New horizons

New horizons

Nicholas Piramal’s tie-up with Merck for drug discovery that was announced on Monday is reflective of a new, growing trend—the earlier generics-led pharma industry is today attracting drug multinationals for its innovation capabilities. This interest is no longer in research services, but in active partnerships, which indicates how Indian pharma has come a very long way from being known for its imitation strengths. Not only can it hope to replicate the global success of Indian IT, but at a higher level in the value chain—the latter, despite a huge success story in services, has little to show by way of R&D partnerships.

Domestic firms’ strategic planning made all this happen. With the 1999 Patents Act in place, they realized that in India’s post-2005 product patents regime, they would have to evolve beyond their reverse engineering expertise for long-term sustained growth. Several firms began to develop themselves as product innovators, even as they were tapping the opening up of the generics markets in the US and Europe. Research on new chemical entities (NCEs) and on new drug discovery systems (NDDS) gained importance. The average spending on R&D rose from 2% to around 7-9% of sales for leading pharma firms. They simultaneously honed their strategies to cope with the sobering reality of the exorbitantly high-cost and high-risk drug discovery market. (On average, a drug takes 12 years from the lab to the patient at a cost of around $1 billion, or Rs3,930 crore. And failures happen, often.)

Licensing out their new molecules to global drug makers to develop and get these to the market has been a route for many, including Dr Reddy’s, Glenmark, Torrent and Ranbaxy. Tapping a growing contract research (in clinical trials and process development) and manufacturing market is another. The industry’s increasing adoption of innovative activity has led to many firms achieving NCE status—a recent KPMG-CII study shows that around 10-12 firms have molecules under development at present.

And they are betting big time on their strengths in this market. Leading players including Ranbaxy, Dr Reddy’s and Nicholas Piramal are hiving off their NCE operations into separate entities, in order to sustain and manage the far higher risk-reward profiles compared with the rest of their operations. Indeed, as a top player explained their focus, simply offering services based on a cost advantage, as the IT industry did, is not enough—it is innovation that puts them, and India, ahead.

So, partnership in innovation will shape the pharma industry’s future role in the global knowledge economy.

There’s one question here—will all this mean more drugs discovered for developing country diseases that are not lucrative enough for the global majors per se? Perhaps it’s time for the government to think how to best tap these capabilities too—and create avenues for funding R&D and risk sharing.

Will Indian pharma go one step ahead of the IT sector’s global success? Write to us at views@livemint.com

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