Home >Opinion >Online-views >Specialist life sciences VC funds beginning to strike deals in India

Bangalore: After playing second fiddle to technology firms for a long time, the life sciences sector in India is finally attracting specialist venture capital (VC) from global and local funds.

Last week, US-based MPM Capital, the world’s largest dedicated life sciences fund, made its first investment in India, backing Sai Advantium Pharma, Ltd, a Hyderabad-based drug discovery and development services firm, for $20 million (Rs85.4 crore).

In the coming fortnight, Evolvence India Life Sciences Fund, or EILSF, part of private equity player Evolvence India, will announce its first investment this year, and third so far, in a mid-size pharmaceutical firm making generic, or off- patent, drugs.

The fund declined to name the company.

“In addition, we are in discussions with a medical devices company and a leading drug discovery services company," says Hari Buggana, managing director of EILSF. He expects to invest $30 million in about three deals over two months.

San Francisco-based Burrill and Co., specializing in life sciences, private equity and merchant banking, too, has been evaluating Indian companies and is likely to close a deal soon.

“I am looking across the entire life sciences sector and my deal pipeline encompasses all the three sectors mentioned above," says Tania Fernandez, a director at Burrill.

There have been several life sciences VC deals in the past (such as the backing for Dr Reddy’s Laboratories Ltd’s Perlecan Pharma unit from ICICI Venture Ltd and Citigroup Inc., and the funding of Mankind Pharma Ltd by Chryscapital LLC) but this is the first time transactions by life sciences specialist funds are gaining momentum.

While the MPM deal is the single largest such investment in India, other investors seem inclined towards smaller outlays, preferably in so-called “safer deals" which have a services component to keep the revenues coming.

Private equity players say India does not have a track record of launching new molecules or significant proof-of-concept innovations which investors like to see.

“Investors’ scepticism about Indian pharmas’ ability to launch a new chemical entity could be replaced with optimism once a molecule discovered in an Indian pharma company’s lab is successfully launched in regulated markets," says Buggana. Such an event, he thinks, is perhaps a few years away.

Still, Buggana believes generic drugs business will see a lot of activity as more drugs lose patent protection. Discovering non-infringing processes to get over patent barriers of innovator pharma companies is a “non-trivial effort", he says. Devices and diagnostics are other areas where, analysts say, investors are active.

But, when it comes to long-term research, there is no risk appetite.

“There are a handful of ubiquitous US-like biotech companies here who are doing good work at a fraction of cost, but it’s not easy even for them to get funds," says Alok Gupta, country head, life sciences and technology, at Yes Bank Ltd in Mumbai. The bank is raising a $100 million life sciences fund.

Some believe research-based and intellectual property-driven companies will become attractive for investors. “Ours will not be a pure play CRO (contract research organization)," says Fernandez, as Burrill is keen on intellectual property generation within a company. “Because this is where the company will generate value and make itself competitive."

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