Indegene IPO: Demystifying Complex Business

IPOs are always fascinating stories as they may sometimes act like a lottery while also giving us another company/stock to fuss over. Sometimes these IPO companies have such a unique business model that we are left scratching our heads, trying to get out of abyss.

Indegene is one such company that has brought its IPO worth Rs 1,841.76 crores. By the 2^nd day, it is already subscribed more than 5 times.

However, its business model is being perceived quite difficult to understand. So, we have made an attempt to demystify the company’s business model, elicit its competitive advantages and unravel the risk which might miss the eye of even a sophisticated investor.

So, let’s begin.

The company provides digital and tech services to life science companies. Globally, the domain of life science comprises pharmaceuticals (69%) and also medical devices (31%).

Now, for a moment, let’s imagine you are a drug development company. What are the steps involved in that?

a) First, you will need to discover a drug, which means you will perform various experiments, necessitating the extensive use of biostatistics.

b) Secondly, you will have to perform clinical trials, where you will need to manage and analyze large volumes of data.

c) Thirdly, after this, you will have to go through various regulatory approvals.

d) Fourth, post this, you need to promote your product, look at available feedback and improve on that.

e) Lastly, after all these steps, you will start large-scale production and distribute the products.

Will there be use of data analytics and artificial intelligence? Absolutely, from experiments to marketing strategy, customer response, inventory management, supply chain and distribution optimization, all activities will use AI and data analytics extensively.

Pharma companies have expertise in developing drugs and distributing them. However, hey might lack the required competency in AI (Artificial Intelligence), ML (Machine Learning) and other components of digitization used across their value chain. So, they will look to outsource this work, or will work in collaboration with a company having expertise in these activities.

Role of Indegene

This is where Indegene comes into play. Indegene has expertise in most analytics and technology services specifically in the life science domain.

a) In drug discovery phase: It helps with data management, biostatistics, patient recruitment etc

b) Regulatory Approval: It offers services ranging from product registration, regulatory writing etc

c) Sales and Marketing: Company aids in market analysis, contract management, promotion through content creation etc

d) Complaints Management: Company supports reporting process, risk management etc.

Indegene provides these services through it’s 4 segments

1) Enterprise Commercial Solutions: Cater to sales and marketing segment of pharma companies’ value chain and also use Generative AI in this process

2) Omnichannel Activation: Helps in digitizing distribution by combining offline and online distribution channels. Service may complement both sales & marketing as well as complaints management segment of pharma companies’ value chain.

3) Enterprise Medical Solutions: Cater to regulatory approvals of pharma companies’ value chain.

4) Enterprise Clinical Solutions: Helps with the drug discovery domain of pharma companies’ value chain.

You can see that it’s a niche business. After the pandemic, digital adoption has increased rapidly, which is further increasing demand for companies like Indegene.

Globally, geopolitics may have hindered goods trade, but trade in services is still booming. As a result, Indegene has a long term relationship with 20 of the biggest biopharma companies across the world.

In total, at the end of 2023, the company had 65 clients. Out of them, they earned revenue between $1mn – $10 Mn from 27 clients. While from 3 clients, they earned revenue of more than $25mn.

The company also has global operations with 6 operations hubs and 17 offices across North America, Europe, and Asia.

Competitive Advantages. With the basic idea about it’s business model, let’s try to asses how this will help company in outshining it’s rivals.

1) Expertise in complicated business creates an entry barrier for new players.

2) It has Long-term relations with clients, providing customer stickiness.

3) Use of the latest technologies helps them in staying ahead on the learning curve, which helps them in competing effectively against existing competitors. Also, it helps them in retaining clients and acquiring new customers.

4) Huge existing databases help in creating proprietary firm knowledge that can be tapped in the future to create new strategies. It also helps in assessing customer needs and providing it effectively.

Risks. There are few risks for the company but it has major risk that might be overlooked even by a sophisticated investor (Short product life cycle).

1) Product life cycle in analytics and software business is quite small. At the core is successful algorithm. However, new algorithms or upgrade in existing algorithms come at a rapid pace. This renders the previous algorithm obsolete. So, Indegene might have various competitive advantages right now, but if it is unable to bring new algorithms quickly then it’s competitive advantage period may be short-lived.

2) Diverse range of competitors: Since they provide services across the value chain, they have diverse competitors ranging from IT majors (like TCS, Wipro), Analytics firm (like IQVIA, ZS Associates). Even consultancy firms (like Mckinsey, EY) are also part of broader competitors as they also provide similar services.

This implies that Indegene needs to maintain strong relations with the existing clients, else these companies may rescind some of their business. Sometimes a company (pharma company in our case) would like to work with McKinsey as that gives strong credibility. In such a case, these competitors may not completely snatch the pie, but they may take some of the business from Indegene.

3) Not to forget that global political tides are changing, manifesting into deglobalization; this can also become a serious headwind for Indegene.