Areas of interest
As per data released by Department of Industrial Policy & Promotion (DIPP), Government of India, the pharmaceutical sector has attracted foreign direct investment (FDI) worth $1.67 billion between April 2000 and March 2010. Different segments of the biotech industry are attractive to different categories of investors.
Dr Krishna Ella, CMD, Bharat Biotech |
Dr Krishna Ella, CMD, Bharat Biotech informs, “FDI inflow into India during the 10-year period from April 2000 to March 2010 for all the sectors was $197.935 billion and it works out to an annual average FDI of $19.79 billion. In comparison to this, during the same period, FDI worth $1.67 billion flowed into the drug and pharma sector, amounting to an average annual FDI of $0.167 billion, which is 0.84 per cent of the average annual flow of FDI into all the sectors. Past experience indicates that drugs and pharma sector did not attract maximum investments.”
Ella further says, “FDI equity into India during the 10-year period from April 2000 to March 2010 for all the sectors was $132.837 billion and it works out to an average annual FDI equity of $13.28. Mauritius, Singapore, the US, the UK, Netherlands, Japan, Cyprus, Germany, France and the UAE contributed to the FDI equity inflow in 2009-2011. Only Singapore from the Southern Hemisphere chose to invest in India. There was no contribution to the drugs and pharma sector. However, there was a two per cent inflow into chemicals (other than fertilizers).”
Ajit Mahadevan, Partner, Ernst & Young |
According to Ajit Mahadevan, Partner, Ernst & Young, FDI is divided across the value chain with manufacturing (captive and contract) and clinical research driving the inflows. “Recent announcements by Lonza, Sanofi Pasteur, Alexandria confirm growing interest in manufacturing of biologics in India. Major international CROs have established base in India, which underscores the attractiveness of the contract research segment,” opines Mahadevan.
Dr Ajaykumar Sharma Practice Head-Pharma Healthcare, South Asia & Middle East, Frost & Sullivan |
Dr Ajaykumar Sharma, Practice Head-Pharma, Healthcare, South Asia and Middle East, Frost & Sullivan, echoes the positive trend. He says, “With acquisitions taking place in the pharma/ biopharma segment, most of the direct investment has been in vaccines and formulations manufacturing. Contract research firms have received major investments through VCs.”
Dr Cyrus Karkaria, President, Biotechnology Lupin |
Dr Cyrus Karkaria, President, Biotechnology Lupin, strongly feels that from the global perspective, India has a very bright future in terms of the potential from R&D and New Drug Delivery System (NDDS). The future is real today even though we are a very small piece in the global R&D pie. He says, “We are setting up processes and systems, which will contribute to innovations in NDDS — innovations, which will be very competitive and we would be able to do that in a sustained manner. It will take time, but India will take a major leap in this aspect. It is not about potential anymore, but a question of time. We need more investment from the Government to build and ramp up fundamental research capabilities to develop novel products. There is a need for a clear cut directive / direction and focus with objectives and milestones attached to it.”
He further adds, “The market for biosimilars or follow-on biologic drugs, globally, is pegged at well over $100 billion. To give you an example of the untapped potential, market reports like IMS Health (July 2009) suggest that in the US alone, about eight major biologic products, say for example, Enbrel (Amgen/J&J), Lovenox (Sanofi-Aventis), Zoladex (AstraZeneca), Mabthera (Roche), Humalog (Eli Lilly) and Novorapid (Novo Nordisk), are expected to go off patent between 2009 to 2013. The sum total of revenues from these drugs alone will be over $15 billion. This throws open immense opportunities for Indian companies working on biosimilar drug development initiatives.”
India, an attractive biotech destination
India has always been touted as the land of opportunities. However, opportunities are not just for domestic companies. Even MNCs are all set to generate business out of the lucrative Indian market. In any country, government policies are generally formed keeping in mind the interest of their own people. It will be interesting to analyse the policy effects in India on domestic companies and their overseas competitors.
Sharma feels that government policies in India have been very favourable for the development of domestic biotech companies, which has resulted in a spurt of small biotech firms, as well as growth of large players in the past decade.
Life sciences companies can leverage the many advantages that the country offers: skilled labour, competent service providers and significant cost arbitrage. Both domestic and global companies have benefited from the enabling infrastructure put up in biotech parks, SEZs etc.
According to Ruchi Malhotra, Manager, Ernst and Young, the present regulatory structure doesn’t require biosimilar manufacturers to follow stringent guidelines, which are otherwise followed in countries where an approval pathway has been established. This makes it relatively easier for domestic manufacturers to access the local market presently. “In case of enforcement of stringent guidelines to conform to EMEA guidelines, the MNCs would be able to further leverage their global experience, ability to invest and access global markets,” cautions Malhotra.
If Ella is to be believed, liberalised government policies could benefit MNCs. MNCs could benefit by establishing their manufacturing facilities in low cost locations in India. “Public funded R&D schemes are available from the Ministries of Commerce and Industries, Health and Family Welfare and Agriculture. The life sciences and biotech industries are based on multi-disciplinary science applications and thus have resulted in areas such as general biotech, agriculture biotech, medical biotech, marine biotech, industrial biotech, bioengineering leading to bioindustrial development in the country,” says Ella.
He adds, “All these years, the Council of Scientific and Industrial Research (CSIR), Indian Council of Medical Research and Indian Council of Agricultural Research (ICMR), DBT, Technology Development Board (TDB), have nurtured pharma / biotech projects under their dispensation. Human resource for biotech sector requires training and augmentation to meet the skill requirements of the biotech industry. The three ministries, cited above, should constitute an inter-ministerial nodal cell to coordinate the upsurge of industrial biotechnology, rationalise the use of funds, and track the progress of the funded projects on a milestone basis.”
Dr Harish Iyer Chief Executive Officer, Shantha Biotechnics |
Dr Harish Iyer, Chief Executive Officer, Shantha Biotechnics says, “The Indian biotech industry has achieved the status of a world-class hub known for its manufacturing and research capabilities. The superior R&D facilities, large pool of skilled labour, favourable regulatory environment and significant cost advantages have positioned India as a preferred destination for investment by way of globalisation, M&As and partnerships. This is a positive outcome and has enabled the industry to become one of the fastest growing knowledge-based sectors in the country.”
Iyer further adds, “In general, the influx of FDI has allowed India to create stronger research capabilities and enhance existing resources. FDI is especially required in a country like India as it allows huge financial commitments and extensive technical/scientific and regulatory expertise, which is required for developing new pharma/ biotech products on a global level.”
Opportunities
Opportunities present themselves in different forms. According to Sharma, contract research and bioinformatics are the major opportunities in the biotech and life sciences sector. Apart from a traditional focus on agri-biotech, industrial and vaccines, the initiatives by the government such as Biotechnology Industry Partnership Programme (BIPP) specifically focus on developing basic research in genomics, bioinformatics and stem cell research.
Rahul Ambadkar, Consultant, Ernst & Young, feels that vaccines are a significant business opportunity for Indian players. In addition to institutional buying by multilateral agencies, the Indian market offers sizeable domestic opportunity. Manufacturing of equipment and consumables is another area where Indian companies are able to leverage the relative cost advantages.
Quoting from Ernst & Young’s Beyond Borders: Global Biotehcnology report, he points out that 48 biologics with estimated sales of $73 billion are going off over the next decade. “This along with the evolving regulatory scenario and government’s preferences for low cost alternates mean substantial opportunities for biosimilars and biobetters in the major markets,” opines Ambadkar.
In terms of therapeutic areas, oncology, rheumatoid arthritis and diabetes are segments with high potential opportunities. With the establishment of the approval pathway in the US and establishment of pathway in Europe for (beta interferons and mAbs) the activity in bioservices (CMOs and CROs) is expected to rise manifold. Also, the abbreviated pathways for biosimilars are/will be very different from the Abbreviated New Drug Application (ANDA) pathway for small molecules and will require conduct of clinical trials. Thus there are substantial opportunities for organisations specialising in conducting clinical trials. Impending regulation amendments and policy announcements would have a significant bearing on these opportunities, according to Ambadkar.
As already discussed, government policies largely decide the growth and the future direction of the biotech industry. As a bio-entrepreneur, Ella is fairly familiar with government policies and opines that, “India is certainly a land of opportunities for life sciences and biotech investors. There is a perceptible change in the policies of Ministry of Commerce and Industry, Ministry of Health and Family Welfare and Ministry of Agriculture, to introduce public funded new schemes to make India progress towards supporting new concepts, innovation and R&D. Domestic biotech companies are being benefited through schemes such as Small Business Innovation Research Initiative (SBIRI) and Biotechnology Industrial Partnership Programme (BIPP), Biotechnology Industry Research Assistance Programme of the DBT, Industrial Infrastructure Upgradation Scheme (IIUS), Industrial Park Scheme (IPS) and Scheme for Investment Promotion of the Ministry of Commerce and Industry, National Agricultural Research System of the Indian Council of Agricultural Research (ICAR) and Talent Research Scheme and Extra Mural Project Scheme of the ICMR, New Millennium Indian Technology Leadership Initiative (NMITLI), etc.”
In order to motivate start ups, entrepreneurs and small industries to derive benefits from such schemes, government policies for the life sciences sectors should be tailored and implemented in ways that will accelerate its growth in a fast paced manner.
Joint ventures
Biotech companies have been observed to favour joint ventures in the past few years. Such moves are meant to benefit all partners of the joint venture. This trend is expected to continue in the coming years as well. One of the most crucial discussion points of these tie ups is how biotech companies from developing nations can benefit into the game plan of MNCs.
“We have seen alliances and acquisitions for drug discovery, diagnostics and clinical research throughout Asia. Such deals will provide mutual advantage to both the partners. While the MNCs benefit by replenishing pipelines, addition to product portfolios or establishing a local presence in the emerging markets, the biotech companies gain in technology expertise and much needed funds for research and expansion,” mentions Sharma.
According to Mahadevan, JVs and strategic alliances (co-development, co-marketing, licensing deals) combine complementary capabilities or help partners build capabilities. This helps companies position themselves aptly to fetch maximum benefits from the opportunities present and share risk at the same time. The reasons can be as varied as technology transfer (like Bharat Biotech and Serum Institute licensing technology from institutions in the US, Canada and Netherlands) to low cost advantages (Boehringer Ingelheim partnering with Kemwell for manufacturing).
Mahadevan also highlights some of the negative issues associated with Indian players. He elaborates, “Indian companies lack the necessary financial strength and regulatory maturity needed to develop a drug and get it approved. Co-development and out-licensing deals help them manage these deficiencies. On the other hand substantial unmet needs in the developing nations have attracted MNCs to them but they lack suitable product portfolio and necessary reach to serve these needs. They are using co-marketing/distribution and licensing deals to gain ready access to patients and cutting down on investment and time to market simultaneously. Apart from commercialisation, MNCs have entered into sourcing deals with partners in developing nations realising the time and cost benefits.” In the foreseeable future, funding is expected to be strained and emerging markets will act as key contributors to growth. This will make partnering one of the core strategies to build competitive advantage.
“JVs with MNCs will benefit from local experience and expertise, introduction and adoption of international norms for manufacture and control, harmonisation of procedures with international guidelines, access of products to regulated markets, strengthening of R&D, compliance with patent regulations and availability of products in the domestic market. Manufacturers and business houses in developed countries are scouting for domestic partners in India to spread their footprint and compete with similar brands. However, developing countries must possess the negotiating capabilities, legal and fiduciary acumen, sound knowledge of intellectual property rights and marketing prowess to conclude a deal with MNCs to benefit both partners,” asserts Ella.
Karkaria explains how partnerships function as a risk minimising strategy for members of JVs. Karkaria says, “As rightly pointed out by Ernst & Young in its ‘Beyond Borders 2005 Report’, for biotech companies, partnerships are an important means of mitigating risk, as well as a strategic response to business challenges. Since drug development is an inherently high-risk business, characterised by large R&D investments and relatively small probabilities of success, partnerships will always be an important factor in diversifying and mitigating risk.” According to Karkaria, partnerships are also one of the ways of entering newer potential markets.
Future policies
The impact of policy on the future growth of the industry cannot be underestimated. The Government has extended support through biotech parks, funding schemes etc, but this support needs to be sustained and even augmented. “The Government’s role in the absence of a mature venture capital market can define the fate of the domestic players. It will act as a critical element in defining the part of the value chain where the domestic players would be concentrated. On the part of domestic biopharma players, aligning with the international guidelines and partnering with the regulators in the major markets can help them in capturing a larger share of the global opportunity,” says Ambadkar.
According to Ella, Government of India should consider increasing funding opportunities to innovative R&D novel product development projects, new infrastructure / facility projects for platform technologies. These opportunities should support new entrepreneurs and encourage existing companies to conduct high risk research and development.
Ella suggests, “India has a strong and complicated biotech regulatory framework that involves four to five ministries within the government, involving the Drug Controller General of India (DCGI), Review Committee on Genetic Manipulation (RCGM), Genetic Engineering Approval Committee (GEAC), Director General of Foreign Trade (DGFT), etc. These agencies jointly regulate the development, manufacture and supply of biologics making it a very complex regulatory system. All countries, where pharma and biotech industries are very successful, have a single regulatory agency such as the European Medicines Agency (EMA), US FDA, Therapeutic Goods Administration (TGA), Agência Nacional de Vigilância Sanitária (National Health Surveillance Agency Brazil) (ANVISA), etc that oversee and regulate all aspects of the industry. The Indian Government should consider bringing all these regulatory activities into a single regulatory body, which can bolster biotech industry growth in the country.”
The Indian Government can look into varied financial instruments like biotech bonds to increase financial support to biotech firms. Equity support by government bodies can create a new avenue to raise funds. There should also be added incentives to provide impetus to foreign investment into the biotech industry in India. Moreover, allowing VC investments in early stages, like that in advanced markets, will go a long way towards encouraging entrepreneurship and innovation in this space,” says Karkaria. It will be interesting to observe how Indian biotech players leverage this global interest ins a way that serves their long term interests.