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Kapil Khandelwal VC funding for Biotech Innovation in India
Kapil Khandelwal VC funding for Biotech Innovation in India
Kapil Khandelwal VC funding for Biotech Innovation in India
Kapil Khandelwal VC funding for Biotech Innovation in India
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Kapil Khandelwal VC funding for Biotech Innovation in India

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Bio Spectrum Article

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  • 1. BioSpecial A CyberMedia Publication | biospectrumasia.com | Nov 2009 | BioSpectrum |
  • 2. BioFunds BioSpecial VC funding— making a difference Biotech being an inherently risky business, many private funding agencies appear reluctant to supply cash. Here is a look at the current biotech financing scenario and the withering gaps in funding India might be a late entrant to the race but this has not stopped venture capitalists, private equity players and funding agencies being bullish about the Indian biotech industry. Over the past five years, India has been seeing a decent investment of over a billion dollar into this space both by foreign and domestic players. The Venture Intelligence survey of leading Private Equity (including Venture Capital) fund managers suggest a strong appetite adding to over $2 billion (about Rs 9,589 crore) investments that they have already made in the healthcare and life sciences (HLS) industry over the past five years. The report also goes on to mention that given the fragmented nature of both the hospitals and phar- maceuticals sectors, investors see clear potential for tapping into consolidation opportunities in partner- that among the top 10 areas of investments (across ship with growth-oriented entrepreneurs. all sectors) by VCs and PEs in India- healthcare and life sciences features in this priority list. Says Kapil Khandelwal, founder and board member at Disease Management Association of India, and former Comments Dr Jasmin Patel, MD, Fidelity Interna- vice-president of Healthcare and Life Sciences Busi- tional, “Over the past five years, at least a billion ness at Jubliant Biosys, “The investments into the dollar has been invested into pharma life sciences Indian life sciences sector ranges from $150 million space which includes traditional generic companies, to $250 million (about Rs 719 crore to Rs 1,198 crore, biopharma, diagnostics, pure biotech companies and respectively). The financing ranges from PE, debt to CRAMS.” alliance funding. On the other hand, foreign financ- ing is coming through the route of debt financing, With sectors like IT and real estate reaching a satura- PE funds, joint venture investment, drug discovery tion point, the number of VC and PE firms investing alliances, dndowments through academic medical in life sciences has also seen an upward trend. Alto- research centers and/or NIH from the US, donations/ gether, there are around 20 Indian as well as foreign social funds, other routes such as acquisition/divest- VC firms which are active in the biotech space. ments, in/out licensing are sought.” Other ways of funding also include annual development fees pay- According to Dr Patel, there are five or six types of ment, RD funding, equity, quids, milestone pay- sources of funding for young biotech and venture ments and royalties. capital companies. “The obvious one is VC funding because there’s a high risk in a highly technologically The year 2006-07 saw the maximum number of in- driven company; VCs are comfortable in investing in vestments into the life sciences space, where about such risks. In India, there are the PEs, and the growth $150-200 million (about Rs 719-1,198 crore) worth of capital players who are a subset of PE players who deals were signed, with Hyderabad-based Ocimum might not invest in a start ups, but they might invest Biosolutions getting in investments worth $20 million in the next round. The first two are more of finan- (about Rs 95 crore) and four CROs seeing the exit cially-driven investors,” he adds. He maintains that route. It has also been observed by industry experts there are the strategic investors, who could be cat- A CyberMedia Publication | biospectrumasia.com | Nov 2009 | BioSpectrum |
  • 3. BioFunds BioSpecial egorized as the ‘big pharma companies’. These com- stages while it fell in later stages. The report further panies look at finances in their balance sheet, how mentions that VC-backed human biotech companies can they mitigate their risk in the RD portfolio, and drew 16.2 percent of financing, while early stages then, take over another company. “They are a mix of drew around 9.6 percent of financing. Therapeutic and a commercially driven, financially-oriented and RD diagnostic biologics brought in the maximum amount oriented investors. Funding is also done by govern- of VC investments into the space. Vaccines is another ment and NGOs who are not financially motivated segment which has been attracting investors. but are driven more by public health or philanthropy. Their main aim is to foster biotech research by giving Deepam Mishra, CEO of i2india Ventures, says, “Early in loans and grants,” says Dr Patel. stage research driven innovation involves very high risk, but is highly rewarding. Areas in life sciences Giving the Indian overview, a Venture Intelligence survey report mentions that between 2004-08, around 40 percent of all PE investments went into the pharmaceutical sector, 24 percent into hospitals, 10 percent into CROs, and 13 percent into pure biotech in which a lot of ideas are coming out are point of care diagnostics —the simple to use tools that can be Corpus funding by an academic institution, which is a made available even in small cities and towns. Other popular phenomenon in the West, has not yet picked than that, regular areas like vaccines is an attractive up in India. “Academic institutions in the west plays area for investment.” a potential role in providing seed capital like the Ha- vard Medical School’s Harvard Partners, Cleveland He believes that from the financial investment point Clinic, Mayo Clinic, have endowments of over $6 bil- of view, many diseases are not getting enough cash lion (Rs 28,767 crore) from NIH, and industry from flow; they may be the country’s need but not good which they are successful in spinning off innovative money making propositions for private investors. Pri- enterprises. In India, universities do not have that vate money doesn’t often go for neglected diseases. capability despite the fact that some brilliant ideas and technologies are being developed there,” adds i2india Ventures is also keen at novel imaging tech- Khandelwal. nologies. Mishra says, “A lot of work is happening in this field, the whole area of biological enzymes. Hav- sector Influx of funds ing enzymes to replace the industrial use of catalysts Over the years, investor behavior towards this space which are polluting, non-degradable and at times has been moving on a whimsical route. Excitement expensive is also attractive. There is a lot of inter- to invest in this sector goes back to 2000, when the esting work going on in the area of bioseperation, sequencing of the human genome project was first biocatalysis and process chemistry.” announced. Subsequently, that saw a spurt of invest- ments in sub sectors like bioinformatics, clinical trial He further admits that although a lot of interesting development and integrated drug discovery projects. innovations are happening in cell biology and molec- Money rushed into the sector with the announce- ular chemistry, most of them are very complicated ments of product approvals and companies rushed to and difficult to understand, therefore, not too many go into IPOs. However, long gestation cycles, real- investments happen. ization that biotech was an altogether different ball game from its pharmaceutical counterpart led to in- Giving the Indian overview, a Venture Intelligence vestor sentiment dying out. survey report mentions that between 2004-08, around 40 percent of all PE investments went into Giving a global perspective, PriceWaterHouse Coo- the pharmaceutical sector, 24 percent into hospitals, pers’ report mentions that in 2008, funding was seen 10 percent into CROs, 13 percent pure biotech while to be stronger in seed/start up companies and early the remaining portion of the pie constituted sectors | BioSpectrum | Nov 2009 | biospectrumasia.com | A CyberMedia Publication
  • 4. BioFunds BioSpecial like medical devices, diagnostics and wellness. This is a stark contrast to their counterparts in the US and Europe, who have been majorly investing in Diagnostics, medical devices and the services sector life sciences. This is also because of a team which is today are posing to be lucrative sectors. Again, Ven- made up of experts who have hands-on-experience ture Intelligence conducted a poll among private eq- in biotech. Firms in the US for example have a team uity and venture capital firms during April-May 2009. which has an in depth knowledge of the industry, ac- Fund managers from over 60 firms participated in the quainted with the dynamics of the field, hence are poll. According to 87 percent of the fund managers able to channelize their investments. In India, there polled, Healthcare and Life Sciences (HLS) should are firms headed more by financial investors than constitute at least 10 percent of portfolios of new those with a scientific background. “The VC com- funds being raised for investing in India. Investors munity needs to hire a few PhDs on their rolls and chose diagnostic services, medical devices / equip- some patent attorneys. I don’t think there is any true ment, hospital chains, wellness products and services biotech VC fund in India,” says Dr Villoo Morawala- and CROs as their favourite sectors for investments Patell, CMD, Avesthagen. within the HLS industry. Other areas of interest in- clude specialized chains in areas like diabetes, or- Says Deepam Mishra, CEO of i2ventures, “In India thopedics, optics, geriatrics and psychiatric. there are very few VCs who are biologists or PhDs. Most of them are business people and bankers. In Mentions Dr Patel, “In India, the CRO businesses are the west, most of the VCs are biologists themselves. very interesting because they have the potential to They have started a company sold a company, and scale up and expand. Investors in China for instance then have become VCs. They are scientists turned invested in a lot of CRO deals, and have been suc- venture capitalists. So there, the degree of comfort cessful. Innovation companies mainly those doing while investing is higher. That’s the gap we are trying drug discovery business look lucrative but there are to fill-in in India. We bring the mix of very high tech- very few of them in India. Companies providing ser- nology understanding with PhDs at the same time we vices, more consumer based services are interesting bring in investors who are experts in finances.” in addition to pharmacy chains and path labs.” Highlighting the challenges while investing in life sci- With a nosedive drop of real estate prices, infra- ences, he says, “Technical understanding is the big- structural investments in biotech is another interest- gest challenge. The other is that the research works ing area for investments. “With the downturn, there happening in government research labs are not very has been a sharp fall in real estate prices. We shall well connected with the industry. The maturity of see return of investments in SEZs, biotech parks and technology is lower, so the validation needs to be health cities,” adds Khandelwal. done a lot more after the scientists thinks he/she has finished the project.” From a futuristic point of view, biosimilars is another area investors are cashing on. So far Biocon, Dr Red- fundinG from Government/nGos dys Labs and Lupin Pharma, are some of the promi- Apart from VCs and PEs, the Indian government nent names successful in this field. Other prominent along with a handful of NGOs play a potential role in companies who have started initiatives in the field funding biotech initiatives, especially RD initiatives includes Glenmark, Cipla and Intas Biopharmaceuti- coming out of universities. The DBT’s latest initia- cals. The latest in the news is Cipla entering into a tive—the Biotechnology Industry Partnership Program 50:50 joint venture with a Chinese company for bio- (BIPP)—could provide a fillip for research, more so, similars. The joint venture would be called Biomab. in the light of industry facing a credit squeeze fol- Cipla has said it was looking to bring out the JV’s first lowing the meltdown. product by 2010. Another initiative is The Biotechnology YES (Young Gaps in fundinG Entrepreneurs Scheme). This is an innovative compe- Barring a handful of firms which houses a dedicated tition developed to raise awareness of the commer- team for life sciences and has allocated separate cialization of bioscience ideas amongst postgraduate investments for this sector, there are may firms for / postdoctoral scientists. The program is organized whom the sector still remains in the periphery of by the University of Nottingham, Institute for Enter- their priorities. VCs have a limited understanding of prise and Innovation and Biotechnology and Biologi- life sciences due to the complexities involved. Also cal Sciences Research Council. the long drawn gestation period in a product cycle is another reason for VCs and PEs being reluctant. Nayantara Som and Jahanara Parveen A CyberMedia Publication | biospectrumasia.com | Nov 2009 | BioSpectrum |

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