Seven year itch? Tata group reviews investment in Advinus Therapeutics

19 Apr

The Tata group is reviewing its seven year-old investment in closely-held research and development company Advinus Therapeutics, according to three people familiar with the development.  The group is open to the idea of attracting strategic investors into the company and accepting significant equity dilution at the right valuation, these people said.

“They are looking to hand out a mandate to an investment banker,” said one of these three persons.  Discussions had been held with Avendus Advisors and Mehta Partners, this person said.

While the group would prefer to exit entirely it is also open to staying on with a smaller stake in the company, two of these persons said. “But the preference would be an exit if not now then eventually,” one of these two said.

When contacted, a spokesperson at Tata Sons, the group’s holding company, responded via e-mail : “The Group reviews its portfolio on a periodic basis as any investor would. No view has been taken on Advinus.”

The group does not have “that much of an appetite to invest any more” in Advinus said the third of the persons cited above.  However, the Bangalore-based R&D company  needs yet another cash injection to take some of its plans to fruition, this person said.

Advinus was founded in 2005 to pursue new drug discovery in the focus areas of metabolic diseases, inflammatory diseases and neglected diseases.  Since new drug discovery is a high-risk, expensive and long gestation game, Advinus offers development services to pharma and agrochemical companies for a fee as an immediate revenue stream. It has prepared dossiers for Indian and foreign companies that facilitate the filing of an investigational new drug application (new drug approval with regulators).

While the development business is making good money, the company’s drug discovery effort which is its raison d’etre still requires support, said these people. For instance, the company has a new molecule in the area of diabetes whose trials need to be bankrolled.  Trials are expensive and start-ups usually licence promising new drugs to Big Pharma for further development. “But these days Big Pharma prefers to licence at a later stage (when there is more data on the drug’s safety and efficacy),” said one of these persons. “Even if the services part of Advinus makes money it is not enough to bankroll global trials upto that point,” this person said.

During the 2008 meltdown, the R&D services industry in India went into a slump that it has still to entirely recover from.

While the reasons for the Tata group’s review are not immediately clear, two of these persons reckoned that this might be part of an overall relook at the group’s life sciences investments.  In addition to Advinus, the group invested in Indegene Pharmaceuticals in 2006.

The group had exited the pharmaceuticals manufacturing and sale business in the late nineties and early 2000s. It sold off  Mumbai-based Merind to entrepreneur Habil Khorakiwala’s Wockhardt in 1998. Tata group company Rallis India sold off its pharmaceuticals business to Shreya Impex in 2001.

In the mid-2000s the group got interested again, this time in pharmaceutical R&D including the pursuit of new drugs.  It invested in Advinus – the brainchild of  Rashmi Barbhaiya, CEO of Advinus and former head of R&D at Gurgaon’s Ranbaxy Laboratories. Its top scientific tier initially comprised senior persons from Ranbaxy’s new drug research team though some of them have since left.

The Tatas hold a majority of over 70 per cent in the company, while the senior management and some top scientists, including Barbhaiya and chief scientific officer Kasim Mookhtiar, hold the balance.

In fiscal 2011, Advinus Therapeutics on a standalone basis posted a loss of Rs 89.7 crore on total income of Rs 52.7 crore compared to a loss of Rs 22.4 crore on total income of Rs 89.9 crore in fiscal 2010 according to the most recent balance sheet available with the Registrar of Companies.

This was “due to delays in achieving some planned revenues and the continued spend on (R&D)activities in its drug discovery operations in Pune and also lower revenues from the development Business, which was affected by recessionary conditions in overseas markets for the first part of the year,” the company said in its report.

However, one of the three persons said the company’s development business had bounced back in fiscal 2012 and that it would clock revenues of around Rs 100 crore.

For a deeper analysis of what this means, watch this space.

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2 Responses to “Seven year itch? Tata group reviews investment in Advinus Therapeutics”

  1. Prakash R Iyer April 20, 2012 at 3:41 pm #

    Considering the exponential growth of the pharma industry in India, its a shame to know how the TATA’s are trying to withdraw stake in a R&D centre for trivial losses when compared to the volume it could genrate in the future. Way back in the 1998, when the software industry was turning into a new revolutionising sector, Seimens had a R&D investment of $1bn at that time when their takebacks were not even 1/3 of their investment. ……….Hope the TATA’s dont withdraw and in fact continue to invest more……maybe get to know about it thru this blog.

    Like

  2. surinder kher April 21, 2012 at 12:56 pm #

    This is a reflection of the Indian mindset about investments into research. We talk of innovation but we do not have patience. There are several instances in the past few years where joint ventures and partnerships were developed for drug discovery and development and all have fallen apart and the trend is increasing. neither the government nor the private sector seems to have the apetite for innovation that would benefit the country in the long run. Investors only think of returns immediately ( within 5-7 years) despite being fully aware that it is more than a 10 year process and the risks are high.
    It looks like we as a country will remain experts in reverse engeneering only. Very demoralizing and demotivating for the future generations!

    Like

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