The Biotech Investment opportunity in India Presentation by Sarath Naru APIDC Venture Capital Limited

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The Biotech Investment opportunity in India
Presentation bySarath NaruAPIDC Venture
Capital Limited
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Quote Nature Biotechnology

• Fools who persist in folly can sometimes
  become wise.

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Mandate from the Organisers.

• So why are investors in the emerging markets so
  excited about opportunities in biotechnology?
• Are they ?

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Quote Nature Biotechnology journal

• One of the most important lessons to emerge is
  that biotechnology is a hard slog. It takes time
  to build all the elements-
• An advanced education system
• A requisite level of scientific excellence.
• A business friendly set of intellectual property
  laws,
• And an adequate regulatory infrastructure and
  healthcare system.
• Even when all this is in place, it will be much
  harder for lesser industrialised nations where
• RD expenditure is less than a quarter of
  industrialised nations
• Skilled and educated labour is at a premium
• Intellectual turf wars stifle collaboration
• Political turmoil is a frequent backdrop
• Intellectual property protection is murky
• So why would anyone invest in biotechnology in
  developing nations ???

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Sure enough Indian VCs are not exactly
rushing into this spaceEarly stage Pharma /
life sciences investment is low

• Early Vs. Late stage investments in India in the
  last 24 months
• Size of deals in the last 24 months

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Of course, this is a common theme with early
stage VC investment as well

• Early Vs. Late stage investments in India in the
  last 24 months
• Size of deals in the last 24 months

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Against this backdrop APIDC Venture Capital
launched Indias first biotechnology focused VC
fund

• Final closing April 2005
• Fund size 37 million
• Important investors
• IFC, Washington
• APIDC State govt. institution.
• Life Insurance Corporation- Largest insurance
  Corp
• Andhra Bank leading bank
• Technology development Board- Govt. tech funding
  institution.

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Having already confessed to being a foola more
preposterous thought

• To build real market leaders in a 5 to 10 year
  time frame.
• Our Overall Strategy To launch early stage
  companies addressing potentially large markets
  on a market leadership track over a 5 to 10
  year time frame.
• Clearly further foolishness.

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Our (naïve) strategy to achieve this

• Stage of Investment Invest primarily in early
  stage companies, and in larger companies that
  are attempting a paradigm shift in business.
• Geographic focus Invest in India related
  businesses anywhere that leverage India
  advantages to gain market leadership.
• Sectoral Focus
• Core areas of biotechnology in
• (a) health care drug discovery,
• (b) food agro processing, agriculture dairy,
  and
• (c) environment industrial.
• Peripheral areas
• That are being spurred due to the impact of
  biotech (such as healthcare services, seeds
  distribution, food processing, waste management,
  etc.)

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Our (naïve) strategy to achieve this..

• Financial risk diversification strategy
• Invest 500k to 2 million in the first round of
  investment of a company.
• This is appropriate based upon deal sizes in
  India.
• This is appropriate based upon empirical data of
  individual investment size relationship to Fund
  size.
• Invest in later rounds up to 5 million based on
  milestones.
• In line to provide sufficient diversification to
  fund in terms number of deals.
• This is appropriate based upon empirical data of
  individual investment size relationship to Fund
  size.
• Invest in 15 to 20 Companies over a 2 to 3 year
  time frame.
• Empirical data shows that about 15 to 20
  companies / fund is sufficient to diversify risk.

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Lets take a look at how we expect to take a shot
at this
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Factors and lessons we considered as we build the
Fund portfolio.

• Global biotechnology VC investment trends.
• What will be Indias biotech VC investment
• opportunities ?
• 3. India VC investment parameters versus
  US/Europe
• 4. How are market leaders built in
  USA/Israel/India ? Lessons
• for us in India.

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3. Factors and lessons to be considered as we
build the Fund portfolio. Global biotechnology
VC investment trends.
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Global 10 Year Biotech VC-Investment
TrendsSmall Molecules and Medical Technologies
are Hot!

• Small molecules drug discovery - High Interest
  levels remain over the decade !
• Medical technologies including devices, reagents
  and research equipment - Increased focus.
• Platform technologies, particularly
  bio-informatics based ones - Decreased interest.

Source 7 VC websites and www.vcdeals.com
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Global 10 Year Biotech VC-Investment
TrendsSmall Molecules and Medical Technologies
are Hot!
Rapid decline!
Continued interest
Big decline
Huge growth !
Source 7 VC websites and www.vcdeals.com
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Global 10 Year Biotech VC-Investment
TrendsSmall Molecules and Medical Technologies
are Hot!
Initial euphoria associated with HGP,
opportunities still exist in wetlab and
informatics combinations
Huge interest due to advancement in nanotech,
semiconductors and bio-friendly materials
Interest in small molecules remains
Shift away from internet and software
applications to customized reagents, research,
retailing etc
Interest in biotherapies up due to more products
Marginally down due to a few failures with GT but
RNAi is hot
Remains low due to small market size, but shift
towards PGx products
Shift towards converting injectables to oral and
inhalation
Source 7 VC websites and www.vcdeals.com
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3. Factors and lessons to be considered as we
build the Fund portfolio. What will be Indias
biotech VC investment opportunities ?
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3. What will be Indias biotech VC investment
opportunities ? India biotech investment
opportunitiesdriven by its competitive advantages

• Drug Discovery
• Deep knowledge base of traditional medicine to
  aid in drug discovery.
• Large Bio diversity of plant / marine / animal to
  aid in drug discovery / production
  nutraceuticals.
• Clinical trials
• Large drug naïve populations for rapid and low
  cost clinical trials.
• Services focusing on the huge domestic market
• Huge domestic markets with specific needs that
  can provide scale advantages to companies
  addressing these needs availability of drugs,
  diagnostic services, healthcare delivery, health
  insurance, etc.
• Contract research/ manufacture
• chemistry skills, that can lead to strength in
  process design, contract manufacturing,
  laboratory drug discovery related services.
• Orphan drug discovery development Low cost
  skilled labor with easy availability provides the
  ability to build contract manufacturing and
  services businesses build drug discovery
  businesses focused on orphan drugs, etc.
• Bioinfomatics services strong IT skills to aid
  in developing IP in a number of the services
  areas that Indian companies are involved in.
• Stem cell / GM crops Enabling policies that help
  development in Stem cell/ banking research, GM
  crops, etc.

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India Biotech VC investment Opportunities India
investment opportunities include a higher
proportion of Agricultural and Industrial
Biotech than US biotech.
India advantages include (i) India specific
traits (ii) unique microorganisms animal health
(iii) enabling regulatory processes
India advantages include (i) tropical biological
material plentiful (ii) low cost manufacturing
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India Biotech VC investment OpportunitiesKey
areas driven by Huge local markets, bio-diversity
(plant, marine) traditional data base of proven
medicine, unique tissue, enabling policies, low
cost

• Small molecules Driven by Ayurveda /
  biodiversity
• Diagnostics infectious disease (India-specific
  strains) and PGx (drug naïve / inbred tissue)
• Services enabling environment for clinical
  trials, health insurance, retailing
• Other segments enjoy faster RD and low cost

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India Biotech VC investment OpportunitiesIn
comparision to the US 1.Similar scope in small
molecules2. Significantly higher potential in
diagnostics, services3. Significantly lower
potential in medical technologies.
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India Biotech VC investment OpportunitiesIn
comparision to the US Reasons
Ayurveda and biodiversity
Few opportunities due to lack of synergies
between disciplines (doctors and engineers)
High interest levels for infectious diseases
(India specific strains) and PGx (drug naïve and
inbred tissue)
Enabling environment for insurance, retailing and
low cost ops for custom research services
Biodiversity for small molecule related genes and
unique phages for antibiotics
Faster development at lower cost, but few projects
Faster development at lower cost, but few
projects, crowded IPR space
Few paradigm shifting opportunities
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3. Factors and lessons to be considered as we
build the Fund portfolio. India VC investment
parameters versus US/Europe
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US/Europe VC investment parameters

• Leading overseas Early stage Biotech VC data
• Early stage investment size - 2 mil
• Follow on Investments up to - 7 mil
• of deals receiving 1 round of Funding 50
• Syndication of the deal more the norm.
• Invest in multiple rounds over the life of the
  deal

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India Vs. US/Europe

• India VC fund Parameters
• First Round Inv. size - 500k to 2 mil
• Later rounds up to 4 mil
• About 50 receive follow on.
• Very little SYNDICATION
• Total number of deals 15 to 20 deals.

• US/Europe VC fund Parameters
• First Round Inv. size - 2 mil
• Follow on Investments up to - 7 mil
• About 50 receive follow on
• Syndication of the deal more the norm.
• Multiple rounds in a single comp.

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3. Factors and lessons to be considered as we
build the Fund portfolio. How are market leaders
built in USA/Israel/India ? Lessons for us in
India.
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Some Case studies

• Dr. Reddys - India
• Biocon - India
• Various Companies Israel
• Martek - USA
• Invitrogen - USA

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Martek current market Cap 1.33 billion Sales5
mil to 10 mil in 1st in 8 yrs 10 mil
to 185 mil in next 4 yrs.
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Martek Success Factors - Lessons

• Identified a product (DHA) which appeared to have
  a huge potential market, but small current need.
• POSSIBLE TO EMULATE.
• Invested heavily and built patented processes to
  produce a significantly superior product.
• POSSIBLE TO EMULATE, BUT NEEDS LOTS OF EARLY
  STAGE FUNDING.
• Invest in market development and collaborate with
  biggies (likes of GSK, nestle)
• Access of distribution network
• Sharing product development cost
• WILL NEED OVERSEAS COLLABORATIONS

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Invitrogen Inorganic GrowthCurrent Market Cap
3.87 billionSales 0 mil to 9.3 mil in 1st
10 yrs. 9.3 mil to 1023 mil in
next 5 yrs.
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Invitrogen Path to Success - Lessons

• Got into the reagents/kits space, addressing the
  needs of bio-discovery labs early on, and built a
  large network of customers.
• EARLY ENTRY DIFFICULT BUT POSSIBLE IN NICHE
  AREAS.
• Used VC funding to reach up to IPO.
• Consolidated multiple niche products for the same
  space through acquisition (by using IPO funds).-
• NOT POSSIBLE TO ACQUIRE IN INDIA
• Added to their market network by acquiring a
  complementary company. NOT POSSIBLE TO ACQUIRE IN
  INDIA

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Some lessons from India..

• Dr. Reddys- A doable model
• Experienced founder
• Took advantage of large domestic markets to build
  competitive advantages
• Used regulations cleverly but not lulled by this
  false sense of calm invest largely into RD
• Raise capital aggressively to invest in the
  Companys future
• Biocon A doable model
• Entreprenurial and gritty founder
• Follows Sam Colellas maxim, the business focus
  of early stage companies can never be predicted
• Use services income to build IP in
  products/process.

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Some lessons..

• Israeli Companies An IT model But India has the
  pre-conditions
• Move to USA in about 18 months
• Leave RD, operations in Israel, but the
  marketing and even corporate offices in USA,
• Founder makes room for well scarred CEO from the
  USA,
• Transition timing is important before the
  previous mgmt gets too settled, and after
  sufficient capital is raised from VCs both in
  Israel USA

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Should you jump into it ? Can we pull this off.

• You must.! Co-investment is an important aspect.
  More hands to build leadership , the better it is
  !
• Meet us here in five years to see if the fools
  persistence paid off.
• Thank You!