MORE PRIVATE FUNDS NEEDED IN BIOTECH

SEEING biotech as the sunrise industry, the Finance Minister, has granted several sops for R&D in the sector. But analysts and experts in the field believe the expected inflow of private funds into the sector could hardly meet the demand.

A recent study by Rabo India and the Confederation of Indian Industry (CII) on financing biotech enterprises says that the total private sector investment in Indian biotechnology industry till 2002 is estimated to be around $50 million (Rs 250 crore). “The requirement at the moment is however, far more, about $200-300 million,” said Mr Alok Gupta, Associate Director and Head- Life Sciences & Biotechnology at Rabo India Finance Pvt Ltd.

The Union Budget has granted biotechnology industry status at par with information technology and also duty waivers for research and development and clinical equipment.

In the last three years, biotechnology has been emerging as one of the most talked about sectors and the expectations are high. But the funds do not seem to be coming in. “After September 2001, many emerging businesses are having a difficult time raising money. This is because first-time entrepreneurs usually lack significant personnel; resources, bank loans are usually unavailable to businesses with no financial history, and venture capitalists are finding it difficult to raise enough money in a depressed market to invest in high-risk biotechnology ventures,” the report states.

Some of the private equity firms and venture capitalists that are active in the sector are ICICI Ventures, IL&FS, Westbridge Capital, UTI Venture, Canbank Venture Capital, IFCI Venture and Chrysalis Capital. Government funding both at the state and central levels have been found wanting. Although several schemes such as R&D and biotech funds have been announced, proper disbursal of the money is yet to take place.

The future seems to be rather bleak. Small biotech ventures are expected to die a natural death in the absence of private equity funding especially in the crucial second stage. “Entrepreneurs usually start up with what they have and with `angel investors’ chipping in. But once it has been accomplished, the second round of funding becomes crucial to carry on the work. Financial institutions are not comfortable in investing at this stage as there is no clarity on product pipeline,” said an industry source.

Also, competition will emerge from pure pharma research and development companies which will try and wrest some of the pie. Says Dr V.V.L.N. Sastry, Country-head, Firstcall Equity Advisors, “Investments have traditionally gone into the manufacturing firms and are now getting into biotechnology. But with the various sops in the latest Budget for pure R&D, biotechnology companies could be affected.”

The foray of big pharma companies such as Wockhardt and Ranbaxy into biotechnology has opened up another avenue.

“Pharma companies with biotech projects have a much better chance of attracting investments purely on the back of their proven performance. Areas that Indian companies have an upper-hand is contract research, manufacturing and clinical trials in the biotechnology industry,” said Mr Gupta.

There are Indian companies who are also looking for acquisitions of small biotech venture abroad to sustain its product pipeline.

Yogesh Agrawal & Sanjoy Gupta

Editor in Chief

Biotechtrove’s Blog

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