This document discusses lessons for biotech companies in India regarding funding and partnering. It notes that while funding deals peaked in 2007 and declined in 2008, opportunities have not structurally changed. It provides tips for biotech leaders to better communicate with investors and partners. This includes understanding partner/investor preferences, balancing deal risk/reward, properly evaluating the company for fundraising, and utilizing advisory boards for expert feedback and guidance. While some opportunities remain, the sustainability of standalone mid-sized Indian biotechs is still uncertain.

1. READER’S SPECIAL
Author Profile
Funding, partnering
lessons for biotechs
Biotech leaders who want to stay in step with the trends need
to rethink how to monitor and then effectively communicate
with their investors and big pharma alliance management
community Kapil Khandelwal is a founder and board
member at Disease Management Association of
India and former vice-president of Healthcare
and Life Sciences Business at Jubilant Biosys.
He has over 20 years of industry and consulting
experience. He holds the unique distinction of
being among the elite club of Chief Information
Security Officers (CISOs) in the early-phase
drug discover in the world.
rebound in deals with a total of ap-
proximately $130 billion (about Rs
612,947 crore) have flowed from 321
deals in the first half of this year in
the US alone. However, number of
deals has lagged in India in 2009 as
compared to the trend seen in the
West. So, does this signal the begin-
ning of an end of a dream, and the
drying up of funding and partnering
Lessons to Learn deals pipeline in India?
Key trends
 A large number of companies
R
ecently, as I was interacting ing emerged during the same time were emerging in India in biotech-
with CEOs and PE leaders, as large global pharma companies nology, without the full resources to
after conducting a round table executed partnering models in Asia, take the product through to full-scale
on personalized healthcare oppor- including India, with 2007 being the development and global commer-
tunity in India, a leading CEO from peak of the partnering deals signed cialization.
a mid-sized biopharma company in India. In 2008, PEs were taken for  Investors and global pharmas
remarked that opportunities for the a surprise, when access to capital demand for evidence for continued
mid-sized companies in India for and liquidity events was brought growth and endorsement of tech-
partnering and funding innovation to a halt. nologies.
are over. As one looks at the number Biotech valuations were dras-  Labor cost arbitrage for scientific
of PE deals in India in the sector, tically reduced and firms were and clinical talent to reduce the cost
they have steadily increased from forced to inject additional capital of drug development-to-launch.
virtually nothing in 2003 to around into businesses that were seemingly  Biosimilars segment offering
30 in 2007 and reducing by half in predictable as the alliance manag- huge potential for out-partnering
2008. On the other hand, different ers of large pharma scaled down with large biotech and pharmas to
models for partnering and risk shar- their ambitions. In 2009, there is a call back molecules.
62 | BIOSPECTRUM | november 2009 | biospectrumindia.com | A Cybermedia Publication

2. READER’S SPECIAL
 Clinical biomarkers or diagnos- preparing for target valuation for adVisory board and subject
tics linked to gene expression profile IPO or acquisition. Given the cur- matter exPerts
of individual or sub-populations of rent scenario, it would be prudent Nowadays, as alliance partners and
patients is an essential feature of to keep a buffer of 20–25 percent for investors are turning the due-dili-
stratified or targeted medicine. This the delays and uncertainty, and a gence process on its head by using
type of research attracts and often is lead time of anywhere between 9–12 tools to research biotech companies
best pursued by small biotech com- months. Most importantly, it is im- in India, those same companies
panies in India. perative to research out and target in India should consider similar
 Collaborative development fi- your investors and learn about their moves. A panel of experts can
nancing (CDF), where an investor preferences and the competencies provide invaluable information to
provides capital and clinical exper- they bring to the biotech. It would an investor and similarly an expert
tise in exchange for licensing of a be wise to avoid those investors or panel can help the CEOs of the small
biotech’s pipeline. firms with competing investments and mid-sized biotech companies
 Non-profit foundations have in other Indian or foreign biotech understand where they meet, and
adopted a more investor-like ap- companies. where they fall short on alliance and
proach―early-stage funding for investor expectations. Once these
proof of concept and target valida- Partnering deal tyPes companies understand how their
tion, as well as project management Most Indian biotechs are entering partners and PE investors perceive
support, and access to their network into deals that range from low-risk them, they can then start working to
of scientific experts and research clin- models such as fee for service, mile- fill in gaps, recast messages, better
ics critical in translating discoveries stone-driven fees payment. Many explain strategy, and so forth. The
into the clinic. of them have turned away highly process could even result in chang-
The overall trends do validate that risky models such as co-develop- ing scientific and business practices,
the key drivers for funding and part- ment, co-commercialization and as expert panels can bring a fresh
nering in India have not structurally joint ventures. Newer partnering perspective to companies that aren’t
changed to witness the opportuni- models are emerging that balance realizing their full potential.
ties in biotech diminish as generally the risks and outcomes for the part-
perceived in the short-term. But the ners. Most partnering arrangements to be or not to be
most important ingredient for a have a deep impact on the biotech As the line between biotech and big
healthy funding and partnering venture financing and its terms and pharma blurs aside from mergers
deals pipeline for Indian companies sustainable future. It is time that and acquisitions and partnering,
that offer a long-term growth at a these risk-reward issues are bal- pharma companies are starting their
compelling risk-reward ratio. The anced out with the future stability own initiatives. Pfizer pledged to
Indian companies in the small and of the company. spend $50 million (about Rs 235.75
mid-size sector should better prepare crore) for a San Diego incubator;
themselves for the upturn. Here are Valuation of iP or comPany Lilly spent $560 million (about Rs
a few pointers. As new investors and larger pharma 2,640 crore) to expand its biotech
are getting more sophisticated un- operation; and Roche in late 2007
PreP-uP to these changes derstanding of the science and the announced that it would plow $255
Biotech leaders who want to stay principles of valuation based on million (about Rs 1,202 crore) into
in step with these trends need to factors such as IP, cost of clinical de- expanding its biotech research and
rethink how to monitor and then velopment, time to commercializa- development. Some of these plans
effectively communicate with their tion, size of the therapeutic segment, have been scaled back last year in
investors and big pharma alliance quality of clinical data, competitive the wake of the economic downturn.
management community. Most factors, impact on other R&D pro- The stake sale of Ranbaxy does sig-
small-and mid-sized biotechs are grams, and royalty cash flows, newer nal questions in the minds of CEOs
looking at raising capital for im- valuation models have emerged to in the small and mid-sized Indian
mediate and short-term needs reflect reality other than traditional biotechs, as a stand alone, do they
(round B or C), signing up strategic valuation approaches such as net stand a chance with sustainable
partnerships building capability present value (NPV), discounted revenue models of growth for their
base in India and their business de- cash flows (DCF), and internal rate innovation? The jury is still out
velopment capability overseas, and of return (IRR). there.
64 | BIOSPECTRUM | november 2009 | biospectrumindia.com | A Cybermedia Publication