India’s biotechnology sector, counting Rs6,500 crore in revenues and growing at 25-50% a year, will have to shelve its plans of growth hinging on cost advantages, and focus on creating niche products based on innovation, consultant Ernst & Young (E&Y) has said.
Many firms enjoy the benefits of lower wages of biotech scientists and researchers and the low cost of testing new drugs, but this edge is likely to be “a limited window” of opportunity, a recent report said.
The Indian biotech industry currently ranks second next to China, in terms of growth of patent filings, and has seen the entry of big business houses like Reliance Group and Tatas.
But E&Y industry leader for health sciences, Utkarsh Palnitkar believes the current boom may last only about 15 years after which the companies outsourcing to India might take their work elsewhere. “We have called it a limited time window because the labour and cost arbitrage won’t last for long. The sector needs to work on new selling points that’ll distinguish it,” he said in a phone interview.
India’s abilities in bioprocessing, harnessing biodiversity, integrating the university research programmes and providing incentives to academicians could lend support to some unique selling points, Palnitkar added.
One such company is Glenmark Pharmaceuticals Ltd, a Mumbai drug maker, that has set up a biotech research facility in Switzerland, a country the company chose to set up base over a cheaper presence in India because Europe “is ahead in pure discovery areas”, said the firm’s managing director Glenn Saldanha. The Swiss unit is focusing on biotech medicines for cancer and inflammation with an aim to take its first novel biologic into trials by 2009. But efforts to develop a new drug will not be easy and will take years to bear fruit, another biotech entrepreneur said. “A proprietary biotech product normally has a gestation period of 10 years,” said Hyderabad-based Bharat Biotech International Ltd’s chairman Krishna L. Ella.
Given the long periods of development, there is little enthusiasm among venture capital firms keen to back biotech start-ups, Ernst & Young said. In India, such funding is largely restricted to government initiatives led by the Centre and state administrations of Maharashtra, Gujarat, Andhra Pradesh and Karnataka.
Inexperience among private VC firms in biotech and the absence of clarity in on viable exit routes for such investments make the sector unattractive among this class of investors, said Palnitkar. Typically, VCs sell out their investments either through a public listing or corporate takeover. In India, neither has caught on. Perhaps it is this ‘pain’ associated with novel biotech development that has even big pharma players chasing ‘biosimilars’ or copies of off-patent biotech products. More complex to make, facing relatively less competition in the immediate term and lower chances of price erosion, biosimilars are expected to be a $16 billion (Rs65,600 crore) opportunity by 2011.
Market leaders such as Ranbaxy Laboratories Ltd, Dr Reddy’s Laboratories Ltd, Cipla Ltd, Wockhardt Ltd and Biocon Ltd, for instance, are already working on insulin, erythropoetin that raises blood cell level in blood, and cancer product filgrastim. In an April interview, Dr Reddy’s CEO G.V. Prasad said biosimilars were a strategically important capability, and with so many biotech drugs expected in future, no company with global ambitions could ignore it.