Notwithstanding the overly optimistic gro-wth projections, India?s $2.5-billion biotech industry, estimated to reach $5 billion by 2012, is still struggling to attract the interest of the private equity (PE) and venture capital (VC) community owing to its complicated business model and high-risk proposition.
Industry experts estimate that the Indian biotech industry requires an investment of over $500 million a year to keep itself afloat. The industry has come now-here close to that in the last five years, leaving a sour taste in the mouth for those who had bet big on the sector.
According to a 2009 report by Venture Intelligence, a Chennai-based company collating PE, VC and M&A data in India, over $2 billion have been invested in the healthcare and life sciences industry over the past five years. Close to 90% of the fund managers polled in the survey said that of the portfolio of new funds being raised for investment in India, at least 10% should be dedicated to healthcare and life sciences. But only a fraction of that had flown into the biotech sector.
The investor community says the biotech sector has failed to attract funds due to long gestation periods of projects, high chances of failure at trial stages, patent issues, stiff overseas competition and lack of business leadership, scalability, and proven growth potential. However, some of the numerous PE and VC players that FE spoke to, feel that not all other kinds of health care and life sciences companies find it difficult to get funded. ?Clinical research, diagnostic and medical devices, healthcare services, healthcare IT easily get funded,? says T C Meenakshisundaram, managing director, IDG Ventures, India.
?PE firms will always be open to invest in a company if they see assured returns and that is the confidence which biotech companies lack in providing,? adds Dipta Chaudhury, program manager – South Asia and Middle East, pharma and biotech practice, Frost & Sullivan.
There have a few instances of healthcare players raising funds over the last three years, but these have been too far and in between. For example, IDG Ventures invested $3 million in Chennai-based medical devices company Perfint Healthcare in December 2007, while the second round of funding will happen this year. ICICI Venture invested $24 million in Vikram Hospital, Mysore in 2008 while the $150 million Evolvence India Life Sciences Fund has invested in Bangalore-based oncology hospital HealthCare Global Enterprises and Hyderabad-based pharmaceuticals firm Gland Pharma amongst others. Spring Healthcare from Sabre Capital and IndiaVenture Advisors backed by the Piramal Group are also healthcare focused funds. But these are not the desired numbers that the industry is looking at.
?What would push PE to invest would be a better appreciation of the healthcare industry by the government in terms of industry status, greater public-private partnerships and increased regulatory focus,? says Vikram Hosangady, executive director (transaction services), KPMG. ?The government could incentivise the sector by reducing the load on companies in the first five to six years through tax holidays and reduction in custom duty,? he adds.
Recognising limitations of PE fundings, the biotech industry feels that the government should step up and fill the gap in funding, which it has failed to do so far. Says Kiran Mazumdar-Shaw, chairperson and MD, Biocon, ?PEs and VCs are used to a service model, and they are inherently risk averse. Biotech companies need to look at debt financing as well.?