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Indian R&D: Gearing up for patent regime - Views on News from Equitymaster
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  • Jun 23, 2001

    Indian R&D: Gearing up for patent regime

    The Indian pharmaceutical industry is gearing up fast for the 2005 deadline, a time when the full-pledged patent system will be in place in the country. Post-2005, the business dynamics of the Indian pharma sector is expected to change dramatically. Pharma R&D is going to play the most imperative role in success for the domestic pharma companies.

    Indian companies have traditionally invested a miniscule portion of their revenues in R&D (2% against international standards of 14-15%). The reason for the same is two fold.

    Tight price control:
    The Indian pharma business has over the years been regulated by tight price control regulations, which unintentionally has resulted in discouraging innovations. Most of the companies shied away from doing research, as it was not possible for them to recover huge R&D costs, given their low margins compared to their international counterparts. A look at the chart below explains the relationship between profit margins and R&D budgets.

    Lack of patent protection:
    Apart from that it was more lucrative for them to copy blockbuster international molecules by arriving at it through a different process, as only process patent was recognized in the country. However, with product patent protection becoming a reality, reverse engineering would no more be recognized. Again, Indian players didn’t face much of international competition because most of the multinational companies shied away from introducing their blockbusters products in the country due to the fear of being copied.

    However, India is bound by GATT, and consequently has to recognize product patent by the 2005 deadline, this in turn, is expected to open floodgates of competition from multinational pharma companies which have a well researched product stable. No wonder Indian companies are jacking up their R&D budgets. The R&D spend in India is mounting and has almost doubled in the last five years. However, it is still much below the international standards.

    Total R&D spent of Indian pharmaceutical industry for fiscal 2000 was approximately US$ 68m (as against US $ 26.4 bn spent by US companies). Considering that the average cost of developing a single drug costs anywhere around US$ 500m, it would effectively mean that it would take 7 years (at the current rate) for the Indian pharma industry to fund a single successful molecule.

    The resource requirements of R&D can be judged from the fact that two of the leading Indian pharma companies which are doing pioneering work in pharma research, are out licensing their molecules after they show some indicative signs of being successful. Dr. Reddy has for example licensed three molecules to multinational companies to finance its clinical development costs.

    Another concern for the industry is most of the resource spend on R&D was concentrated towards reverse engineering, which will no longer be recognized under the new patent regime.

    Pharma R&D- what it actually means
    Fundamental Research or Basic Research

    This involves research for a completely new molecule. It is an extremely, high risk, high return proposition. Developing a new molecule costs approx. US$ 500 million, by international standards and takes around 10-12 years to enter the market. Only a couple of Indian companies like Dr. Reddy’s have chosen to focus on NCE alone.

    Novel Drug Delivery System

    It is actually an applied research for finding better ways of developing a more user-friendly dosage of taking a drug.

    Reverse Engineering

    This involves coping a molecule through a different process. Most of the Indian companies were involved in this kind of research.

    Chiral chemistry

    To put it loosely, chiral chemistry involves developing side-effect free solutions for existing drugs

    Genetic Research

    The idea here is to determine the best drug for an individual based on his genetic makeup

    Going forward, Indian companies have to decide for themselves, as whether they want to focus on NCE or NDDS research. Since in Chiral chemistry and in NDDS the original molecule is already established, the risk is relatively small while on the other hand basic research is a high risk, high return proposition. However, given the tight resource availability it is expected that Indian companies would concentrate either on NDDS/ chiral chemistry or opt for NCE upto a certain stage and license out the molecules to international majors at some point of clinical development depending on the financial position of the company.

    Though Indian companies have already wakened up to the fact that they need to allocate a larger portion of their revenues towards R&D, the industry and the government needs to take steps on a war footing basis adopting a “Do or die” strategy. Consumers, on the other hand need to be educated of the fact that the cost of a tablet is not just the ingredients that go into it but also the intangible cost of years of hard work that go behind developing a drug and hence he has to offer adequate margins to the company to fund its R&D costs.

    Though R&D investments required are far from adequate, the positive side is the cost of doing research in India is almost half the international standards. This is due to the inherent strength relating to availability of excellent scientific intellectual capital at relatively cheaper costs compared to developed countries. This could open doors of collaborative research in the country once better patent laws are in place. Indian companies can act as CRO’s (Contract Research organisation) for multinational companies to create a win–win situation. The recent announcement by the Indian government to allow 100% FDI in pharma sector was only a step to attract contract research work to the country. The Indian pharma industry has a long way to go before it creates a mark for itself in international Pharma R&D.



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