Financing Know-Hows for Biotech Start-ups in India

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The early stage life science companies are an important engine for medical innovation and economic growth across the country. The Indian biotech industry is mainly dependent on private equity (PE) and venture capital (VC) funds. While Indian biotech has shown astounding growth, funding for the high-risk models have continued to be a challenge. In recent years, Indian start-up biotech companies have been threatened by the decline in early stage funding, as private investors move to later-stage investment strategies, due to the closed exit market and a lack of money to invest in new and risky projects. Irrespective of the business model, biotech startups require infrastructure, such as laboratories and manufacturing facilities, as well as skilled people  power, and legal and regulatory knowledge. They also will face serious challenges in ?nding early stage investment capital. To obtain financing, startups raise venture capital, partner with big pharma or rely on initial capital from angel investors or government grants.

In India, small and medium-size enterprises (SMEs) make up the bulk of the biotech industry that is either involved in basic R&D or is coupled to contract services. But there are a few important ways to close this critical funding gap and offer attractive investment opportunity for investors, given the business models of Indian biotech firms.

Early stage investing is a resource-intensive business, where every entrepreneur needs to build partnerships with local and global investors, and with corporations and government entities, hoping to gain enough runway to validate their business model, create value and become cash flow positive, before they look for additional funding.

Typically, the entrepreneurs leaving academia and wanting to start a company would have to:

Select a low-risk, high potential sector

With almost no angels, and just a handful of VC/PE firms proactive in Indian biotech, choosing an appealing area (drug discovery, vaccines, medical devices and diagnostics) becomes a priority for early stability. In the present market conditions, the funds are mostly focused on low-risk growth capital opportunities. In the post-genomic era, rational drug discovery is a major approach for discovering and designing new drugs. Academic institutes are invaluable sources of new therapeutic targets for diseases and biological assay techniques. For the early stage biotech to effectively move into the global biosimilars/ follow-on-biologics business, will have to collaborate with public institutions to leverage strengths in targeting a key therapeutic area or sub-segments.

This would attract the necessary early stage recognition for investment capital. Companies such as NovaLead, Indus Biotech, Sphaera and Incozen are involved in innovative medical research, and private investors such as Reliance, MPM Bioventures, ICICI Venture and Citigroup Venture Capital International are interested in innovative startups. The VCs in India lack the confidence to fund a startup to take its product to a next stage, and/or later license it to a big pharma company.

Become an attractive incubation target

Many pharma companies have acquired biotech companies, in the process solving the funding challenges of the early stage biotech. Similarly, in recent times, large Indian pharma companies have been taking interest incubating 4-5 years old, early stage biotech ventures. Generally, the biotech start-ups have a better track record in early stage scientific research and product development; but limited expertise in funding clinical trials, managing regulatory bodies and taking drugs to the market. Therefore, the symbiotic co-existence of Indian pharmaceutical and biotech companies would help both in attracting funds and necessary expertise from a common investor. Incubating a biotech company implies that the pharma company can add new products, product platforms and technologies, which would be more economical than to start from scratch.

Network with investors

The Association of Biotechnology Led Enterprises’ (ABLE) recent flagship networking conference, BioInvest’2010, was held in Ahmedabad, Gujrat, and mainly focused on life science companies, institutional investors and investment bankers on a common platform. Investment and partnership opportunities were explored for collaboration and growth by leaders from industry verticals (agbiotech, vaccines, and platform technologies). For example, Nadathur Holdings and Investments Pvt. Ltd. are promoters of Lifespring Ventures, which recently funded five drug discovery and development start-ups in India. SMEs that attended Bio-Asia’2011 in Hyderabad likely benefited from interactions with foreign investors. Networking during BIO International Partnering Conference in India will allow biotech companies to connect with big pharma companies, venture capitalists and bankers, and service providers from around the globe. India Innovation Fund (IIF) led by IT industry body Nasscom and ICICI Knowledge Park Trust is looking to invest in innovation-driven, early stage Indian companies focused on healthcare and IT sectors. Recently, it has invested about $0.75 million in Bangalore-based Mitra Biotech, a spin-off from MIT focused on personalized treatment of cancer, where Accel Partners and Kitven (Karnataka government-backed fund) are co-investors. Kitven has raised funding from a host of investors, including Karnataka State Industrial Investment & Development Corporation Ltd. (KSIIDC), Karnataka State Financial Corporation (KSFC), Small Industries Development Bank of India (SIDBI) and Karnataka Bio-technology & Information Technology Services (KBITS). It targets investments in IT, biotechnology, nanotechnology and other knowledge-based industries in Karnataka.

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Viren Konde

Viren Konde

Principal Consultant, iHealthcareAnalyst, Inc.