The recovery in private equity investments in the life sciences space should gladden Indian firms in the segment. According to Venture Intelligence, FY2010 saw 15 deals in this space valued at around Rs 650 crore, compared to eight deals in FY2009, amounting to just Rs 365 crore. This financial year looks promising, with a few deals in the pipeline.

However, the overall appetite for investment in life sciences companies, which have an enormous hunger for capital, continues to be tempered. One of the major reasons for this is the long pay-back period in the sector. As such, the sector is fraught with risks, with many new drugs failing to get through the development phase. The process of new drug development can take several years and can cost up to Rs 4,500 crore ($1 billion). There is little wonder then that PE firms seem to favour sectors that are either infrastructure-related or are led by domestic consumption. The recent uptick in investments in sectors like logistics and education explains this fact.

But the life sciences industry has to devise ways in which it can circumvent the drought on the capital front. The recently published Global Biotechnology Report 2010 by EY has highlighted some new models and creative approaches that companies and investors are resorting to in a tough economic environment. One of these approaches is to lower drug R&D costs. If this can be done, investors and VCs can fund innovation with smaller amounts of capital. Measures to increase the success rate in R&D as well as encourage early identification of failures have also been mooted.

The definite challenge for the life sciences industry, especially in innovation-led biotech firms, is that it has limited resources at its disposal, but has large, unmet needs. While the new models can help the industry improve its efficiency at all levels of its life cycle, the tried and tested method of partnerships between firms?notably between big pharma and biotech firms?continue to create a win-win in drug discovery and development. All these measures should help companies in the segment to meet their capital needs and succeed in a challenging economic environment.

mg.arun@expressindia.com