These are exciting times for the Indian biotechnology industry. The industry has doubled in size within the last two years buoyed by a strong growth in biotech exports. In the year 2006-07, it passed the USD 2 billion mark in revenues and registered a 31% growth rate as compared to the fiscal year of 2005-06. The Indian biotechnology industry offers immense potential for investments thanks to its large marketplace, strong government support and low-cost English speaking professionals. The industry currently has around 340 companies which employ 25,000 technologists and the latter is expected to double by the year 2010.
The biotechnology market in India consists of agricultural biotechnology, industrial biotechnology, bioinformatics, biopharmaceuticals and biotechnology related services, with the last two being the main pillars of growth.
Biopharma leading the pack.
The biopharma sector leads the pack having generated 70% of the total industry’s revenue. Domestic firms dominate this sector, accounting for fourteen of the top twenty firms.
The biopharma sector is comprised of 130 companies involved mainly in the production of vaccines, therapeutic drugs, animal biologicals, statins and diagnostics. Vaccine production is the most profitable, with five of the top ten companies in the biopharma segment dealing primarily in vaccines.
Interestingly enough, even though there is a large domestic market for such products, the Indian biopharma sector is export-driven, with exports accounting for more then 58% of revenue in 2006.
Bioservice is another fast-rising segment in the Indian biotechnology industry, recording a growth of 70% in revenues in 2005-06. Bioservices mainly include clinical research and contract research organizations (CRO) and to some extent, custom manufacturing. There are 70 companies in the sector offering services in areas such as data management, clinical trials, site management, bio-equivalence, toxicity studies and knowledge process outsourcing for pharmaceutical companies.
Nascent attractiveness
The Indian biotechnology industry has become an attractive destination for foreign companies largely due to the increasing amount of governmental support. The budgetary allocation to the department of biotechnology has tripled in the last five years. The department’s budget is forecasted to increase further, as the biotechnology industry is expected to help India achieve an average growth rate of 9% during its current 11th five year country plan.
The Indian Government plans to follow the American biotechnology industry model, where governmental investment only accounts for 20% of the industry’s total funding. Hence, the government has come out with a list of incentives to attract foreign direct investment into the biotechnology industry. These incentives include a 150% weighted tax deduction on R&D expenditure; a three-year excise duty waiver on patented products; and 100% foreign equity investments in the manufacturing of all drugs (except recombinant DNA products and cell targeted therapies).
Currently the top three biotech hubs are located in Bangalore, Hyderabad and Pune. Bangalore today is the most popular choice for most biotech companies due to its highly developed infrastructure and networking options. More than half of biotech firms based in India can be found in and around Bangalore. Leveraging on a well-trained talent-pool, MNC’s such as Novo Nordisk and Reametrix have set up operations there. Indian Department of Biotechnology’s budget increases threefold over last five years.
India’s scientific knowledge pool stands at 3 million graduates, 700,000 post-graduates and 1,500 PhD’s. A comparison of several countries shows that these numbers are increasing in India annually at a faster rate than in other countries. India is estimated to add 690,000 graduates annually which is significantly higher than in China, Japan, the United States, or Europe.
Key Indian opportunities for outsourcing are available in bio-processing, drug discovery and in clinical research. The cost differential for drug discovery between the United States and India is around 75%. In India, a drug discovery process may be around USD 200 million in versus USD 800 million in the US. India has now become a key destination for outsourced biotechnology R&D. Clinical trials cost 30% less to carry out in India than in Australia and about 50% less than in the US.
On average for 2005, the starting annual salary for an Indian PhD biotechnology scientist in India with no experience was USD 15,000, whereas a counterpart in the United States or Singapore would cost around USD 80,000 and 64,000 respectively. However, the growing demand for talent against a short supply is increasing India’s labor costs. As a result, any cost advantage is dwindling fast.
Usual suspects
There are several complications that may arise as a result of operating in India. These include operational disruptions caused by worker disputes, interrupted power supplies, and antiquated transport infrastructure in many regions. Also animal rights activists, religious and cultural barriers may disrupt operations given the Indian reverence for certain animals such as cows, monkeys and snakes.
The main problems that foreign investors face include the presence of bureaucracy, corruption, the lack of precise ethical regulations and inadequate intellectual property (IP) protection and enforcement. The Indian biotechnology sector is governed by five central ministries and six state ministries which have created lot of red tape complications when it comes to ruling decisions and new product launches. A new product launch, for example, has to clear not only the district and state ministries but by also several national regulatory bodies.
Finally, there is a lack of IP protections to guard against corporate theft and copycats. In the past, many Indian biotech firms faced theft either from their employees, running away with vital product data, or by the hacking of their databases by external parties. In an industry where a single product can spell success, stolen ideas translate to millions of dollars. Although India has a proper English-based legal system, many employers are unwilling to take their employees to court due to the slow judiciary process. India has begun to tackle its copyright troubles with recent changes in intellectual property regulations. For example, there has been a restructuring of patent laws to focus on product protection rather than only process protection. This allows companies to patent their final product and as well as the processes that lead up to that product. This reduces the opportunity for copying and is the right start in the improvement of IP regulations in India.
Conclusion: Ignore India at your own risk
India’s biotechnology industry is on a roll. It has already a strong global presence, producing the fourth largest volume of products in the world. Revenues could increase to a formidable USD 25 billion by 2015. India’s vast pool of skilled manpower, huge patient base and relatively low costs drives many global biotech giants to partner, acquire or outsource to Indian companies. Likewise, some of the larger Indian companies have even begun acquiring foreign entities in the Unites States and Europe, to retail their products and expand product offerings.
The success of Indian companies in reducing the prices of drugs, has made most multinationals realize that it is now impossible to ignore India. A good illustration: Hyderabad-based Shantha Biotechnics, which offers a combination vaccine for Hepatitis-B for USD 2 per dose versus USD 5 per dose by MNC’s such as Chiron.
Major improvements are needed for India’s biotech industry to surge. First, there needs to be more protection and enforcement of intellectual property rights. Secondly, regulations to control the testing of products on unsuspecting patients need to be put in place. Lastly, the government needs to streamline all of the biotechnology activities under one body, to simplify proceedings and to create some transparency for investors in the industry.
Ivy Teh
Managing Director, Clearstate
