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Archive for the ‘Research and Development’ Category

Ratan Tata is right – very few disruptive startups get funded

Posted by fairval on October 12, 2017

One of the few industry captains to have taken seriously to start-up investing, Ratan Tata recently rued that there are very few disruptive startups in India. “I don’t think we have as many really disruptive startups in India as we do overseas,” said Tata.

We couldn’t agree more with Mr Tata, atleast in the lifesciences space, where we focus more compared to other areas. The funding scenario is lifesciences start-up space is truly appalling, to put it bluntly.

We had written 2 years ago, on the poor scenario in funding of R&D startups in pharma. Nothing has changed in R&D funding in pharma. USA and Isreal each see 50-70 pre-revenue R&D startups get Series A funding in pharma. In India, we are lucky to see 1-2 deals in a year.

In healthcare, the scenario is equally poor. Considerable funding has gone into so called ‘health-tech’. Most of them have zero innovation. Take e-pharmacies for example. They are all following the same cookie-cutter ecommerce formula which the Flipkarts and Amazons have created. But there are significant differences in the market in which Flipkart operates, and pharma retail. Several Flipkart categories have 30-50% gross margins (pre-discount). In Pharma, retail markets are around 20%, and governed by DPCO regulation. So if you offer a 20% discount, you are operating at zero gross margin (and actually negative, if you are delivering from the neighbourhood retailer).

But e-pharmacies are still better than some other segments which have got considerable funding. You atleast need to order medicines frequently, so there is some chance of habit formation, which is what perhaps the discounters are trying to achieve. Whether they can survive till they figure out how to make money is another matter.

Some other segments are even worse. Home healthcare for ex. This is a low margin staffing type business, with huge service quality issues. One really has to wonder how this is scalable.

How about ‘booking doctor appointments’? In real life, there is no business like this. You pay a doctor, you don’t pay someone to get an appointment with the doctor, over and above doctor fees. Therefore the doctor should be paying in return for getting appointments. Have doctors been doing that in the past, as an established business practice? Not really. So this is a business which requires behaviour change, and creation of a market which does not exist, yet. But more than one startups have bene funded here, and with big money; this is akin to funding a market size of zero. The leader may survive, but may need to augment its revenue model.

Coming back the innovation issue, we have consistently found innovative startups in healthcare find it very difficult to get funding. The poor entrepreneur will get the same response “show more traction”.

Tata further said, “The government should and could play a major role in (developing India’s startup ecosystem)”. That is perhaps the only hope for spurring innovation in healthcare / pharma space. In fact, government is doing quite a bit here. The BIRAC (Biotechnology Industry Research Assistance Council) program, run by Department of Biotechnology (DBT), now in its sixth year, is quite active, granting out maybe 50-100 grants per year. A recent release said – BIRAC has provided financial and mentoring support to more than 500 companies, and nearly 500 young entrepreneurs and startups.

The problem happens after that. There appear to be many promising startups which are struggling with the issue – what after BIRAC?


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Incredibly shallow VC scene for Pharma R&D in India

Posted by fairval on May 17, 2015

India pharma is touted as a big success, but what it does is not much better than Indian IT – low cost work with negligible innovation. There is no simply appetite for pharma R&D in India – not amongst companies, and perhaps as a corollary, not amongst VCs either.

At Wisdomsmith we took on fund raising mandates for 2 R&D firms in the last one year (Wisdomsmith Advisors’ main sector of focus is pharma/healthcare). One was looking for seed funding, and the other for Series A. While we could find and investor for the seed one (strategic), the Series A one has been a struggle. None of the pharma focussed VC funds we talked to, are currently investing in pure play R&D companies.

This despite our firm belief that our client could emerge as the most exciting pharma R&D company in India. This company is doing some globally cutting edge work, has a brilliant business model, and is close to a major breakthrough. It has raised seed funding, has got several government R&D grants, has shown incredible progress from meagre funding, but when it comes to Series A, no takers.

We then talked to several US based biotech funds we know. They said – “great company, but we can’t invest in India. No focus on India”. In other words, if you are a US based biotech VC, India is not on your horizon. And mind you, there are maybe 30 such funds in the US, focussed ONLY on pharma/biotech deals, quite willing to back early stage companies. But not one of them is looking at India.

The purpose of this post is not to rant. I wanted to present some data to show how bad the situation is – the vast chasm in funding ability of a pure play R&D biotech in India (basically zero), versus the US.

Check the chart below. The 10 year data below shows that atleast 60 pharma/biotech startups get Series A funding EVERY YEAR in the US. In India, how many got last year – NONE. Over 700 (747 to be precise) starts-ups got Series A funding in the US over the last 10 years. How many in India? Maybe 10.

(And this is just Series A. Total deal count in this period is ~2000, some of which would be follow-on. In India, all rounds put together may not cross even 20)

Source: Venture Funding of Therapeutic Innovation, by David Thomas and Chad Wessel

Source: Venture Funding of Therapeutic Innovation, by David Thomas and Chad Wessel

And where does the Series A money go? As can be seen from the chart on the left, mostly for new drug discovery (~82%), not for ‘Drug Improvement R&D’. Annually, over USD 1B. In contrast, in India, VC funds have invested maybe around USD50m in 10 years in backing R&D firms.

Source: Venture Funding of Therapeutic Innovation, by David Thomas and Chad Wessel

Source: Venture Funding of Therapeutic Innovation, by David Thomas and Chad Wessel

The chart on the right further shows the risk taking ability in the US. More than half the money goes into pre-clinical stage companies. In India?…well, let’s not talk about it.

Will this change? Quite unlikely, in the foreseeable future. Unless we have something like-

  • 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
  • Pharma promoters like say those of Sun/Lupin/Zydus etc set up funds to back third party pure-play R&D companies. While they may have burnt money inside their companies, that does not mean they will lose in a VC like set up. Perhaps doing R&D internally was a wrong idea in the first place.
  • It could also be a combination of the 2. Government can match $ for $ money deployed by privately set up VC funds.

Posted in PE/VC, Pharma and Lifesciences, Research and Development | 2 Comments »

Is Western medicine packaged, branded quackery?

Posted by fairval on September 23, 2012

An eye-popping article in The Guardian today, which pretty much implies that much of the carefully built edifice of modern allopathic medicine is, in simple words, quackery. The article itself doesnt go so far, but it pretty much means that.

The main charge the article makes against pharma innovators is this – they publish results selectively. If they find a trial is likely to give negative results, either they will stop it midway, or simply hush the results. Check this like from the article:

Seven trials had been conducted comparing reboxetine against a placebo. Only one, conducted in 254 patients, had a neat, positive result, and that one was published in an academic journal.

But six more trials were conducted, in almost 10 times as many patients. All of them showed that reboxetine was no better than a dummy sugar pill. None of these trials was published.

This practice is quite widespread it seems. Read the full article here..

The drugs don’t work: a modern medical scandal

Posted in Pharma and Lifesciences, Research and Development | Tagged: , | 1 Comment »

25% of global R&D money coming to India?

Posted by fairval on November 2, 2006

This is some astounding bit of data. A story in ET says – India is drawing 25% of fresh global investments in R&D centres. And, many of these centres set up by multinationals are among their largest R&D units outside the US or Europe.

This number of 25% may be a little exaggerated. For example, a top pharma company these days spends $3-5 bn in R&D. Surely not even 10% of that will come to India. Even for IBM one would imagine 25% of R&D cant be coming to India. But, if it is great!

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