The Indian industry, in general, has neglected investment in R&D. Its focus used to be mainly the domain of research laboratories and institutes promoted by the government. However, some pharmaceutical firms in India have been giving due importance to R&D. The successes enjoyed by a few companies such as Ranbaxy and Reddy’s in the R&D field have paved the way for other players in the market to follow suit. Several Indian pharmaceutical companies, including Cipla, Lupin, Wockhardt, Nicholas Piramal and Torrent, are now actively engaged in R&D activities, so as to come out with direct contributions to their value chain.
The year 1994–95 was the turning point for the Indian pharmaceutical industry due to the enforcement of WTO restrictions and norms. The industry was forced to reorient itself from looking inwards to being a player in the global market. This has resulted in increased thrust on R&D by the Indian pharmaceutical industry, as is evident from the increased proportion of R&D expenditure to both investment and turnover.
Investment in pharmaceutical R&D has increased from `220 crore in 1997–98 to `260 crore in 1998–99 and further to `320 crore in 1999–2000. This figure is estimated to touch more than `1,500 crore by the end of 2005. At present, R&D investment constitutes around 5 per cent of the pharmaceutical industry’s turnover. Most Indian companies have realized that it will be difficult for them to compete and commercialize their discoveries on an international basis on their own. Therefore, they are entering into licensing deals and strategic alliances with international companies. This would help them in sharing their development cost that is relatively low in India and will be helpful in fast accrual of returns.
The Indian pharmaceutical industry is mounting up the value chain. From its earlier focus on the domestic market, the industry is moving towards basic research, export orientation and providing a wide range of value-added quality products and services to the global markets. Government policies will play a crucial role as regards growth of this knowledge-driven industry. The product patent regime, which has come into effect from January 2005, will lead to long-term growth. The key factors for profitable growth and survival of the Indian pharmaceutical industry in the present business environment will be focus on knowledge engineering techniques and their efficient use, continuous drive for innovation, authentic documentation, new knowledge and its protection through a systematic approach towards IPRs and, above all, to evolve a cooperative and collaborative approach for sharing benefits.
Ranbaxy Laboratories Limited (RLL) was set up in 1961. The company exports its various products to more than 70 countries with ground operations in 25 and manufacturing facilities in 7 countries. It entered the United States—the world’s largest pharmaceutical market—in 1998. Most of the exports are off-patent drugs that are manufactured and distributed without licensing from the original manufacturer, as the patents on such drugs have expired. The company’s total income increased from `3017.54 crore in the year ending December 2001 to `5847.15 crore for the year ending December 2004, thus resulting in a compound average annual growth of 24.66 per cent. In the corresponding period, its net profit increased from `198.26 crore to `728.18 crore, thus resulting in an average annual growth rate of 54.28 per cent. The company’s earnings per share increased from `22.48 in 2001 to `35.21 in 2004. Thus, its financial position has been getting stronger over the years.
RLL has been giving great emphasis to R&D efforts so as to maintain and develop a competitive edge in the global market. It believes that quality and innovation basically require a strong R&D effort. The company’s R&D facilities are located at Gurgaon. The company in its mission to become a research international pharmaceutical company has been continuously building expertise in chemical research, pharmaceutical research, fermentation research, novel drug delivery systems research (NDDS) and new drug discovery research (NDDR). The company is committed to spend around 6 per cent of its global sales for R&D and is accelerating its initiatives in NDDS and NDDR. A dedicated team of more than 900 professionals is committed to keep coming out with research outcomes that directly contribute to its bottom line by way of profits.
The therapeutic focus of R&D efforts is on urology, respiratory, anti-infectives, antiinflammatory and metabolic disorder segments. Breakthrough BPH, anti-asthma and anti-bacterial new chemical entities developed by their scientists are at different stages of drug discovery. The company believes that the creation of intellectual wealth would be the key and critical input in their business to move on a value chain.
The overall research endeavours are adequately backed up and supported by world-class infrastructure facilities capable of undertaking analytical research, clinical research, international regulatory affairs and introduction of IPRs. The company’s strategic R&D efforts, which are value-centric, get reflected in their achievements in 2003 that includes three to five molecules in late discovery stage and two molecules in Phase II Clinical Stage, four Platform Technologies— Aerogel, Gastric Retention, PH Independent, Micro Encapsulation and Particle Coating. The company has developed and launched five new products in the domestic market, in the area of Oral Controlled Release Systems, using its patented ‘Platform Technologies’. The company could successfully deliver 39 new products and line extensions in domestic markets. It has filed 26 ANDAs in the United States, laying a clear emphasis on first-to-file ANDAs with Para IV certification. In Europe, 77 filings, comprising 27 products, have been completed. This includes filings of 5 products in 44 countries through the Mutual Recognition Procedure. The Pharmaceutical Research and Regulatory Affairs Group of the company is strongly geared up to meet the requirements of the European accession countries and extend the current files of the EU to the newly included countries of Central and Eastern Europe in May 2004.
In the BRIC countries [Brazil, Russia (including Ukraine), India and China], a total number of 85 products were filed. These included 21 products for Brazil, 21 for Russia (including Ukraine), 35 for India and 8 for China. Additionally, one product was also developed for Japan. During the year, the team filed 44 patents in this area. The company’s R&D efforts in the chemical area continue to focus on developing innovative, environment-friendly and cost-effective technologies for high-value Active Pharmaceutical Ingredients (APIs). As a result, in 2003, process development work was undertaken for 15 new APIs, including support for Para IV filings for 10 products. The company has successfully commercialized technologies for another 10 APIs. Its chemical research team’s efforts have resulted in the filing of 41 patents during 2003. Keeping in view the heavy investments required for successfully coming out with New Drug Delivery System (NDDS), the company has been working on the strategy of research networking both in India and abroad. Two collaborative research projects are in progress in NDDS in the United Kingdom, and another collaborative project on similar lines has been taken up with National Institute of Pharmaceutical Education and Research (NIPER) in India.
The company has been conferred the status of a ‘Five Star Export House’ by the Directorate General of Foreign Trade (DGFT), India. This is the highest recognition for the outstanding track record of exports given to a company in India. This special status enables the company to avail a number of privileges, such as fast track clearance procedures and 100 per cent retention of foreign exchange in EEFC (Exchange Earners’ Foreign Currency) account. The Star Export House certification has five categories based on the cumulative value of exports by the company during the current and the previous three years. For the Five Star category, companies with exports exceeding `5000 crore are judged. Ranbaxy’s revenue through exports has increased consistently over the years, thus clearly establishing that foreign exchange earnings continue to be the mainstay of the company’s growth strategy.
The company, with its competitive and strategic thrust on R&D, has become a multinational with substantial stake in the global market. One of the key reasons for its success has been the emphasis it has laid on value-based R&D investment and evolving systems to duly protect its new knowledge under the IPR regime.
1. What might have been the reason for the Indian pharma industry having neglected investment on R&D in the past? Explain.
2. ‘It has been said that under the changed regime of WTO, the pharma industry cannot make its presence felt without focusing its efforts on patents through R&D’. Critically examine this statement.
3. RLL has undergone a major transformation during the last few years. What are the significant strategic changes that have taken place in their growth trajectory?
4. ‘RLL has set up a wonderful example of commercializing technologies developed through patents’. What have been the salient features of its IPR policy? Examine them.
5. Consider three leading pharma companies in India and analyse their strengths and weaknesses related to IPR policy vis-à-vis growth.