×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Low-risk appetite stifling innovation at Indian, Chinese cos

Low-risk appetite stifling innovation at Indian, Chinese cos
Comment E-mail Print Share
First Published: Tue, Jan 08 2008. 09 39 AM IST

Upbeat note: Kiran Mazumdar-Shaw, CMD, Biocon. (Hemant Mishra / Mint)
Upbeat note: Kiran Mazumdar-Shaw, CMD, Biocon. (Hemant Mishra / Mint)
Updated: Tue, Jan 08 2008. 09 39 AM IST
Bangalore: If there’s one industry where companies in India and China are ignored by early-stage investors, it’s biotechnology. Like their Indian counterparts, Chinese companies face an uphill battle in attracting high-risk venture needed to sustain innovative, research-driven projects, according to a new study in the January issue of the journal Nature Biotechnology?published?on?Monday.
The first ever study of China’s most innovative health biotechnology companies says that despite substantial funding from the Chinese government to promote an innovative industry, the interest of “potential international investors is typically muted by an uncertain financial system”.
Other bottlenecks to accessing global funds include rigid restrictions on the export of capital that limit exits by investors and continuing doubts about the Chinese government’s approach to quality controls and intellectual property rights, according to the report, authored by researchers from the McLaughlin-Rotman Centre for Global Health at the University of Toronto, Canada.
“For all its blossoming as an industrial and economic superpower, China still has one foot in the closed society of the past,” says Peter A. Singer, co-author and managing director of the McLaughlin Centre.
Upbeat note: Kiran Mazumdar-Shaw, CMD, Biocon. (Hemant Mishra / Mint)
The report builds on a similar study on India, which the centre published in April 2007. The Indian study concluded that scarcity of risk capital arising out of investors’ risk-averse attitude has led biotech companies here to adopt a revenue-generating growth model from the beginning—often at the cost of their investments in research and development.
The research group revisited the issue in China and found several companies doing this. “Some of the firms that are pursuing innovative R&D have incorporated hybrid business models that dilute resources to include contract services or non-innovative products, to first fund the firm’s survival and then fund R&D activities,” the study says.
However, the researchers say, these hybrid business models have fallen out of favour in the West where venture capitalists (VCs) prefer a well-defined targeted strategy over a mix of models that mitigate commercial risk. “As price-based competition among domestic manufacturers continues to put pressure on profit margins, even fewer firms (in China) may be able to support in-house R&D programmes.”
Executives in India’s biotech industry do not agree. “I do not agree with the view that resources are being diluted by pursuing such hybrid models,” says Kiran Mazumdar-Shaw, chairman and managing director of Biocon Ltd in Bangalore. “I believe that risk aversion is setting into Western VCs, who are showing signs of preferring hybrid models which balance services with discovery-led product development,” she adds. India, she agrees, needs to focus on innovation much more intently than it currently has as the “risk associated with innovation is affordable” here.
However, Villoo Morawala-Patell, founder and chairman of Avesthagen Ltd, terms the services-led model “boring” and says it is time Indian firms moved away from it. “Why sh-ould we work...for others and not for ourselves?” she asks.
McLaughlin’s Sarah Frew believes biotech firms in India and China are significantly different. Indian firms, she says, are largely focused on process innovations to improve affordability and accessibility of medicines among local and global populations whereas Chinese firms are striving to create novel products in areas such as gene therapy and regenerative medicine.
Some analysts say that because biotech is a sunrise industry in both countries, it is too early to draw comparisons.
“In both countries, biotech started off via the biogenerics route. The subtle differences arise in the way the sector has evolved,” says Utkarsh Palnitkar, partner and industry leader-health sciences at audit and consulting firm Ernst and Young in Hyderabad. “Whilst in India the focus has been more on research as a long-term objective, in China it has been on processes with consequent emphasis on manufacturing.” WuXi PharmaTech Co. Ltd, a pharma and biotech outsourcing firm in Shanghai, is one company that has done this, according to Palnitkar.
The Chinese government is pushing applied research and encouraging local firms to develop new therapies, including those involving stem cells, says the report. For instance, the first commercialized gene therapy product approved in the world is Gendicine, an injection used in the treatment of head/neck cancers developed by Shenzhen SiBono Gene-Tech Co. Ltd, which has treated more than 5,000 patients so far and hundreds from overseas.
The report also notes a strong focus on “return of the sea turtles”, expatriate Chinese scientists and entrepreneurs. “China has done a better job on this front (than India),” says Morawala-Patell.
Comment E-mail Print Share
First Published: Tue, Jan 08 2008. 09 39 AM IST