Private investment eludes Indian biotech

The Indian biotech sector is sustaining its rampant progress, growing by over 30 per cent in each of the past four years. Revenue surpassed $2 billion for the year ending March 2007, and overall optimism was writ large at the annual gathering of the industry, Bangalore Bio 2007, as ministers announced the lofty target of breaking the $40 billion sales barrier by 2015.

Biopharmaceuticals constitute the bulk of revenues at 65 per cent, followed by the bio services sector. The next rapidly growing sector is agri-biotech, registering 50 per cent growth in the past year, when India overtook China as the largest grower of bollworm-resistant genetically modified cotton.

India’s biotech now ranks third in the Asia–Pacific region, after Australia and Japan. But the industry needs to get its act together to boost innovation, Kiran Mazumdar-Shaw, chair of Bangalore Bio and managing director of the country’s largest biotech company, Biocon, warned delegates: “India needs to replace its generics and services mindset by innovation and focus on discovery research.”

Risk aversion plagues India, too

Even as the seventh annual Bangalore Bio trumpeted its successes, experts agreed private investment in Indian biotech still remains elusive. The venture capital community in India, unlike its US counterpart, is risk averse when it comes to funding biotech start-ups, said Biocon’s Shaw. “We need VCs to back risk-ridden innovation,” she added.

For their part venture capitalists show no appetite for early stage funding and favour mid-to-late stage services companies where the revenue stream is defined and assured. The majority of the $150 million investment that went into the biotech sector in 2006-2007 went to services companies.

The federal finance minister promised that New Delhi would step in if “early stage funding really became critical”. But the investor community believes India is still far away from attracting serious venture capital funding to discovery-led research. “In the foreseeable future angel funding in biotech will have to come from government grants and loans,” said Alok Gupta, country head, life sciences and technology, of Mumbai-based Yes Bank.

“Indian biotech does not have enough success stories to attract VCs,” said Gupta, as his bank prepares to launch a $100 million fund for life sciences by the year-end after launching a $100 million agri-biotech fund in May.

Fortunately, Indian biotech has the IT industry as a role model, which after years of rendering services is now entering into product development. Gupta admits that one of the current practices in the Indian biotech industry, and also a safe bet for start-ups, is to have both services and research arms, where revenue from the former funds the latter.

Whatever the evolving model, the industry is trolling for opportunities and Bangalore remains the largest biotech cluster in the country. Of 340 biotech companies in India, 183 are located in the state of Karnataka –137 of them are in the capital, Bangalore. The city is also counting heavily on its new biotech park to incubate companies. The first phase of this park will be inaugurated in July and the next two phases, being built by the California-based Alexandria Real Estate Equities at a cost of $140 million, will be ready in two years.

A joint survey by the Association of Biotech-Led Enterprises and BioSpectrum magazine projects that by 2010, India will have 400 biotech companies, of which around 10 will be public and another 50 will be on a high growth curve.

However the sector sees itself, there were plenty of international delegates keen to do business and build partnerships. They understand that India, along with some other Asian countries, is on the innovation highway. “Biotechnology is a global industry and this is exemplified by what is happening in countries like India, China, and Cuba,” said Sir David Lane, executive director of the Institute of Molecular and Cell Biology, Singapore. Lane, better known for his discovery of the p53 cancer gene, added that the world will soon see “a reverse flow of medical discovery from the East to the West”.

International collaboration

Global partnership was indeed the flavour of the event. From the UK High Commissioner in India to the visiting Governor from Victoria in Australia, all championed research and business collaboration. “For every $27 million of investment in research, we have a spin out in the UK, whereas the comparative figure in the US is $80 million,” said Sir Michael Arthur, the UK High Commissioner in India, stressing that the UK could be India’s gateway to Europe.

Opportunities for Asian and European companies to collaborate are at an all time high. While Western companies are struggling for a better pipeline, Asian companies need access to the Western markets. “Smaller European nations lack infrastructure and service sectors, which could prove important as entry points for Asian biotech companies,” said Crispin Kirkman, managing director of Emerging Technologies Network Agency in Surrey, UK.

Some of the business models suggested by Kirkman and others include: Europe outsourcing to Asia; Asia sourcing intellectual property in Europe; the EU seeking joint ventures with Asian partners for intellectual property; European intellectual property developed in Asia for Asian markets and then taken to the West; and Asian partners accessing EU Framework Programme 7 funding through partnership with European research institutions and industry.

“The barriers remain the same for both European and Indian partners,” said Kirkman. “Lack of knowledge of the foreign market, distance, language, lack of suitable contacts, and perceived mismatch between products of each market are of the issues that concern people on both sides.”

To address this, Amsterdam-based InnoTact Consulting launched its BioPortEurope service at the conference, to provide one-stop-shop solution to help Indian life sciences companies enter the European market.