Potential Zika vaccine could provide VCs exit path from Bharat Biotech

The firm, which says it has developed two vaccines for the Zika virus, may at best provide an exit to existing investors

The surprise announcement made by Hyderabad-based Bharat Biotech International last week about its ongoing vaccine project against the deadly Zika virus might provide an exit opportunity for the venture capital funds which stayed invested in the company longer than these usually do.

Reports about  three companies, including ICICI Ventures and International Finance Corporation (IFC), looking at divesting their stake coincided with the company's latest announcement.

The promoters said they'd no role in what private equity (PE) investors decide, or of any intention to raise fresh funds on the back of this news. “We are not mobilising any PE into the company. We do not need any funds. If ICICI is exiting, I am not responsible,” Krishna Ella, chairman and managing director of Bharat Biotech, told this newspaper.
 

Reports said Carlyle Group LP and TPG Capital LP have been doing a due-diligence exercise to acquire 30 per cent stake from the existing investors at an enterprise value of Rs 1,200 crore to Rs 1,500 crore.

On February 3, Bharat Biotech declared it had two promising vaccine candidates for the Zika virus. No other vaccine maker in the world has an ongoing research programme on it, at a time when the World Health Organization has said the virus poses a global public health emergency.

The vaccine, when and if it becomes a reality, has the potential to provide a huge upside for the company. Diseases linked to the Zika virus are now present in 23 countries, with Brazil the hardest hit. These also threaten developed countries.  Obviously, this was a big trigger in raising the company's valuations. For the existing investors,  who had to wait unusually long for an exit opportunity, this could be the time, say analysts.

All three investors -- ICICI Ventures, IFC and Subhkam Ventures -- plan to sell their equity, according to reports.

On the earlier occasions, the company promoters had denied  reports about such exits.

ICICI Ventures and IFC hold 11 per cent and 24 per cent stake, respectively. They'd invested in 2005. Their decision at the time had coincided with a major announcement by Bharat Biotech that it had not only developed a Rotavirus vaccine but would also sell it at $1 for a dose when it launched in the market. It took almost 10 years for that announcement to fructify; the formal launch of that vaccine, Rotavac, was in March last year, through Prime Minister Narendra Modi. The price point was also higher than what the company had promised.

"The investors waited more than 10 years to see the company's first announcement reaching a point of formal launch. It could happen in the case of the vaccine programme for Zika, though the company seems to have a first-mover advantage," a sector analyst told Business Standard on condition of anonymity.

Vaccine development is a long-drawn process involving five stages, including pre-clinical and clincial development, before endorsement for human use. Ella said bringing the promised vaccine into the market would depend on the regulatory processes and how quickly the government gave clearances.

For the existing investors, the first exit opportunity was after Sanofi-Aventis had acquired Hyderabad-based vaccine maker Shanta Biotech, in a $781-million deal in 2009, raising investor interest in Indian vaccine makers. In 2010, there were reports about ICICI Venture planning to use this as an exit opportunity. However, nothing had happened.