New Delhi, July 20 -- India's pharmaceutical and life sciences sector is at an inflection point as companies increase the pace of innovation, but it suffers from a lack of adequate funding, according to a new report.
While public funding remains insufficient and saddled with cumbersome processes and unpredictable timelines, private funding has low risk appetite and has fewer exit options from listing challenges, it added.
As the report, presented by the consultancy firm Boston Consulting Group and $300 million heathcare-focussed fund HealthKois, stated, "The challenge is no longer whether India can innovate - but whether it can do so at scale."
Faster pace of innovation
Early signs of the trend towards innovation in the domestic sector include more than 4x increase in patent filings, around 1.5x growth in innovation pipeline assets, around 1.6x rise in biotech startups and origination of more than 10 novel drug assets over the past decade, points out the report.
Yet the scale of innovation remains limited, with India's R&D spend at almost $2-3 billion, a fraction of US (nearly $70-75 billion); share of global clinical trials at 4% despite carrying 15% of the global disease burden; and having just two pharma/biotech startups per capita compared to China's five, South Korea's 27 and US's 53.
One of the key constraints is lack of funding.
Public funding is "diffused and insufficient", with maximum grant sizes in India at $52,000 versus $2-3 million in US or EU. It also comes with difficult application processes that have "heavy paperwork and fragmented requirements across schemes"; have unpredictable timelines and are routed through schemes that lack transparency, according to the report.
Meanwhile, private funding through venture capitalists is limited too.
One of the reasons for this low risk appetite among Indian VCs for deep-tech and biotech investments and the other is lack of patient capital and early-stage (Series A) funding.
"Patient capital comes from VCs running funds with lifecycles ranging from 10 to 14 years. Then you can essentially provide capital and see that research progress to commercialisation and then an exit," said HealthKois co-founder and general partner Ajay Mahipal told VCCircle. In other sectors, PE, VC funds stay invested only for four to five years.
Family offices are emerging as "structural enablers," he added. They are increasingly investing in this space and they tend to be more patient, he said.
The other challenges in raising private capital is limited specialist healthcare investors; reliance on foreign capital for Series B/C ($10-50Mn); reluctance among global VCs to invest in India-headquartered companies, unless re-incorporated abroad; and finally restricted exit pathways due to SEBI norms limiting biotech initial public offerings (IPOs).
Listing challenges
SEBI does not have biotech-specific restrictions on IPOs, said Mahipal. But, he added, "the challenge arises because many innovative biotech companies do not fit the financial profile envisaged under the conventional IPO eligibility norms".
SEBI introduced the Innovators Growth Platform (IGP) specifically for technology- and innovation-led businesses, including biotechnology companies. But, Mahipal said, "the platform has seen limited traction".
"Listing eligibility is tied to prior institutional backing and the investor base remains relatively narrow compared with the Main Board, limiting its effectiveness as a capital-raising avenue for biotech firms. SEBI has subsequently relaxed some IGP eligibility conditions, but adoption remains modest," he said.
"From an industry perspective, the larger constraint is not a biotech-specific regulatory prohibition but a mismatch between the long gestation economics of biotech innovation and IPO frameworks that historically favour businesses with demonstrated commercial track records," he added.
What needs to be done
One of the solutions the report proposes is building a specialist biotech capital pool.
This can be built by introducing targeted government schemes and tax incentives to catalyze industry investment in R&D; increasing direct public funding for early-stage and translational research; and easing access to external capital through single-window clearances and relaxed IPO /listing norms, among others.
But, as Mahipal said, "just private funding alone is not sufficient, you essentially need the whole ecosystem to develop".
The other suggestions for supporting innovation include having anchor institutions and incentivising joint research to encourage academia-industry partnerships, creating fast-track regulatory pathways for novel therapies, building supply chain and enabling market access, and fellowships and hands-on training for building talent.
Published by HT Digital Content Services with permission from VC Circle.