“The Biotechnology Venture Fund”
Shared by: RodneySooialo
The Biotech Investment opportunity in India Presentation by Sarath Naru APIDC Venture Capital Limited Quote: Nature Biotechnology… Fools who persist in folly can sometimes become wise. Mandate from the Organisers…. “So why are investors in the emerging markets so excited about opportunities in biotechnology?” Are they ?……… Quote: „Nature Biotechnology‟ journal One of the most important lessons to emerge is that biotechnology is a hard slog. It takes time to build all the elements- An advanced education system A requisite level of scientific excellence. A business friendly set of intellectual property laws, And an adequate regulatory infrastructure and healthcare system. Even when all this is in place, it will be much harder for lesser industrialised nations where…… R&D expenditure is less than a quarter of industrialised nations Skilled and educated labour is at a premium Intellectual turf wars stifle collaboration Political turmoil is a frequent backdrop Intellectual property protection is murky So why would anyone invest in biotechnology in developing nations ??? Sure enough Indian VC’s are not exactly rushing into this space… Early stage Pharma / life sciences investment is low Early Vs. Late stage investments in India in the last 24 months: # of deals % by # of deals Amt – USD mn % by amt Early 4 19 4.11 1% Late 17 81 430.25 99% Size of deals in the last 24 months: # of deals % by # of deals Amt – USD mn % by amt <$1 mil 3 14% 1.61 0.40% $1- $3 mil 1 5% 2.5 0.60% $3-$10 mil 8 38% 54.85 13% >$10 mil 9 43% 375.4 86% Of course, this is a common theme with early stage VC investment as well: Early Vs. Late stage investments in India in the last 24 months: # of deals % by # of deals Amt – USD mn % by amt Early 19 16% 23.14 1% Late 100 84% 2367.48 99% Size of deals in the last 24 months: # of deals % by # of deals Amt – USD mn % by amt <$1 mil 11 9% 3.94 0.20% $1- $3 mil 8 7% 19.2 0.80% $3-$10 mil 48 40% 315.28 13% >$10 mil 52 44% 2052.2 86% Against this backdrop … APIDC Venture Capital launched Indias first biotechnology focused VC fund Final closing April 2005 Fund size: = $37 million Important investors: IFC, Washington; APIDC – State govt. institution. Life Insurance Corporation- Largest insurance Corp Andhra Bank – leading bank Technology development Board- Govt. tech funding institution. Having already confessed to being a fool…a more preposterous thought: To build real market leaders in a 5 to 10 year time frame. Our Overall Strategy: To launch early stage companies addressing „potentially large markets‟ on a “market leadership track” over a “5 to 10 year time” frame. Clearly further foolishness…. Our (naïve) strategy to achieve this… Stage of Investment: Invest “primarily in early stage companies”, and in larger companies that are attempting a paradigm shift in business. Geographic focus: Invest in India related businesses anywhere that “leverage India advantages” to gain market leadership. Sectoral Focus: “Core areas” of biotechnology in: (a) health care & drug discovery, (b) food & agro processing, agriculture & dairy, and (c) environment & industrial. - “Peripheral areas” That are being spurred due to the impact of biotech (such as healthcare services, seeds distribution, food processing, waste management, etc.) Our (naïve) strategy to achieve this…….. Financial risk diversification strategy: Invest $500k to $2 million in the first round of investment of a company. This is appropriate based upon deal sizes in India. This is appropriate based upon empirical data of individual investment size relationship to Fund size. Invest in later rounds up to $5 million based on milestones. In line to provide sufficient diversification to fund in terms number of deals. This is appropriate based upon empirical data of individual investment size relationship to Fund size. Invest in 15 to 20 Companies over a 2 to 3 year time frame. Empirical data shows that about 15 to 20 companies / fund is sufficient to diversify risk. Lets take a look at how we expect to take a shot at this… Factors and lessons we considered as we build the Fund portfolio. 1. Global biotechnology VC investment trends. 2. What will be India’s biotech VC investment opportunities ? 3. India VC investment parameters versus US/Europe: 4. How are market leaders built in USA/Israel/India ? Lessons for us in India. 3. Factors and lessons to be considered as we build the Fund portfolio. Global biotechnology VC investment trends. Global 10 Year Biotech VC-Investment Trends*: Small Molecules and Medical Technologies are Hot! Small molecules drug discovery - High Interest levels remain over the decade ! Medical technologies including devices, reagents and research equipment - Increased focus. Platform technologies, particularly bio-informatics based ones - Decreased interest. *Source: 7 VC websites and www.vcdeals.com Global 10 Year Biotech VC-Investment Trends*: Small Molecules and Medical Technologies are Hot! 50% Rapid decline! 45% Continue 40% d interest Big 35% decline 30% Huge (% of total) 25% growth ! 20% 15% 10% 5% 0% Small Proteins / RNAi / Stem Diagnostics Drug Delivery Medical Platforms Services Molecules Peptides Cells / Gene Technologies Therapy 1993 1996 1999 2002 Healthcare Segments *Source: 7 VC websites and www.vcdeals.com Global 10 Year Biotech VC-Investment Trends*: Small Molecules and Medical Technologies are Hot! Initial euphoria associated with HGP, opportunities still exist in wetlab 50% and informatics Huge interest due combinations to advancement in 45% nanotech, Interest in small semiconductors molecules Shift away from 40% and bio-friendly remains internet and materials software 35% applications to customized reagents, 30% research, retailing (% of total) etc 25% 20% Interest in Marginally down Remains low due biotherapies up due to a few to small market due to more failures with GT size, but shift Shift towards 15% products but RNAi is hot towards PGx converting products injectables to oral 10% and inhalation 5% 0% Small Proteins / RNAi / Stem Diagnostics Drug Delivery Medical Platforms Services Molecules Peptides Cells / Gene Technologies Therapy 1993 1996 1999 2002 *Source: 7 VC websites and www.vcdeals.com Healthcare Segments 3. Factors and lessons to be considered as we build the Fund portfolio. What will be India‟s biotech VC investment opportunities ? 3. What will be India‟s biotech VC investment opportunities ? India biotech investment opportunities driven by its competitive advantages 1. Drug Discovery: Deep knowledge base of traditional medicine to aid in drug discovery. Large Bio diversity of plant / marine / animal to aid in drug discovery / production & nutraceuticals. 2. Clinical trials: Large drug naïve populations for rapid and low cost clinical trials. 3. Services focusing on the huge domestic market: Huge domestic markets with specific needs that can provide scale advantages to companies addressing these needs: availability of drugs, diagnostic services, healthcare delivery, health insurance, etc. 4. Contract research/ manufacture: chemistry skills, that can lead to strength in process design, contract manufacturing, laboratory drug discovery related services. 5. Orphan drug discovery & development: Low cost skilled labor with easy availability provides the ability to build contract manufacturing and services businesses; build drug discovery businesses focused on orphan drugs, etc. 6. Bioinfomatics services: strong IT skills to aid in developing IP in a number of the services areas that Indian companies are involved in. 7. Stem cell / GM crops: Enabling policies that help development in Stem cell/ banking research, GM crops, etc. India Biotech VC investment Opportunities India investment opportunities include a higher proportion of Agricultural and Industrial Biotech than US biotech. 120% APIDC-VCL Global VC 100% 97% 80% 69% Investment Focus 60% India advantages include (i) India specific traits (ii) unique microorganisms animal health (iii) 40% enabling regulatory processes India advantages include (i) tropical biological material plentiful (ii) low 20% 19% cost manufacturing 12% 3% 0% 0% Healthcare Agribio Industrial / Env India Biotech VC investment Opportunities Key areas driven by Huge local markets, bio-diversity (plant, marine); traditional data base of proven medicine, unique tissue, enabling policies, low cost Small molecules: Driven by Ayurveda / biodiversity Diagnostics: infectious disease (India-specific strains) and PGx (drug naïve / inbred tissue) Services: enabling environment for clinical trials, health insurance, retailing Other segments enjoy faster R&D and low cost India Biotech VC investment Opportunities In comparision to the US: 1.Similar scope in small molecules; 2. Significantly higher potential in diagnostics, services; 3. Significantly lower potential in medical technologies. 35% 32% 30% 29% 28% 25% 22% 22% Investment Focus 20% 15% 13% 11% 11% 10% 7% 6% 6% 6% 5% 4% 3% 2% 0% 0% Small Molecules Proteins / RNAi / Stem Diagnostics Drug Delivery Medical Platforms Services Peptides Cells / Gene Technologies Therapy APIDC-VCL VC-Average India Biotech VC investment Opportunities In comparision to the US: Reasons Ayurveda and biodiversity Few opportunities due to 35% lack of synergies 32% between disciplines (doctors and engineers) High interest levels for Enabling environment 30% 29% 28% infectious diseases for insurance, retailing (India specific strains) and low cost ops for and PGx (drug naïve custom research 25% and inbred tissue) services 22% 22% Biodiversity for Investment Focus 20% small molecule Faster related genes and development at unique phages for lower cost, but antibiotics 15% few projects Faster development at 13% lower cost, but 11% 11% few projects, 10% crowded IPR space Few paradigm 7% 6% 6% shifting 6% 5% opportunities 4% 3% 2% 0% 0% Small Molecules Proteins / RNAi / Stem Diagnostics Drug Delivery Medical Platforms Services Peptides Cells / Gene Technologies Therapy APIDC-VCL VC-Average 3. Factors and lessons to be considered as we build the Fund portfolio. India VC investment parameters versus US/Europe: US/Europe VC investment parameters : Leading overseas Early stage Biotech VC data: • Early stage investment size - $2 mil • Follow on Investments up to - $ 7 mil • % of deals receiving 1 round of Funding = 50% • Syndication of the deal more the norm. • Invest in multiple rounds over the life of the deal $1- 3 M $3.1- 5 M $5.1M+ Total No of Inv in Range 9 4 5 18 $ Inv in Range 19.52 15.83 32.57 67.92 Av Inv Size 2.17 3.96 6.51 3.77 % by $ Amt 29% 23% 48% 100% % by no of Deals 50% 22% 28% 100% India Vs. US/Europe: US/Europe VC fund Parameters India VC fund Parameters • First Round Inv. size - $2 mil • First Round Inv. size - $500k to $2 mil • Follow on Investments up to - $ 7 mil • Later rounds up to $4 mil • About 50% receive follow on • About 50% receive follow on. • Syndication of the deal more the norm.• Very little SYNDICATION • Multiple rounds in a single comp. •Total number of deals 15 to 20 deals. $.5- 2 M $2. 5 M $4+ Total No of deals 10 5 5 20 $ - Inv in Range 10 12.5 20 42.5 3. Factors and lessons to be considered as we build the Fund portfolio. How are market leaders built in USA/Israel/India ? Lessons for us in India. Some Case studies Dr. Reddy‟s - India Biocon - India Various Companies – Israel Martek - USA Invitrogen - USA Martek current market Cap: $1.33 billion Sales:$5 mil to $10 mil in 1st in 8 yrs $10 mil to $185 mil in next 4 yrs. Martek: Success Factors - Lessons Identified a product (DHA) which appeared to have a huge potential market, but small current need. POSSIBLE TO EMULATE. Invested heavily and built patented processes to produce a significantly superior product. POSSIBLE TO EMULATE, BUT NEEDS LOTS OF EARLY STAGE FUNDING. Invest in market development and collaborate with biggies (likes of GSK, nestle) Access of distribution network Sharing product development cost WILL NEED OVERSEAS COLLABORATIONS Invitrogen: Inorganic Growth Current Market Cap: $3.87 billion Sales: $ 0 mil to $9.3 mil in 1st 10 yrs. $ 9.3 mil to $1023 mil in next 5 yrs. Invitrogen Revenues 1200 1023 1000 800 778 629 649 $M 600 400 246 200 93 8 11 14 16 19 22 25 27 30 0 3 5 0 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 Invitrogen: Path to Success - Lessons Got into the reagents/kits space, addressing the needs of bio-discovery labs early on, and built a large network of customers. – EARLY ENTRY DIFFICULT BUT POSSIBLE IN NICHE AREAS. Used VC funding to reach up to IPO. Consolidated multiple niche products for the same space through acquisition (by using IPO funds).- NOT POSSIBLE TO ACQUIRE IN INDIA Added to their market network by acquiring a complementary company. NOT POSSIBLE TO ACQUIRE IN INDIA Some lessons from India….. Dr. Reddy‟s- A doable model Experienced founder Took advantage of large domestic markets to build competitive advantages Used regulations cleverly but not lulled by this „false sense of calm‟ invest largely into R&D Raise capital aggressively to invest in the Company‟s future Biocon – A doable model Entreprenurial and gritty founder Follows Sam Colella‟s maxim, the business focus of early stage companies can never be predicted Use services income to build IP in products/process. Some lessons….. Israeli Companies – An IT model But India has the pre- conditions Move to USA in about 18 months Leave R&D, operations in Israel, but the marketing and even corporate offices in USA, Founder makes room for well scarred CEO from the USA, Transition timing is important… before the previous mgmt gets too settled, and after sufficient capital is raised from VC’s both in Israel & USA Should you jump into it ? Can we pull this off…. You must….! Co-investment is an important aspect. More hands to build leadership , the better it is ! Meet us here in five years to see if the fools persistence paid off. Thank You!