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Biotech still a high risk business, feel consultants, VCs

BIOTECH may be the buzzword among new economy businesses but most consultants and venture capitalists still view investments in these projects as “high risk” due to the higher rates of research/product failure. This creates a piquant situation for entrepreneurs and startups since venture capital or private equity is a preferred source of finance at the early stages. Investment in the biotech sector has not taken off in India with the same velocity as infotech industry. This can be attributed to factors like weak intellectual property regulations and the skills required to handle original R&D which are very different from reverse engineering, besides restrictive government policies and slow pace of regulatory changes. According to ICICI Venture’s chief of incubator fund S P Narayanan, the company is looking at funding contract research, bioinformatics and clinical trial projects as they provide steady stream of work and get paid during various stages. “Biotech is a capital starved economy. Since developing a new molecule costs around $500 million to 1 billion, we provide about Rs 2-3 crore with gestation of around 2 to 4 years”, Narayanan said. Once the venture activity picks up it would be followed by largescale funding from stock markets for commercialisation of technologies. According to Benjamin, the growth areas in the Indian biotech sector are expected to be in sectors of agri biotech and human biotech (therapeutics and diagnostics). “The area of contract research is also expected to show significant growth. Driven by this market opportunity, one could expect to see an increase in entrepreneurial and venture capital activity in these areas,” he added. Many global pharmaceutical players are looking to outsource greater portions of their research to lower their overall research costs. With advantages of availability of highly skilled manpower at relatively low cost, Indian contract research organisations are well positioned to take advantage of the growing outsourced research market, he said. ICICI has so far given seed capital and hand held many IT companies to raise funds in the next round of funding. It has a similar plan for biotech startups provided they develop the skill-sets in relevant areas within the broad spectrum. Analysts say it is likely that most venture capitalists will invest in the biotech industry, with the exception of few sector-focused venture capitalists (such as those in the IT sector). Other venture capitalists who are likely to show interest in the biotech space include IL&FS ventures, GTV, AIG, Indocean Chase, and ICF ventures, among others.