The Biotech Sector is Beginning to Breakout in India
2016 was turbulent. While the dust is yet to settle down from the boom and bust of weak start up economy structures, the year had its positives too. Among them and particularly in business and healthcare was Bharat Biotech which became the first player globally to develop and file patent for vaccines for the epidemic outbreak of Zika virus. It has put the global biotechnology spotlight back on India. While the company has acquired a decent size, there are some impressive biotech champs today in India or shall we say the next Biocons and Wockhardts of India in the making.
The current crop of biotech businesses started in last decade or so, is turning India into an intellectual property base for innovative biotech manufacturing. The sector, still seen among the sunrise sectors in India, is third largest market in the Asia-Pacific region and make up for two per cent of the global market share. The ‘Achievements Report’ published on biotechnology sector, in January this year, by Department of Industrial Policy and Promotion and Department of Biotechnology, under the Make in India program, is aiming at $100 billion market size by 2025. For now, it is scaling up 20 per cent annually and is expected to become $11.6 billion market by year-end.
Biotech for All
Biopharma has been the biggest sub sector of the biotech sector. In fact, it contributes around 64 per cent of the total revenue followed by bioservices, bioagri, bioindustry, and bioinformatics. “Biotech can heal the world, fuel the world, and feed the world. Wherever there is life, biotech can impact. Health and wellbeing is just one of them,” says Shrikumar Suryanarayan, Co-founder and Chairman, Sea6 Energy. After quitting his job as the chief scientific advisor at Biocon, Suryanarayan was working for the Department of Biotechnology, Government of Indian and a visiting faculty at IITMadras. He teamed up with its alumni to launch biofuel company Sea6 Energy in 2010.
The company has been working on the next frontier of agriculture - sea agriculture to create large quantities of biomass for multiple applications – biggest of them being biofuel. “Nobody in the world is doing what we are doing – developing a comprehensive solution for cultivation and utilization of marine biomass. India doesn’t have enough land to generate biomass, which can be converted into biofuel and meet India’s energy and other requirements. So we looked at sea for overcoming limitations of land, irrigation water, and fertilizer requirements for growing plants,” adds Suryanarayan.
To generate biomass, the company developed cultivation technology for mass scale cultivation of seaweeds. Simultaneously, to facilitate the process of scaling up, the company also developed a variety of uses for the sea plant biomass which would be economically viable even at a smaller scale as biofuel needs very large quantities of biomass. The first of these products from sea plant biomass is a Biostimulant which can increase yield of land based agriculture by 20 per cent. The marketing and distribution of Biostimulant is done by Mahindra Agri Business - the agri-solution arm of the Mahindra Group under the brand name of Jingo in a profit sharing agreement with Sea6 Energy. Future products from the sea plant biomass include food and feed ingredients, renewable chemicals and plastics and eventually biofuel.
The sector hasn’t been of angel and venture capital investors’ interest; hence the number of deals in biotech companies from private investors is few and far between. $27.4 million raised by personalized cancer care enabler, Mitra Biotech, in August last year has been probably the biggest biotech investment in last year or so. Indian Angel Network, Tata Capital, Accel Partners, and Aarin Capital are few others backing biotech companies. The biggest chunk of investment though has been through Biotechnology Industry Research Assistance Council (BIRAC).
“The biggest challenge for biotech startups is lack of availability of timely capital. It is true that investors are looking for returns in six-seven years and hence, haven’t shown interest in biotech companies as they have high gestation period of around seven to 10 years, which can be fairly capital intensive. The aim has to be about taking the business to a venture capital investible stage,” says Sanjay Jesrani, Founder and CEO, Go North Ventures and Member, Indian Angel Network – Hyderabad chapter. Jesrani led an undisclosed round in Hyderabad-based Transcell Biologics – a stem cell banking services start-up.
A typical vaccine development cycle goes through multiple stages including discovery, pre-clinical, clinical development, manufacturing and quality control. This requires around 15 years of patient capital before seeking exits.
M Kuppusamy, founder of Hyderabad-based Tergene Biotech has developed a vaccine to combat ‘Invasive Pneumococcal Disease’ like pneumonia. In 2015, Tergene entered into a joint venture (JV) with pharmaceutical major, Aurobindo Pharma, to take care of product development cost of the vaccine.
“For vaccine industry, particularly if you are developing a new vaccine, the challenge is lack of early stage capital as investors seek returns in around three years whereas a new vaccine takes around eight years. This duration of sustenance is tough unless you have a venture partner or a joint partner” says Kuppusamy.
Globally, according to him, around one million children die of pneumonia every year and India accounts for more than one tenth of it. In 2010, when Tergene launched its vaccine project, the imported vaccines were available at around Rs 4,000 per dose and each child needed to have three-four doses. This was a limiting factor for the vaccine even as awareness about it was scanty. So it appealed perfectly as a business model to Kuppusamy to develop an indigenous vaccine which could be more affordable. According to him, the product would enter the clinical trial stage in the next three-four months and might hit the market in two years.
The JV in case of Tergene Biotech worked as it was a strategic investment, however, that may not be the case if startups choose to partner someone early on. “At an early stage, if you enter into a JV then other corporates might not back you because of conflict of their interests. In a strategic investment, if a corporate lets you to operate independently then it is fine,” adds Jesrani.
Nonetheless across biotech space, Jesrani maintains, the opportunity is vast but businesses must engage in invention harvesting as that can potentially multiply returns for investors. “Unlike online businesses and upcoming technologies like artificial or virtual technology, biotech can give very high returns that can come from invention harvesting,” states Jesrani. If biotech companies, adds Jesrani, can throw up two-three inventions and protect them via patents in five-seven years and if even one of them scales up then it can give returns anywhere between 30-200 times.
Since most of the companies started in less than a decade have their products at trial stages, they are still pre-revenue businesses. While Sea6 Energy will hit break even next year, Pandorum Technologies – a tissue engineering and regenerative medicine company, started in 2011, raised funding from Flipkart’s Sachin and Binny Bansal in early 2016. Bengaluru-based Pandorum Technologies, founded by former Ph.D. scholars Dr. Tuhin Bhowmick and Dr Arun Chandru, at Indian Institute of Science is working on developing ‘organoids’ - functional mini tissues of various body organs for pre-clinical trials to expedite the drug development process, which otherwise takes six to 12 years for a single drug at an average cost of $3-5 billion. Currently, Pandorum has developed 3D printed mini-liver tissues to discover and develop better drugs at lower costs and is now working on bio-engineered cornea in tieup with a leading eye hospital in India.
“We are planning to do beta testing with pharma companies for the mini-liver tissues and pilot human trial for cornea within the span of 2017 2018,” says Bhowmick, adding, “Since animal testing is getting banned in Europe and other countries for FMCG/ Cosmetics products testing, this lab-grown tissues generates huge opportunity.”
Coming to government support, as per the DIPP report, tax incentives were announced in last year budget including expanding the business’s turnover limit to avail the Presumptive Tax Scheme to Rs 2 crore from Rs 1 crore. Also manufacturing businesses registered on or after March 1, 2016, now have an option to be taxed at 25 per cent in addition to surcharge and cess on fulfillment of certain conditions. Further there will be deduction of 100 per cent profit for three years out of five years for start-ups incorporated between April 2016 and March 2019 and exemption of service tax on services provided by BIRAC approved incubators.
But in all this, the financial support offered during clinical trials is not available. “When the product goes for commercial manufacturing or clinical trials, there is no support. The cost of that has gone several folds high for which we need money,” says Kuppusamy.
Largely, the support from the government, at least in case of biotech, is relatively better than other sectors, however, India needs more private sector participation as the ecosystem lacks not just capital but also active mentoring and infrastructure support for its start-ups to break out in a decade’s time.
(This article was first published in the February issue of Entrepreneur Magazine. To subscribe, click here)