Bangalore: The top floor of Xcyton Diagnostics Ltd at Peenya industrial estate in Bangalore houses the biological safety level, or BSL-3, labs—advanced research centres where some very infectious pathogens are scrutinized. Once commissioned, the lab will aid development of diagnostics for multi-drug resistant tuberculosis.
As he gives a tour of the labs, founder and managing director B.V. Ravi Kumar relives his roller-coaster ride as an entrepreneur. The 15 years come flooding back, most of it a telling account of how difficult it was, and still is, for start-ups to raise money for developing new products, particularly in life sciences.
Roller-coaster ride: B.V. Ravi Kumar at his lab in Bangalore. Kumar set up Xcyton after pooling Rs51 lakh from friends and acquaintances, including three professors from IISc, where he got his doctoral degree. Hemant Mishra/Mint
“The government agencies then considered the private sector evil. Venture capitalists (VCs), on the other hand, were scared of product companies,” reminisces Kumar. He says one of the early VCs in Mumbai had told him that his idea of using tissue culture for growing skin for burn transplants looked convincing when he presented his business plan, but called it fiction once he returned to Bangalore.
That observation, in a sense, guided his entrepreneurial direction—from skin to advanced molecular diagnostics. By then, he had already developed the world’s first diagnostic kit for neurocysticercosis (an infection of the central nervous system), while working at Astra Research Centre India, which later morphed into AstraZeneca Plc, the British-Swedish pharmaceutical company. It later gifted the neurocysticercosis patent to Xcyton.
Pooling Rs51 lakh from 38 friends and acquaintances, including three professors from Bangalore’s Indian Institute of Science (IISc) from where Kumar got his doctoral degree after an MBBS from the Jawaharlal Institute of Postgraduate Medical Education and Research (Jipmer) in Puducherry, he set up Xcyton. In its maiden life sciences funding, the Small Industries Development Bank of India lent him Rs1 crore.
That was in 1995. A year later, he completed product testing of an HIV kit and was raring to go at some AIDS control programmes, only to realize that the bureaucracy of Nirman Bhawan in New Delhi wasn’t easy to deal with.
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“The stroke of a bureaucrat’s pen can make or break a company,” he says, recalling his relentless visits to convince officials to look at scientific data and not the age of his company or his caste. He fought for over four years with HIV and hepatitis kits in tow, even pushing reforms in the World Bank tendering process so small Indian companies wouldn’t lose out. Some legislators even raised questions in Parliament on “the injustice done to Xcyton”, Kumar said.
But ultimately it was a losing battle for an entrepreneur, especially when the signs were clear that the margins for such products would not be attractive. In 2002, Xcyton sold its product marketing rights to GlaxoSmithKline Plc, which, in turn, sold them to Thermo Fisher Scientific Inc. In 2003, disillusioned with the public health system, Kumar decided to switch to niche, critical care diagnostics.
“In the intensive care unit, nobody asks for the price (of a diagnostic test), they only want to save life,” he says matter-of-factly.
Xcyton’s struggle doesn’t surprise many entrepreneurs. “If you ask me if there’s an investment climate for this (advanced molecular diagnostics), my answer is no,” says Suri Venkatachalam, chief executive and co-founder of Connexios Life Sciences Pvt. Ltd, a drug discovery company that recently spun off a diagnostics start-up Achira Labs Pvt. Ltd.
The saga continues
Twice funded by the New Millennium Indian Technology Leadership Initiative (NMITLI) programme of the Council for Scientific and Industrial Research (CSIR), India’s largest public-funded research agency, Xcyton has novel molecular tests for brain and eye infections in the market, including one for endophthalmitis, an infection that occurs in 5% of cataract surgeries but has only been treated empirically so far. If the infection is not diagnosed and treated within 24 hours, the eye loses partial or complete vision.
Though Xcyton’s products would commonly be understood as DNA chip-based diagnostics, Kumar likes to call his technology platform a syndrome evaluation system, or SES. In ophthalmology, he is commercializing an SES that combines 14 different PCRs, or polymerase chain reactions—a type of DNA amplification, with tests developed by several hospitals and research centres, including Sankara Nethralaya in Chennai, LV Prasad Eye Institute in Hyderabad, and RP Centre for Ophthalmic Sciences at the All India Institute of Medical Sciences (AIIMS) in New Delhi.
Similarly, SES’ therapy for acute encephalitis and septicemia (a deadly condition in which infection from any part of the body gets into the blood stream) along with antibiotic resistance tests and a few other diagnostics are in advanced stages of development.
With a product that is technician-driven and for which hospitals need not make additional investment, Xcyton began offering services in July. It has signed up 25 hospitals in four cities since. “We have shown that this model works,” says Kumar, conceding that he now needs money to ramp up revenue, to set up labs in major parts of the country so that the samples are collected and results delivered within 24 hours.
Suri says the odds are doubly stacked against the diagnostics—it’s not only a new product that needs to be validated but it also requires an enormous marketing push. Kumar understands this well. “Launching a new healthcare product is highly expensive today…big pharmaceutical companies have set the trend of lavish conferences and junkets, which a small company cannot afford,” he rues.
In a country set to grow at faster than 8%, there still are low-hanging fruit to be picked and cost arbitrage to be milked, say experts. “It’s the (Café) Coffee Days of diagnostics, the Fortises and the Piramals of the industry that will rule the business,” notes Suri.
Kumar has heard this “high volume, low margin” refrain before—from the investors, that is.
By increasing volumes to do greater than 50,000 tests a year, the price can be reduced by about 50%, but market access is expensive, he argues. For instance, the current meningitis test costs Rs2,500 but has only 8% sensitivity, whereas Xcyton’s tests cost double but have 60% sensitivity.
The services model will work in India but “productization” of technology is another way to make the business model foolproof, suggests Suri. For that, says Kumar, he has the technical road map ready but it will need Rs25-30 crore. “I can then automate the whole system and make it a closed loop.”
If he manages to do that, he would face stiff competition from none other than the leader in the field, Roche Diagnostics, which is likely to enter the market with similar tests for septicemia in 2012. But Xcyton’s system would be at one-eighth the cost of what Roche could offer, Kumar says.
Xcyton’s more than decade-long innovation-to-commercialization travails raise notable questions for the innovation-led growth that the country’s decision makers are talking today. And as Suri says, India needs a few success stories to end the chicken-and-egg situation.
Hari Buggana, managing director of InvAscent, the investment adviser of private equity firm Evolvence India Life Sciences Fund, thinks likewise. Buggana says he is excited about diagnostics but is “frustrated at not finding good, large enough companies to invest in.” By definition, private equity funds cannot make small, early-stage investments, but, he says, “VCs should fund such (Xcyton’s) technologies if they see a business model with an exit for themselves.” “After all, healthcare services are the fastest-growing segment in the global economy,” he says.
To that end, Xcyton has been approached by healthcare companies in West Asia and Southeast Asian countries for partnerships. But it still needs a funding infusion if it has to be in the septicemia kit race of 2012. Kumar’s disappointment is apparent: “Nobody, in my opinion, is looking at a 10-year horizon and looking at creating a culture of product-oriented innovation. Such a KPI (key performance indicator) is difficult to quantify and get a pat on the back before you retire.”
The government could be the saviour, especially the new Biotechnology Industry Partnership Programme (BIPP) of the department of biotechnology, or DBT. “The fact that we started something like BIPP, in a decade you will see great inventions,” Kumar says. “I hope the next guy in the seat at DBT is patient enough to wait for the result instead of terminating the programme prematurely.”
Xcyton Diagnostics Started operations (in India) in 1995
Made in India: HIV and hepatitis kits; advanced molecular tests for brain, eye infections and a host of other conditions, offered as services at 25 hospitals and counting. Potential to compete with world leader in septicemia diagnostics at one-eighth the cost.