Funds to support biotech research and development are under a squeeze, despite the Indian biotech industry growing at a healthy 21 per cent in 2010-2011.
The domestic biotech industry crossed $4 billion in 2010-11 compared with revenues of about $3 billion a year ago, says consultant firm Ernst & Young, in its annual report on the global biotechnology industry.
“While the biotech industry’s aggregate performance improved in 2010, there is now a widening gap between large, established companies and those at early stage for whom access to capital continues to be difficult,” says Mr Ajit Mahadevan, E&Y Partner (Life Sciences Practice).
“Biotech firms will need to adapt creatively to this environment by doing more with the funding that is available and by working from the earliest stages of development to demonstrate the potential value of their products to investors, prayers and regulators,” he adds.
Growth areas
Vaccines, diagnostics and devices and personalised medicine will be the key innovative growth areas for the Indian biotech sector.
Globally too, the biotechnology industry delivered good topline and bottomline growth in 2010, aggregate profitability for the second year in a row.
And yet, funding for research and development has grown increasingly scarce for the vast majority of firms in the sector, E&Y said.
However, the Indian biotechnology sector is one of the fastest growing knowledge-based sectors with comparative advantages such as R&D facilities, cost effectiveness and budding capability, giving it the potential to emerge significantly, it added.
Less innovation funds
Globally, a lion’s share of the funds has typically gone to the “profitable and mature” firms, as seen in the US. Further, the report points out, a 20 per cent dip was seen in “innovative capital”, defined as total funding minus large debt financing.
The E&Y’s “Beyond Borders” report observes that a confluence of challenges will make it difficult for the industry to sustain its historical level of innovation.
In addition to less available “innovative capital”, biotech companies face increased competition from other sectors for a smaller pool of venture capital.
Even with less capital available, companies are being asked to do more, as the process of discovering and developing drugs has become increasingly lengthy, expensive and risky, it notes.
India, however, will leverage its strengths in small-molecule generics (drugs similar to innovative drugs) and low-cost manufacturing capabilities to tap the opportunity of about 48 biologics – with an estimated sales of $73 billion – slated to go off patent in the next decade, the note says.