Kapil Khandelwal QuoteUnquote with KK www.kapilkhandelwal.com

2. 6 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
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CONTENTS
Cover Story
28Funding Drought
Despite the market showing signs of recovery post the
global downturn, innovation in biotech is stunted with investors
continuing to be tightfisted. Industry experts are concerned that the
situation might get worse if corrective steps are not taken
A Crisis in Making?
44India drives biotech innovation
The government of India has implemented
several funding initiatives to strengthen the
growth of biotech sector in the country. All these
efforts drive innovation in biotech R&D
Funding Scenario
40Interview
“Not having funds in place has
not impacted us”
— Tania Fernandez, director, Burrill & Company,
India
BioAnalysis
12Bt brinjal: Still in freezer
A special report on the status of Bt
brinjal in India
BioSpecial
48India steps closer to personalized medicine
As the knowledge of genetics
and genomics rapidly expand,
a personalized approach
to healthcare is becoming
increasingly important
6-7 BIO Content.indd 6 10/5/2010 11:05:40 AM

3. 28 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
I
n early 2000, Indian industry
soothsayers had predicted the
success story of the information
technology (IT) and telecommunica-
tion industry replicating the success
in biotechnology (BT) space. Venture
capitalists and private equity (PE)
investors had every reason to be bull-
ish about this sector, considering that
there was no dearth of ideas, coupled
with the availability of a huge skilled
talent pool. Over the past five years,
India has seen a sizeable investment
of over `4,600 crore ($1 billion) in
this area, by both foreign and domes-
tic players. The Venture Intelligence
survey of leading private equity (in-
cluding venture capital) fund man-
agers, suggests a strong appetite
amounting to over `9,200 crore (about
$2 billion) in investments that have
already been made in the healthcare
and life sciences (HLS) industry, over
the past five years.
In 2010, the tables have drastically
turned. “Investments over the past
one year have been negligible, and
today, there is no money available for
this sector, especially for early stage
funding. Even if a company gets its
first round of funding, my worry then
becomes as to whether they have the
ability to raise their second round of
funding,” adds a well-known investor,
heading a reputable funding firm.
Ironically, globally, life sciences
remains the number one segment for
investors, compared to other sectors.
Findings from the MoneyTree Report
by PricewaterhouseCoopers and the
National Venture Capital Associa-
tion (NVCA), based on the data from
Thomson Reuters, suggest that for
all industries, US venture capitalists
invested `21,620 crore ($4.7 billion)
in 681 deals during the first quarter
of 2010. Life sciences again captured
the largest share at `5890 crore ($1.3
billion) in 160 deals. (though sector
investment was down 26 percent;
and 21 percent in deals, since the last
quarter of 2009)
Biotechnology, by the nature of
the industry requires angel invest-
ments, and that is severely lacking in
the country. In India, there are only
a handful of VC/PE firms proactive
in this space, while angel investors
CoverStory
Despite the market showing
signs of recovery post the
global downturn, innovation
in biotech is stunted with
investors continuing to be
tightfisted. Industry experts
are concerned that the
situation might get worse if
corrective steps are not taken
A Crisis in Making?
Funding Drought
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4. 30 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
CoverStory
in this sector are close to zilch. Con-
sidering this situation, industry ex-
perts unanimously opine that if this
persists, there will be a time when
the concept of VC funding itself will
dwindle away. “Major venture capi-
talist firms are already looking at
the option of getting funds through
strategic alliances,” comments Dr Ni-
tin Deshmukh, CEO, Private Equity,
Kotak Private Equity Group (KPEG),
Mumbai.
Dead End In Funding
Until now, there have been mainly
PE/VC late-stage funding deals in
the life sciences sector, mostly in the
pharmaceutical, and in domestic for-
mulations which give quick returns.
Investors—both VC and PE alike—
are yet to understand the dynamics
of the sector, because such investors
typically have a finance background,
with the end motive of getting re-
turn on investment (RoIs). “In the
US and Europe, investors looking at
the life sciences sector have an in-
depth knowledge of the industry op-
erations. They spend years studying
and scrutinizing this sector; and it is
most likely that there are multiple
PhD holders in the team. In India,
you will hardly find investors with
such a profile,” says Ajit Mahadevan,
partner, Life Sciences Practice, Ernst
& Young.
Lately, there has been an aware-
ness among investors on the need to
educate themselves about the indus-
try; but there has not been any dras-
tic change in the mindset. “Investors
take it for granted that the dynamics
of the sector would be the same as the
pharmaceutical sector. Biotechnol-
ogy, on the other hand, is a complex
sector, the time lines are longer, the
risk is larger; and the expenditure is
four times that of the investment in
generics. That is when they take a
backseat,” comments Mani Iyer, man-
aging director, Iyers West Ventures
Management.
The typical structure that the fund-
ing industry follows is not amenable
for life sciences as the gestation pe-
riod and scale up time line is much
longer, and with inherent risks. “Spe-
cialist life sciences funds are still not
able to understand and work their
risk mitigation strategies; whether it
is on the pipeline, the supply chain,
the clinical trial stage, the product li-
ability or the other regulatory risks.
Thus, the time-to-fund is an issue,”
adds Kapil Khandelwal, director and
CEO, EquNev Capital, a niche in-
vestment banking and advisory serv-
ices firm.
Ideally in the past, a VC in India
would fund a start-up to take the
product/molecule up to a certain
stage, and then license it to a ma-
ture pharmaceutical company. “The
situation is tougher now, because
the funds to take a product to phase
I are unavailable. These VCs are
now being replaced by large scale
pharmaceutical companies. The
problem with a pharma company
funding a start-up, is the long time
lines involved in raising that fund,”
adds Mahadevan.
Start-up companies face investors
who are often uncomfortable with
the dual challenge associated with
new ventures and scientific/techni-
cal risks. In a market where funds
have increasingly focused on low-
risk growth capital opportunities,
it is tough for investors to consider
venture investments. “The key chal-
lenges to growth in HLS investments
are, very few investors with an ap-
preciation of the difficulties with
R&D, low-risk appetite among Indi-
an investors, besides, a paucity of ex-
perienced talent and entrepreneurs
in the sector,” says Dr Jasmin Patel,
managing director, Fidelity Growth
Partners – India.
Tania Fernandez, director, India,
Burrill & Company, gives the other
side of the story. “The biggest chal-
lenge that the industry faces, is in
recognizing what the next wave for
the Indian life sciences industry will
be. Just take a snapshot of the deals
that are being done today, or over the
past two-to-three years. They can,
with some exceptions, be character-
ized as generics, CRAMS, pharma-
ceutical and hospital deals. We will
have a fair amount of success in this
space especially generics, but where
do we go from there? So this should
The typical structure that the
funding industry follows is not
amenable for life sciences, as
the gestation period and scale
up time line is much longer;
and with inherent risks
A Crisis in Making?
Start-up companies face
investors who are often
uncomfortable with the dual
challenge associated with
new ventures and scientific/
technical risks
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5. 32 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
CoverStory
not be a question of what challenges
does the industry face, in terms of fi-
nancing, it should be a broader ques-
tion. If all the capital goes towards
these kind of deals, then what about
the large number of struggling com-
panies that are still trying to figure
out how to get the business to the
next level”.
Funds and grants provided by the
Indian government, mainly through
DBT and DST, with philanthropic
organizations like the Bill & Melinda
Gates Foundation and The Wellcome
Trust, have perhaps been the saving
grace for start-up companies. Sujay
Shetty, associate director Pharma
Life Sciences Advisory–Corporate
Finance, Pricewaterhouse Coopers,
says, “The situation is such that oth-
er than government funding, there
has been absolutely no funding avail-
able. Early stage VC funding is negli-
gible. Presently, we see no change in
the situation. Investor firms in India
mainly look at matured funding. The
nature of the sector is such that there
is no angel funding available. In ad-
dition to this, the option of licensing,
has not been explored by Indian com-
panies.”
“The last few years have seen a
compression of the funding in early
stage ventures; and the risk and in-
vestment appetite to such ventures.
The funding tap is just about opening
up. However, till such time they are
Yo-Yo (you are on your own)!” adds
Khandelwal.
Status Quo for Most
Investment Firms
Post the global downturn, mar-
kets have opened up, and companies
might have reported decent quar-
terly performances; but in terms of
funding initiatives into the sector,
there have been no groundbreaking
numbers in the past year. Dr Patel
says, “There has been a very limited
amount of investment that has gone
into traditional biotechnology compa-
nies. Only three investments come to
mind over the past year in the areas
of serums and vaccines, informatics-
driven drug discovery and genomics
applications for therapeutics.” Invest-
ments have also been made in low-
risk segments like diagnostics. Clean
technology is another growing area of
investment for investors. “Globally,
in 2007-08, the total VC funding was
around `32,200 crore ($7 billion); and
this dropped to `27,600 crore ($6 bil-
lion) in the following year. Now there
are signs of revival. Of this, biotech-
nology funding in India has been low,
with VC/PE investment, touching
a figure of `920 crore ($200 million)
and 30-40 percent of that went into
the biopharma industry,” says Ma-
hadevan. Clearly, investor confidence
in the sector has been stalled.
Presently, there are a handful of
VC/PE firms in the country looking
seriously at the life sciences sector—
Kotak Private Equity Group (KPEG),
ICICI Ventures, Nadathur Holdings,
Venture East, Barring Private Eq-
uity, Evolvence India Life Sciences
Fund, IDG Ventures India, Tata
Capital, India Value Fund, Standard
Chartered Private Equity, i2india
Ventures, to name a few. A cursory
glance will reveal that investment
has not been significant post-2008,
except for KPEG, which invested in
Bharat Serums & Vaccines (BSV) in
2009 (OrbiMed Advisors also made
an investment for an undisclosed
amount in BSV); while Tata Capital
Private Equity invested `46 crore
($10 million) in Intas Biopharmas.
There are a number of ongoing dis-
cussions, but no concrete deals for
funding have been implemented.
According to a report published joint-
ly by Yes Bank and the Confederation
of Indian Industry (CII), since 2006,
only six investments worth `96.6
crore ($21 million) have been made in
the medical device sector. Trivitron
Group’s ambitious venture of creat-
ing a technology park was financed
by ePlanet Ventures and HSBC Pri-
vate Equity, with a net investment of
`50.6 crore ($11 million) in November
2007.
KPEG is a specialist Indian pri-
vate equity firm of Kotak Mahindra
Group, focused on helping emerg-
ing corporates and mid-size enter-
prises. Today, it has three types of
funds namely, India Growth Fund I,
India Growth Fund II and Venture
Capital for Life Sciences. It has al-
located about `460 crore ($100 mil-
lion) in the life sciences sector. The
firm started investing in biotechnol-
ogy in 2000, with companies like Bio-
con, Avesthagen and Syngene in its
portfolio. Later, KPEG also consid-
ered companies specializing in global
manufacturing and services. Today,
Most attractive sectors for
investments
Diagnostic Services
Medical Devices / Equipment
Hospital Chains
Wellness Products and Services
CROs
Medical Tourism
Dental Chains
Biotechnology
Alternative Medicine Chains
Telemedicine
Vaccines
Drug Discovery and R&D
Pharmaceuticals (generics)
Source: Venture Intelligence
A Crisis in Making?
“In the US and
Europe, investors
looking at the life
sciences sector
have an in-depth
knowledge of the
industry operations. In India,
you will hardly find investors
with such a profile”
—Dr Nitin Deshmukh, CEO, Private Equity,
Kotak Private Equity Group (KPEG), Mumbai
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6. 34 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
CoverStory
its current investments include Siro
Clinpharm, Metahelix Life Sciences,
VLife Sciences, Rubicon Research
and Indus Biotech. “Our allocation
for life sciences remains the same.
We have invested in Bharat Serums
& Vaccines last year. But otherwise,
no other investments in the sector,”
adds Deshmukh.
Venture East looks at providing
venture capital funds and incubation
funds. It was instrumental in provid-
ing early stage funding for start-up
overseas companies looking at en-
tering India, Evolva Biotech being
one of them. In 2003, it was the first
company to bring out biotechnology-
focused venture capital fund. Invest-
ments include cross-border deals,
drug discovery, biodiesel and health-
care infrastructure. This apart, in
1997, Venture East instituted the
APIDC Venture Capital Fund which
looked at investments in the pharma-
ceutical space.
Bangalore-based Nadathur Hold-
ings (founded by NS Raghavan,
founder & former joint managing
director of Infosys Technologies), is
another name that has made a con-
siderable number of investments in
the life sciences sector. In 2005, to
focus on human health-related op-
portunities, the firm dedicated, from
their portfolio, a specialized domain-
specific platform in HLS. Thus far,
it has invested over `230 crore ($50
million) through this platform, into
ventures that target not only the
supply side (R&D), but also the de-
mand side (healthcare) of the value
chain. Nadathur’s portfolio ranges
from agri-biotech and drug discovery,
to healthcare services and hospitals.
In 2007, the firm funded the bio-agri
start-up, Metahelix to the tune of
`6.5 crore ($1.4 million). Kotak Ma-
hindra Private Equity Fund chipped
in with another `5 crore (about $1
million). Nadathur Holdings and Ko-
tak Mahindra also jointly invested
another tranche of `16 crore ($3.5
million) in Metahelix. Other invest-
ments for Nadathur Holdings include
Connexios Life Sciences, a drug dis-
covery company, and Abexome Bio-
sciences, a biotechnology company
specializing in the production of re-
combinant proteins, antibodies and
immunoassays. However, the number
of deals in the sector by the firm has
diminished since then.
ICICI Ventures made their invest-
ments in Arch Pharmalabs, Malladi
Drugs, Bharat Biotech, I-Ven Pharma
(Dr Reddy’s Labs), RFCL, Metropo-
lis, Perlecan, Avesthagen, Biocon,
Medicorp, Intas Pharma and Swiss
Biosciences between 2000 and 2007
—when the industry was in its ‘sun-
shine phase’ (except for Medicorp and
Intas Pharma which was made in the
1990s). Post-2007, investments have
diminished again.
“We primarily deal with very early
stage (pre-seed and seed) invest-
ments, and we see a lot of discussion,
but limited change in funding,” adds
Deepam Mishra, CEO of i2india
Ventures. The Bangalore-based firm
is now looking at roughly 50-60 per-
cent investment in healthcare, and
the rest into clean-technology. “Spe-
cific areas of interest to us include
diagnostics, medical devices, screen-
ing technologies, chronic care ap-
plications. Specific focus is to bring
game-changing low-cost products for
democratizing healthcare in India,
as current technologies are mostly
West-centric and hence available
only to the upper end of the popula-
tion,” adds Mishra.
Angel Investment
The concept of angel investment
into the sector is at an all time low.
“A biotechnology venture requires
an ecosystem, and not just an idea.
Unfortunately, that does not exist
in India, and is the reason for few
angel investors looking at this sec-
“In the US and Europe,
investors looking at the life
sciences sector have an in-
depth knowledge of the
industry operations. In India,
you will hardly find investors
with such a profile”
—Ajit Mahadevan, partner, Life Sciences
Practice, Ernst & Young
98 total Investments worth $1266 million (2005-2010)
8 PE investments worth $137 million (Jan 2009-Aug 2010)
5 VC investments worth $16 million (Jan 2009-Aug 2010)
Source: Venture Intelligence
Investment in Biotech and Pharma
A Crisis in Making?
“Specialist life
sciences funds
are still not able
to understand
and work their
risk mitigation
strategies; whether it is on the
pipeline, the supply chain, the
clinical trial stage, the product
liability or the other regulatory
risks. Thus, the time-to-fund is
an issue,”
—Kapil Khandelwal, director,
EquNev Capital Pvt Ltdl
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7. 36 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
tor,” adds Mahadevan. This is where
churning out innovation at the edu-
cational level, and having a strong
industry-academia relationship,
matters. Experts opine that the en-
vironment in the country is such that
it does not encourage innovation, as
well as angel investment. Even reg-
ulations for angel investments are
vague.
Iyer believes that apart from ideas
of entrepreneurs, initiative should
come from angel investors. “It is not
about the number of angel investors
in the sector, what will ultimately
matter, is the passion of these inves-
tors to understand the ideas, and
make investments,” adds Iyer.
A strong industry-academia collab-
oration will make a world of a differ-
ence in attracting angel investments
in India. While in the US and Europe,
where the academia has a crucial role
in the growth of the biotechnology in-
dustry, India sees both the segments
working as two watertight com-
partments. In UK for instance, the
strong nexus between industry and
academia, has created a romping suc-
cess for the industry. The biotechnol-
ogy sector has a strong record of col-
laborating with universities to exploit
the science base, and offers about
400 PhD studentships. Today, all the
stakeholders in the region—which in-
cludes the industry, the academia, the
NHS and the UK Government—have
come together in the cross exchange
of ideas, and to bring forth a condu-
cive environment for businesses to
thrive. This automatically attracts
angel investments.
Iyer gives a feasible suggestion.
“I would suggest we divide the proc-
esses in science, and have service
centers (or specialized centers), each
having its own specializations and
technical expertise, distributed all
over the country. Each center, by fo-
cusing its entire efforts on one spe-
cialization, will bring out a better
output, because it will be backed by
a strong team of highly skilled spe-
cialized experts. The investment
required will be anywhere between
`5-`10 crore (about $1-$2.2 million),
and this is where an angel investor
will come forward. A PE will never
look at projects in this investment
range. These service centers can be
interconnected to each other,” adds
Iyer. This model has its advantages
which includes a higher RoI, as they
are highly specialized. Once the
cash flow begins, these units can al-
ways spin out into an independent
company.
Overseas investment
There have been a number of over-
seas firms who have, in the past,
pitched in to make large scale invest-
ments into India; but till date, noth-
ing concrete has shown up. Burill &
Co, Fidelity International, HSBC,
Orbimed, JP Morgan Private Equity
fund, MPM Capital were all bullish
about the Indian market.
The lack of understanding of the
Indian market is cited as one of the
prime reasons. “Such firms have not
yet understood the market. They look
at less risk and quick returns, which
is not possible,” adds Shetty. In addi-
tion to this, liquidity is less in India,
AIG Investment Corporations
Acer Technology Ventures
APIDC Venture Capital
Baring Pvt Equity Partners (India)
BTS Investment Advisors
Carlyle India Advisors
CDC Capital Partners
Canbank Venture Capital Fund
Chrysalis Investment Advisors (I)
Eur India
e4e Labs
Frontline Ventures
Finish Development Fund
Netherlands Development Finance
G W Capital
Global Technology Ventures
GVFL
HSBC Private Equity Management
Henderson Global Investors
ICICI Bank TFG
Intel Asia
IDFC Asset Management
ICF Advisors
Infinity Technology Investments
Indian Direct Equity Advisors
IL&FS Investment Managers
Jumpstartup Fund Advisors
ICICI Venture Funds Management
2iCapital (India)
Small Enterprises Assistance Fund
SIDBI Venture Capital
UTI Venture Funds Management
VIEW Advisors
Westbridge Capital Partners
Asian Development Bank
The Development Bank of Singapore
Schroder Capital Partners (Asia)
Standard Chartered Bank
GIC Special Investments
TDA Capital Partners
Temasek Holdings
Walden International Investment
Vertex Management
Warburg Pincus
Courtesy: Association of Biotechnology Led
Enterprises (ABLE)
Institutional Investors, VC
Firms & Banks in BioFunding
CoverStory
A Crisis in Making?
“The situation is
such that other
than government
funding, there
has been
absolutely no
funding available. Early stage
VC funding is negligible.
Presently, we see no change in
the situation”
—Sujay Shetty, associate director Pharma
Life Sciences Advisory–Corporate Finance,
PricewaterhouseCoopers
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8. 38 | BIOSPECTRUM | OCTOBER 2010 | biospectrumindia.com | A CyberMedia Publication
The Wellcome Trust, are each con-
tributing `160 crore (£22.5 million).
The Gates Foundation, for instance,
has allocated grants to back tubercu-
losis (TB) and malaria research in
India. The Gates Foundation would
invest `4,600 crore ($10 billion) for
the development of vaccines within
the next 10 years. In addition, the
Gates Foundation would support a
couple of immunization programs,
especially in the developing coun-
tries. The funding will target R&D
of vaccines in diseases like ma-
laria, HIV, AIDS and TB. For this,
it has inked partnerships with the
UNICEF, WHO, the Global Alliance
for Vaccines and Immunisation (GAVI
alliance) besides a couple of vaccine
companies.
The Indian government is setting
up some novel schemes for helping
companies and entrepreneurs at all
stages. Also, Public Private Partner-
ship (PPP) model incubators and in-
novation centers are coming up, that
provide low-cost entry platforms for
new companies. i2India, for exam-
ple, has started Technovate India, a
government-supported innovation
center, to help support start-ups,
in their early stages. “Early-stage
investment companies like ours are
still rare. Hence, in addition to work-
ing with groups like us, aspiring en-
trepreneurs have to invest personal
funds, along with government sup-
port, to get through the first stage,”
concludes Mishra.
Nayantara Som (with inputs from
Jahanara Parveen)
and exits are difficult.
“Foreign venture funds have had
a couple of very difficult years, given
the global economic downturn. Most
have typically focused on existing
portfolio companies and ensuring
their success. Layer onto that, the
geographic distance and relatively
rich valuations seen in the Indian
market, investors have tended to
either stay at home or look at China,”
points out Dr Patel.
There have been some firms who
have made decent investments back
in 2007, MPM Capital invested `92
crore ($20 million) in Sai Advantium
Pharma; and the firm also entered
into an agreement with Reliance
Life Sciences, under which Reliance
Life invested in MPM Capital’s new-
est fund, MPM BioVentures IV. The
fund reportedly had a total corpus
of `2,990 crore ($650 million). Last
year, Manipal Acunova, the Banga-
lore-based `80 crore ($17.3 million)
clinical research firm, had raised
`30 crore ($6.5 million) from US-
based OrbiMed, a global healthcare-
dedicated investment firm, with ap-
proximately `23,000 crore ($5 billion)
in assets under management. Burill
& Co is yet to find a partner.
“We are still looking for the right
partner on the ground, in India, for
our Burrill India Healthcare Fund.
When that fund is up and running,
there will be `690-`920 crore ($150-
$200 million) that is allocated to In-
dia. Not having that fund in place,
however, has not impacted us, since
we have continued to analyze the in-
vestment opportunities that the In-
dian life sciences industry offers; and
will continue to invest in the region
from our global funds,” says Fernan-
dez.
Philanthropic Investments
A number of trust organizations
and philanthropic institutions like
The Wellcome Trust, Bill & Melinda
Gates Foundation, have been putting
in funds for research innovation and
early stage development of products.
Earlier in the year,
British Prime Minister
David Cameron, an-
nounced a `320 crore
(£45 million) partner-
ship between the UK
charity organization,
the Wellcome Trust
and the Department
of Biotechnology in
India; to support the
development of new healthcare prod-
ucts in India. The agreement builds
on the existing Wellcome Trust-DBT
Alliance—a five-year `570 crore
(£80 million)—initiative that seeks
to strengthen Indian biomedical
sciences, through a series of fellow-
ship programs. Other collaborations
announced during the trip include: a
`28.4 crore (£4 million) R&D agree-
ment between the medical research
councils of the two countries. The
Department of Biotechnology and
Sector No. of Deals Amount $M
Pharmaceutical 73 1249
Medical Devices 8 31
CRO 18 207
Biotech 22 70
Other 6 20
Source: Venture Intelligence
Sector wise break-up of investments
made since 2004
Funds and grants provided by
the Indian government, mainly
through DBT and DST, with
philanthropic organizations
like the Bill & Melinda Gates
Foundation and the Wellcome
Trust; have perhaps, been
the saving grace for start-up
companies
CoverStory
A Crisis in Making?
cover story1.indd 38 10/4/2010 4:03:48 PM