Small and medium biotech companies which focus on innovation are getting the thumbs down from most investors while those working on commercially viable projects face fewer hurdles in raising funds.

According to Mr Ajit Mahadevan, partner, life science, Ernst & Young, “The biggest challenge for small and medium biotech companies is the ability to raise funds for their various programmes. The key driver for funding is the presence of commercialisable products/services with the potential for market launch in the short-medium term (one to three years).”

“In mature markets like the United States, 80 per cent of biotech funding has gone to 20 per cent of companies, leaving very little funding for the rest. Where as in India, for start-ups and innovation companies which have concepts or futuristic ideas are finding it hard to get funds or capital to take it forward,” he added.

Giving reason for lack of funds, Ms Kiran Mazumdar Shaw, Chairman and Managing Director, Biocon, said recently bankers, investors and funders need to understand the business and invest early for handsome gains. But they do wait and watch till a venture attains critical mass to jump into the bandwagon.

“Investing in mature business is one and investing in innovative venture at nascent stage is another. Finally it is the ones who bet early get rich dividends,” she added.

Little for R&D

But according to Mr Utkarsh Palnitkar, Managing Director, Pluripotent Capital, “Despite the sector's rapid growth, relatively little funding is available for innovative biotech R&D. Of the $3 billion invested in Indian health care and life sciences over the last decade, only $90 million has gone toward innovative biotechnology. Even here, investments have predominantly focused on manufacturing and commercialisation. Investors have shied away from discovery-stage enterprises, which are still relatively nascent, though a growing number of companies are emerging.”

So with the little funds available to them, smaller biotech companies in India have resorted to commercial products (biosimilars, vaccines) and contract services for drug discovery to augment their cash position.

Ernst & Young in its report ‘Beyond borders — Global biotech report 2011' said, “While there have been many successful companies, many have struggled due to lack of R&D funding. The sector on the whole is one of the fastest growing knowledge-based sectors with numerous comparative advantages in terms of research and development facilities, cost effectiveness and budding capability, the industry in India has the potential to emerge is significant.”

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