Hyderabad: Indian Pharmaceutical Alliance (IPA), which represents large domestic drug makers, on Wednesday asked the Union government to make provisions in the upcoming budget and lay down a policy framework that would incentivise innovation in the industry, which is known for its copycat drugs.
IPA has asked the government to set up a simplified scheme of grants and soft loans to promote drug discovery in the private sector.
“The whole procedure is so cumbersome that it doesn’t naturally encourage people to take that kind of bets," said Satish Reddy, chairman and managing director of Dr.Reddy’s Laboratories Ltd and president of IPA.
Reddy said the upcoming budget should increase weighted tax deduction on research and development from 200% to 250% and expand the scope of the benefit to include R&D expenses incurred outside the facility like bio-equivalence studies, clinical studies, patent filings and product registrations.
The Central government provides a weighted tax deduction of 200% for any capital and revenue expenditure incurred on in-house R&D by a company, excluding expenditure on land and buildings.
Reddy called for a more collaborative approach between universities and industries to set up incubation centres under public private partnership mode. “To spur innovation in this country we would expect a policy framework which would incentivise innovation," he said.
The Indian pharmaceutical industry spends on an average about 6-8% of their sales on R&D, compared to 15-20% by companies in the developed world. The size of the Indian pharmaceutical industry is around Rs72,069 crore, according to the Confederation of Indian Industry (CII).
With venture capital and private equity firms not showing much interest—given the risky nature of drug discovery—Indian companies are relying more on tax incentives, grants and soft loans from the government, which the industry complains are inadequate and bogged down by clumsy procedures and red tape.
The cost of discovering a single molecule and its further development, representing a journey from mind to market, ranges between $250-500 million and takes about 10-12 years. Further, a low 1% of the drugs see commercial success.
India’s pharmaceutical industry exported drugs worth $14.84 billion in 2013-14, growing at 1.2%. The sector that is known for its copycat drugs has had a phenomenal run in the last five years, after innovator drugs worth $80 billion went off-patent in the US.
But analysts say the Indian generic story is expected to plateau in coming years with increasing competition from other generic players and increasing regulatory oversight.
Reddy also expressed his concern at the Indian industry’s heavy dependence on Chinese APIs (active pharmaceutical ingredient) or bulk drug imports.
A large number of cheap APIs, including those of 15-20 drugs such as antibiotic penicillin and anti-diabetic drug metformin—listed under the National Essential List of Medicines—are imported from China.
Reddy said the Indian API industry was unable to compete with Chinese producers because they enjoyed the support of the Chinese government in terms of reduced excise duty, excessive capacities, availability of finance and cheap power.
Further, any breakdown in supply or a price hike could seriously impact Indian patients, he added.
Reddy proposed an industry cluster model to spur domestic API manufacturing, including subsidised land, captive power, common effluent treatment plants, single-window clearances and tax incentives.