As India restructures pharma sector to rev up drug discovery, private equity remains scarce

Print 24 February 2016
T.V. Padma / BioWorld

HYDERABAD, India – Despite reservations private equity players might have about a sector with longer gestation periods and stringent regulations, India’s biopharmaceutical industry appears to be in an upbeat mood with new investments on the way and at least one state government announcing a land bonanza to set up biotech parks.

At the recent annual BioAsia 2016 conference, Jupally Krishna Rao, minister for industry in the southern Indian state of Telangana, said the state has acquired almost 4,000 acres of land at Mucherla Village on the outskirts of Hyderabad to build a “pharmacity” that will serve as a hub for pharma companies.

Telangana’s capital of Hyderabad is already home to India’s Genome Valley, which spans 200 acres, clusters 72 biotech companies and is expanding. Discussions are under way between Telangana and Swedish firm Ferring Pharmaceuticals Pvt. Ltd., which makes protein pieces called peptides, for 10 acres of land in Genome Valley on which to build a manufacturing and commercialization unit. Ferring on Feb. 10 also announced an initial tranche of $25 million to initiate activities, out of the total first-phase investment of around $250 million over the next five years.

Deepanwita Chattopadhyay, chairman and CEO of IKP Knowledge Park, Hyderabad, which facilitates business-driven drug research, said during the conference that around 800 Indian biotech start-ups have started operating in the past three years and 2,000 to 2,500 start-ups could be launched in the next five years.

Chattopadhyay said that plans are afoot by the Indian government to initiate an early stage equity fund for biotechnology and that she expects that at least a third of a national fund for innovation, the Bharat Innovation Fund, which was launched by Prime Minister Narendra Modi in 2014, would go to the health sector and its crucial biotech subsector.

“With a new national biotechnology strategy released by the Department of Biotechnology in December, which plans some 50 new biotechnology incubators, 50 technology development and translation centers and 150 tech transfer organizations, I am excited,” she said.

Nitin Deshmukh, CEO of Mumbai’s Kotak Private Equity Group, said there has been “good momentum” in investments in the life sciences sector. These investments have been around $4 billion in the last three years, mainly through early stage investments.

A PR PROBLEM

Despite the optimistic mood, the Indian biotech sector continues to have difficulties attracting capital. Private equity players were in the past deterred by a 2013 embargo on clinical trials by the Indian government – now lifted – while it resolved some regulation issues, as well as longer timelines for clinical trials, uncertainty in obtaining a manufacturing approval and licenses for drugs that complete clinical trials, said Deshmukh.

“The world does not see us [India] as being clear about what we want to do, whether it is in generics, patents or clinical trials,” said Annaswamy Vaidheesh, vice president for South Asia and managing director at Glaxosmithkline Pharmaceuticals Ltd. (GSK).

Anuradha Acharya, CEO of a Hyderabad-based molecular diagnostics company Mapmygenome and founder of Ocimum Bio Solutions, said venture capital firms typically look to hold on to their investments for five to six years, whereas it takes about 10 years for a biotech start-up engaged in drug discovery and development to make significant profits. It also takes a longer time for a private equity player to make an exit and “many early stage investors have taken a long time to make an exit,” added Deshmukh.

The result of this dichotomy is a paucity in private equity investors in India willing to pour money into drug discovery. So, early stage companies have to make do with grants and government funds, Vaidheesh said.

And Krishna Ella, founder of Hyderabad-based Bharat Biotech International Ltd that launched a rotavirus vaccine in 2015 and is now working on a vaccine for the Zika virus, suggested more angel investors should be brought in before a private equity firm comes into picture as one way to resolve the problem.

The reluctance of private equity players notwithstanding, the Indian biotech sector is moving forward in the area of drug discovery and shifting away from the small molecules that have dominated over the past 10 to 15 years and toward a mix of small molecules and biologics, said Subir Basak, former president of R&D at Jubilant Life Sciences in Noida, near New Delhi.

“There is a restructuring of the pharma sector to take drug discovery to safer havens,” Basak said.

While Indian biotech companies are yet to see mergers and acquisitions on the scale happening globally, companies are entering into collaborations with each other and with academics to forward their discovery efforts.

DEALS, M&A HEAT UP

“Globally there is a huge buzz about alliances, mergers and acquisitions,” said Sanjay Singh, a partner on deal advisory at global accounting firm KPMG in India.

And the “next wave of drug development will see a co-development of molecules. Through collaboration Indian companies and foreign companies can have access to each other’s early-stage drugs and infrastructure for testing,” said Sanjiv Navangul, managing director for Jansssen India.

A wide range of domestic and international companies are looking for partnerships, including multinationals like Roche AG and Pfizer Inc. Indian companies like Dr. Reddy’s Laboratories Ltd. are also looking to bundle products and treatment-related services.

Still, India faces an uphill task, especially in the wake of a slew of regulatory issues over data integrity raised by the U.S. FDA and the EMA in recent years.

But the sector is optimistic about the future: “It’s like driving on the Indian roads. There are phenomenal risks there but do you stop driving? The next generation will change that [in biotech],”said Bharat Biotech’s Ella.

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