To have a larger presence and market share in the global pharma and biotechnology markets , India needs to invest more in research and development (R&D) and should prove its strength in the areas of innovation and new drug development by supporting SMEs which are the backbone of the Indian pharma sector.

Indian focus on new investments and establishing a strong venture capital fund for R&D are some of the promising measures that augur well for the overall growth of the Indian pharma entrepreneurs in the global arena.

Though the Indian pharmaceutical industry has won global accolades for its low cost and high quality medicinal products, it is way behind in funding R&D for newer drugs and innovative medicines, when compared to other advanced nations.

In the year 2012 India’s share of total global R&D spend was just 2.9 per cent while the US with a share of 31 per cent, China and Japan with a share of 14 and 11 per cent respectively ranked as the top three global R&D spenders. For the year 2012, India spent less than one per cent (0.8 per cent) of its GDP for R&D.

In a report published by Battelle-R&D Magazine in 2011, India ranked eighth in the world with a spending of $ 30 billion and is fast emerging as a global R&D hub for pharmaceuticals. Globally US is the leading nation in the world with R&D spend of $ 427 billion. Compared to this huge figure, India’s share is meagre.

In order to strengthen the R&D base, the government decided to set up a venture capital fund of Rs. 2000 crores in 2012. The venture capital fund established under the public-private partnership (PPP) mode is expected to give the required push for the R&D segment and help in discovery of new medicines.

The R&D spend of the Indian pharmaceutical industry which was just Rs.30 million in the year 1965-66, rose to Rs.1400 million during the year 1994-95. The R & D expenditure of Indian companies had doubled to Rs.2, 200 million with a growth of 57 per cent in just two to three years owing to liberalized economic policies in the country.

Overall India has shown remarkable growth in pharma segment since 1994-95. Over the years Indian pharma sector has evolved as a reliable source of quality medicines at affordable prices. In the year 2010 India’s domestic pharma sales accounted for over US $ 12 billion and another US $12 billion were accounted in exports.

At the present India is the third largest producer of pharma products in the world and the industry is growing at 15-20 per cent annually. By the end of 2015 the industry is expected to reach an export target of $20 billion. In the year 2011-12 India’s pharma export stood at $13 billion and is forecast to touch $75 billion by the end of this decade.

Having realized the importance of investing in R&D, many leading Indian companies have increased their R&D spend during the past few years. At least 30 leading Indian pharma companies have increased their R & D spend by 18.7 per cent to Rs 3,770 crore from Rs 3,177 crore. They have also registered significant higher product filings with regulated authorities in the US, Europe, Japan and emerging markets. The Indian majors like Dr Reddy's Labs, Lupin, Glenmark Pharmaceutical, Aurobindo Pharma and Sun Pharma have received higher approvals for ANDAs from US FDA during 2011.

Though the big pharma and biotech companies are doing fairly well, the small and medium scale industry (SME ) segment is facing a lot of problems. They are finding it difficult to spend for their R & D activities. “The SMEs need to change their business model and should first invest more on their concept rather than spending hugely on infrastructure,” said, Dr. Krishna Ella, CMD, Bharat Biotech Pvt Ltd.

SMEs have played a major role in the overall growth of pharma sector in India and in fact they are regarded as the back bone of the sector's growth. But of late, this segment is facing severe funds crunch and lack of support from the government. Added to it, fierce competition from bigger firms and poor marketing infrastructure is stunting their growth. Global economic slowdown also had an impact on the India SME sector.

For innovation and growth, an SME require adequate funding. Moreover, for technical up-gradation to maintain a competitive edge, SMEs need sustained investments. Restricted access to resources is also proving to be a deterrent for moving up the value chain, as it is forcing SMEs to put R&D and innovations on the back-burner.

Apart from financial constraints, the SME segment is also challenged by the need to create visibility and demonstrate credibility to prove their global competitiveness. But sales and marketing activities are becoming increasingly expensive in terms of cost of skilled field staff and modern day marketing tools. Another challenge facing the sector is that there is a lack of awareness and knowledge about procedures & regulations.

Unlike earlier days , R&D departments are slowly moving away from reverse engineering in favour of developing novel drug delivery systems and discovery research. To promote R&D in SMEs, the government needs to come up with incentives and promotion programmes. The various tax deduction schemes offered by the government to promote R&D at present is not sufficient according to industry experts.

According to Dr. Ella, the main reason for the present plight of the SME sector is due to the fact entrepreneurs tend to follow the conventional business models and invest hugely on infrastructure and unproductive development activities even before the concept or innovation is fully accepted and approved.