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Earlier this month, Bangalore-based Biocon, one of the country's leading biotechnology firms, launched an innovative biologic drug called Alzumab for the treatment of an auto-immune ailment, psoriasis. The drug was 10 years in the making and cost the company, which spends 10 per cent of its revenues on R&D, "tens of crores."
The drug is a novel entity, not a biosimilar, the biological equivalent of what is called a generic in pharmaceuticals relying on conventional chemistry. But it will be competing with other drugs by companies like Pfizer and J&J addressing the same condition with differentiated outcomes and so can be termed as, what is popularly called, a "me too" product. This is the second innovative drug from Biocon - in 2006 it had launched a product for the treatment of neck and head cancer - and gives the image of the Indian biotechnology industry a much needed boost.
At the turn of the century, information technology (IT) and biotechnology were the two new areas on which a knowledge-driven emerging India pinned its hopes. While IT has more than fulfilled its promise, biotechnology has lagged. With Biocon gaining a toehold in the prestigious innovation landscape (Indian IT remains mostly a non-innovative services play), it may be the right time to examine why biotechnology has not fared so well and what can turn things around for it.
It is not as if biotechnology has not done well for itself. In 2012-13, the sector clocked a turnover of Rs 23,500 crore, achieving compound annual growth rate of 15 per cent in the last five years. In comparison, IT and IT-enabled services, with a turnover of Rs 6.93 lakh core, grew at 18.5 per cent compound in the last five years. Exports account for around half of the biotechnology industry's turnover, compared to 80 per cent in the case of IT.
Hurdles to growth
There are two realities which underline the disappointment over biotechnology. One is the number and quality of jobs the sector has to offer. A decade or more ago, a large number of biotechnology courses were offered for a range of degrees. Over time there is an oversupply of degree holders and even those who have been able to find jobs have not been able to fulfill their expectations.
The gap between expectations and reality has also been highlighted by the way in which venture capital and private equity funding have viewed the industry. Initially, in the 2000s, early stage funding was forthcoming and over a five-year period the industry received over $1 billion in investments, says Biospectrum. But things changed for the worse after the global financial crisis.
Nitin Deshmukh, chief executive officer of Kotak Private Equity, attributes the current lack of early stage funding for biotechnology to various factors. There are very few Indian funds and they are turning away from biotechnology to healthcare services where the returns are quicker. Regulatory uncertainty has played havoc with investor confidence. There is also a lack of knowledge - few bankers can handle deals like supporting firms in out-licencing - and a near absence of mentors who have made their money and can guide start-ups.
The root cause for the industry's loss of glamour goes back to its earlier days when there was an excess of enthusiasm stemming from a "lack of understanding," says Goutam Das, consultant and industry veteran. This resulted from not having a realistic idea of the time, skills and resources it will take to develop complex molecules, the remit of biotechnology (conventional chemistry molecules are simple and small). Not just outsiders, industry insiders were a victim of this error too. Says another industry observer, "They (some industry players) began believing in their own hype." In the heady days, circa 2000-02, everybody noticed the "intense energy" in the industry.
Over time, reality has dawned upon the sector and what has loomed large is the big black box of regulation. There are now two specific regulatory hurdles facing the sector. One is the Biotechnology Regulatory Authority of India Bill which has been pending for approval before Parliament. In life sciences, an area where so much can go wrong, regulatory clarity is a must, if for no other reason than to reduce investor perception of uncertainty and risk.
The second regulatory hurdle is the storm clouds looming over agri-biotechnology which has put the future of genetically modified organisms (GMO) on hold. After opening the doors to Bt cotton, India has put in limbo the future of the next GMO, Bt brinjal. The Supreme Court is now deliberating over a public interest litigation seeking to halt the development of genetically modified food until proper safeguards are in place. Several technical committees have recommended Bt brinjal field trials be stopped, and unfortunately for the industry, a Parliamentary committee has also come down in favour of saying no to field trials. This has severely crippled the immediate future of agri-biotechnology. Regulatory delays are also impeding clinical trials without which there can be no product development.
The regulatory gap is so large because India has created little knowledge capability of its own and has mostly gone along the path created by the US. But the two paths have sharply diverged over GMOs - the most divisive issue in biotechnology in India today.
Further answers to why biotechnology has not fared as well as was expected lie in its differences with IT on the one hand and conventional chemistry driven pharmaceuticals on the other. Indian IT makes its living out of maintaining large software products installed in enterprises. There is no such scope for a maintenance revenue stream in biotechnology where services revolve, among other things, around custom development of molecules. It is also capital intensive in the sense that biotechnology work, of whatever kind, is carried out in large laboratories with scientific equipment which requires significant investment. All that an IT services company needs is a set of personal computers, servers and data links.
Costly treatment
On the cost front, administration of biotechnology therapy, with the exception of insulin, requires hospitalisation, which is costly in a poor country like India. So the ability of the domestic market to be an engine of growth is limited even as the industry relies more on the local market for business than software.
While costs are high, high revenue realisation faces hurdles. In agri-biotech, state governments have controlled the price of Bt cotton seeds so that farmers can use them. The market is slowly opening up for the largest segment of biotechnology, bio-pharma, through the launch of generics and the emerging Indian patent regime allowing manufacture via compulsory licensing. These will represent huge reduction in patient costs but by the same token result in modest revenue growth for the industry.
Then again, Indian biotechnology has taken the quickest strides in the field of vaccines, bought mostly by governments, philanthropies and global agencies. It will be unthinkable for life saving vaccine producers to charge the kind of prices that patent holders of prescription drugs do in, for example, the US.
Perhaps the biggest difference between biotechnology and conventional pharmaceutical products is in the off-patent field - between generics and biosimilars. Says Das, generics provided the route to success for Indian pharma in the US, the most lucrative market in the world, through the way the patent regime was shaped by the Hatch-Waxman Act of 1984 which sought to balance the rewards for innovation with the need for affordable prescription drugs. There is no such regime making it easy for biosimilars to enter the US market.
What is more, the word 'biosimilar' itself tells a tale. A generic in conventional chemistry is bio-equivalent, having the same therapeutic qualities as the patented product it seeks to copy. In biotechnology, no two products are equivalent, only similar. Hence, the term biosimilar. To ensure that a copy meets the same clinical and safety requirements as the original, the process is important, needing more rigorous regulatory oversight on manufacturing practices. When regulators breathe down your neck more, it gets costlier and takes longer to deliver.
There is also a subjective and personal element in the development of biotechnology in India. The most highprofile firm in the early days was Biocon, led by Kiran Mazumdar-Shaw who brought great energy to the industry's effort to go places. Today, the biggest biotechnology firm in the country is Serum Institute of India (Biocon is number two), led by the unglamorous, no-nonsense Cyrus Poonawalla whose strategy of lowering costs by reaping the economies of scale has been highly successful. Last year it grew its topline by 39 per cent and increased its exports of vaccines 80 per cent.
Said Bill Gates, Microsoft founder and co-chair with Melinda Gates of the eponymous foundation, "He (Poonawalla) has deeply affected the vaccine world and people are dependent on the quality work done at Serum."
