Bangalore: One of the most talked about stories in Indian biotechnology is rewriting itself. Avesthagen Ltd, the first Indian biotechnology start-up to raise €40 million (Rs256 crore today) in funding since its inception in 1998, has seen five of its seven external board members resign over the past few months.
The resignations come at a time when questions are being asked about the role of boards and people have become sensitive to corporate governance issues in the wake of the fraud at Satyam Computer Services Ltd and funding and management issues at Subhiksha Trading Services Ltd.
Avesthagen’s founder, chairperson and managing director Villoo Morawala-Patell denied any management or governance issue.
The exits have left Avesthagen with two external directors and three family members on the board.
Avesthagen wanted to raise Rs600 crore from the stock market in 2008, but deferred its initial public offering due to the downturn. This decision, said Morawala-Patell, led to the resignation of two board members—chairman Darius E. Udwadia, founder partner of Udwadia Udeshi and Co. in Mumbai, and Nadir B. Godrej, managing director of Godrej Industries Ltd.
In an emailed response, Godrej said, “I regret I will not be able to comment on this.” Udwadia’s assistant said he was busy in day-long meetings and couldn’t take phone calls or respond to emails.
The three other directors who resigned are Aluri Srinivas, a representative of ICICI Venture, an investor in Avesthagen, who resigned after he quit the finance firm; Simon Best, founder and chairman of Ardana Plc., a pharmaceutical company, and Barry Furr, former chief scientific officer and head of research and development at AstraZeneca Plc. Morawala-Patell didn’t comment on specific reasons for the exits of Best and Furr.
ICICI Venture continues to remain invested in Avesthagen. In an emailed response, the private equity firm said: “We would be unable to offer any comments to the questions posed by you at this stage.” Best and Furr, both based in the UK, couldn’t be reached for comment.
“They (Udwadia and Godrej) decided to move on and we are now restructuring the board with biotech specialists…focused people who can advise as well as help us clinch deals,” Morawala-Patell said. Two of the new members the company is in the process of inducting onto its board are David Atkinson, an agri-biotech consultant and managing director of 22 North in Santa Barbara, California, and N.K. Ganguly, former director general of the Indian Council of Medical Research, New Delhi.
Avesthagen’s efforts to restructure its board come during an economic slowdown that has made things difficult for biotech firms in particular. It follows a business model, which is complex not only by its own admission, but also by that of other biotech entrepreneurs. Trying to research, develop and commercialize products along diverse segments of biopharmaceuticals, agri-biotech, diagnostics and bio-nutrition by relying on intellectual property (IP) rather than revenue and profit, is proving tough for Avesthagen.
“The Indian market is all about revenue and profit, nobody cares about IP,” said a Bangalore-based biologist-turned-entrepreneur.
Executives at other biotech firms in Bangalore say they are clueless about the reasons for the exits. “I have never understood Avesthagen’s business model, but in this environment, when corporate governance is uppermost in people’s minds, the directors should explain why they resigned,” said one of these persons, who did not want to be identified.
Morawala-Patell said there were no governance issues. “With three auditors—Deloitte and Touche Llp., Ernst & Young, Agarwal and Italia— overseeing Avesthagen, it is the most over-audited company.”
She admitted that the economic slowdown has made her job tougher. The company is now raising some $30 million (Rs149 crore) through grants, state finance and bank loans.
Avesthagen has meanwhile downsized its staff from 700 to 460 and shut a biopharmaceutical manufacturing unit, Siegfried Biologics GmbH in Berlin, which it acquired in 2007.
Morawala-Patell said the company is trying new “strategic partnerships” where IP in each of its divisions is being “licensed at an early stage”.