Hyderabad: For the four scientist entrepreneurs, who have been toiling at a biotechnology laboratory in Genome Valley, a research hub 40km from Hyderabad, for the last five years, there’s a pot of gold at the end of the rainbow.

Or zilch.

Clonz Biotech Pvt. Ltd, the company that they founded five years ago is in a high-risk, high-reward zone. The molecules they have developed could bring huge rewards. Or they may die in the petri dish.

That challenge was clear from the beginning, though. When Narasimha Rao Nedunuri left his research at the Centre for Cellular and Molecular Biology, Hyderabad, to set up Clonz Biotech, the 40-year-old molecular biologist knew it was hard to crack the market for biosimilars—essentially generic versions of biotech drugs. And his decision to make the monoclonal antibodies (mAbs), which are among the toughest biosimilars to develop, made the task harder.

The work paid off. After five years and burning 13 crore, Nedunuri and his team synthesized two key biosimilar molecules, Rituximab and Trastuzumab.

But Nedunuri’s struggle is far from over. There is something standing between research and the market: finance.

“We’re looking for much more than 60 crore (in investments). We have put our lives into this venture, and it all depends on how we move forward from here," Nedunuri said in an interview at his office.

The market is big: in 2014, Biogen Inc. of the US and Roche Holding AG of Switzerland together earned over $8.7 billion from Rituximab sales, while Roche Holding separately got about $6.8 billion from Trastuzumab.

Rituximab is an mAb used to treat rheumatoid arthritis and non-Hodgkin’s lymphoma (a type of cancer) while Trastuzumab is used to treat breast cancer.

As per market researcher Frost and Sullivan Inc., the global biosimilar market is expected to be worth $24 billion in 2019—a compound annual growth rate (CAGR) of some 65% from 2014.

Clonz needs money to conduct human tests to establish safety, efficacy and similarity to the original drugs. And time is running out. With the original patents expiring in the European Union (EU), the two drugs are favourite targets of drug developers.

Armed with their first-mover advantage, hefty research and development budgets and technical prowess, larger rivals such as Biocon Ltd and Dr. Reddy’s Laboratories Ltd are all pursuing biosimilars.

Clinical trials in India will cost 35-40 crore, said Nedunuri, while global trials will cost much more at 130-140 crore.

But raising money for a life sciences start-up is not easy, as Nedunuri found out when he was scouting for seed money in 2010. Reasons: high risk, long gestation period and few success stories.

“A few bankers who were willing to fund sought 200% collateral, which was beyond our means," said Nedunuri.

Finally, he managed to raise 13 crore from former Goldman Sachs Group Inc. banker Vijay Datt and a few wealthy individuals.

Clonz is now talking to several private equity investors, venture capital firms and pharmaceutical companies to raise money. Nedunuri declined to name any one, citing non-disclosure agreements. He is not averse to the idea of being bought out either.

For Nedunuri, who was earlier product manager with Bio-Rad Laboratories (India) Pvt. Ltd and group leader of advanced molecular biology, VIMTA Labs Ltd, the choice of mAbs was deliberate.

“We zeroed in on the mAbs because it is our core expertise and not an easy space for everybody to get into," said the scientist, who was born in an agricultural family in Karepalli village of Khammam district of Telangana.

Nedunuri holds a master’s degree in life sciences from Pondicherry University.

He found good help too. Partners Muralidhar Reddy Mamilla and Vijay Babu Garlapalli were part of the early team of scientists which worked on the mAb programme at Dr.Reddy’s, which launched a Rituximab biosimilar drug nearly eight years ago. Sreenivasu Karra, a co-founder of Clonz, had worked on biosimilars at several firms earlier.

India’s largest drug firm Sun Pharmaceutical Industries Ltd is looking to buy biosimilar assets. Biocon has partnered with Mylan NV to develop them.

Nedunuri draws inspiration from K.I. Varaprasad Reddy, the founder of Shantha Biotechnics Pvt. Ltd. Shantha,the first Indian company to launch recombinant Hepatitis B vaccine, was later acquired by Sanofi SA of France. “Shantha’s Hepatitis B vaccine launch made me think seriously about entrepreneurship," said Nedunuri.

Clonz is also working on two more biosimilars: Bevacizumab, used to treat cancer, and Ranibizumab to treat macular degeneration, or ongoing disease of the eye that causes vision loss.

Analysts, however, say that the odds of success are low for a start-up, but if they cross the hurdles, the opportunity is lucrative.

“The capital-intensive nature of the biosimilar business and long gestation periods between initial investment and commercialization require biosimilar players to take a higher level of risk than their counterparts in the small-molecule generics business, and this can be a significant barrier to entry for many start-ups," said Paul Thomas, business unit head (biosimilars) at Biocon, said in an e-mail.

The estimated cost of developing biosimilars for global markets is $75-250 million, while developing traditional non-biologic generics costs about $2-3 million, Thomas said.

Biocon, in May, had said that three of its biosimilars had entered late-stage clinical trials and are expected to hit the market by 2018.

“Although poised to be a huge success in the next few years, biosimilars are still an emerging area, with FDA approving the first biosimilar in the US earlier this year, only a few currently marketed biosimilars in the EU and major emerging markets are just starting to approve biosimilars under formal guidelines," Dr. Reddy’s said in a statement.

Dr. Reddy’s markets four biosimilars in emerging markets, including India. It has tied up with Merck Serono, a division of Merck KGaA, to develop biosimilars for regulated markets. Its next two biosimilars are entering clinical development this year.

Indian firms, including Intas Pharmaceuticals Ltd, Cadila Healthcare Ltd, Torrent Pharmaceuticals Ltd, Zenotech Laboratories Ltd, a subsidiary of Sun Pharma, Reliance Life Sciences Pvt. Ltd and Cipla Ltd have mAb development programmes. Some of the global firms in the mAb market are Pfizer Inc., Sandoz AG, Amgen Inc., Hospira Inc. and Teva Pharmaceutical Industries Ltd.

“mAb is a good space to be in, but there are very few investors with appetite to shoulder risk," said Pushpa Vijayaraghavan, vice-president at consulting firm Sathguru. “It’s a binary risk—it’s either high value or zero."

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