Mumbai: With salaries, training and infrastructure costs rising rapidly, India’s position as a significantly lower-cost destination for pharmaceutical research and development is becoming a bit shaky.
This is particularly true for in-house R&D set-ups of multinational pharma companies where average cost savings from offshoring drug discovery research to India, while still significant, are set to fall from 40-50% two years ago to about 20% in 2007-08.
A high attrition rate, shortage of trained people and slow growth in the (domestic) talent pool are factors responsible for the narrowing gap, says Rajiv Malik, a senior vice-president at Advinus Therapeutics, the Bangalore-based dedicated drug research company.
“The industry fears that the gap in the salary and costs of drug research in India with the US or Europe is shrinking fast,” he says.
YES Bank’s country head of life sciences and biotechnology Alok Gupta adds, “there is clearly a shortage of trained manpower and hence the cost of skilled labour is going up.”
Western pharma giants spend about $1.25 billion (Rs5,500 crore) on R&D for each new chemical entity. Earlier, offshoring could bring that cost down by 40–65%. Though there is still significant cost saving, especially when compared with the total annual cost of hiring a medicinal chemist in the US, which is about $250,000–300,000, the gap continues to narrow each year as Indian salaries are going up at the rate of 25-30% every year.
“We have seen salaries go up considerably in the last two years,” says Rajiv Verma, vice-president, Institute of Clinical Research (India).
According to Verma, starting salaries for clinical research associates are now at about Rs3.6 lakh per annum—almost double of what it was two years ago. “In comparison, starting salaries in the US have gone up by about 3%,” he adds. Starting salaries for a comparable position in the US is at $30,000, which means that for now, there is still significant savings in hiring within India.
Several international companies that are already in India, could also put their own expansion plans on the back burner as the cost arbitrage continues to tighten.
“Narrowing cost differences may also have an impact on investments in setting up (new) R&D centres by foreign pharma companies,” says a senior official with a multinational drug company who requested anonymity.
“Many of these (companies) would rather prefer to partner with domestic players on the basis of milestone-based payments where the risk is shared between the domestic and foreign company.”
While India offers savings, global pharma companies are also under pressure to continue to reduce research costs even as they want to compress drug development windows.
“The industry is seeing very high attrition rates. So training costs are rising as the replacements too need to be trained,” says an Eli Lilly India official who requested not be named. As a result, when one specifically looks at research for specialized compounds, such as oncology compounds (related to tumours), the cost of doing research in India may only be marginally lower than that of doing it in some other part of the world, he added.
Many multinational companies that have established basic R&D operations in India often depend on their global centres for data analysis, which is also becoming expensive as shipment of samples are becoming costly.
Still, says Umakanta Sahoo, general manager of leading clinical research organization Chiltern International, “certain aspects, like data management, still lend themselves to significant cost differentials.”
Major multinational companies having their own R&D establishment in India include Astra Zeneca, Pfizer, Novartis, Glaxo SmithKline Pharmaceuticals and Altana Pharma. Israel’s Teva and Bristol Myers Squibb are in the process of setting up their own research facilities in India.
The global pharmaceutical industry spends about $39 billion on R&D each year.