Notes on Indian equities, sectors and economy

Government showing intent for VC fund to support pharma R&D

Posted by fairval on August 31, 2015

In a post in May’15, I had written about the abysmal environment for VC funding for pure-play pharma R&D setups in India. I had written – ‘The Government allocates say USD 250m per annum for VC investments in pure-play pharma/biotech R&D firms, gives it to say 5 funds like ICICI, Kotak etc; they invest on a purely commercial basis’.

It seems there is an outside chance that something this could actually come about. Last week, papers reported that ‘the centre is planning to launch a venture capital fund of Rs 1,000 crore under the Department of Pharmaceuticals (DoP) to support start-ups in the research and development in the pharmaceutical and biotech industry’.

A DoP taskforce which submitted a report recently on ‘Enabling Private Sector to Lead the Growth of Pharmaceutical Industry’ has a specific recommendation: Create and fund an organization to support and promote biopharmaceutical innovation, R&D and national and international academia industry partnership

However, this is not a new plan, it has been in the works for sometime now. In Oct’14, the DoP had released the Detailed Project Report (DPR) for setting up Venture Capital Fund for R&D in pharmaceuticals. At that time, the plan was for the government to provide an amount of Rs 500 crore in a fund of funds mode.

Some of the terms the government has in mind may not be so practical. Government proposed that each Pharma Fund commit to investing at least such amount in Indian companies for their Pharma R&D activities (Innovative Pharma Companies) as is, the higher of Rs.150 crore; and 4 times the amount sought as investment from the government.

This is not going to work. There is no fund which is willing at this point to put even Rs 50 crore into pharma R&D, and the 4:1 ratio does not quite sound right. Government needs to look at a lower ratio. That may prompt some private sector funds to think about setting up pharma R&D funds.

So optimism, but with a caveat: given the pace at which government’s work, it could take a while. It may not also come about if terms like 4:1 ratio do not find any takers.


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