The Indian biotech sector may have arrived on the global map after India became a signatory to the Patent Law, but it still fails to attract venture capital due to high risks and absence of suitable valuation benchmarks. It is essential to spur seed capital to fund start-ups to ensure continued growth of the sunrise sector, according to the Ernst & Young Global Biotech Report ’06.

The sector has attracted funds from international organisations like the World Bank and now companies are successfully tapping investors for cash, with some hedge funds also joining the momentum. All this reflects growing investor confidence in the sector.

“However, the high risk factor has deterred active flow of venture capital into the sector,” the report said, adding that finding suitable valuation benchmarks in the Indian biotech sector is often a challenge. Further, a changing regulatory and policy structure adds to the complexity of valuing companies. “Seed capital to fund start-ups will be critical for the biotech sector’s growth and government incentives or initiatives to spur seed capital hold the key to investments in this sector,” Utkarsh Palnitkar, industry leader — health sciences, Ernst & Young India, said.

The foreign companies are increasingly recognising the latent Indian biotech potential resulting in many outsourcing partnerships evolving into equity investments. Similarly, Indian companies are expanding and scaling up manufacturing capacity to become global players.

“However, expanding India’s highly-skilled labour pool will be critical to industry growth. A comprehensive strategy is needed for boosting education in all aspects of biotechnology to provide a clear mapping between education and industry opportunities,” it said.

The next big step for India anchors on product theme, as most current research programmes bear fruit by end of the decade. The range could be impressive, including biogenerics, novel therapeutics, vaccines, biochemical, nutraceuticals and cosmeceuticals. This would finally progress to the stage where Indian biotech expands globally.

According to the report, this will be driven by domestic innovation, competitive cost, availability of valid data, and viable business models that have already been tested in India.