Is pharma steering India’s tryst as a major R&D hub?

By ZRG | Updated: Oct 12, 2012, 18:28 PM IST

Rohit Joshi, Siddharth Tak and Ajay Vaishnav / Zee Research Group / Delhi

India’s transition from a protected to a relatively free market economy exposed domestic companies to increased, or to be precise cut-throat competition in the marketplace. It seems pressures emanating from enhanced competition is slowly yielding results as more and more Indian companies are investing in research and development (R&D). They are working overtime to improve the overall quality of their existing product and services lines.

It undoubtedly shows up in the statistics as India has steadily emerged as a major global R&D hub despite starting late. According to Battelle and R&D Magazine, India with a spending of 30 billion US dollars globally ranks eighth. While it is way below the US, which spends 427.2 billion dollars and is the largest R&D spender nation, it nonetheless underscores the fact that India has moved up in the pecking order which includes leading innovators like China, Japan, Germany and South Korea.

But the key question to be asked is: whether it is a qualitative transformation or is a paradigm shift from replication to innovation is taking place? Take for example, the pharmaceutical sector in India. The average R&D expenditure by Indian Pharma companies is close to 6 per cent. Going by the last reported financials, Lupin spends the most 8.5 percent of its total sales on R&D, followed by Biocon (7.5 percent), Glenmark Pharma (7.25 percent), Dr. Reddy’s (6.8 percent), Cadila Healthcare (6.4 per cent), Ranbaxy (6.1 percent), Sun Pharma (5.4 percent), Cipla (4.2 percent), and IPCA Labs (3.8 percent).

Yet Indian Pharma companies’ spend on R&D is nowhere near their American and European counterparts. Globally recognized drug majors like Eli Lilly (US) spends around 21 percent of its total sales on R&D, while Merck (US), AstraZeneca (UK), GlaxoSmithkline (UK) ,Roche (Switzerland),Pfizer (US) ,Novo Nordisk (Denmark) spends around 17.6 percent, 16.4 percent, 14.3 percent, 19 percent, 13.5 percent, 14.5 percent respectively.

Explaining the rationale behind the low spend on R&D by Indian counterparts, Sarabjit Kour Nangra, VP Research, Angel Broking, Mumbai said, “Basically success ratio in R&D is very low, even if a company is spending a billion dollar on the development of drug, there is no certainty of the returns (ROI)”.

The above view is shared by many industry experts. Ranjit Kapadia, Senior VP, Centrum Broking too stresses, “Global pharma companies spend mainly on NCE (new chemical entity) which requires a lot of investment. For instance development of new drug involves a cost of around 800 million dollars which is not affordable by Indian counterparts. Money spent by Indian Pharma companies on R&D, basically goes for generic product development and ANDA filings.”

While affordability is a major obstacle, Indian pharma companies’ business models based on the generic drug manufacturing business haven’t helped them to tread on the path of innovation. Rather than innovating new drugs, our companies replicate branded drugs when their patent expires.

“Companies having rich cash flow position can afford this and as R&D inherently requires a lot of investment, Indian companies can’t afford so much money on the R&D. Furthermore, Indian companies have no experience of developing a new drug and they have always been in generic space (copycat version),” Nangra at Angel Broking added.

If change has to come, then the pharma industry must usher to the innovation stage in drug development from replication process. A positive side of the Indian Pharma story is that they spend almost at par on R&D when compared to the global generic counterparts. Global Generic companies like Teva (Israel) spends 5.9 per cent of its sales on R&D while companies like Mylan (US), Hospira (US), Watson(US), Stada Arzneimittel (Germany),Gedeon Richter (Hungary) spend around 4.8 percent, 6.4 percent, 6.4 percent , 2.9 percent,9.3 percent respectively.

In recent years, Indian companies like Glenmark and Biocon have shown promise to develop original drugs. In last fiscal (2011-12), Glenmark spent approximately 60 percent of total R&D expenditure towards innovation R&D and balance 40 percent was incurred on overall Generics R&D. For instance, Glenmark successfully completed the Phase I trial of GRC 15300, a first-in-class TRPV3 inhibitor for treatment of pain. Similarly, Biocon has completed Phase III studies on Itolizumab (psoriasis molecule). Similarly, the company has commenced phase III trials in India for Trastuzumab (Herceptin, Mylan alliance).

Add to this, efforts by smaller companies which are breaking barriers to develop original drugs. Experts reckon the efforts of these companies. Nangra at Angel Broking reiterated: “It depends upon company to company like Glenmark and Biocon are taking new initiatives, however it would take lot of time when Indian companies would start spending huge amount on new drug development”

Likewise, Ranjit Kapadia at Centrum Broking said, “Though four Indian companies like Glenmark Pharma, Dr. Reddy’s , Piramal Healthcare, Sun Pharma are working on the development of new drug , yet it’s a still a long way to travel for Indian counterparts to match the amount spend by global innovators.”