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Start-ups

Outlook positive

  • from Shaastra :: vol 03 issue 11 :: Dec 2024 - Jan 2025
Start-ups that integrate technology into their offerings are more likely to attract investors.

A maturing ecosystem, with alternative sources for funding, bodes well for deep tech start-ups in the healthcare space.

A few months ago, the founders of six healthcare start-ups could be found touring a factory in Goa that makes testing kits, and going into a huddle with scientists and engineers at the manufacturer's Bengaluru research centre. The factory and laboratory belong to Goa-based molecular testing company Molbio Diagnostics. Despite being a private firm and reportedly India's first medical technology unicorn, Molbio found it useful to open its factory doors to the newbies.

It was because of an initiative called Edge, a sort of accelerator-cum-scouting programme for growth-stage start-ups that Molbio thought up in 2023 with a two-fold intent. Molbio's molecular testing platform, the microPCR Truenat, has taken infectious disease diagnostics to the field or closer to the point of care (PoC), such as primary health clinics. It now wants to tap into tech-backed PoC ideas outside its own lab. The first Edge cohort has solutions for early detection of diseases such as cervical cancer and pre-eclampsia. A few could end up as technology partners of Molbio, and the partnership may turn into co-development or joint sales and distribution. It could also provide some bridge funding to them.

The Central and State governments are the biggest financiers of early-stage healthcare start-ups.

Molbio also wants to equip such start-ups with the knowledge and networks needed to scale rapidly, even if they do not end up partnering with the company. "We think there are a lot of good ideas floating around but unable to reach the market," says CEO Sriram Natarajan. The stumbling blocks include some anticipated ones such as funding and others, such as regulatory approvals and scale-up, that can take start-ups by surprise, he explains.

The Edge cohort, chosen after a filtering process by company-appointed experts, was explained the nitty-gritty of producing at scale; it then dived into granular details on sourcing raw material, and quality control with staff. They discussed product design and choosing scalable components. They got 90 hours of advisory from experts on topics such as intellectual property, sales, regulatory compliance and even crafting stories about their work for different audiences.

Edge is a harbinger of a maturing ecosystem that deep-tech healthcare start-ups stand to benefit from as they move past prototypes into the crucial phase of development, large-scale production and commercialisation. More willing partners and avenues of funding than before are beginning to appear on the horizon, with some riders.

BEYOND PROTOTYPES

In the last decade or so, the Indian government and some States emerged as the biggest financiers of a spectrum of early-stage healthcare start-ups including deep tech ones. Government-funded incubators offer access to state-of-the-art equipment, mentorship and networks. The Biotechnology Industry Research Assistance Council (BIRAC), set up in 2012 under the government's Department of Biotechnology, provides capital such as grants and equity, and other support. Such programmes have been helping early-stage life sciences and healthcare start-ups for a decade.

In the biomedical devices and diagnostics space, there is now a large number of single-product start-ups that secured early-stage funding and have built prototypes, according to Satya Prakash Dash, President-Strategy at Molbio's research arm Bigtec Labs, who leads Edge. During 2013-2023, the diagnostics sector, including PoC, has emerged as the most preferred area for deep-tech investments in healthcare, finds a recent report by IIMA Ventures, the incubator of the Indian Institute of Management Ahmedabad (bit.ly/iima-deeptech). The start-ups now need to run the gamut of clinical trials, regulatory approval, launch and large-scale adoption. "They are unable to cross the bridge," says Dash.

Edge is perhaps the first structured partnership by a corporate in this space, says Dash, and a response to the challenge of scaling. "A mix of partnerships between governments, big companies and start-ups is needed to build globally relevant start-ups and become a product nation," he says. There will be more such cohorts in 2025.

"Edge gave a very good perspective on what it takes to get a product out in medical diagnostics," says V.V. Raghavendra Sai, Founder of the start-up ChemBioSens, incubated at the Indian Institute of Technology (IIT) Madras-HTIC MedTech Incubator, and one of the six Edge start-ups. Sai is also Associate Professor, Biomedical Engineering in the Department of Applied Mechanics at IIT Madras, where he did the research that led to his start-up. Its novel fibre-optic sensing platform can detect analytes at much lower concentrations than techniques currently in use, and could be faster and more economical. Possible uses include detecting biomolecules in body fluid or endotoxins in water.

BEYOND SEED CAPITAL

When it comes to financing, deep tech healthcare start-ups still face a gap between the seed or seed-plus rounds, and private institutional funding, says Siddharth Pai, Founder and Managing Partner at Bengaluru-based deep science and tech-focused venture fund Siana Capital.

For those solving complex deep science problems such as discovering new drugs, the gap is more like a chasm, says Pai, given the odds of success. As per widely-quoted estimates, only 10-20% of drugs entering human trials clear the regulatory bar of safety and efficacy. Including the cost of failure, it takes $2.5 billion and over a decade to take a drug from lab to market.

Start-ups that integrate technology into their offerings to reduce complexity and improve the probability of getting desired outcomes are more likely to attract investors. Pai cites medical devices and peripherals, and the use of data to improve healthcare outcomes and efficiency, as emerging opportunities. When it comes to drug discovery, a "large area of possibility" is using AI to reduce or replace expensive and time-consuming wet lab experiments or to personalise medicine.

In recent times, deep tech health start-ups have been raising funds from investors beyond the traditional venture funds.

Even private seed investors such as the Hyderabad-based early-stage venture fund Endiya Partners see an opportunity in the use of technology such as large language models (LLMs) in life sciences and healthcare, whether it is to read radiological images to turn out a diagnosis or to discover new drugs, according to its Managing Director Ramesh Byrapaneni. "It's really moving fast, and we are keeping a close eye on it." Of its many applications, he sees radiology as an early adopter with AI in drug discovery taking some more years.

THE CLOSING GAP

Despite the increasing number of investors in life sciences, drug discovery is inherently risky and has not attracted enough investors beyond the seed level, according to Parul Ganju, Co-founder and CEO of Pune-based start-up Ahammune Biosciences. "But things are changing as we speak." In September 2024, Ahammune raised private institutional funding primarily to bankroll efficacy trials of a new drug for vitiligo in humans. Vitiligo is a chronic autoimmune disorder that causes white patches as skin loses pigment. It has no cure.

Ganju cites a number of reasons for an increase in investor interest in drug discovery. One reason is the imperative to look beyond direct-to-consumer and quick commerce businesses to deep tech and specifically, after the pandemic, to health. The second reason is the successful public listings of drug discovery and development start-ups in the U.S. The third is the return of Indians with experience in deep science and tech-focused venture capital from the West to lead funds or their research teams here. Even the launch of cutting-edge autologous cell therapy known as CAR-T for some cancers by the Indian start-up ImmunoACT in 2023 counts as a factor, according to Ganju.

The field of imaging diagnostics is unlikely to change much but it may become cheaper and faster with AI integration.

Start-ups such as Ahammune invest in risk mitigation. Since 90% of the drugs that prove safe and effective in animals fail in human trials, Ahammune tests its drugs on validated, proprietary animal models that closely mimic the human disease and response in a bid to make the results more reproducible in humans.

MORE INVESTORS

In recent times, deep tech health start-ups have been raising funds from an emerging set of investors that provide alternatives beyond the traditional venture funds. These are the family offices of the promoters of healthcare and pharmaceutical companies, including those that sold those businesses to turn investors. "They understand the space and have the enthusiasm to bet on start-ups," says Byrapaneni. One instance is Eragon Ventures started by the former promoters of Mumbai-based J.B. Chemicals and Pharmaceuticals. Eragon recently invested in an oncology start-up using AI-powered liquid biopsy for precision diagnostics. A few pharmaceutical companies have also turned investors and more may do so, he adds. Endiya-backed regenerative stem cell therapy company Eyestem has raised funds from three such companies, including vaccine maker Biological E. and drug company Alkem.

According to industry observers, there is no dearth of new ideas in healthcare although they are rarely disruptive. For instance, a new imaging modality may not be launched soon in radiology. But a better, cheaper, faster version of an existing modality or one with super-added AI components could, according to Byrapaneni. "It is important for start-ups to be truly innovative if they cannot be disruptive," says Molbio's Sriram, speaking from his vantage point on medical diagnostics.

See also:

Indian start-ups dive into deep tech phase
Fuel for take-off
Start-ups born on campuses
Bridging the academia-industry gap
Support systems for start-ups
Space start-ups get into a higher orbit
Chipping in
The rise of quantum.in
Automated growth
India is poised for a tech leap

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