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Biotechnology in India

Despite spanning several decades, the Indian biotechnology sector is limited when compared to the US and Europe. However, the country is making considerable investments in the sector through its government and venture capital funds. Utkarsh Palnitkar of Ernst & Young examines the growth of India's biotechnology sector and assesses what the future holds

India's biotechnology sector is several decades old, and has been nurtured since its inception by the national government. However, it is an industry still in its infancy. Currently India is making a considerable investment in both academics and the existing industry infrastructure to accelerate the sector's growth and contributions.

Government support and regulation

The government's long-standing support for scientific pursuits dates back to the 1940s, when it established the Council of Scientific and Industrial Research (CSIR), which today has a network of some 40 laboratories, 80 field stations, and 22,000 personnel.

Another key government institute — the Centre for Cellular and Molecular Biology (CCMB) - was established in 1977 solely for the advancement of biotechnology. CCMB has spawned a number of industry collaborations and technology spin-offs. It worked with the private sector to develop India's first recombinant DNA vaccine for hepatitis B. It developed protocols for CCR-based markets and therapeutic cancer treatments. Typically, private firms partner with CCMB by funding a particular research effort. The institute conducts the research and development, and the firm handles the commercialisation process. Some such collaborations include:

• Developed country's first recombinant DNA-based Hepatitis-B vaccine for human use by Shantha Biotechnics (P) Ltd., Hyderabad.
• Helped Dr Reddy's Research Foundation, Hyderabad through specific technology tie-ups.
• Transferred a technology about RNasin to M/s Bangalore Genei (P) Ltd., Bangalore.
• Helped M/s EID Parry Ltd., Chennai by developing a protocol for standardization of PCR-based markers to distinguish the parental and hybrid seed varieties of rice.
• Undertook a collaborative research project with M/s Dabur Research Foundation and the IICT to develop a new therapeutic agent for the treatment of cancer.
• Started a collaborative research program with M/s Biological Evans Ltd., Hyderabad to provide rapid, accurate and reliable diagnostic service based on modern molecular methods to cancer patients.
• Engaged in a long-term collaboration with Satyam Computer Services Ltd (SCSL), to jointly identify business opportunities at the global level for IT-enabled services in bioinformatics and related fields.

In 1986, the government created the Department of Biotechnology and gave it a very clear mandate: to promote biotechnology throughout the country on both the local and national levels. To that end, the Department:

• Collects and disseminates information
• Develops bio-safety guidelines; promotes biotech education and R&D
• Fosters university and industry interaction
• Establishes research institutes
• Approves proposed biotech projects.

In summary, the government's Department of Biotechnology is a very powerful agency. Other efforts to expand the industry include the following:

• The national budget for the fiscal year 2001-02 provides a huge increase for R&D spending on biotechnology and gives biotech firms a 150 per cent tax deduction for R&D.
• The government is promoting the establishment of biotechnology centres within industrial parks. Some are already established like Marine Biotech Park in Chennai; others are in the pipeline. For example at least one state - Andhra Pradesh - is collaborating with a private promoter to build a state-of-the-art biotech park. Such parks are expected to pop up across the country. Some of these projects are partly funded by the Central Government and the remaining comes from the local state government and private investors.

Loose regulation. Government protection for biotechnology innovations is very loose. India's patent act, which was passed in 1970, does not mention biotechnology or any related terms. Therefore, no living entity (plant or animal) produced by biotech processes is eligible for patent protection. However, the process itself can be patented.

Several state governments, particularly in southern India, are pursuing biotech policies of their own. In the meantime, both national and local governments are working to convince the public of biotech's great opportunities and implications. There has been a lot of recent press regarding biotechnology, and public perceptions are being favourably changed.

Access to capital

Biotechnology firms have access to capital through two avenues: private venture capital and government funding.

Venture capital limited. Venture capital (VC) funding in India is severely limited. We have six or seven prominent VC firms, including ICICI (Industrial Credit and Investment Corporation of India), and Morgan Stanley, which been fairly active here. But most VCs are unwilling to invest in biotech companies' R&D activities. Rather, they want to fund companies whose product and market are clearly identified. They want to fund the commercialisation of techniques that have already been developed. I think this mentality will change in time, but at the moment it leaves entrepreneurs feeling the pinch when it comes to conducting basic R&D. The other VC funds available include ILFS, ICF, SIDBI and CDC.

Government support. Government grants are available, but they tend to be small and typically targeted to government institutions or research bodies. There is little government support for private sector R&D outside of that available from the Technology Development Fund, which finances CSIR-approved projects. However, many state governments are setting up biotech development funds of their own and earmarking significant amounts to invest in companies located within their boundaries.

Human resources

India has a great deal of expertise in certain critical areas: microbiology, chemical synthesis, immunology, and biotech equipment manufacturing, to name a few.

Several universities and colleges have biotechnology curricula. The Indian Institute of Technology (IIT) is a premier engineering school that has launched master's and doctoral degree programs in the biosciences and biomedical engineering. Local governments are setting up institutes for bioinfomatics and applied biotechnology. As a result, the country is preparing a pool of talent for this growing industry.

Products and technology

Biotechnology promises to be an important business sector of the future. To date, however, there has been little commercialisation of Indian-developed products. Many products are imported by domestic firms as well as by foreign firms that have a presence here.

India's growing population, especially its large agriculturally based segments, stands to benefit tremendously from new technologies in agriculture, nutrition, pharmaceutical treatments, and, of course, environmental sciences.

Entrepreneurial endeavours tend to fall into the following categories:

• Industrial enzymes. Currently, about 70 per cent of the total enzymes business in the Indian market is controlled by Novozymes and Genencor.
• Bioinfomatics. India has proven strengths in information technology. A number of Indian entrepreneurs are looking to use these strengths as leverage for entering the field of bioinfomatics.
• Bioagriculture. More than half the country's population depends on agriculture for its livelihood. Bio fertilizers and herbicides have a huge market here. As a result, bioagriculture in India has been growing at a rate of more than 70 per cent a year.
• Contract research. The cost of doing research in India is relatively low, and the demand for this activity is high. Many entrepreneurs are pursuing this opportunity, despite the need to meet FDA, GMP, and ITR guidelines.

Globalisation

As India's biotech base diversifies, so does its global outreach and appeal. Our pharmaceutical sector has attracted a large number of multinational companies such as Eli Lily and SmithKline Beecham. Many of the large US and European multinationals already have a manufacturing presence here. Some are establishing partnerships with Indian firms. For example, Eli Lily has an agreement with Ranbaxy to market Monsanto's recombinant bovine growth hormones in India.

Data mining and warehousing capabilities going global. Our information technology products have found lucrative markets abroad, particularly in the United States, which accounts for between 60 and 70 per cent of India's IT exports. Now Indian IT companies are looking at leveraging the data mining and data warehousing businesses. The challenge is to convince biotech companies in the United States and Europe that it is safe to transmit their data to India. I think a business model will emerge in which Indian bioinfomatics companies set up an operation or subsidiary in the targeted foreign countries. Having a local presence in these places will nurture business relationships.

Our bioagriculture segment also consists of a mix of multinationals (e.g., Monsanto and US Agriseeds) and Indian firms (e.g., Mahyco and Proagro).

Several India companies have established a presence in the United States and Europe, and one such company i.e. Dr. Reddy's Lab is also listed on the New York Stock Exchange.

India's biotechnology market at a glance

Number of companies. Using a broad definition of ‘biotech' - which includes basic industries such as food processing and highly sophisticated ones such as recombinant medical therapies - the sector has about 800 companies. However, approximately 15 of these are engaged in sophisticated biotech businesses. Biotechnology employs about 10,000 people and generates roughly US$500m in revenue annually. That figure is expected to surpass US$2bn by the end of the year 2001.

The pharmaceutical and human health industries constitute about 60 per cent of the biotech sector, and continue to grow. Bioagriculture is the next largest component. Other important industries include industrial enzyme manufacture, bioinfomatics, and medical devices.

Most Indian companies are private. Biotechnology has had limited appeal so far on our capital markets, and we have less then a dozen biotech companies listed on the public markets.

We have had some limited IPO activity, and more is expected this year and next. Activity has been slowed by the slump in our capital markets — a situation that is occurring in markets around the world, and is heavily reflected on the NASDAQ.

Most Indian companies are not engaged in basic R&D or drug discovery. Rather, they manufacture the products of others, through the development of unique manufacturing processes.

Geographic distribution. Biotech development is largely centered in the southern states of Andhra Pradesh, Karnataka, Tamil Nadu, and Kerala. The hepatitis B vaccine was first manufactured in Andhra Pradesh. The generic drug industry has flourished there. The western state of Maharashtra is the second largest biotech centre, and its base continues to expand in states including Gujarat and Chandigarh.

The southern states have a large number of research institutes. In the city of Hyderabad alone, there are probably 40 such facilities, ten of them dedicated solely to biotech. There's a DNA centre, a centre for cellular and molecular biology, and an institute for chemical technology. In Bangalore there's the Institute for Science. In the western state of Maharashtra there's an institute for vaccine research.

Interestingly, these are the states that have announced biotech policies. These are the states that are leading the development of biotechnology in India.

Copyright © 2002 Ernst & Young

Utkarsh Palnitkar is a partner at Ernst & Young in India.

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