Indian pharmaceutical companies so far have focused mostly on the latter ‘development’ due to multiple reasons despite being known as the “pharmacy to the world”.
Limited examples of research-based products launched by Indian companies include Haymicin, an anti-fungal medicine by Hindustan Antibiotics launched in the early 1960s that is known as the first product of Indian pharma research.
Ranbaxy’s anti-malaria drug Synriam, launched in 2012, was celebrated as the first molecule indigenously developed by a private Indian pharma player.
Lipaglyn (saroglitazar) is the third product of Indian research by Zydus Cadila in 2013. It is also the third-largest brand in the Zydus stable.
After that, several top pharma companies such as Dr Reddy’s Laboratories, Sun Pharma, Torrent, Glenmark, and Biocon have developed new molecular entities or medicinal products which never existed before. While some companies have sustained commercial success, others — at some stage — have out-licenced their molecules to multinational companies for further development and marketing.
Pharma brand specialist Vivek Hattangadi aptly describes the strength of the Indian pharmaceutical industry as: “Our strength is in F&D rather than R&D”. Here ‘F’ stands for formulations which means manufacturing medicines and not ‘R’, which means innovation.
India’s pharmaceutical industry needs to maintain relevance by expanding into discovery of new medicines technically known as NME — new molecular entities. It is a space that accounts for two-thirds of the global value pool and where India has a small presence today.
India’s share in approval of NME stood at less than one per cent between 2015 and 2018 whereas the United States’ share stood at 72 per cent followed by Europe’s share of 21 per cent.
Budget announcements encourage R&D
As a journalist tracking health and pharmaceuticals for over a decade now, I have reported multiple times that the Centre or the department of pharmaceuticals is coming up with a policy to boost R&D in the sector. In reality, nothing concrete ever happened.
In this Union Budget, Finance Minister Nirmala Sitharaman announced an R&D policy for the pharmaceuticals and Medtech sector.
The immediate reaction to the announcement was “der aaye, durust aaye” (Better late than never).
The Indian pharma sector has already been recognised as a reliable global player in supplying medicines and the next expected move is to become “a value creator”.
While the policy is still in the making and the central government is fine-tuning the draft before sending it to the finance ministry for budgetary approvals, the top focus areas of the policy will include drug discovery, innovative drug discovery delivery systems, precision medicine, advanced medical devices and gene therapy.
Also, the government is working on a research-linked incentives scheme (RLI) similar to profit-linked incentives scheme (PLI).
Of the selected areas, companies can start with new drug delivery systems which can give the lowest hanging fruits with lower investment and shorter gestation periods.
Otherwise, for areas such as gene therapy, India may need to wait for a decade for noticeable progress and an investment of multi-billion dollars.
“The government wants to focus on areas such as gene therapy, as per media reports. However, this could be a long-term goal as these sectors require huge capital requirements and multi-billion dollars to run research. It can be labelled as an ambitious project but nothing will come out of it before the next 10 years at least,” Sujay Shetty, global health industries advisory leader at PWC, said.
Why have research and innovation in pharma remained a challenge for Indian companies?
Research is similar to filmmaking. You put in a lot of money but you never know if the film will be a blockbuster or a bummer.
Similarly, drug research is unpredictable, expensive and uncertain. Even after spending 8-10 years to develop a product, there is no assurance of a successful outcome, which makes the investment very risky.
India spends about 0.7 per cent of its GDP on research and development, whereas other countries spend in the range of 2.5-3 per cent.
Even average industry funding in the area of research has been around 10 per cent, compared to 18-22 per cent by most of the large innovators globally.
Considering the high-risk nature of R&D, it is extremely critical to work towards creating risk capital in India.
“In short, out of 10,000 molecules, only one gets commercialised. A long period of gestation of 8-10 years is needed and around 3-4 billion dollars of investment,” Ashok Madan, executive director of the Indian Drug Manufacturers’ Association, said.
India versus global
The R&D expenses for the ICRA sample of leading Indian pharma companies moderated from a high of 8.5 per cent of revenues in FY2017 to 7.0 per cent in FY2021.
Indian pharma companies have been optimising R&D expenses as pricing pressure in the US business has adversely impacted growth opportunities and profit margins.
ICRA’s Mythri Macherla, assistant vice president, expects the R&D expenses for the leading pharma companies to stabilise at 7.0-7.5 per cent of the revenues over the medium term in line with FY2022 and H1 FY2023 levels.
In contrast, the R&D spending of leading global pharma companies (Sanofi, Pfizer and Novartis) has been considerably higher at around 15-20 per cent of their revenues over the same period, primarily due to their continued focus on developing innovator molecules and wider presence in regulated markets.
However, certain other firms (such as Viatris, Teva and Endo) which derive a sizeable portion of their revenues from generic drugs spend around 4-8 per cent of their revenues on R&D.
What needs to be done?
Overall, the top requirements for fostering a healthy environment for R&D are high-quality infrastructure, skill sets, comfortable capital inflow and regulatory climate.
India needs to start by creating a high-quality infrastructure for the setup of innovation hubs to accelerate collaboration.
The government’s move of making ICMR labs available for research to public and private medical college faculty as well as private sector R&D teams is a big and positive move.
“Even in the United States, basic research comes from public laboratories. If you look at their 100-year history, public labs have played a very important role,” Shetty said.
These government laboratories have top-class infrastructure which may not be available at start-ups or medium-scale pharma companies.
Considering that India produces millions of PhD students every year who move abroad to work in the foreign pharma giants, there won’t be a significant issue regarding finding a good skill set. The other two issues need a larger focus.
Robust funding support is essential. Apart from government support, the industry needs a vibrant private equity (PE) and venture capitalist (VC) community. For instance: VC investment in the pharma sector in the United States stood at $12 billion in 2019 and $17 billion in China in 2018. In India, it stood at around $700 million in 2019 ($0.7 billion).
Multiple experts I spoke to concur with similar points. Shuchi Ray, Partner, Deloitte India, told me that considering the high-risk nature of R&D, it is extremely critical to work towards the creation of risk capital in India.
Meanwhile, over the years, the government itself has dissolved the incentives for companies to invest in R&D by cutting down the tax exemptions on research.
The other important requirement is to create a conducive regulatory environment such as a favourable policy landscape through coherent policies across scientific research, technology commercialisation and intellectual property to promote an innovation ecosystem.
Once everything is put in place, we just need to wait… for the right time and products.
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