India's surging biotech sector

By Dr. Uday Lal Pai
Exclusively for InvestorIdeas.com
posted September 05, 2006

The Indian biotechnology industry was estimated at $1.05 billion in calendar year 2005, with a growth rate of almost 37percent. Although currently contributing to just about one percent of the global Biotechnology industry, it is projected to achieve a share of almost 10 percent over the next five years.

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India's fraternity of trained scientists and academicians is probably one of the largest in the world, with more than 300 institutes offering training in the fields of biotechnology and bioinformatics. There are currently more than 15,000 PhDs and 700,000 post-graduates working in different institutions and spanning diverse research areas across the country.

And the biotech sector is growing at 37.42 percent and inched closer to US$ 1.5 billion in revenues during fiscal year (April 1 to March 31) 2005-06. The bio-pharma segment still dominates this sector with US$ 1 billion in revenues. The vaccines business is a major pie of the bio-pharma market accounting for close to 47 percent. India is the largest producer of recombinant Hepatitis B vaccine in the world today. The Hepatitis B vaccine market in India is growing at a rate of 20 percent and is presently estimated at US$ 22.2 million.

A lot of the sector's revenues are expected to come from opportunities in the Indian pharmaceutical industry which is growing at the rate of over 10 percent per year. An increasing number of Contract Research Organizations (CROs) in the country bears evidence to this.

An Ernst and Young study has named India as one of the five emerging biotech leaders in the Asia Pacific besides Singapore, Taiwan, Japan and Korea, with mainland China catching up quickly. The study ranked India third in the region based on the number of biotech companies in the country.

Kiran Mazumdar Shaw, chairperson of the Karnataka task force on biotechnology, said all segments such as bio-pharma, bio-services, agri-bio, bio-informatics and industrial biotech have seen good overall growth. Karnataka has developed itself to become the biggest bio-cluster in India with 175 companies having an establish base out of the country's 320. In Bangalore alone, 158 companies have their base.

Government Initiatives

India's policy makers are very much aware of the potential of the biotech industry now and have tried to remove every major road block in their path. The country is among the first few countries in the developing world to have recognized the importance of biotechnology as a tool for advancing growth in the agriculture and health sectors. The Government established the National Biotechnology Board (NBTB) in 1982 as the apex body to identify priority areas and evolve a long-term plan for the development of biotechnology. Later, in 1986, NBTB graduated to a full-fledged government department called the Department of Biotechnology (DBT). Now the government has formulated new policy for the sector.

The proposal to create a National Biotechnology Regulatory Authority will encourage efficient and professional regulation. The draft National Biotechnology Development Strategy released recently has proposals to give an impetus to the industry.

Indian states are also eyeing their share in the Biotech industry with a lot of incentives to investors. Karnataka has approved a proposal for setting up a biotech park on a 106-acre plot at the Electronic City at an approximate cost of US$ 22 million, in a move to give a fillip to the sector.

The opportunities

Prof. Kazuo N Watanabe, chairperson, Japan Chapter of Federation of Asian Biotech Associations (FABA) says: "India is more pragmatic. The human capital in India is of high quality and strong in R&D. In quality control and R&D areas, India definitely has an edge over China which is strong in generic and bulk manufacturing."

In India's favor, there is a growing demand for biotechnology products, rich biodiversity, a strong base in research and development, one of the largest agricultural sectors of the world and perhaps its greatest asset - its wealth of well educated human capital. India also boasts a large English speaking population.

India is positioned to grow into a major R&D center for biotechnology companies who are seeking low cost, a skilled workforce and large markets. This is why companies like Monsanto, Pfizer, AstraZeneca, Unilever, Dupont, Bayer, Novartis and Eli Lily have establish there. India has a powerful and inexpensive information base with reasonable pharmaceutical experience. From a clinical trials standpoint India has access to lots of patients and a sophisticated network. India also has short patient recruitment times.

G Steven Burrill, CEO of Burrill & Company says, "We expect India to claim 8 percent of the world's biotechnology companies by 2010. India has a tremendous scientific base and a very successful generic pharmaceutical industry but on the negative side, intellectual property protection is not as strong as it should be."

Biotechnology growth in India is expected in the following segments of the industry: Agri-biotech - 60 percent Diagnostic and therapeutics - 25 percent Vaccines -15 percent

Players are confident

With the patent regime coming into force, domestic and international companies, most of which have established their base in India, are eagerly conducting research and development activities in the country, according to Ernst & Young. According to the report, partnering has also evolved from manufacturing and research agreements to active participation in global initiatives in front-end technologies.

Indian biotech companies have started experiencing profits and are making fresh investments. Prominent among Indian companies that have invested in the biotechnology segment are ICICI Venture, SIDBI, ILFS, WestBridge Capital and APIDC. WestBridge Capital recently invested in biotech start-up ReaMatrix based in Bangalore.

Avestha Gengraine Technologies has turned profitable and is spending nearly US$ 9.9 million to establish a new R&D facility and a nutraceuticals manufacturing unit in Bangalore. Amongst the companies going abroad, Biocon, India's top biotech company is looking to list its stocks overseas in two years time. Cadila Healthcare Ltd plans to invest US$ 9.09 million to acquire stake in a Europe-based biotech company.

Several Indian companies are now partnering foreign companies to manufacture and market their vaccines in India. Acambis plc, a vaccine developer based in Cambridge, UK has established a manufacturing and marketing agreement with Bharat Biotech International Limited, relating to its investigational vaccine against Japanese Encephalitis. Panacea Biotec has formed a joint venture with Chiron Vaccines, USA, the world's fifth largest vaccine company, to provide breakthrough combination vaccines to the Indian market.

Companies in India are also looking keenly at the global biogenerics space as a large number of biologicals are set to go off patent. Companies such as Wockhardt, Dr. Reddy's Labs and Biocon are looking at entering the regulated market in Europe, which has a regulatory system in place for the biogenerics.

Foreign funds

The Indian biotech sector has attracted funds from international organizations like the World Bank and companies are now successfully tapping investors for cash, with some hedge funds also joining the momentum. All this reflects growing investor confidence in the sector. However, the high risk factor has deterred active flow of venture capital into the sector.

What's more, US-based biotechnology funds like Orbimed, Domain Ventures, Burrill & Company and, Bay City Capital are looking to invest in the US$ 1 billion Indian biotechnology sector, according to industry sources. Orbimed alone has US$ 5 billion of assets under management globally in venture funds, hedge funds and other investment vehicles. Burrill has US$ 500 million worth of assets under management. There are close to 50 large and small biotechnology venture capital funds in the US, each supporting 10-15 biotech companies.

UK and India are keen to synergize the strengths in intellectual talent pool and educational wealth to exploit the opportunities to their full potential. India is eighth largest investor in the UK with its ranking expected to go up. Sir Michael Arthur, British High Commissioner to India, said his country with a strong base in life sciences and bio sciences could offer greater co-operation in research and development and for its commercial exploitation. Highlighting the fact that his country gave greater focus to research and development, Sir Michael said the UK Government planned to double the public-private spending on R&D to 2.5 per cent of the GDP over the next decade, with a target for science spending in 2007-08 to be $1.8 billion higher than in 2004-05.

The bio-tech hub

India is rapidly moving from being a label extension support centre to being included in global pivotal studies and the growing generics industry is boosting the flow of pharmacokinetic studies to the country. In this scenario, Indian companies are busy identifying areas of comparative advantage and leveraging them to compete globally, states "The Global Biotechnology Report 2006" brought out by Ernst & Young.

There are now close to 200 companies that have established R&D centers.

India is emerging as the vaccine hub of the world. Several vaccines are being procured from India in large volumes by GAVI (Global Alliance for Vaccines and Immunization). Exports are therefore a major contributor to India's vaccine sales. India's rising prominence in the field of biotechnology is making it a coveted partner for bilateral technical cooperation in this field.

India and Denmark have signed a Memorandum of Understanding (MoU) for developing a long-term cooperation in biotechnology between the two countries and for facilitating joint collaboration on specific areas of interest. India has also signed a MoU with Netherlands for cooperation in biotechnology in the areas of agriculture and health. Sweden too has signed a MoU with India for cooperation in the field of Science & Technology.

There are other external factors that augur well for the sector. According to a report on clinical research by the Confederation of Indian Industry (CII), the contract research service market is estimated to be around $9 billion. "There is an increased global trend towards collaborative outsourcing," the CII report says. The global outsourcing pre-clinical work and clinical research accounts for nearly $13 billion. The Indian market for pre-clinical development was estimated to $ 1.18 billion and the clinical development market was estimated at $ 1.63 billion in 2004. It is slated to grow to about $ 3.18 and $ 4.35 billion by 2011 respectively.

On a growth path

While Indian companies are making significant investments to improve and expand their manufacturing facilities in order to enter regulated markets, global players are eyeing India to establish their manufacturing bases in the country. Some Indian companies are already manufacturing these recombinant products on contract for global pharma firms.

India's booming biotech sector is estimated to create a million jobs in India and will attract investments of $250 million in the region in the next two years in Karnataka alone. The industry currently has manpower strength of around 25,000 of which 9,000 are employed in Karnataka. Quoting these figures, Chairperson of the Vision Group of Biotechnology, Kiran Mazumdar Shaw said that the industry still has a long way to go in terms of funding, government support and regulatory issues.

The biotech range in India could be impressive, including biogenerics, novel therapeutics, vaccines, biochemicals, nutraceuticals and cosmeceuticals. This will enable Indian biotech to expand globally, said Utkarsh Palnitkar, head of health sciences at Ernst & Young, India. This global expansion would be driven by domestic innovation, competitive costs, availability of valid data, and viable business models that have already been tested in India, he added.

However, efforts to expand India's highly skilled labour pool will be critical to the industry's growth. A comprehensive strategy is needed for giving an impetus to education in all aspects of biotech to provide a clear mapping of educational and industrial opportunities. As CSIR director, R. A. Mashelkar, advocated, "If India has to get some respectability in the global biotech region; it has to occupy one of the top five slots of the big club. With this kind of 37 per cent growth YoY basis, we hope that India can achieve it without any problem."

According to industry estimates, with the new product patent regime in place and a national biotech policy set to be notified soon, the Indian biotech industry is set to touch US$ 5 billion in revenues by 2010.

Top Ten players

1. Biocon India
2. Panacea Biotec
3. Wipro HealthScience
4. Wockhardt
5. Haffkine Bio-Pharmaceutical
6. Eli Lilly
7. Nicholas Piramal
8. Krebs Biochem
9. Bharat Serums
10. Indian Immunologicals

Disclaimer
Dr. Uday Lal Pai is an independent columnist for this web site. Dr. Uday Lal Pai  may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. Dr. Uday Lal Pai  is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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