Backing BT for the big bang growth

True to this foresighted watchword, Karnataka has been steadfastly in the forefront with enabling policy prescriptives to energise and catalyse growth of these two sectors. In fact, both IT and BT as twin drivers are not only synergistically driving the brand equity of Bangalore and Karnataka on the global business amphitheatre but also India’s supremacy as well in the new millennium.  

As with IT, Karnataka, given its strong skilled human capital base, has scaled itself on the global biotech market, while, at the same time, ensuring that global biggies too pitch their tent in Karnataka.

Points out Karnataka Vision Group on Biotechnology Chairman & Biocon India Chairman & Managing Director Kiran Mazumdar-Shaw “Indian biotechnology has requisite genes for global success.” Mazumdar-Shaw should know. For Biocon exports products and solutions in over 50 nations worldwide. The company, with turnover of Rs 912.34 crore for fiscal ended 2008-09 stands next only to Serum Institute of India with turnover of Rs 1,114 crore.

Critical mass

Recognising the critical mass that the sector was slowly and steadily building, the State government came up with its Millennium Biotech Policy in 2000 to provide necessary fillip for the sector to flourish. The main objectives then being to spread awareness on investment opportunities, outline incentives and concessions to attract investment, creating specific infrastructure, and provide appropriate institutional framework.

And, true to this set template, in these last nine years, the state has seen major strides in this sector. Observes State IT, ST & BT Principal Secretary Ashok Kumar Manoli, if in 2000, Karnataka and Bangalore boasted just handful of 47 companies, mostly local bred, today, it has swelled to over 187 companies, with large contingent being global majors. Karnataka today accounts for over 50 per cent of biotech companies in the country, making the city an important Biotech Hub of Asia. Bangalore biotech companies’ total turnover of Rs 2,535 crore for fiscal year ended 2008-09 accounted for 21 per cent of country’s total revenue of Rs 12,137 crore, followed by Mumbai at Rs 2,476 crore.

Burgeoning exports

Further, stating that the sector in the State has been logging compounded annual growth rate of 15-16 per cent over last nine years, Manoli said Karnataka’s biotech exports has grown from a modest Rs 200 crore in 2001 to over Rs 3,000 crore accounting for a quarter of country’s total biotech exports,

The new biotech policy released last week, Millennium Biotech Policy - II, 2009, rightly observed that the new policy’s main and stated objective was to maintain State’s and Bangalore’s leadership position.

Concurs Mazumdar-Shaw that the new policy is a step up from the original Millennium BT Policy in that it is aimed at investing in building continued leadership. She says, it seeks to leverage the strengths of a fledgling sector and build a mature BT industry of global scale.

The Millennium BT Policy -II has mapped the achievements so far and chalks out an action plan that addresses the gaps and resource needed to project Karnataka and Bangalore as most favoured BT destination for investment. “The sector has been gradually building necessary critical mass and the new policy is a reflection and recognition of this aspect and catalysing its further progress,” emphasises Mazumdar-Shaw.

The new policy has not only unleashed fresh set of sops to incentivise the still nascent sector  through investment promotion subsidy, interest-free loan on VAT for new companies, attractive subsidy for anchor R&D unit et al., to further boosts the sector’s prospects which will have great role to play in the lives of people as also the economy.
 
Wary & watchful

Furthermore, Manoli pointed out, knowing that venture capitalists are still wary and watchful when it comes to investing in biotech ventures, “a Bio Venture Fund with an initial corpus of Rs 50 crore has been mooted.” Claiming that a lot of interest has been evoked from VCs for participation, he said, the fund would have a 26:74 equity ratio, wherein the government would be a minority stake-holder. But Mazumdar-Shaw feels funding start ups in BT is still a challenge.

Manoli also claims that the new policy, is much more focused as the sector has grown gaining necessary strength to brave new challenges. Almost Rs 400 crore of incentives and subsidies have been proposed in the new policy including the venture fund and a total of Rs 142.33 crore has been provided as incentives and sops till date under the earlier policy.

Evolving eco-system

Observing that the policy is timely, Strand Life Sciences CEO & ABLE (Association of Biotech-led Enterprises) President Vijay Chandru observes “success  is all about timing and doing the right thing. With healthcare, food security & energy security and environment today’s core concerns being directly addressed by biotechnology, the sector is poised very strategically. Indeed the sector is on the threshold of criticality in size and ecosystems.”  Observing that the government could do much more, Chandru says the investment climate is yet to mature for biotech which involves a lot of innovation and a lot of risk capital. He hopes that recent VC trends witnessed in Silicon Valley which saw nearly 32 per cent of funds flow into biotech and lifesciences sector would percolate down to India as a ripple effect cajoling India-based VCs as well noting that Silicon Valley VCs have been more aggressive now than before than Indian counterparts.

Agreeing that VC interest for bio-market is still developing and the eco-system is not developed for any type of technological innovation spectrum including biotech, Cellworks CEO Taher Abbasi says these by and large require different kind of review process. Currently, he states VCs are still in profit and loss mindset and skewed more towards monetisation rather than market potential and long-gestation scenarios.

However, the situation is slowly changing as a few firms are looking at the space to build domain expertise. Cellworks, incidentally, had to tap funds overseas due to lack of interest India. Connexios Life Sciences CEO & Managing Director Suri Venkatachalam also pointed out that far fewer biotech startups have been funded in India (and Karnataka, is no exception) compared to the start-ups in other industries especially compared to broader area of ICT.

According to Venkatachalam, VC’s in India do not look at biotech or life sciences, in general, as a thrust area as there are very very few life science/biotech focused VCs in India. And if one looks more specifically at early stage funding in life sciences it is almost impossible to find a VC.

The reason they tend to pursue “lower risk” opportunities in other sectors which can provide relatively high returns in a fast growing economy like India while there is no compelling financial logic for VC’s to build life science portfolio’s.

Connexios, he points out, was lucky in that it’s investor Nadathur Holdings started off as angel investor when we were at idea stage and has continued to support even at a stage when we are far more mature company. Additionally, biotech investors need to have much longer time horizons and again in this respect Nadathur has been an extremely patient investor, he adds.

Venkatachalam thinks that though the new policy is progressive, the most critical is the availability of true “risk” capital which would allow more start-up experiments to happen. In addition, quality incubation facilities, building and facilitating vibrant academia – entrepreneur relationships to create and commercialise IP are other essentials, he adds.

On an optimistic note though, Mazumdar-Shaw observes BT Inc is expected to register $3.5 billion this fiscal with Karnataka alone accounting for Rs 5,000 crore. “We aim to be $5 billion sector by fiscal year 2011-12, a year late, while 2020 should see a $10 billion sector with market cap of $50 billion,” Mazumdar-Shaw says.
Indeed, a truly ambitious aspiration and with new biotech policy rightly concentrating on investment and human capital to build requisite talent pool, one can anticipate that the State’s biotech sector is poised for a true paradigm shift to take next leap forward pitchforking itself into the exalted realms of achievements that it’s better and bigger sector IT is today proudly basking in. The State’s BT boulevard has never been so green before as it seeks to traverse many, many miles in its tryst with next big destiny.