheaper solutions for the domestic health gap. The

hope is that firm value will align with improving drug access and local health

outcomes. Finding a happy medium will be challenging for healthcare innovators in

the developing world, but Shantha has shown that it can be done.

Competing interests

PAS has received consulting funds from Merck Frosst Canada and is on the scientific

advisory board of the Bioveda II fund in China.

Authors' contribution

JC, HM and PAS contributed to the concept and design of this study. HM and JH

participated in site visits and data collection. JC, HM, KM and PAS analyzed the

findings, and participated in manuscript development. All authors have read and

- 14 -

approved the final manuscript.


This work was funded by a grant from the Bill & Melinda Gates Foundation through

the Grand Challenges in Global Health Initiative.


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Table 1 - Shantha Timeline

Year Milestone

1992 Dr. Varaprasad attends immunization conference in Geneva; Hep-B

idea forms

1993 Shantha Biotechnics is born, staff works out of Osmania University

1994 Shantha Biotechnics moves to Centre for Cellular and Molecular


1995 Oman invests $1.2 million in equity; Shantha moves into own facility

1997 Shantha’s Hepatitis B vaccine, Shanvac-B, launched (first

recombinant health product in India)

1998 Shantha sells 22 million doses of Shanvac-B this year, far

exceeding expectations

1999 Comparative study proving the high quality of Shanvac-B published

in Vaccine

2000 Morgan Stanley and State Bank of Indian Mutual Fund invest $10

million in equity

2002 Shantha introduces first bio-therapeutic product, Interferon α 2b,

onto the market

Shantha receives WHO pre-qualification for Shanvac-B

2005 Shantha introduces first combination vaccine onto market –

Shantetra (diphtheria, pertussis, tetanus, hepatitis B)

2007 Merieux Alliance picks up 60% stake in Shantha, which it later

expands to 80%

2009 Shantha wins a $340 M USD contract from UNICEF for pentavalent


Sanofi-Aventis acquires an 80% controlling stake valuing the firm at

$784 M USD

Table 2 - Shantha’s Product Pipeline (2009)

Product Description Development Stage Development Partners


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Hepatitis B (Shanvac-B) On market since 1997,

post-marketing survey in


CCMB (India)

Japanese Encephalitis


On market Green Cross Vaccine

Corporation (Korea)

Hib (ShanHib) On market Berna Biotech


Rotavirus Preclinical NIH, Bill and Melinda

Gates Foundation, PATH

Varicella Preclinical NIH

Dengue Preclinical Inviragen, CDC

HPV Preclinical NIH, NCI, John’s Hopkins


Pneumococcal R&D PATH

Meningococcal A


On market Intervax Biologics


Meningococcal C


On market Intervax Biologics


Cholera (oral) Clinical trials International Vaccine

Institute, Korea

Typhoid Clinical trials International Vaccine

Institute, Korea

Combination Vaccines


DPT On market -

Shantetra: DPT, Hep B On market -

ShanHib-DPT: Hib, DPT On market -

Shan5: DPT, Hep B, Hib On market -

DPT, Hep B, influenza Was expected on market



Monoclonal Antibodies

Lung cancer Preclinical -

Melanoma Preclinical -

Cocktail R&D -


Interferon α 2b


On market -



On market (launched





On market - discontinued -

Insulin On market Biocon

GCSF Clinical trials -


Hepatitis B On market -

Cancer (α-feto protein) On market -