India's pharmaceutical research and development (R&D) sector is expected to face a high degree of wage inflation primarily because more job opportunities and shortage of research skills. This is expected to increase competition among the pharma R&D wings in offering attractive salaries to bait the best talent.

At a review meeting on the Indian business and economic outlook for the financial year 2003-04, held here in Bangalore, G Ravishankar, chief executive officer, CRISIL, Research & Information Services Limited said that wage inflation in R&D would be a critical issue for the pharmaceutical sector. India is emerging as a recognised hub for R&D but the business model of the multinational companies (MNCs) is still not clear. "It is likely that some MNCs may use the available facility in the country, others may turnaround and set up their own centres, or we may see a mix of both. In either case, R&D activities are expected to be on an upswing."

While R&D is viewed as one of the trends in the Indian pharmaceutical space, there is equal recognition for expertise in process chemistry and manufacturing capability, he informed.

The implications of 2005 is that there will be no new drugs from domestic companies and pricing structures will determine the MNC products sales. The large companies will focus on proprietary products and second tier companies will opt for generics.

CRISIL conclusions are that some top ten companies could be on par with global generic companies. Most companies in the top 20 list could become reasonably sized generic players focusing on international tie-ups for new molecules and market branded generics abroad. The small pharmaceutical companies will explore the API route. The units will also become suppliers to generic and innovator companies.

According to Ravishankar, the margins in the domestic business for companies will gradually decline in post 2005. Companies that are attempting a transition now will face challenging times over the next three to four years.

"We are still not clear about clinical trials. Contract manufacturing is still in the initial stages and quantum of business cannot be predicted," he said.
In exports, US, Europe and Japan are most lucrative for niche players. Despite new geographic locations, there is no significant business generation and growth.

Though both formulations and bulk drugs are in demand in the regulated markets, the former is the driver of the pharmaceutical industry, stated Ravishankar.