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Private investors, banks keep off India’s biotech industry

PE, angel funds have stayed away due to regulatory uncertainty, high risks and long gestation periods
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First Published: Wed, Jan 02 2013. 11 07 PM IST
The Indian biotech industry, predominantly small enterprises, numbers some 150-200 units. Photo: Abhijit Bhatlekar/Mint
The Indian biotech industry, predominantly small enterprises, numbers some 150-200 units. Photo: Abhijit Bhatlekar/Mint
Mumbai: India’s biotechnology sector, once an attractive destination for private investors, has seen a sharp drop in investments in the past two years as venture capitalists, and private-equity and angel funds have stayed away due to regulatory uncertainty, high risks and long gestation periods.
In 2012, there were just four instances of infusion of private funds worth a total $24 million in biotech companies, according to VCCEdge, an investment tracker. In the preceding year, there were none. This compares with investments of $180 million in 2010.
“Economic burdens exist on a nascent industry as biotechnology industry lacks support from banks, private sectors, angel investors and venture capitalists,” according to a recent submission to the government by the Association of Biotechnology Led Enterprises (ABLE) lobby group.  
In the early years of the new millennium, there were on an average 25 deals a year worth a total $200-300 million, according to industry data.
The Indian biotech industry, predominantly small enterprises, numbers some 150-200 units. Although most start-up companies focusing on a single or a few speciality discovery technologies had earlier received their first rounds of funding from venture capitalists, corporate funding or government grants, almost all are currently facing acute funding crises as private investments have receded.
“A lack of confidence in the investor community due to uncertainty and undue delays in product approvals, (and) long gestation periods in the sector have caused a very significant drop in funding deals in the early stage companies,” said Nitin Deshmukh, chief executive officer at Kotak Private Equity, one of the few funding companies that still focuses on biotechnology. “In fact, most of these start-up companies are working on very promising technologies, which will (have) high potential in future healthcare, agriculture and industry applications.”
In its 26 December note, ABLE said, “We are not able to launch new products at regular intervals into the domestic market due to multiple regulatory bodies for approval, funding constraints in the form of lack of venture capital in the country, the capital-intensive nature of the industry and long gestation periods.”
The paper submitted to the government last week mentioned that even term loans from commercial banks have become difficult to obtain given the poor revenue.
“There is a need for financial thrust for the emerging biotech sector in the country and the government will have to play an important role in giving the required financial push to this sunrise sector, which focuses on some of the key areas such as bio-manufacturing, agri-biotechnology, bio-services and bio-fuels,” said P.M. Murali, president, ABLE.
In 2011-12 fiscal year, the industry in India was worth Rs.20,441 crore, marking a growth of 18.55%. However, gross domestic expenditure on research and development in the country is just 2.1% of the global spending, Murali said in the note.
India is facing competition from China, Singapore and Malaysia in investments by multinational companies because these countries provide better exemptions on customs and import levies, service tax, grants, and funding systems without time limits, ABLE said.
“The concept of risk and start-up funding are new for India,” ABLE said in its representation. “Angel investors and venture capitalists are reluctant to fund biotech companies, which take 7-8 years to stem out new products.”
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Adding to the woes, raising funds from the capital market is an almost impossible option for many of the start-ups as creating investor confidence in a new and futuristic sector is difficult unless a big corporate or funding agency supports the venture. ABLE has submitted two key proposals to the government, which include establishing a stock exchange for small and medium enterprises so that the start-up companies can list with some kind of sponsorship from the government and a tax incentive to big corporate firms that invest in biotech start-ups.
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First Published: Wed, Jan 02 2013. 11 07 PM IST
More Topics: biotechnology | funding | PE | VC | ABLE |
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