How I raised the funds

Shantha Biotechnics is a trailblazer in the biotechnology area for introducing the country’s first indigenously produced hepatitis B vaccine, Shanvac B, which brought down the prices of these imported vaccines drastically. However the path to success was not very easy for its founder Varaprasad Reddy. Here he gives a first person account of the trials and tribulations of raising funds for the venture and suggestions to make life a little easy for entrepreneurs like him.

My experience in arranging funds for biotech projects, which I started in the year 1993, was not a smooth and comfortable effort. Being a first generation entrepreneur and venturing into a risky area associated with research and development of new products, I found funding agencies were not willing to take any risk. In many places, I was told to look for an alternative area where success was certain. I had approached almost all the institutions and banks but without success. At the end, ICICI and Oman International Bank helped me in the initial stage. However, it was a better and pleasant experience to deal with the Technology Development Board (TDB), a central government organization under the Department of Science and Technology, which funded the commercialization of our R&D efforts.

The major problem with funding agencies was the risk involved in the project. The funding agencies want to have the projects that will have assured success, whereas in biotechnology higher amount of risk is involved in terms of time of launch of the product, yield and the capital cost of the facilities.

Basically, Indian funding agencies have never funded the projects that have the risk of failure. Most of the funding was done for the projects implemented with assured success profile. From that mind set looking into funding of projects, which are associated with uncertainty of the project, was difficult for the funding agencies to think of. This is basically due to mind block of the bankers and financial Institutions, as they lack the spirit of entrepreneurship.

The government support is not adequate to help new biotech industries. At present, most of the governmental support is in the form of establishing biotech parks or declaring an area as genome valley, whereas the support required for biotech entrepreneurs is in the form of IPR protection, funding and other infrastructural needs. The biotech parks should be able to provide continuous power, water and other utilities. Also the government should invest in creating a strong regulatory body to make sure that quality products will alone come to market.

Most of the biotech ventures that are being established in India are set up with very small amounts. Biotech ventures are capital oriented. Further to that, the expected return by venture funds is on much higher side, which will be normally unacceptable by the biotech ventures. However, the new fund (proposed) will be able to meet the fund requirement of few units.

My other suggestions are:

1) The government has to reduce the number of approvals that are required to be taken for enterprising a project. This can be done by centralizing all the approvals required and by reducing the time taken to give the approvals.

2) The government has to encourage IPR by encouraging the law abiders and punishing the organizations trying to bring in sub-standard products and not follow IPR norms.

3) It has to build the infrastructure facilities that will be required for biotech units like continuous power availability, treated water and other utilities which can be of common for many units. This will reduce the project cost for many units that are coming up in the biotech parks.

4) The government has to support biotech projects by exempting imports from customs duty, as the customs duty works out to more than 50 percent of the import cost of the capital equipment.

5) The government has to encourage indigenous manufacturers by levying customs duty on imports of bio-pharma products and exempting domestically manufactured products from excise duty.

6) In the government procurements, the preference should be given to Indian manufacturers to encourage domestic industries. These supports from the government will help the biotech companies to invent new products and to scale up their operations.

Next Page : TDB opens the purse for biotech firms