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Pharma R&D: Worth investing! - Views on News from Equitymaster
 
 
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  • Jan 6, 2005

    Pharma R&D: Worth investing!

    R&D is increasingly becoming an area of focus for Indian pharma companies and most of the big players are spending about 6%-7% of their revenues on R&D activity. While this is much lower when compared to the amount spent by global pharma majors (around 12%-15% of revenues), it must be noted that since Indian companies are operating at the lower end of the value chain, they cannot afford higher R&D expenses.

    Top six R&D spenders globally...
      % of revenues US$ bn
    Pfizer 17.50% 7.1
    Novartis 15.10% 3.8
    Aventis 16.40% 3.5
    Merck 14.50% 3.2
    Glaxo SmithKline 9.50% 2.7
    Eli Lily 18.80% 2.4
    Top four R&D spenders Indian...
      % of revenues Rs m
    Ranbaxy 6.80% 2,380
    Dr Reddy's 9.90% 1,910
    Wockhardt 7.90% 630
    Sun Pharma 4.80% 479

    Going back to the early 1990's, Indian companies started their drug discovery programs with Dr. Reddy's and Ranbaxy leading the front. While in early days, Indian companies were involved in recognizing lead molecules and out-licensing several of them at pre-clinical stages (due to lack of funds and expertise), now the scene is changing and companies are conducting clinical trials of drugs on their own. For instance, Ranbaxy is conducting clinical trial phase II of its asthma compound (Rbx 7796) in Europe while Dr. Reddy's is conducting clinical trail phase I of its anti-diabetes compound (DRF 10945) in Canada.

    While bigger companies like Dr. Reddy's and Ranbaxy are much ahead in terms of R&D activity and their new drug pipeline, smaller companies are catching up fast with companies as small as Dabur Pharma having 2 molecules in pipeline.

    Indian companies: New drug pipeline
    Companies Molecules in
    Clinical Trails
    Ranbaxy 6*
    Dr Reddy's 4
    Sun Pharma 2
    Dabur 2
    Lupin 2
    Wockhardt 1
    Orchid Pharma 1
    Nicholas Piramal 1
    Gelnmark Pharma 1
    Total 20
    * One of Ranbaxy's Drug Delivery product ("Cipro OD) is in the market

    While there are several success stories of Indian companies on the R&D front, there are failures as well. For instance, trials on two of Dr. Reddy's out-licensed molecules have been stopped/suspended. On the other hand, some major successes on this front include Ranbaxy's drug delivery product Cipro OD, which was out-licensed to Bayer AG and is already in the market. Ranbaxy has received almost US$10 m in royalty payment. Apart from that, another molecule of Ranbaxy, which was licensed to Schwarz Pharma, is doing well and Ranbaxy is receiving milestone payments for the same.

    Apart from this, Indian companies are also entering into R&D alliances with international pharma majors. Ranbaxy is again leading with an alliance with Glaxo SmithKline Pharma through a drug discovery and clinical trial deal. This deal provides Ranbaxy access to large database of drugs of Glaxo as well as critical technologies for drug discovery, while Glaxo benefits from Ranbaxy's drug discovery and early product development strength.

    R&D is a high risk–high return business and it is too early for Indian companies to deliver start-to-finish NCE (new chemical entities) products. However, the licensing deals, which have come up in the past few years show the innovative ability of Indian pharma companies. While generics, in the near to medium term, will continue to be the growth driver, companies that will keep investing towards R&D initiatives are likely to move up the value chain and transcend into a new growth trajectory in the long run. We firmly believe that Indian companies have the ability for this paradigm shift over the next few years. After all, creation and innovation forms the base of the pharmaceutical industry. The new patent regime will definitely help Indian companies to adopt the process of creativity and innovation.

     

     

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