A trendsetter

It is good to learn that the venture capital arm of ICICI Bank, ICICI Venture Funds Management has identified pharmaceutical research as one of the strategic areas for funding in India. Pharma and biotech research have huge potential and the bank has done well in taking the lead to support Indian companies which have already set a successful trend globally. Last week it entered into an $56 million deal with Dr Reddy’s Laboratories Ltd (DRL) to fund the latter’s development and commercialisation of ANDAs for sale in the US. It should be noted that among the Indian companies, DRL has been quite aggressive in taking on the MNCs when it comes to patent challenges and para IV ANDA filings with some successes in the recent past. The agreement covers a two-year period in the current and next financial year for the filing of ANDAs which are expected to be around 30 from an overall number of approximately 50 molecules currently in DRL’s kitty. On the commercialisation of these products, DRL is to pay ICICI Venture royalty on net sales for five years from 2007 to 2012. This is indeed a win-win situation for DRL.

For ICICI Venture, which is focusing initially on projects targeting the world generic market, the gestation period is not long as in NCEs. There is no doubt that it would have done a lot of ground work for months in developing this model before making calculated moves in trying to secure returns for its funding. The returns in the near future will definitely depend on the US laws regarding generics, how generics take off in this period, the legalities and other issues involved on case-to-case basis and also on the way marketing is done by the partnering company in the US. From the above basket of products, DRL could have more than half as plain vanilla generics and the rest divided between a few patent challenges and difficult to formulate generics. If two or three ANDAs get the 180-days exclusivity, the risk element for ICICI Venture is practically non-existent. Even in the worst case scenario, if DRL makes only $ 5 -10 million on each, it has no risk for the funder. As business returns, ICICI Venture can yet get back its funds with minimal interest rates and anything above it is on the upside. What is noteworthy is that it has reposed faith in Indian research. For DRL, there are many win-wins. Firstly, no loans are raised, no assets charged, no equity dilution therefore no extra dividends paid. The balance sheet gets stronger as development expenses are knocked out of it. There is no SEBI or RBI or US stock exchange clearances required. As products get assigned to ICICI Venture, IPR vests with DRL. Market reaction to ANDA funding is bound to be extremely positive and other pharma companies reluctant to put generics in the US market due to reservations about competition or litigation should utilise such opportunities to leverage their efficiencies. For this, ICICI could also consider looking into funding the upgrading of manufacturing facilities to support generic exports. Finally, its NCE funding model in operation in the US — one product reaching phase II — can now be fine-tuned to domestic basic research funding.

—nvramamurthy@expressindia.com