InnovAsia Analysts Tina Wu and Kavitha Hariharan analyse a new growth point for Indian economy: biotechnology and pharmaceuticals.

Last year, an Indian company developed the world’s first recombinant human insulin, the Indian government sanctioned a flurry of biotechnology parks, and several research and development agreements were announced. With a new national biotechnology policy on the way, India has begun to look beyond the software and IT enabled services sectors at a new growth point for the country’s economy: biotechnology and pharmaceuticals.

India's biotechnology sector is currently made of four major segments: bio-industrial products such as enzymes and bio fuel; bio-agricultural products such as genetically modified seeds, bio-fertilisers and bio-pesticides; bio-services such as contract research, contract manufacturing and clinical trails; and bio-pharmaceuticals. Bio-pharma covers vaccines, therapeutics, diagnostics and animal health care, and has emerged as the largest segment, thanks in part to strong clinical and research capabilities developed through bio-services.

Seeds of Growth

India's Intellectual Property regime, altered in January 2005 to recognise product patents, will drive innovation from the bio-pharma segment especially, encouraging more new products like the human insulin developed by Biocon, India's largest biotech company.

Interest in bio-fuel research is also rising. Like China, India faces severe fuel shortages, especially in rural areas which are too poor to afford electricity from conventional fuels. Scientists are increasingly looking for innovative ways to generate electricity, especially from widely available plants. So far, India has reported successful trials on vegetable oil, seeds, wood, and other plant matter.

Building Biotech

Federal and state governments in India launched several initiatives last year, mainly to build infrastructure to support the sector's growth. In October, India's Commerce and Industry Minister announced plans to set up special economic zones (SEZs) for biotechnology, including biotechnology parks and free trade warehouse zones. Biotech parks sanctioned include an Rs.1 billion (US$22.2 million) venture in the north-eastern state of West Bengal, which will include a research centre for traditional medicine. Having identified IT solutions for the life sciences sector as another big opportunity for the country, the government has also sanctioned a bio-IT park, aimed as a geographic hub for bioinformatics, bioengineering, and pharmaco-genomics companies and research institutes.

Besides building infrastructure, the government is promoting collaboration between private companies and publicly funded research labs. A new biotechnology policy is expected to be released in 2005, providing incentives and services such as incubator services, financial assistance and infrastructure to encourage innovation and start-ups.

The Road Ahead

Though a latecomer in the biotech sector, India has inherent strengths, such as a large pool of qualified scientific talent, several research labs and R&D institutions, and strong IT skills. The country also possesses rich human, plant and microbial bio-diversity, offering a great base for genomic and pharmaco-genomic studies as well as for drug discovery. The biodiversity and naturally large disease populations are especially attractive to the emerging trend of personalised medicine.

There are still hurdles facing biotech innovation in India. Indian academia and research labs lack a strong patenting culture, and the academia-industry linkages are weak. Vague and restrictive government regulations still plague the biotech sector. Too few funds and investor support force many companies to take the low-risk, low-innovation bio-services route.

But the signs in 2004 were positive, with the academia becoming more market driven, increasing investment in infrastructure by the public and private sectors, efforts toward better regulations, and Indian companies like Biocon, Shantha Biotechnics, and Panacea Biotech demonstrating global capabilities. There may soon be more to India Inc than its software giants.

* Analyst, INSEAD InnovAsia. Contact Tina Wu (tian.wu@insead.edu) for questions and comments, or visit www.inseadinnovasia.com for information on INSEAD InnovAsia'sservices.

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