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Home > Business > Special

Cracking the biotechnology riddle

Subir Roy | April 23, 2003

The Indian biotechnology industry comes in for a close annual look during Bangalore Bio, the attempt by the intrepid biotech industry in the city to promote both itself and the city as its home.

Each year the event does get bigger (so was the just concluded Bangalore Bio 2003), bearing testimony to the perseverance of the organisers.

The hurdles for biotech are currently plentiful. The biggest is that the part of it in the public eye as a cutting edge industry, dealing with the manipulation and deciphering of genes, is not getting the funding needed to get anywhere.

What could have gone wrong? If IT has had no difficulty in accessing venture capital funds then why is biotech struggling? There is an urgency in the matter; in IT India is in many ways ahead of China, but in biotechnology it is the reverse.

Bangalore Bio 2003 identified several issues, which have to be understood to get at the root of the problem. One, biotech and IT are two different animals and part of the problem lies in expecting one to behave like the other. VCs fed on the IT model were disappointed with biotech. They themselves now admit they don't know much about Indian biotech.

Two, the Indian competitive advantage in knowledge-based industries stems from its pool of scientific talent. IT has been its major beneficiary. But this has also led to a decline in the study and teaching of the sciences per se.

Non IT disciplines in science find it difficult to get students and their teachers are being retrained to teach 'core' science subjects to IT students. There is a lack of enthusiasm in and support for science teaching in the country.

At this rate the Indian scientific pool, built up with government funding in the past, will become horribly one dimensional in the age of self-financing. From where will biotech then get its skills?

Three, the whole VC funding issue would have had a different complexion if the established pharma companies with fairly deep pockets had taken up the biotech route as the path of the future. Only select companies have done so.

The pharma companies may be short-sighted and unduly focused on the bottom line. But it is also true that conventional chemistry based pharma and biotech are two different businesses requiring different mindsets. It is as idle to expect one to morph itself into the other as it is to expect a software services company to get into products.

If that be so then the biotech industry has to grow up the hard way, by depending on its own ingenuity. This brings us back to the issue of finding risk finance.

Why don't foreign venture capital funds want to look at Indian biotech? India is high risk and Indian biotech firms' needs are so small that western funds don't find it worth their while to process such proposals. It is like going to a wholesale financier for a retail loan.

But the great advantage of Indian biotech ventures is that their costs are so low (one-fifteenth of western ventures, according to one expert) and their project sizes so small! Therefore the nascent Indian industry has to develop its own business model, a low cost sustainable one.

Even before the funding, scientists need to have a business approach. Right now they are more forthcoming with their knowledge and processes but not products. They have to learn how to prepare business plans and when they are on to a novel discovery, they shouldn't give their whole secret away on the first page of the proposal!

Every university should have a technology transfer department. And to have something to sell, you have to learn the importance of acquiring intellectual property, applying for patents.

Since VCs will not look at you unless you have some IP to offer, the real issue is not how to get pre-VC funding. One suggestion was to bring in a bit of your own money and borrow some from your friends. Then others would take you seriously.

But by far the best institutional arrangement suggested was the one followed in Israel, where the government first matched VC funding and later sold the stake back to the VC at nominal cost. This reduced the risk borne by the VCs and relieved the government of tasks it is not good at -- selecting, tracking and exiting projects.

The one institution that came in for repeated honourable mention was NMITLI (the CSIR-led New Millennium Indian Technology Leadership Initiative), which has disbursed Rs 100 crore (Rs 1 billion)in two years and become a key funding source for the biotech sector. It was a prime example of the much recommended industry-institute-VC partnership.

Relatedly, there was repeated assertion of the government's role in building up not just biotech but research and knowledge based industry in general. It cut across all ideologies.

In the US, home of free enterprise, successful science parks in institutions like Stanford and Cornell had grown up on government funding; the budget of the National Institute of Heath, which played such a seminal role in pharma and biotechnology research, had gone up four times in the last ten years.

In France, where VC funding did not exist, the government had funded biotechnology right through. And China's biotechnology advantage had been scripted by a forward looking government.

The deliberations bespoke of a highly talented group very near to the magic cave but groping with some frustration for the lever, looking for a final answer that would crack the problem.

The thought you came away with was that if you keep banging your head against the wall in this manner, finding the magic formula for succeeding in biotech will be only a matter of time.

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