Angel Of Ailing Firms

Quickly. Now. That is how Ajit A. Kamath, the 36-year-old chairman and managing director of Arch Pharmalabs does things. If you ask him a question he can't answer, he picks up the phone to talk to someone who can. And if you request a document or a photo, he handles it with similar urgency.

An accounting graduate who says he always wanted to be an entrepreneur, Kamath started his first company, a financial services provider, at the age of 22, when all he could put together as capital was $100. Later, with two friends who were also financiers, he switched his attention to the opportunities offered by the Indian pharmaceutical industry. They formed Arch in 1999.

Their firm is a rising star that has been growing at 50% annually since then. Sales amounted to a modest $50 million in the latest fiscal year. But the company already employs 1,100, it is building a large R&D lab, and it is boosting its orders with new customers. Its main businesses are producing active pharmaceutical ingredients (APIs) and advanced intermediates and providing custom manufacturing services. About two-thirds of sales are to foreign customers.

Arch's formula is a simple one. It buys loss-making pharmaceutical chemical plants. It then turns them around by putting them in the hands of experienced managers. To finance Arch's first years, Kamath and his partners attracted $9 million from three key investors, including an initial $2 million from Swisstec, which is the venture capital arm of the Swiss government.

Arch operates facilities at six locations across India. Three sites were acquired, one was built by Arch, and two others are Arch's under a long-term leasing arrangement.

Kamath says his plants are "quite new." The sellers were companies that strayed into pharmaceuticals. "They had been sold on the attractiveness of the pharma business, usually by a relative who had a degree in the field," he says. For example, Vitalife Laboratories, which Arch bought in 2004, belonged to a tire manufacturer.

Owing to contractual obligations and also to avoid having to lay off workers, some plants are still being used to make bulk APIs sold to a number of generic drug manufacturers. Kamath isn't especially fond of this business because of limited growth opportunities and also because it can bring Arch in competition with potential customers. But for now, bulk generics remains a substantial business for Arch; for example, the company calls itself the world's leading producer of isoxazole penicillin side chains.

Kamath is striving to make Arch better known for its custom pharmaceutical chemical manufacturing business. "Our plan A is to have a company with no product list, no 'à la carte menu' of the things we make," he says, envisioning that bulk generics production will be phased out within two years. "We prefer to sell our competencies and the quality of our production facilities." For the near future, he expects that most customers of Arch's custom manufacturing business will be generic drug producers that require tailor-made drug intermediates or APIs.

One key manager at Arch is Anand Prabhu, head of quality assurance, who did postdoctoral work at Georgia Institute of Technology. With a career spanning 30 years as a quality auditor at GlaxoSmithKline and Abbott Laboratories, Prabhu is a key asset in convincing customers that Arch takes its quality seriously, Kamath says. "He's the biggest challenge our production team faces, but customers love him."

Earlier this year, Arch hired Ganesh Pai to head its R&D activities. Pai holds a Ph.D. from the National Chemical Laboratories in Pune, India, and did postdoctoral work at Purdue University under Chemistry Nobelist Herbert C. Brown. He later worked for more than two decades in the Indian pharmaceutical industry, most recently for a start-up company that was failing to grow. Pai's new domain will be a 40,000-sq-ft R&D facility that Arch is building in Taloja, a city near Mumbai.

Managers at companies that do business with Arch have good things to say. Christopher Bluemel, head of basic and fine chemicals at Lanxess in Mumbai, says Arch is a buyer of the German company's o-chlorotoluene. Most Indian companies prefer to take their chances on the spot market, he says, but Arch signed a one-year supply contract. "If you want to be a world player, it's better to have a secure source of raw materials," Bluemel notes.

California biotechnology firm Codexis is both a supplier and a buyer. Under a deal signed in October, Codexis licensed Arch biocatalytic technology to make an undisclosed pharmaceutical intermediate. Codexis then buys the intermediate from Arch and sells it to customers in the generic drug industry.

Kamath recalls that when he first met Alan Shaw, the British-born chief executive officer of Codexis, Shaw frowned and asked, "Arch? Why have I never heard of you?"

Kamath expects that Arch's days of remaining unknown are coming to an end. He manages European sales and says that talks with several multinational corporations are going well. He will soon be seeking $30 million from private investors to finance near-term growth. And in three years, he wants to list Arch on a stock market. For a company launched only seven years ago, that is as good as a long-term strategic plan.