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SAVE FRONTIER MEDIVILLE

It was a dream project: An integrated R&D centre, a heart museum, an animal farm, a garden of herbal plants, a training centre and a convention centre, spread over 300 acres in North Madras. The brilliant cardio-thoracic surgeon Dr K M Cherian promoted it jointly with the Tamil Nadu Industrial Development Corporation (TIDCO).

The ambitious project for medical research was conceived as an SEZ. There were great expectations on the Frontier Mediville evolving as a model research cum development project. Sadly, 15 years after it was floated as a biomedical SEZ and incurring an expenditure of Rs 100 crore, the project is in a deep financial mess.

Mounting interest leads to bankruptcy

State Bank of India and Bank of Baroda sanctioned Rs 45 crore each and funded the project from 2010 to 2012. The loans were lent at an interest of 11 per cent and to be repaid in 24 quarterly instalments over six years from 2012 to 2018.

Delays in getting various clearances and cost overruns on creating the infrastructure led to defaults on the repayment schedule. The expectations of building the infrastructure and leasing of the bioscience building and developed plots to prospective clients did not happen. The project also suffered severe damage due to the Vardah cyclone of 2016.

The banks had referred the default to the Debt Recovery Tribunal (DRT), which had ordered the company to pay Rs 120 crore, adding interest over interest. And worse, the DRT has demanded the company and its guarantors to pay Rs 151.54 crore. The famous surgeon who pioneered several concepts in cardio-thoracic surgery over the last five decades is sadly spending time with lenders and policymakers in Delhi and Tamil Nadu than in doing what he knows best: perform life-saving surgeries.

It’s not often given to an expert surgeon to get interested in fundamental research. Dr. K M Cherian is an exception. Educated and trained in state-of-the-art systems in Australia, New Zealand and the USA, he opted to work in India. For close to five decades, he has put his heart and soul in the evolution of heart care. With limited facilities, he pioneered heart surgery at the Railway Hospital in Perambur in 1975. A great institution builder, Cherian founded the Madras Medical Mission Hospital, the Pondicherry Institute of Medical Sciences, the Frontier Lifeline Hospital and the KMC Heart Foundation Chennai. He also helped set up the Cardio Vascular Centre at Parumala in Kerala.

The missing revenue source: a medical college and hospital…

Dr Cherian has performed over 40,000 heart surgeries in children and adults. These include 40 heart transplants and a few lung transplants. He has also been doing pioneering work on xenografts (a graft obtained from a member of one species and transplanted to a member of another species). Dr. Cherian’s contemporaries in healthcare enterprises like Dr P C Reddy, Dr PVA Mohandas or politically savvy promoters like N P V Ramasamy Udayar and S Jagathrakshakan who focused on the revenue model that ensured cash flows from day one. In fact, even more than the hospitals, private medical colleges proved to be the mythical cash cow, Kamadhenu. Dr. Cherian, unfortunately, did not work on seizing the opportunities of starting with a medical college and a hospital and later adding the research projects. The latter, by nature, involve long gestation and uncertain incomes.

Little incentive to spend on R&D

The tragedy is more poignant in the context of India’s poor commitment to research in healthcare. Till 1991, research efforts were confined mainly to government laboratories, defence establishments, ICAR, CSIR, ISRO… With limited production capacities, there had been little incentive to spend on R&D. The efforts were spent mostly on import substitution or reverse engineering and copycat formulations.

It was better in the case of drug research as the demand for drugs was huge. There was also the crying need to focus on research on tropical diseases. Large MNCs in the healthcare sector, concentrated in the US and Europe, were understandably not focusing on drug research for hot and humid climates like India’s. Having eradicated polio, tuberculosis and malaria decades ago, it was not the concern of the MNCs to spend money researching on solutions to these afflicting large numbers.

There is the other deterrent. The enormous costs on drug discovery and development led to very high costs of new drugs and formulations and hence unaffordable to large sections of the population. An estimate puts global investment on drug research at $ 90 billion per year supported by large pharmaceutical companies spending 12 per cent to 16 per cent of their revenues on R&D. The average cost of discovery and development for a single drug reaching the market is around $ 2 billion and the time taken more than 10 years. The processes are tough and lengthy, involving clinical evaluation plus marketing costs. The failure rate is high.

Post-2000 there has been a big step up in R&D expenditure in the Indian pharmaceutical sector and is estimated at Rs 5000 crore in 2014-15. This is still just a small fraction, less than one per cent, of global R&D spend on such research.

Pathetic efforts in drug discovery

Indian pharmaceutical companies have been content with the focus on generic drugs as also on contract manufacturing. Even after the advent of corporate hospitals, many of which have flourishing custom, there is little focus on basic research. The same is true of the thriving medical universities. Over seven decades, in spite of the flourish of the medical colleges, drug companies and corporate hospitals, there have been weak efforts in terms of drug discovery. Scientist, Dr M D Nair points to no new chemical entity discovered in India, has reached the global market yet.

This record extends to the entire healthcare needs like medical equipment, medical furniture and a vast range of medical devices like stents, hearing aids, knee valves… Relate these to the hugemarket, even currently limited to the top of the population pyramid and not factoring the massive potential at the bottom of the pyramid.

Failures galore…

The efforts made by innovative entrepreneurs like A C Muthiah of SPIC and K Raghavendra Rao of Orchid Chemicals failed due to the inability to meet competition. Even large successful manufacturers like the Piramals and Ranbaxy sold off their businesses to MNCs at high profits and quit. The early biggies, like Ciba Geigy, folded up their research establishments due to regulatory issues.

Information Technology IS FOR EXPORTS…

Over the last three decades, the Indian IT industry has been flourishing on global custom. The industry has earned a reputation for India’s rich capabilities in IT. Yet its strengths are not leveraged effectively for solving the humongous requirements of the health sector. For instance, the massive data on the types of morbidity and health problems available with the numerous hospitals will be invaluable for focused research on health issues. But it is largely for exports.

R&D needs low-cost funds…

The quick success of the Make in India initiative will depend on a robust research base supported by access to funding on modest costs. The present system lacks financing at low interest spread over the long run. Both are necessary for fundamental research. There is also the need for encouraging venture capital that should recognize that failures are a natural part of innovation, research and enterprise.

Can lease, built space and develop plots

The Frontier Mediville project deserves to be saved. Look at the rich infrastructure created: close to 350,000 square feet of a built-up area that can be leased to biotech companies and generate handsome revenues. Twenty-five acres have been developed as bio enterprise zone that could profitably be leased out to biotech, pharmaceutical, medical devices, and associated companies. Dr. Cherian points to the interest on the part of several biotech companies to lease the property.

Just a few kilometers across the border, in Andhra Pradesh, Sri City has evolved as a flourishing industrial area. With concerted efforts, there is the potential to raise regular income from leasing Mediville’s sprawling property.

TN Government offers to help…

Tamil Nadu government, which is a co-promoter of Mediville, took the initiative in addressing the Union Finance Secretary to revive the research project through reduction of interest to 5.5 per cent, a more extended gestation period and waiver of interest of Rs 40 crore. The government also suggested a one-time settlement to banks of Rs 70 crore that would be contributed equally by TIDCO and Dr. MGR Medical University. The government reported to the NCLT about its offer. Unfortunately, the banks do not seem to be willing. The state government was also interested in setting up a community hospital that will cater to the requirements of the population around the Gummidipoondi industrial belt as also to set up a medical college. Both these will help expand the revenue stream, utility and viability of the project.

A few issues require consideration:
• The massive infrastructure is available for research, training and the establishment of a medical college.
• The very considerable work done in the field of xenograft.
• The innovative research projects, which have attracted attention from international companies in Korea, Myanmar, USA and Australia for collaborative research in cardiac surgery.
• Leading banks like State Bank have been supportive of healthcare initiatives of renowned hospitals like the Cancer Hospital, Sankara Nethralaya… The Frontier Mediville project is a fit case for assistance for the pioneering and phenomenal work done by Dr. K M Cherian in the field of cardio-thoracic surgery.

In the 1970s, S Venkitaramanan, IAS, turned around SPIC by persuading banks to waive a portion of accumulated interest and funding of interest among other things. SPIC emerged among the leading profitable enterprises, which recorded many-sided expansion over the next two decades. Several public sector banks waive interest and a portion of other dues in one-time settlements that saved many medium enterprises.

Recognize the unique features of Frontier Mediville engaged in research in several new fields. With medical research at such a low level, there is the imperative to encourage it in the very few institutions that are engaged in this rare field and for this interest rates need to be low and gestation long.

In the IE special issue on Tamil Nadu Global Investors’ Meet, we had pointed to Tamil Nadu emerging as the venture capital leader of India. We have instances of Tamil Nadu’s venture capitalists funding a few hundred crores even on such private venture for space exploration. The state lacking in extensive research facilities in drug, pharmaceutical and other healthcare areas despite its credentials as a leading healthcare provider, can consider taking a larger share in the Mediville project and save it from extinction.

Private corporate sector can also pitch in with their support. Look how a business leader in the neighboring Karnataka Kiran Mazumdar Shaw, Chairperson, Biocon has collaborated with Dr Devi Shetty’s Narayana Health in Bengaluru. Most large corporates have resources available under the CSR budgets. Can a few large business houses in the south lend a helping hand to the Mediville experiment?

PEER SUPPORT CAN SAVE…

Historian and history chronicler, S Muthiah, used to lament over lack of interest on the part of the people of Chennai to have the pride and ownership of the city. There is a singular lack of broad community support for iconic projects. We feel the Mediville project is one such. In the context of poor efforts at medical research, Mediville provides the contrast: attempting research that can impact beneficially on surgical procedures.

A dozen leading corporates, commercial banks and financial institutions each can pitch in around Rs 10 crore for the quid pro quo of concessional-preferential treatment to their employees at Frontier Lifeline Hospitals. This can also possibly get them a share of the equity of the Mediville to ensure continued support either way. Have we not seen such magnanimity on the part of several corporates to spend liberally on the construction of the cricket stadium at Chepauk?

Large venture capitalists can also consider investing in the project. Several promoters of Infosys as also philanthropists like Azim Premji, the Tata Trust from outside and the family trusts of flourishing businesses of Tamil Nadu, can lend support.

We cite an instance of lack of such cooperative effort that killed an excellent opportunity for the south evolving big in the hotel industry: decades ago T T Vasu conceived of a large hotel project, the Adyar Park. Like Cherian, he got himself mired in financial difficulties. A few lakh rupees could have saved the project and triggered the growth of the hotel business by entrepreneurs of Tamil Nadu, including the family of TTK & Co. Sadly, it didn’t come and Vasu handed the company to the Goels.

Of course, Vasu and Cherian lacked financial acumen. They were also temperamentally difficult to build beneficial relationships with those who could lend support. Dr Cherian built the Madras Medical Mission and the Pondicherry Institute of Medical Sciences from scratch but lost both of these.

For Frontier Mediville there is the advantage of the Tamil Nadu government being the joint promoter plus the prospects for leveraging the strength of the project as an SEZ. How effectively Sri City across the border has attracted significant investments riding on its proximity to Chennai metro!

The funds needed do not run into hundreds of crores of rupees. It should be possible to save this iconic project. The lenders, State Bank of India and Bank of Baroda, should also help in this effort by looking at the possibility for a one-time settlement on terms suggested by TIDCO and lower interest rates for research.

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