The research Gap

India’s R&D appears to be going somewhere finally. R&D expenditure, in absolute terms, is up three-fold over the last decade. While 70 per cent of R&D in India is still government-funded, and 60 per cent of this goes towards defence—with very few commercial spin-offs—this picture is changing as private investment in R&D is now rising faster than government spending. Apart from the pharmaceuticals sector’s R&D outlay, which has risen rapidly for understandable reasons, India is now host to 150 R&D centres set up by international companies—or so, says a report from Demos, one of the UK’s influential think tanks. More than 100 of these were opened in the last four years. Another figure, to buttress the same claim, is that foreign firms invested over a billion dollars in Indian R&D centres between 1998 and 2003.

The question then is, why does India continue to lag behind other countries in the World Bank’s Knowledge Index? Worse, why has it even slipped vis-à-vis itself? On the World Bank’s latest Knowledge Economy Index, which takes into account not just R&D but the entire ecosystem that allows R&D efforts to blossom into something meaningful, India scored 2.8 in 1995 and a marginally lower 2.71 in the most recent score card.
China, by way of comparison, has raised its score from 2.83 in 1995 to 4.26 in the most recent score card, and Brazil from 4.73 to 5.1, while Russia has remained more or less at the same score of 5.9. India’s numbers are slightly higher if you do not weight the index by population, but then so are those of other countries and the net impact is the same—India has lost ground. The standard argument given for this has been the low level of R&D spending in the country, the small number of papers by Indians that get cited in respected scientific journals (between 1997 and 2001, India had 77,201 citations, versus China’s 115,339), the low levels of literacy and the limited number of college graduates. If weight them by GDP per capita, India tops the global charts with 32 scientific publications in the Scientific Citation Index; China is at 23 and the US is only seven. All that may well be true, but many will question this as a basis for judgment. In any case, it does not allow the country to get away from the fact that India’s R&D output lags behind that of competitors like China. Its 229 universities are manifestly unequal to the task of rapidly ramping up the number of PhDs, critical for any R&D expansion programme. The issue here is not just R&D spending, which is important, but also the environment for such activity. Universities continue to be tightly controlled by the government and are mired in red tape and bureaucratic procedures—not to mention virtually frozen pay scales at a time when salaries in the private sector are rising rapidly. And when it comes to industries such as pharmaceuticals, which drive R&D to a large extent, the government’s policy has been to control prices and profits, thus taking away the ability to spend on research. In short, while foreign companies may set up research centres in India to make use of the country’s low-cost technical manpower, that should not be taken to mean that things are going well on the research front. A great deal of action is required on multiple fronts before that claim can be made.

BS

Out-licensing, Is it growth or survival strategy

Indian majors are exploring out-licensing deals for lower risks and bigger profits. The strategy of the fittest is finally coming into play in the Indian pharma market. Some of the strongest pharma companies are flexing their muscles across Europe and announcing their arrival on the global platform in the process.

As in-licensing deals become a norm, out-licensing deals are the latest to catch the fancy of Indian pharma majors. Out-licensing deals are deals wherein an Indian pharma company licences a foreign pharma company for the development of a particular molecule into a drug. Dr Reddy’s Laboratories, for instance, entered into an agreement with ClinTec International in 2006 for the development of an anti-cancer compound. Having completed the first phase of clinical trials for the compound, Dr Reddy’s has allowed ClinTec to carry out phase II and III of the trials. Once the product is commercialised, Dr Reddy’s will receive royalty on sales by ClinTec International in its designated territories and ClinTec International will receive royalty on sales by Dr Reddy’s in the US. The trend of out-licensing deals has recently picked up in India because Indians have now started working on basic research and discovery of molecules. If the international companies see value in the molecule, they pick it up. But what is really taking Indian companies to foreign shores is the unavailability of expertise or resources to take a molecule through its various stages in the drug development cycle. Such deals usually spell a win-win situation for an Indian company, which is investing only half the capital, bringing down cost and risk factors. The royalty acquired from the deal is often much more than the investment.
By out-licensing, the new innovator, with a high potential molecule in early stages of development, has an opportunity to take it through the expensive stages of development and a share in the risk and reward. Glenmark Pharma was an early bird to join the out-licensing bandwagon. In 2004, the company entered into a collaboration agreement with Forest Laboratories for the development, registration and commercialisation of a compound for North America. Experts, however, don’t see the trend trickling down to smaller pharma companies in the country any time soon. “Even though this would be an ideal route for any new entrant in the field. Out-licensing requires a lot of investment, and for a small company, this might not be possible. Breaking even also takes a long time, and smaller companies may not have the staying power to wait that long. Big and small pharma companies can, however, look forward to more and more in-licensing deals, raking in more investment than ever before. And the benefits are passed on to the consumer, who get new products at lower costs. In-licensing in the post-patents regime has enabled us to have a stronger product pipeline and provided Indian physicians and patients with novel products meeting their unmet needs.
But despite the piling up of in-licensing deals, the involvement of the Indian pharma in the deal is still restricted only to the packaging and marketing of the drug and not its manufacture. Foreign companies don’t want to out-licence to India for manufacture because the market here is still very small, thus increasing the risk factor.

BS