Private equity investments scenario in life sciences is tend to change gradually. Biotechnology is showing enormous growth in the last few years. Globally, biotech companies earned revenues with 20 per cent growth in 2005 over past year. About 20 biotech drugs have been approved in 2005, and 12 biotech drugs recorded sales of over USD 1 billion.
Nitin Deshmukh, head- Private Equity, Kotak Private Equity, mentioned, the total biotech IPOs in 2005 accounted for USD 813 million, while venture capital in the sector amounted to USD 3480 million in the same year, while total investments in biotechnology stood at USD 34,553 million, globally.
Investment in biotechnology is challenging as it has complex industry dynamics and long gestation period. The sector is also characterised by high levels on investments with negative cash flow. First round funding may not necessarily lead to second and third round funding.
Deshmukh added, key investment parameters that an investor will look at are: technology, intellectual property, pipeline, market opportunities, management capabilities, entry barriers besides others. Kotak Private Equity is actively seeking investments in the life sciences sector.
Sarath Naru, managing director, APIDC VCL, said, the valuation-value disconnect is often one of the major challenges in venture funding. APIDC VCL has funded companies like Evolva and Marillion. Evolva has received USD 22 million in the first phase and additional USD 18 million is expected in the second phase. APIDC VCL is funding Marillion USD 2 million in the first phase. Marillion is working in the areas of breast and prostate cancer.
Rising in-house research costs, declining productivity, post-launch risks, decreasing focus by pharmaceutical companies on early stage molecules are some of the major challenges the industry is facing today. Though India has made quick progress in CRAMS, the country is yet to make a mark in innovation. But the beginning has been made, Swapan Bhattacharya, head, TCG Lifesciences (The Chatterjee Group), said.
India has strengths in areas such as synthesis and bioinformatics, where as progress should be further made in the areas of biology and medicinal chemistry, Bhattacharya added.
On the VC-company relationship, Dr TS Jaishankar, Quest Life Sciences, said, venture capitalists often involve in risk funding. When VCs expect results in 3-4 years, it is quiet reasonable. Anuradha Acharya, CEO, Ocimum Biosolutions, said, handholding is key. Life sciences companies should develop scale and funds to conclude acquisitions. While Rajneesh Rastogi, IL&FS, said, VCs help the companies in bad times.
Akhil Awasthi, partner, Baring Private Equity, said, India is currently lacking sufficient VC funds and funds can be generated with the help of entrepreneurs and State supported funds.