In the rush among emerging markets to become a hub for the world’s US$21 billion medical tourism industry, can Indian stem cell companies help secure the country’s place on the itineraries of globe-trotting patients? While that remains to be seen, the country’s niche biotech industry is attracting a lot of attention. In fact, the Stem Cell Global Foundation, a Delhi-based organization, predicts that India’s stem cell banking business will grow more than 35% over the next year to Rs. 140 crore.

Spotting the growth potential, a number of health care providers and biotech companies have branched into what is often referred to as “regenerative medicine,” which uses stem cells from human placentas, umbilical cords, aborted fetuses and often patients themselves to treat a range of diseases. One company planting a stake in the ground is Chennai-based LifeCell, India’s first private umbilical cord blood and tissue stem cell bank. Incorporated in 2004 following a technology tie-up with Cryo-Cell International of the U.S., the world’s largest and oldest stem cell bank, LifeCell today has more than 40 centers in not only India, but also Dubai and Sri Lanka, with more international expansion on the way.

That rapid expansion is one of the reasons why joining LifeCell as executive director was so attractive to Mayur Abhaya, who sees his 2008 move from pharmaceutical company Shasun Chemicals to biotechnology as a “natural progression.” Today, Abhaya continues to be bullish about India’s stem cell industry, predicting that the number of overall stem cell-banking customers in the country will increase from around 25,000 currently to as many as 100,000 by 2012. At the same time, he concedes that there is much work to do in laboratories and the marketplace to help stem cell therapies gain greater traction in India, including ensuring higher standards of quality control among stem cell banking providers and more government support. In an interview with India Knowledge at Wharton, Abhaya shares his thoughts on what needs to happen for both the industry and LifeCell to grow even more.

An edited transcript of the conversation follows.

India Knowledge at Wharton: How does India’s stem cell industry compare with that of other countries?

Mayur Abhaya: The stem cell story in India significantly lags other Asian and Western countries. If you take a look at the stem cell banking industry, only 15,000 clients have their children’s stem cells preserved every year in India. This pales in comparison to China, Europe and the U.S., which each report 100,000 clients on average.

Some of the barriers to growth have been the reluctance of doctors to promote newer concepts without adequate proof [of their efficacy], and the direct sales model that local companies must use to promote new concepts. The model is prohibitively expensive given its low reach and impact. Additionally, very few clinical trials have been initiated in the stem cell space, which is directly proportional to the insignificant investment in basic research in our country.

India Knowledge at Wharton: What needs to happen for the industry in general, and LifeCell specifically, to grow further?

Abhaya: Even though the government has dedicated resources and created stem cell research institutes around the country, legislation remains at a draft stage. Public policy initiatives have been explored, but the country does not yet have a government-funded public stem cell bank or repository. If the government were pushed by the sector, the sector would grow faster. In addition, if [the industry] used mass media as a communication tool, the adoption of stem cell banking would be more rapid.

India Knowledge at Wharton: Is increasing competition from foreign companies, such as Cryo-Save of the Netherlands, a concern?

Abhaya:In the private banking segment, LifeCell has competition from a few domestic players, such as Reliance Life Sciences and Cryobanks India, which have expanded operations over the last few years. Fortunately, we have positioned ourselves as a comprehensive stem cell solutions provider, offering services in stem cell banking, research, therapy and clinical applications. Being an integrated solutions provider has enabled our clients to distinguish us from the competition. Within the therapy “vertical,” we have competition from Reliance and a few service providers, such as LifeLine Hospitals, which provide stem cell therapy as their core offering.

In the remaining segments, the market is currently underserved, so we welcome the arrival of foreign competition. We believe that it would also make more services affordable while forcing existing companies to benchmark their quality standards against other companies adhering to international norms. What poses a concern is that very few companies in the country have internationally recognized accreditations today.

India Knowledge at Wharton: How important are partnerships or potential mergers and acquisitions for LifeCell?

Abhaya: Our goal is to position ourselves as the leader in the stem cell space in India. In essence, I would like LifeCell to be the first to bring the latest advancements in stem cell technology to India. Currently, there are many emerging opportunities or “pockets” in the sector in which LifeCell is not present. We would like to fill these gaps through partnerships. To that end, we are constantly seeking to partner with companies that are respected innovators in their field. The recent collaboration with Harvest Technologies in the U.S. is a good example of this. Harvest has a point-of-care bone marrow processing device, which helps surgeons get quick and independent access to stem cells. We are also keen on expanding our geographic coverage outside India, especially in Southeast Asia and the Middle East.

India Knowledge at Wharton: What sort of impact has the global economic downturn had on the industry? Have you had to change your “pitch” to the financial community in recent times?

Abhaya: Due to the downturn, a lot of our customer’s checks have bounced. We understand that our customers prefer to spread payments, so we introduced interest-free EMI [equated monthly installment] plans and even a 24-month EMI plan with minimum interest to meet this need. Today, more than 70% of our clients register with EMI plans.

With regards to capital, there has been some successful fundraising recently, the most noticeable one being China Cord Blood Corporation, which earned very rich enterprise valuations [10 times sales]. This demonstrates that the industry is interested in making investments.

From LifeCell’s perspective, there has been some concern from our financers when they look at the track record of companies that invest heavily in clinical trials. The recent failure of Osiris and the “on hold” status of a company called Geron only accentuate these concerns. Osiris ended clinical trials in phase three of evaluating Prochymal for Crohn’s disease due to a design flaw in the trial resulting in significantly higher placebo response rates, while clinical trials for Geron’s spinal cord injury drug were put on hold when the latest round using animals revealed side effects that warranted further investigation.

India Knowledge at Wharton: Do you feel that LifeCell needs to seek a public listing at some point?

Abhaya: Currently, the company only requires growth capital and this can come from debt and private equity funding. Hence, I don’t see LifeCell being a listed company, at least within the next three to four years.

India Knowledge at Wharton: What is at the top of the agenda for LifeCell in 2010?

Abhaya: One of our priorities in 2010 is to launch a menstrual blood banking service in India. This is not a novel concept; in 2007, Cryo-Cell formed a subsidiary called C’Elle for banking menstrual blood for stem cell harvesting. Menstrual blood is a richer source of stem cells compared to bone marrow as it regenerates every month. Women can store their blood by paying a fee and use it whenever they require treatment. Additionally, menstrual blood can be used to treat patients without the fear of tissue rejection and avoids the ethical dilemma associated with embryonic stem cells. Menstrual blood banking has the potential to expand our revenue stream multi-fold considering that our total market would no longer be 2% of the population, which represents pregnant women, but almost every woman in the country.