What are some of trends you see in the lifesciences and biotechnology space as a venture capitalist?
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Bobba Venkatadri
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We are in the middle of a biomedical revolution which in my view is more profound and far reaching than the industrial and digital revolutions that we have seen. The DNA was discovered in the late 70s and the birth of Genentech, Amgen and such companies happened in the 80s. Now a third of the new drugs approved by the US FDA are for large molecules which address complex diseases. Genomics, MRI, stem cells and bioinformatics are offering new possibilities that not only heal but predict and prevent. Doctors may do a genetic test for certain diseases which helps detect and diagnose a disease earlier such as cancer. Biomarkers are replacing biopsies for detecting tumours, treatments are designed for particular genetic defects, the world is moving to personalised diagnostics and genetic biomarkers. Big data is another trend with electronic hospital records giving us insight into how and why patients taking the same class of drug show different outcomes. The mining of data has revealed that a drug which is used as an anti-depressant could also have a side effect of killing tumour cells. This discovery enabled a company here in Bay Area to get into human clinical trials in one tenth of the time it takes to get into human clinical trials normally and at a fraction of the cost.
Where does India stand on the investment map? What potential do you see?
From a venture capital perspective, in the last ten years, percentage of medicines consumed by emerging countries such as China, Brazil, Russia has gone up significantly. This number has risen from 10-15 per cent to 20 per cent in 2011. The total pharma market is estimated to be $1.2 trillion in 2016. In 2011, the US accounted for 50 per cent of the sales, with the US, Japan and the UK together making 80 per cent of the market, now they make 50 per cent combined, as the emerging countries comprise 30 per cent. Our market share is increasing because of improvement in economies. Total per capita consumption of drugs in India is $33 and the lowest is BRIC countries, with $180 in Brazil, $333 in Indonesia and the US at $800. Indian pharma market is growing 15-20 per cent whereas the US and Europe are growing barely at two to three per cent. That also tells you why large companies are getting into India. M&As have been an expansion tool for companies such as Abbott. These deals either help get market access or product access, geographic expansion in emerging markets or can be mega deals such as Pfizer acquiring Abbott. Interestingly, 60 per cent of M&As add value and 40 per cent of them destroy value. From 2010-2013, pharma index has gone up 60 per cent and biotech index has gone up 113 per cent. Those investing in biotech companies in the advanced world are making more money than those investing in pharma companies. There is also a big blur between traditional big pharma and biotech companies, both in the US and India, as companies realise the importance of innovation and large molecules.
How is the VC ecosystem in India?
From a VC perspective, it is a very difficult route to get to an IPO and access capital, unlike China. As a VC, when we invest money in a company, IPO is not the easiest exit, so we have to look for strategic exits, PE guys buying them out. The ecosystem includes the science at the university level, and the skill level of graduate and PhD students. However, we have to admit that we don’t have world class scientists and nobel laureates yet. In the basic breakthrough sciences we’re not there yet compared to the US, Europe or Japan where all innovation is still taking place. Then there is a skill gap between the graduates passing out and what the industry expects out of them. One of the key ecosystem component is industry, government and academia working together and we have long way to go there. TDB and DBT are doing things, but there’s bureaucracy still. The ecosystem still needs a lot of improvement.
What are the investment opportunities of the future?
Biosimilars, biobetters, vaccines, and DNA-based diagnostics present tremendous opportunities for us to invest. Injectable drugs is one of the hottest areas, tablets and capsules, low barrier entries are what we’re looking at. We invested in Gland Pharma, back in 90s and have invested in Evolva (genetic chemistry), and Bioserve (DNA sequencing company) based in Hyderabad and the US that got acquired by Cancer Genetics Inc. In Bangalore, we have invested in Richcore which makes recombinant enzymes, and Biocon. Besides this, we have also invested in a couple of device companies in the US into cardiology and oncology.
It is going to take India a while to get good in discovery sciences. We should licence discovery from wherever we get it, be it Japan, the US or Europe. The government needs to be the change agents to increase cooperation between themselves, academia and industry. The focus needs to be on improving labs, quality of training, Masters and PhD programmes. Within that the specific opportunities for investment are specialty pharma.
How do you invest in a company?
We get a number of business proposals. A few questions that we ask are: Is the area large enough or a nice focus area? Does the company have a track record? Are they bringing something new to the table? How does this differentiate? For example, we invested in Portea Medical, which is breaking new frontiers of homecare. We are also investing in a saliva-based point of care test in the US for diabetes. We look at the technologies which differentiates the companies and it is judgemental, there’ no magic formula. At the end, it is human judgement.
Biosimilars present the next opportunity ten years hence despite challenging times. Your comments.
The problem is that it is very expensive to develop a biosimilar, it is not like a generic chemistry molecule, from phase I to phase II and then getting them into markets such as the US and Europe. Companies like Doctor Reddy’s Labs developed the molecules and marketed them in the emerging world, as they couldn’t afford to fund clinical development they teamed up with Merck KGaA. It is a very good example for India, where we need to establish production capacity, develop the technology using expression systems or cell lines from the US and concentrate on what we do best- process development. A lot of Indian companies put blinders on emerging trends in expression systems and want to do it on their own, instead of collaborating.