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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!
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