MISNOMERS: Tissue culture produces better capsicums like these, but this is not real biotechnology. India does not yet allow genetically engineered vegetables.

VISITORS: Bankers from Kuala Lumper, biotech educators from Singapore, equipment makers from South Korea—they all look for opportunities in Bangalore.

In a chandeliered hall at Le Meridien Hotel, Bangalore, a group of VCs mill around. Some are SMSing, none is listening to an international panel of speakers excitedly explain the opportunity for clinical research-validating a new drug through extensive trials-in India, a land with abundant patients and investigators.

A VC from one of India's largest firms is talking to another who looks at early stage companies.

A journalist steps in and asks them: ''Do you find new opportunities here?''

Both VCs gaze incredulously at the interloper. Then they smirk.

''Are you serious? This biotech stuff is all five, 10 years gestation-it's a joke!''

''So what are you doing here?''

''It's better than being at the office.''

Mugasimangalam Raja has learned to get by without VCs. Raja is Director, Genotypic Technologies, a 10-person start-up in the field of genomics in Bangalore. "We looked for funds for two years without success," says Raja, a PhD and formerly a researcher on the human genome project at an US government lab. One investor backed out after promising funds, another pulled out after 9/11. "We learned that one can get by without having millions of dollars," exclaims Raja, who was bold enough to strike out on his own.

But as Raja knows, if Indian entrepreneurs want to make biotech the leading candidate to take over the mantle of high-tech star from it, the need for big ideas and bigger money is inescapable. "We're still looking for funds to scale up," confesses Raja, who worked with collaborators to create a human array, a collection of cells that allow researchers to carry out a large number of genetic tests.

Experts believe the surest way to the top is innovation. India's problem, they believe, is that its fledgling biotech companies just don't think of big-ticket-and admittedly difficult-discoveries and products, focussing instead on providing high-value services to global pharma and biotech companies.

But as Raja's case shows, it's not easy. Still, Bangalore expects Rs 300 crore in major new investments over the next year, Rs 100 crore of that coming from Europe's second largest drugmaker AstraZeneca, already in Bangalore through its subsidiary AstraZeneca India. Aurigene Discovery Technologies, a unit of Dr. Reddy's Laboratories, plans to invest Rs 50 crore. Germany's Sartorius ag also has a Bangalore-based research subsidiary, while Quintiles Transnational Corp, a US clinical research firm, is expanding after conducting mainly 35 late-stage clinical trials for regulatory submissions in the US and Europe since 1997. Another push is coming from many of the big it firms trying to enter biotech, the latest being the biggest of them all, Wipro (See Is Biotech The Next Big Thing In IT?).

Abhay Dhankar, Associate Principal with consulting firm McKinsey and Co, says Indian companies need ''distinctiveness'', which he describes as ''a skill or a tool or a technology that puts you in a club of three around the world''. Dhankar, a PhD in biophysics, adds: ''Products create far greater value, but success is harder to achieve and requires time and a higher productivity than today's industry benchmarks.''

That attempt is coming to some extent from pharma companies like Dr Reddy's Lab, Cipla, and Ranbaxy-which see biotech as a way to end the re-engineering of Western drugs and create new ones-or from multinationals like Monsanto that see huge opportunities in Indian agriculture. Companies that have created genetically engineered products are limited to vaccines, where Hyderabad's Shanta Biotech and Bharat Biotech have produced a world-class hepatitis B vaccine at a fraction of world costs. Bangalore's new biotech startups are mostly involved with contract research for global majors or creating biological and computer tools for them. ''The challenge is how they can scale up or jump upstream (into products and discovery),'' says Dhankar.

''It's easier to start (in biotech) than to grow,'' warns Karen Bernstein, Chairman and Editor-In-Chief of BioCentury Publications, a respected observer of bio-business based in San Carlos California. Still, the rash of activity and calibre of entrepreneurs and researchers has prompted Bernstein to make three visits to India in the last nine months. ''We're committed,'' she says, ''to getting the story of Indian biotechnology to the world.'' Right now, it's a story that's strong on promise but weak on details.

''Attention exhibitors, your power will be shut down in five minutes.''

It's 7:20 and people are milling around 70 stalls inside a giant, airconditioned tent. The warning is repeated, and suddenly, there is utter darkness. The Indians, long used to Bangalore's notorious power outages, flick on lighters; some use the light from their mobile phones. Never mind that the government is the chief organiser of India's biggest biotech fair. For those new to the country, it is a time of incomprehension. ''What has happened?'' asks a slightly panicky Nam Hee Choi, PhD, Head of the R&D centre of KoBioTech, a Korean company. ''Is something happening?''

HYPE: At least three biotech magazines have started up in Bangalore this year, mainly for students who believe they have sighted the new high-tech hope.

HAYSTACKS: Since original products involve a long and costly search, many Bangalore startups focus on providing high-value services to Western biotech biggies.

At Indian biotech's coming-out party, there's a daily reminder of old failings. But life goes on. Scientist-entrepreneurs look for funding. Research institutes look for corporate partners. Educators from Singapore try to sell biotech courses to schools. The Trade Commission of Denmark is promoting the provincial town of Hillerod, 40 km north of Copenhagen, as a biotech destination. The cross-section of participants at Bangalore Bio 2002, held in April (it was called Bangalore Bio.Com last year, but the suffix has, understandably, been dropped) is varied and eclectic.

Consultants Ernst and Young estimate the Indian biotechnology market to be worth $2.5 billion (Rs 12,227 crore)-a five-fold increase since 1997-but this includes everything from enzymes to making beer to tissue-cultured mushrooms. Companies doing ''modern biotech'' are a fraction of the total and the true base of innovation, say analysts, is near-zero. But there are rosy predictions for the future. According to a McKinsey estimate, bio-pharma revenues could touch $25 billion (Rs 120,000 crore) by 2010; the true-innovation base will probably generate $2 billion (Rs 9,600 crore). To achieve that, a plan for growth, revenues and an exit for vcs, is imperative.

Indian biotechnology is perhaps now at where it was in 1991 (there were just 13 it companies in Karnataka that year; there are more than 1,000 today) with important differences. The entry barriers are much higher; international markets are shaky; and there are no legions of knowledge workers available. The result is that business models and ambitions are often fuzzy.

''To be quite candid, the biotechnology industry in India has to do a better job of telling its story,'' says Nitin Deshmukh, Director of the Indian technology team at Dresdner Kleinworth Benson Advisory Services. ''What are the targets? What are the business models?'' Biotech worldwide is plagued by rising costs and declining productivity. So alliances are imperative. That's happening. The latest was the announcement in April of a joint venture to produce human insulin between India's largest biotech firm, the Rs 250-crore Biocon India and Shanta Biotech of Hyderabad. They realise that exciting science is no guarantee of exciting business: At least 30 per cent of new drugs fail to recover costs.

Indian biotech can do with all the help it can get. At its hub, Bangalore, the industry is certainly getting that support. Organising biotech fairs, creating remarkably clear vision documents, setting up research and training institutions and networking industry-the Karnataka government does all this.

IS BIOTECH THE NEXT BIG THING FOR IT?

"The estimated global market in healthcare and life sciences is about $ billion, growing at 20 per cent annually" D.A. Prasanna, Head, Wipro Healthcare & Life Sciences The biggest vote of confidence for the convergence of biotech and infotech came in April with the launch of Wipro Healthcare and Life Sciences. The new entity created by Wipro CEO Azim Hasham Premji-otherwise a conservative, taciturn man-is a sign of exploding infotech interest in the life sciences. ''We believe it can revolutionise healthcare and life sciences,'' says Premji, announcing his first major diversification since the early 1980s. That was when to his middling portfolio of vanaspati, consumer care, lighting and shoes, Premji added what was to be his blockbuster: infotech. Wipro is not the first major Indian company to merge it with biology. Tata Consultancy Services, India's largest it company, and Satyam Computer Services have already entered this sunrise sector. TCS even brought in Dr M.A. Vidyasagar, formerly director of the defence department's Centre for Artificial Intelligence and Robotics, to head their effort. Other smaller companies have already set up specialised units for bioinformatics, which aims to help life sciences companies properly utilise the humungous amount of data thrown up after the decoding of the human genome. Wipro is not new to the healthcare business. Two existing divisions, Wipro Biomed and the healthcare practice of Wipro Technologies, are being merged to form the new company, which will start life with a revenue base of Rs 75 crore and 130 employees. ''The estimated global market in healthcare and life sciences is about $25 billion (Rs 120,000 crore), growing at 20 per cent annually,'' reasons Doddaballapur Achyut Rao Prasanna, who will head the new company. Prasanna was until recently regional president and CEO of Wipro GE Medical Systems. Wipro is chary of revealing how much it will invest and how many people it will hire in its bioinformatics, but that isn't surprising. A year ago, the world was gung-ho about bioinformatics. Today, even Western high flyers realise that sustaining a bioinformatics effort in a depressed world economy isn't as easy as it sounds. One example is Lion Biosciences, a celebrated German company focussed on bioinformatics. Started in 1997 as a gene-sequencing company, Lion transformed itself into a bioinformatics company in 1999. Genomic hype pushed its market cap (India does not as yet have a publicly listed pure biotech company) through the roof to $2 billion (Rs 9,600 crore) at one point. Today, market cap is down to $100 million (Rs 480 crore) and analysts say its $40 million (Rs 192 crore) in revenues are half of what it needs to sustain its 500 employees. Wipro has of course spread its bets by targeting the wider healthcare market, not just bioinformatics. But both biotech startups-many of which are focussed on bioinformatics-and it firms delving into biology would do well to bear in mind the helical hazards before them. -Venkatesha Babu

This is evident at a roundtable of more than 35 scientists, VCs, entrepreneurs, and analysts, invited to a SWOT (strengths, weaknesses, opportunities, and threats) analysis. The discussion is quickly distilled to its essence: funding. ''We are very willing to invest in biotech, but we can't wait indefinitely for returns,'' says Subhash Reddy of E4E, a VC that incubates and funds tech companies. When Reddy adds he would like returns in a year, the protests are immediate.

''That is not venture capital, that is money lending,'' is the indignant response of Kiran Mazumdar-Shaw, CEO of Biocon. (Shaw is also the head of Karnataka's vision group on biotech set up by the government and Indian biotech's premier spokesperson). Reddy later climbs down and said if there is a clear plan for an exit, he can wait longer, but not beyond five years-at most.

''We could call the SEBI chairman and talk to him about the possibilities for IPOs and exits for venture capitalists,'' suggests Vivek Kulkarni, the Karnataka government's Biotech (and Infotech) Secretary. It's the attitude that entrepreneurs laud.

The clear, yellow liquid is offered in a matchbox-sized plastic cup. Curiosity gets the better of visitors to the stall run by the Central Food Technology Research Institute (CFTRI).

''This is really good,'' exclaims a man after gulping what he now knows to be pure banana juice.

Dr M.S. Narayan perks up. ''Would you like to manufacture it?'' asks the CFTRI scientist eagerly, explaining how banana pulp can even be used as alcohol. His disappointment is visible when the visitor retreats.

One of Indian biotechnology's big challenges is to solve the mismatch between government-run research institutes and business imperatives. There are of course a few instances, like the Spirulina tablets sold by the Thapars, made from an algae modified by the institute. But of the CFTRI's 337 Indian patents and 97 foreign patents, none have been a blockbuster.

Similarly, talent from the institutes is loath is strike out. In late 2000, four professors from one of India's premier research institutions, the Indian Institute of Science, were allowed to become entrepreneurs and remain at their jobs. The company they founded, Strand Genomics, has created a set of infotech tools to distill information from the human genome. The four professors and their impeccable academic pedigrees managed to garner $1 million (Rs 4.8 crore) in VC funding. So did Strand set the institutes-crammed with talent-alight? Not exactly. About 18 months after the procedures for entrepreneurship were put in place at IISC, no one has followed Strand's example.

''We have so many young professors-why can they not give three hours of their time every week to the 70 companies here?'' asks Manju Sharma, Secretary of the Indian government's Department of Biotechnology in Delhi. It is an honourable suggestion but no real solution to the research and business mismatch.

Internationally, it takes at least $300 million (Rs 1,440 crore)-that could be spread over years-to create a successful biotech products company. This is clearly not a job for the government. As the it example shows, it might not require quite that much to create an Indian biotech major, but the risks are still great enough to keep the scepticism among VCs from waning.

The risks in biotech begin with the need for brilliant scientists and time needed not just to discover, say, new drugs, but to clear painfully long Indian regulatory processes. It took six years for the first genetically modified cotton seeds-Bt cotton, meant to kill cotton's biggest pest, the boll worm-to get those permissions. Similarly, new human drugs typically take a decade to develop: some Indian biotech firms are preparing to be clinical-research subcontractors to cut down this time. Some want to go the whole hog and develop new blockbusters as the patent regime due in 2005 forces Indian pharma to end copycat science permanently.

Techniques to spread risks during this long haul exist. That's why Mahesh Chainani is in Bangalore. Chainani is Director of Mavich Insurance Services, a risk management and re-insurance company based in Mumbai. ''We cover the risk from clinical trials,'' explains Chainani. Mavich will underwrite losses that might emerge if clinical trials fail. Chainani's company already covers risks for underperformance of software products. He doesn't have any biotech clients yet-startups looking to survive are unlikely to spend money on risk management-but he's very hopeful. ''We had no takers when we first approached the IT industry in the middle 1990s,'' says Chainani. ''We're patient. One day biotech will need us.''