The most critical challenge facing the global pharma industry today is the increasing cost of drug discovery and development and the increasing time to market.
Over the past decade, the US pharmaceutical industry R&D spending has more than doubled to $33.2 billion in 2003. This increase in spending is largely due to the heightening level of attrition which has helped to quadruple the cost of discovering and developing a new molecular entity (NME) since 1987. In 2001, the cost to discover and develop an NME ran to roughly $800 million and this figure has risen to $900 million in recent years. Costs in the clinical phase have risen dramatically in comparison to the preclinical phase both in terms of direct costs incurred and in time required to complete the trials.
Collaborations : A key counter strategy
Many pharma majors are meeting this challenge by various strategies which includes
o Mergers and acquisitions
o In - license innovative products and technologies
o Developing strategic alliances and partnerships
o Collaborate / fund research for new or innovative therapeutic interventions in smaller biotech companies and research institutions
o Out source clinical trials and drug development to specialized CROs
Lifescience Sector : Advantage India
In this background India stands a lot to gain because of its inherent advantages like stability, low-cost structure, highly skilled human capital and technology expertise. Inevitably, this has led to increasing alliances and collaborations between global pharma companies and Indian companies in areas, including :
o Incorporating India as part of global clinical trials
o Sourcing active pharmaceutical ingredients (APIs) and contract manufacturing
o Conducting early-stage research and development (R&D)
o Utilizing India's low-cost information technology infrastructure for data processing and other shared services. Thus, India along with China has emerged as a favorite destination for collaborative lifescience R&D.
Collaborative opportunities
The Indian pharmaceutical industry is one of the world's largest, ranking 4th in terms of volume and 13th in terms of value in the global pharmaceutical market. In 2005, domestic pharmaceutical sales were US$4.5 billion, growing at CAGR of 8.59%. Till the advent of product patents in January 2005, only process patents were applicable in India, which effectively made it a low cost, generic market. As a result, manufacturing expertise and efficiency were the only requirements to participate in this industry, creating low barriers of entry.
The adoption of a new product patent regime in January 2005 has increased the confidence of global pharma in India. The main impact of this would be that the drugs patented post-1995 will have product patent protection in India. In the changing landscape, Indian companies are adopting a combination of the following alternative business models to navigate competition and opportunity:
· A focus on new chemical entities (NCE) & novel drug delivery systems (NDDS) research
· Co-marketing
· Collaborative research and development
· Licensing of innovations (in-licensing and out-licensing)
· Contract research and manufacturing
· Increased exports in high-margin regulated markets
The new patent regime has also led to a shift from a manufacturing and formulation-focused strategy to a research and innovation-driven strategy. Several leading domestic producers have begun to conduct original research into NCEs and NDDS. In this context, several Indian firms have already entered into research partnerships with multinationals. Some pharma MNCs like AstraZeneca have opened their own captive research centres in India.
Focus on R&D
This growing focus on R&D can be seen by the increase in R&D expenditure in India over the past few years .
R&D expenditure of the top Indian pharmaceutical companies has increased from 1-2% a few years ago to over 4-5% of total sales, currently.
The new Indian pharmaceutical policy in 2006 will have provisions to broaden the R&D definition to help the industry cover majority of the R&D expenditure.
Biotechnology
The Indian government is giving the biotechnology sector a big push by bringing out for the first time a comprehensive national biotech policy. Various state governments are also actively setting up biotech parks to facilitate research in new therapeutic options using cutting edge technology.
India also offers a large pool of trained chemistry and molecular biology professionals who are available to provide high-end drug discovery services to customers at a fraction of the cost in the US or Western Europe. Some Indian companies have taken advantage of this to enter into the contract drug discovery space.
Indian companies offer a range of drug discovery services that include molecular biology services, protein structure analysis, development of compound libraries, lead optimization, and in silico drug design, among others.
Given the high and growing cost of in-house drug discovery, Indian drug discovery services providers offer an attractive option to global customers, by allowing them to execute parts of their drug discovery process at much lower costs and also saving time by conducting simultaneous discovery processes. Hence, drug discovery outsourcing would be an option at which MNCs would be looking while evaluating India's collaborative R&D attractiveness.
Clinical research
The clinical research industry in India is growing at a steady pace and is projected to bring in over $100 million this year. It can grow to over $1 billion in the next 5 years
Clinical trial execution is another area where India stands to benefit from the post-2005 patent regime. Recently, the Drug Controller General of India (DCGI) issued a new notification on clinical trials that helps companies conduct simultaneous clinical phase II and III trials in India and abroad.
This was not the case earlier. Various factors which make India an attractive clinical trials destination for MNCs are:
· A huge population
· A high number of treatment naïve population
· Increasing prevalence of chronic diseases
· Good network of hospitals with excellent infrastructure and qualified doctors
· Trial costs are estimated to be a fraction than in the US
· Supportive legislative environment in India
The approach of multinational pharma companies conducting trials is taking several forms:
· The majority of companies are performing phase II and III trials.
· Collaborating with CROs to carry out global clinical trials
· Large multinationals are in-sourcing CRO employees and co-managing the staff
With India emerging as an IT superpower and clinical trial hub, outsourcing to India for clinical data management is also fast becoming an attractive business proposition.
Lack of data exclusivity is probably the major restraint to continued growth of the clinical trials sector.
Bioinformatics
The Indian bioinformatics sector is gradually trying to garner a good share of the global market, which is expected to grow to $6 billion by 2005. As per a CII (Confederation of Indian Industry) study published in February 2004, the Indian share of the global bioinformatics market is to be around 5 per cent by 2005.
India's well-established competencies in computer science and software, as well as a large pool of trained professionals in life sciences, form the bedrock for a flourishing bioinformatics industry in India.
Bioinformatics companies focusing on services provision have flourished in India. The services offered range from manual curation of literature,analysis of protein structure images (obtained through X-ray crystallography) to in-silico toxicology testing .
India is becoming an increasingly attractive destination for R&D activities in the human therapeutics sector. A variety of factors, from changing IP and patent laws, favorable cost/skill ratios, to the past success of outsourcing in the IT fields, have converged to create a compelling business opportunity for Indian companies in pharmaceutical R&D. Global pharmaceutical companies are actively leveraging this opportunity by increased collaborative activity in India to enhance and complement their existing R&D efforts.
While developing an Indian collaborative R&D strategy, pharma MNCs should keep in mind certain issues like data and IP security, performance metrics, and quality standards.
The future will see more and more collaborations between the global pharma industry and the Indian lifescience sector in the human therapeutic R&D area. It will eventually create a win-win situation for both the parties.
(Ashish Malik is client manager & Siraj Dhanani is CEO, PharmARC Analytic Solutions Pvt Ltd , Bangalore)