Indian standalone biotech companies are facing serious fund raising problems as their methods such as venture funding and private equity routes are hit since 1999, according to Utkarsh Palnitkar, director, Ernst & Young, Secunderabad.

"Although there is tremendous potential for Indian biotech companies, there is also shortage of funds for carrying research. The coming 3-4 years would be highly crucial for the industry," says Dr. P. Babu, managing director, Bangalore Genei Pvt. Ltd, a Bangalore-based standalone biotech company with specialization in enzymes. If the situation continues, there would be many domestic biotech companies closing their shops.

According to a study by Dr. Babu, the fund raised by a typical Indian biotech company is only 1 per cent of what is being raised by its counterpart in US or Europe. US-based biotech companies raised $ 40 billion funds (VC, private equity, IPO and secondary offerings) during 1999-2000. Europe-based companies raised $ 8 billion during the same period. During early 2001, 100 US and 12 European biotech companies had cash in excess of $ 100 million in hand. The number of biotech companies with excess of $ 1 billion during early 2001 was 10.

"Many US/European companies can sustain an R&D expense of more than $ 10 million per year for 5-8 years," said Dr. Babu.

Compared to the US and European biotech companies, Indian biotech companies had been able to raise a capital of just $ 40-80 million during 1999-2001.

"Typical amount raised by a biotech company in India during 1999-2001 was $ 0.4-2 million. With this amount, an Indian biotech company cannot sustain R&D expenses for any significant period of 3-6 years," he said. Indian companies need to generate the cash within a very short time of six months to two years to fund any product development and support R&D he added.

According to Dr. Babu, Indian biotech companies cannot adopt the fund raising modes adopted by the US or Europe-based companies and there has to be a way adopted, suitable to Indian biotech companies.