Opportunities and challenges in biotechnology

Xavier: Good evening and thank you all for taking the time to be here. This panel discussion is timed well since its appearance will coincide with BangaloreBio2003, the biggest tradeshow for the industry on this side of the globe. To set the tone, I would say that we are looking at the kind of opportunities available in the sector, the challenges the sector presents, the status of the industry and the way ahead.

Rajeshwar: I think there is a big opportunity in borrowing thoughts, approaches, tools and algorithms from other fields and applying it to biotechnology. I could highlight one such example here. In the 70’s there was a model or algorithm called Hiden Marchops, which was used, in the field of speech recognition. In the early 90s, researchers at the University of California figured out a way to adapt this totally unconnected field in biotechnology. Today, it is the model used widely for identification of protein structures or classification of proteins into families. So, it is possible and solely depends on how far you can look and how you can connect.

Lukose: I think the structural space, where you really are trying to decide what the molecule looks like, is one area where the algorithms potentially unleash themselves. Having said that let me go one-step back and talk of another visible and a key trend in the past decade in the field of biology. The introduction and increasing pervasiveness of computing in the area. The leaps in technology and its increasing affordability makes it possible for the bio researchers to try out various combinations and hypothesize on possible new molecules and how interesting they would be. Let me explain by an analogy. Most doctors’ formal education consists of learning facts by rote and the most important aspect after this learning is the way in which each correlates these facts to a particular case or situation and that is what medical science is all about, today.

I would say we are moving to a knowledge-basis than logical basis.

Coming back to technology, there is a high level of automation that is taking place in most research laboratories and R&D departments. Here samples are digitized and large doses of information are stored into databases. These data are then fed into spectroscopes and sequencing machines, which throw up a, lot more data. The best you can hope today is to collect all the data and see, using various mining techniques, whether there are any interesting patterns. It is almost like reverse engineering. You do not have an algorithm here but all along you are just looking for some interesting patterns among the huge amount of data. It sounds easy but let me tell you it is more complex and difficult to look for patterns in life sciences than say in a telecom chip. Until this stage is what you can call informatics. But this is just the first phase in the entire drug discovery process. The lab experiment, analysis etc. come later.

Rajeshwar: When you look at the pharma spending in the last 3 years, the maximum spending has been on ERP implementation followed by security solutions and not surprisingly up gradation of Microsoft versions. Basically, one can safely conclude from these that the emphasis is more on having a strong and secure technology backbone on which discovery can take place.

Jayanth: I would like to begin by commenting on this high level of automation that is taking place. While I acknowledge it and do not want to underestimate its importance, it is true that people with the knowledge to make sense of it are as critical if not more. This is where India has a really large potential. I will tell you one thing the computers stop at coming up with all the data. You have to have someone who has the expertise and knowledge to interpret it.

I cannot claim to be an expert on the industry, but to my limited knowledge, beyond manufacturing and drug discovery, there is a big opportunity called providing bio-services at which we are good at. And I suspect that a lot of these European and American companies would be interested in services.

Let me go back to your introduction where you mentioned that after IT, it is the BT wave now. Since people often mention both in the same breath, allow me to explain one fundamental difference between both streams. IT is about services and there is nothing at the end of it, which you can lift and say this is what IT resulted in. But Biotechnology goes beyond services and there is a product at the end of the process. In that sense starting an IT services company is that much easier. I am not here talking about primarily informatics kind of companies, which are more, an extension of IT into biotechnology.

The second point I would make here is that even manufacturing in this sector is very knowledge-intensive. Take the example of US. In 2001, out of a revenue of about $450 billion, over $30 billion was spent in R&D leading to about a spend of $90,000 annually per person. Just figure out how much a R&D person in India will cost. Like I was saying earlier, is not there a business opportunity for Indian companies to look at.

Coming to another aspect, traditionally even pharmaceutical companies were not considered to be biotech companies. In that sense, the definition was narrow. I would like biotechnology not to be narrowly defined. It could be pharmaceutical companies investing in bio-agriculture and nutritional research.

Coming to the often heard assertion that the sector has not reached critical mass I differ. For, I think that there India can never match the kind of R&D investment that is required and nor will the returns for such an investment be adequate enough for it to be considered. But consider the area of DTP vaccine. The demand in India alone is so huge and untapped that there is a significant market for someone with a vaccine. Or take diagnostics. Tremendous potential but not necessarily capital intensive. From our institute itself we have done many technology transfers like the one for Malaria etc. To sum up, I believe we have a strong case in services or developing indigenous applications.

Rajeshwar: There are labs and companies in the US trying to develop drugs and vaccines deliverable through plants, called edible vaccines for edible drugs. Coming to drug discovery itself, you may not see it happening in India for some time because it needs on an average $800 million in investment and could take as long as 8-11 years to market. That kind of money is not available in India.

However, companies like Ranbaxy or Dr. Reddy’s have taken a more short-term approach of taking off patent drugs or modified process patents, manufacturing these, and selling it to markets like Africa. That kind of business model is pretty shortlived as post-GATT regime that would not be possible.

A better long-term strategy is to look at more services opportunities. For example a company may be involved in building up common libraries which they can lease or sell to bigger drug discovery companies. Or undertake chemical trials.

Jayanth: As cruel as it may sound, the fact that there are so many sick people in India is a boon for those who are developing drugs and for running clinical trials.

There is also a market for something called bio-prospecting. Experts aver that of all the living species we know only of one per cent . One can take a simple organism and start doing research instead of doing fancy things on a contractual basis. These organisms are available in plenty in our country.

I recently heard of a company which is into something called bio-genesis. They just screen marine organisms and find what kind of enzymes they make. This is not again high tech. This is not blind research anymore.

Once GATT comes into force, there is a big opportunity for contract manufacturing. The crucial thing is that the outsourcing companies should have confidence that India will follow IPR .

Lukose: I am sure that USA is not going to be as predominant in biotech as it is in IT. Europe and parts of Asia are very aggressive. The other thing is the criticality of collaborations in biotechnology. Often because of the high risks and uncertainties.

Another opportunity is in the area of natural medicine. Though there is no rational explanation for many of these medicines and why it cures it is quite prospective to research into it.

Jayanth: This natural biotechnology and neutraceuticals, there is lot of export potential in this field. I atleast know of 2-3 companies who are actually selling their products in Japan. All we need is to analyze what is actually working and extend it.

One model which seems to be working is contract research.

A more realistic way is to start with some of these down-to-earth products and services and then grow from there. Take a company like Biocon. It did not happen overnight.

Xavier : How do we address the IP (Intellectual Property) issue?

Rajeshwar: I think the initial meeting is the toughest because the moment you know I am from India, there are issues. But I think it can be worked around through tough non-disclosure agreements and stiff penalties. But all said and done, while these measures are confidence builders, the ultimate push comes from a strong patent regime.

Lukose: I think the problem with the Indian market is not in having a regime but in how strongly such a regime is enforced. But if you seriously look at it, it is a much more macro and generic issue because, where is the enforceability and accountability anyway in our legal system? The truth is, it does narrow down opportunities for many of us.

Jayanth: One way out is to take only part of the process for outsourcing. In that way IP is still retained with the company back there, and the Indian company can finish it and send it back. As regards patent issues, it is not only an issue in India but in developed markets like the US. Or for that matter, I don’t think China is any better or even many other Asian countries. These problems will be there.

Xavier : What about funding and related issues?

Lukose: If you are not part of a group like Dr.Reddy’s, funding is an issue here. This is compounded by the fact that this sector is not for traditional VCs. I would think a model like in the US, where there are national level organizations funding research effort, like the Department of Science and Technology and others. In India, the Department for Biotechnology does fund a lot of projects carried out in different R&D centers. But the percentage of these projects is extremely small. I think the major difference is that DBT sponsored projects are based on scientific notion or on social benefits, thus they do not have a commercial edge.

Rajeswar: I have a comment on that. If you look at R&D spend over the last ten years, the number of drug discoveries against the actual number of new drugs launched into the market has seen a steady increase from 1990 to 96. But after that, though, R&D expenditure has consistently increased, the number of new drugs entering the market has dropped. I think one of the reasons is that scientists don’t want to miss out on any opportunity, and hence, the number of molecules they look at is very large. Hence the time spent per molecule is reduced and the performance drops. I think the new molecule pipeline should be balanced with adequate time on each possible molecule.

Lukose: There is another interesting trend that I have observed which I think has made the thresholds very attractive in bio-informatics. The recent advances in computer hardware makes the initial investment in it considerably lower for higher performance benchmarks. Softwares like Linux are pushing that threshold down. Infact, Linux clustering is a boon for many bio-informatics companies.

Jayanth: Even if a new molecule is discovered elsewhere, it s not going to help us as it would be too expensive for us to afford. I still believe that there are lots of things we can do at the grassroots level which can generate sufficient returns. There is also plenty of scope to make the product available at an affordable price which will in turn raise the volumes. One does not have to get necessarily carried away by modern biotechnologies as India is at the bottom of biotech users.

Xavier ; Can you elaborate on the role institutions can play in the sector?

Jayanth: While I welcome industry participation and collaboration with research institutes, I personally believe that there should be a limit to that. Because if you look at most western universities and research institutes , they have lost track of basic and fundamental research. Most doctorates are nothing but an industrial problem turned into a thesis. This is not at all healthy in the long run.

Coming to industry research collaboration , we do not have a very rich tradition to boast of but things are changing. I think there is a change in the mindset at all levels. DBT for example is coming out with a technology development mission in which you identify the end user right from the beginning of a project and then identify the industry to put up the money. Time is crucial in all these projects. And for most institutes ,three years is a short period due to statutory hassles, but this is very long for the industry. But the good thing is that things are beginning to change. A case in point is the model that has been put in place at CSIR laboratories where they are literally asked to generate their own resources.

Rajeswar: In some of the universities what happens is that the professors or students are given an opportunity to make presentations organized by the university itself in front of investors. And if any of the ideas are picked up by the attendee, the university itself brokers
an arrangement between them. The university gets part of the royalty.

Xavier: What about manpower availability and training?

Jayanth: I do not see any shortage happening. The problem is that when we actually need 500-600 people we are looking at 5000.

Lukose: Biotechnology is not a foundation course which can be taught. You need a specific functional qualification before you become a candidate for a company. We usually look for people with core skills like MBBS, Microbiology or Chemistry. My advice would be to just train them to be very good microbiologists or chemical engineers. That is enough.

Xavier: Thank you all for being patient and sharing with us many interesting perspectives which I am sure would be of use to many of our readers.

Issue BG25 April03