In race for bigger margins, drug makers like Piramal, Sun Pharma, Lupin and others willing to lose the India 'advantage'
Drugmakers are fleeing a
regulatory morass at home and moving some research and development to Europe
and the United States as they try to boost margins by producing high-value
drugs.
The country's $15 billion
a year pharma industry, the world's largest source of cheap generics, is
already reeling from a string of drug recalls and quality control issues which
have called into question the regulator's oversight.
Now, companies like Piramal
Enterprises Ltd, Sun Pharmaceutical Industries Ltd and Lupin Ltd are investing
millions of dollars and placing their future growth in foreign regulators'
hands, as they seek to add more complex drugs to their product lines.
"We have lost what is
called the India advantage," said Swati Piramal, vice-chair of
Mumbai-based Piramal Enterprises which last year moved some clinical trials for
new drugs abroad.
"The India advantage
was saying we can research molecules ... and finish the clinical trials and the
cost would be one-tenth of the West," she said.
"Now, we have to
acquire small groups of highly specialised people who can work on a particular
type of product and know exactly how to do it. That's the new alternative - to
really invest in R&D abroad," she added.
Indian drugmakers rely on
cheap generics for the bulk of their revenue, but like their global peers, they
are focusing more on niche markets such as ophthalmology and oral
contraceptives, and difficult-to-make products such as inhalers and injectables
in a bid to achieve higher profit margins.
Some companies are also
making copies of bio-drugs called biosimilars, the latest trend in the global
pharma industry which requires intensive R&D and a regulator with
experience in handling such sophisticated medicines.
Like its peers, Piramal
does not disclose how much it spends on R&D abroad. Industry research firm
CRISIL, however, forecast R&D spending by India's top 20 pharma firms to
rise to about 6.5 pe rcent of total revenue by 2018 from about 5.8 per cent
now.
Company executives say the
higher cost of moving abroad will be partly offset by the ability to bring
high-value drugs to their main markets in the United States and Europe more
quickly: it takes nearly a year to get clinical trials approved in India
compared to about 28 days in the United States.
These high-value drugs
hold so much potential that companies
are willing to put up with
long delays before they can launch them at home, a fast-growing market for more
expensive medicines, as India's regulator only allows drugs that have been tested
locally to be sold there.
MOVING
WEST
Drugmakers say they are
frustrated by the lack of concrete regulations for clinical trials two years
after the Supreme Court halted 162 studies citing unethical practices. G.N.
Singh, the Drug Controller General of India said the regulator was working on
hiring more staff and simplifying the process for clinical trials. He did not
elaborate.
Analysts also partially
blame weak regulatory oversight for the import bans imposed by the U.S. Food
and Drug Administration on Indian drugmakers in the past year.
In addition to a smoother
regulatory process, drugmakers say moving R&D abroad allows them ready
access to a pool of trained talent and better infrastructure, which is lacking
in India.
"Investing in
research abroad is specific to companies that want to grow in certain areas for
which the best talent and regulatory expertise is available abroad," said
Shakti Chakraborty, group president at Lupin.
So far, Indian drugmakers
have looked to Europe and the United States as they expand their R&D.
Lupin is setting up two
R&D plants in the United States for an undisclosed amount while rival Cipla
Ltd has said it would invest 100 million pounds ($166 million) in Britain for
research and clinical trials to develop drugs for respiratory and
oncology-related diseases.
Sun Pharma, India's
largest drugmaker by sales, last month said it had acquired U.S.-based
Pharmalucence for an undisclosed amount to bolster research capabilities and an
executive at Dr Reddy's Laboratories Ltd also said the company was looking for
acquisitions abroad in R&D.
Developed Asian economies
such as Singapore and South Korea are also emerging as potential R&D
destinations for Indian companies, industry groups and analysts say.
"For Indian companies
to set up R&D abroad is expensive, but it is necessary, because otherwise
their ability to grow within the country is going to be limited," said
Kavita Patel, a fellow in the Engelberg Center for Healthcare Reform at the
Washington-based think tank Brookings Institution.
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