The Biotech Investment opportunity in India    Presentation by  Sarath Naru APIDC Venture Capital Limited

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The Biotech Investment opportunity in India Presentation by Sarath Naru APIDC Venture Capital Limited

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1. The Biotech Investment opportunity in India Presentation by Sarath Naru APIDC Venture Capital Limited

2. Quote: Nature Biotechnology… Fools who persist in folly can sometimes become wise.

3. Mandate from the Organisers…. “So why are investors in the emerging markets so excited about opportunities in biotechnology?” Are they ?………

4. Quote: ‘Nature Biotechnology’ journal One of the most important lessons to emerge is that biotechnology is a hard slog. It takes time to build all the elements- An advanced education system A requisite level of scientific excellence. A business friendly set of intellectual property laws, And an adequate regulatory infrastructure and healthcare system. Even when all this is in place, it will be much harder for lesser industrialised nations where…… R&D expenditure is less than a quarter of industrialised nations Skilled and educated labour is at a premium Intellectual turf wars stifle collaboration Political turmoil is a frequent backdrop Intellectual property protection is murky So why would anyone invest in biotechnology in developing nations ???

5. Sure enough Indian VC’s are not exactly rushing into this space… Early stage Pharma / life sciences investment is low Early Vs. Late stage investments in India in the last 24 months: Size of deals in the last 24 months:

6. Of course, this is a common theme with early stage VC investment as well: Early Vs. Late stage investments in India in the last 24 months: Size of deals in the last 24 months:

7. Against this backdrop … APIDC Venture Capital launched Indias first biotechnology focused VC fund Final closing April 2005 Fund size: = $37 million Important investors: IFC, Washington; APIDC – State govt. institution. Life Insurance Corporation- Largest insurance Corp Andhra Bank – leading bank Technology development Board- Govt. tech funding institution.

8. Having already confessed to being a fool…a more preposterous thought: To build real market leaders in a 5 to 10 year time frame. Our Overall Strategy: To launch early stage companies addressing ‘potentially large markets’ on a “market leadership track” over a “5 to 10 year time” frame. Clearly further foolishness….

9. Our (naďve) strategy to achieve this… Stage of Investment: Invest “primarily in early stage companies”, and in larger companies that are attempting a paradigm shift in business. Geographic focus: Invest in India related businesses anywhere that “leverage India advantages” to gain market leadership. Sectoral Focus: “Core areas” of biotechnology in: (a) health care & drug discovery, (b) food & agro processing, agriculture & dairy, and (c) environment & industrial. “Peripheral areas” That are being spurred due to the impact of biotech (such as healthcare services, seeds distribution, food processing, waste management, etc.)

10. Our (naďve) strategy to achieve this…….. Financial risk diversification strategy: Invest $500k to $2 million in the first round of investment of a company. This is appropriate based upon deal sizes in India. This is appropriate based upon empirical data of individual investment size relationship to Fund size. Invest in later rounds up to $5 million based on milestones. In line to provide sufficient diversification to fund in terms number of deals. This is appropriate based upon empirical data of individual investment size relationship to Fund size. Invest in 15 to 20 Companies over a 2 to 3 year time frame. Empirical data shows that about 15 to 20 companies / fund is sufficient to diversify risk.

11. Lets take a look at how we expect to take a shot at this…

12. Factors and lessons we considered as we build the Fund portfolio. Global biotechnology VC investment trends. What will be India’s biotech VC investment opportunities ? 3. India VC investment parameters versus US/Europe: 4. How are market leaders built in USA/Israel/India ? Lessons for us in India.

13. 3. Factors and lessons to be considered as we build the Fund portfolio. Global biotechnology VC investment trends.

14. Global 10 Year Biotech VC-Investment Trends*: Small Molecules and Medical Technologies are Hot!

15. Global 10 Year Biotech VC-Investment Trends*: Small Molecules and Medical Technologies are Hot!

16. Global 10 Year Biotech VC-Investment Trends*: Small Molecules and Medical Technologies are Hot!

17. 3. Factors and lessons to be considered as we build the Fund portfolio. What will be India’s biotech VC investment opportunities ?

18. 3. What will be India’s biotech VC investment opportunities ? India biotech investment opportunities driven by its competitive advantages Drug Discovery: Deep knowledge base of traditional medicine to aid in drug discovery. Large Bio diversity of plant / marine / animal to aid in drug discovery / production & nutraceuticals. Clinical trials: Large drug naďve populations for rapid and low cost clinical trials. Services focusing on the huge domestic market: Huge domestic markets with specific needs that can provide scale advantages to companies addressing these needs: availability of drugs, diagnostic services, healthcare delivery, health insurance, etc. Contract research/ manufacture: chemistry skills, that can lead to strength in process design, contract manufacturing, laboratory drug discovery related services. Orphan drug discovery & development: Low cost skilled labor with easy availability provides the ability to build contract manufacturing and services businesses; build drug discovery businesses focused on orphan drugs, etc. Bioinfomatics services: strong IT skills to aid in developing IP in a number of the services areas that Indian companies are involved in. Stem cell / GM crops: Enabling policies that help development in Stem cell/ banking research, GM crops, etc.

19. India Biotech VC investment Opportunities India investment opportunities include a higher proportion of Agricultural and Industrial Biotech than US biotech.

20. India Biotech VC investment Opportunities Key areas driven by Huge local markets, bio-diversity (plant, marine); traditional data base of proven medicine, unique tissue, enabling policies, low cost

21. India Biotech VC investment Opportunities In comparision to the US: 1.Similar scope in small molecules; 2. Significantly higher potential in diagnostics, services; 3. Significantly lower potential in medical technologies.

22. India Biotech VC investment Opportunities In comparision to the US: Reasons

23. 3. Factors and lessons to be considered as we build the Fund portfolio. India VC investment parameters versus US/Europe:

24. US/Europe VC investment parameters :

25. India Vs. US/Europe:

26. 3. Factors and lessons to be considered as we build the Fund portfolio. How are market leaders built in USA/Israel/India ? Lessons for us in India.

27. Some Case studies Dr. Reddy’s - India Biocon - India Various Companies – Israel Martek - USA Invitrogen - USA

29. Martek: Success Factors - Lessons Identified a product (DHA) which appeared to have a huge potential market, but small current need. POSSIBLE TO EMULATE. Invested heavily and built patented processes to produce a significantly superior product. POSSIBLE TO EMULATE, BUT NEEDS LOTS OF EARLY STAGE FUNDING. Invest in market development and collaborate with biggies (likes of GSK, nestle) Access of distribution network Sharing product development cost WILL NEED OVERSEAS COLLABORATIONS

30. Invitrogen: Inorganic Growth Current Market Cap: $3.87 billion Sales: $ 0 mil to $9.3 mil in 1st 10 yrs. $ 9.3 mil to $1023 mil in next 5 yrs.

31. Invitrogen: Path to Success - Lessons Got into the reagents/kits space, addressing the needs of bio-discovery labs early on, and built a large network of customers. – EARLY ENTRY DIFFICULT BUT POSSIBLE IN NICHE AREAS. Used VC funding to reach up to IPO. Consolidated multiple niche products for the same space through acquisition (by using IPO funds).- NOT POSSIBLE TO ACQUIRE IN INDIA Added to their market network by acquiring a complementary company. NOT POSSIBLE TO ACQUIRE IN INDIA

32. Some lessons from India….. Dr. Reddy’s- A doable model Experienced founder Took advantage of large domestic markets to build competitive advantages Used regulations cleverly but not lulled by this ‘false sense of calm’ invest largely into R&D Raise capital aggressively to invest in the Company’s future Biocon – A doable model Entreprenurial and gritty founder Follows Sam Colella’s maxim, the business focus of early stage companies can never be predicted Use services income to build IP in products/process.

33. Some lessons….. Israeli Companies – An IT model But India has the pre-conditions Move to USA in about 18 months Leave R&D, operations in Israel, but the marketing and even corporate offices in USA, Founder makes room for well scarred CEO from the USA, Transition timing is important… before the previous mgmt gets too settled, and after sufficient capital is raised from VC’s both in Israel & USA

34. Should you jump into it ? Can we pull this off…. You must….! Co-investment is an important aspect. More hands to build leadership , the better it is ! Meet us here in five years to see if the fools persistence paid off. Thank You!

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