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Feature

A passage to India?

Posted on: 12 Oct 04

Summary

As with other emerging industrial sectors, the Indian pharmaceutical industry has made no secret of its desire to globalise and eventually compete with its foreign rivals.

As with other emerging industrial sectors, the Indian pharmaceutical industry has made no secret of its desire to globalise and eventually compete with its counterparts in Europe, Japan and the USA. This is an ambitious aim because most of the Indian industry's current success has been achieved in the area of generics rather than innovative new drugs, and its multinational competitors have decades more experience in global drug development and much greater financial power (1, 2).

 

Incentives for R&D

The Indian pharmaceutical industry has long campaigned for better incentives from the government to help them rival foreign companies when it comes to carrying out innovative R&D. In 2003, the Indian Pharmaceutical Alliance (IPA), which represented 11 major domestic companies, submitted a pre-budget memorandum to the Indian government outlining the scope of the tax concessions that it wished to see (3). Their proposals included tax concessions for conducting clinical trials abroad, research alliances with educational institutions and a system that would aid them in setting up the necessary basic R&D infrastructure for new operations.

 

The foreign focus of these proposals was largely driven by the desire of Indian companies to make further inroads into the US market. For example, between 2001 and 2002, Dr Reddy's Laboratories tripled its profits after tax due to strong growth in the US market (3). In particular, the IPA wished to see more benefits for companies attempting to obtain US regulatory approval for new formulations. The cost of successfully clearing a formulation drug for the US market has been estimated at US$1 million (3).

 

The Indian government has realised that if it needs to respond to these demands if it is to boost its domestic industry, but although it has met some of the industry's requests it has taken a cautious approach to revising its R&D policies. Nevertheless, it has set up tax concessions to promote innovative R&D, which include a ten-year period of tax exemption for R&D-based activities and it has recently made all drugs and materials imported or produced for clinical trials exempt from customs and excise duties (4, 5).

  

Moving towards innovation

Judging by the total levels of R&D investment, there are signs that the R&D intensity of the Indian pharmaceutical industry is growing. In 2003, the Indian pharmaceutical industry spent US$147 million on R&D, which represented a doubling of its investment since 1999 (6). The presence of low-cost production facilities and a large science base in India will help drive this trend over time.

 

Although innovative R&D remains a long-term ambition, in the near term, there is likely to be enhanced generic activity from Indian companies. This is because a number of high profile drugs have come off patent and this has opened up an opportunity for various Indian companies to develop generic versions for sale in the US and European markets (1). This should help Indian companies gain more experience of operating in foreign markets and in dealing with the regulatory agencies in these countries. It should also enable them to create opportunities to collaborate with foreign companies.

 

Although generics will represent the majority of work over the next few years, innovative R&D is not simply an ambition. Several major Indian companies do have emerging new drug pipelines and new delivery technologies, which are likely to be financed through the profits gained from the sales of generic products (1).

 

Outlook

India has an ambitious and growing domestic pharmaceutical industry, but it has a long way to go before it makes itself an international force. At present, its R&D spend to sales ratio is around 1.9% and this is very low when compared with foreign competitors (6). The US and European multinational pharmaceutical companies have R&D to sales ratios in the 10% to 20% range and even many Japanese companies, which are considered relatively low spenders on research, have R&D to sales ratios of between 8% and 12% (2). Even with their greater resources and considerable experience, US, European and Japanese companies still face difficulties in increasing new drug productivity (2). Given the financial and technical hurdles that continue to exist in new drug development, only a few Indian companies will be able to make the transition from generics producer to innovative drugs manufacturer and they will not manage to accomplish this for several years. A more successful approach to innovative R&D for the near term will be through their collaborations with foreign pharmaceutical companies.

 

References

1. Kermani F. (2004). Unlocking Asia's Pharmaceutical Potential. Chiltern International

http://www.thepharmyard.com/shop/product.php?xProd=217&a=chltn

2. Kermani F (2004). Pharma R&D in Europe: Past, Present and Future.

http://thepharmyard.networkpharma.com/shop/product.php?xProd=203

3. Pharma industry seeks R&D tax breaks. January 30, 2001. http://www.rediff.com/money/2001/jan/30pharma.htm

4. Tax sops for R&D top drug sector wish-list. The Hindu Business Line. 14 January 2003. http://www.thehindubusinessline.com/bline/2003/01/15/stories/2003011500230400.htm

5. Budget 2003-04. 28 February 2003. Ministry Of Finance Indian Government. http://indiabudget.nic.in

6. R&D expenditure of the Indian pharmaceutical industry 1999 - 2003. Organisation of Pharmaceutical Producers of India, Bombay, India. http://www.indiaoppi.com

 

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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