Indian pharma companies may look forward to enter the venture capital (VC) and private equity (PE) space by setting up dedicated funding source to support innovation. The main reason for this is their comprehension of science and high risks ensuing from such projects. Taking the lead, Cipla Ventures floated by the pharma major Cipla in mid-2013 is here to support start-ups in pharma ingredients, biotech and medical devices.
According to Viren Mahurkar, managing director, HitchinRock Advisors, Singapore, global private capital flows originating in US and EU are reluctant to invest in Asia despite funding requirements from scores of entrepreneurs. Instead, Asian generic pharma and medical technology companies could potentially be major investors in biotech innovation for the future.
Factors impeding capital investment in Asia are the slowdown of consumer growth, poor commercial opportunities, weak Intellectual Property (IP) protection, poor pricing and remuneration. Much of the R&D in biotech is not seen to be well-rooted in science or not addressing unmet medical needs. Most funding companies see that in early stage, there is very low probability of success and are averse to taking high risks, he added.
Mahurkar was here in India for the Bangalore India Bio 2014 addressed the session on Investment & Entrepreneurial Finance for Bio Business. Speaking on the capital raising for Asian biotech companies, he said that there were both challenges and policy implications which primarily retarded funding in the sector.
“Particularly in India IP is challenging. There are the quality concerns, price controls, and the regulatory situation is in a flux. This has created a huge credibility gap among global companies. Upgrading the local regulatory system might partially mitigate the situation. It is high time Indian pharma and biotech companies sustain the innovation eco-system and start financial ventures themselves,” he pointed out.
Globally, big pharma companies are looking to invest in healthcare IT and digital health. It is reported, that in 2012, there projects valued at $200 million was funded and in 2013, there was a ten time increase. “Unfortunately this growing enthusiasm to invest in booming global biotech opportunities is juxtaposed with waning interest in the emerging markets. In fact the emerging market’s percentage of accessing global PE funding has not been good in 2013. In 2014, it is seen to not so bad or as worse of 2013,” he said.
However, what is seen is that Asia’s limited presence in the global PE and VC landscape would increase small-to-medium company buyouts or acquisitions. Now PE and VCs role is all about sighting opportunities. Now the pharma and healthcare sector receives 34 per cent of the VC and PE assistance, he noted.
The dry powder asset allocation or money in hand was estimated at $28 billion in 2005 and in 2013 it was $120 billion and many investors were waiting to invest in Asia and particularly India which included acquisitions. But the serious concerns were high valuations by the promoters and many such keen investors also attributed regulatory issues accounting for 90 per cent of their huge barriers related to compliance and governance issues in China and India, he said.
Therefore Indian pharma and biotech companies should take a cue from Israel government’s Yozma model to fund potential and high risk tech innovation.