India has found that amazing drug! Nobody would have expected this. India thrived on “process-patented” drugs since 1970 because of the Patents Act, which supported and legitimized re-engineered drugs. In a way, since 1970, most Indian pharma companies had out-sourced the research and development activity to other countries. It was a very different kind of out-sourcing arrangement: no contracts, no payments, no obligations, and no rights – not even Intellectual Property Rights (IPRs). Riding on someone else’s waves, and feeding on other’s kill, some of the Indian pharma companies had become complacent and laid-back. It was as if they had been inflicted with a disease. They needed a ‘drug’ that could change their thinking and mobilize their creative juices. India had always lagged behind in drug discovery and research. In the global analysts’ mind, India was not regarded as a country that can lead the pharma industry from the front. But, that was then, and this is now.
Give or Take a Billion! Pharma companies globally are investing heavily in research and development (R&D) to develop new drugs that will cure deadly diseases. Though the cost of developing a new drug has soared over the years from $100 million in the 1980s to more than $800 million now, the investment in pharma-related R&D is now higher than ever. According to industry analysts at Goldman Sachs, the total global R&D spending in 2004 had reached $50 billion. Says Clifford C Kalb, Senior Director of Strategic Business at Merck, “The key to sustainable growth is innovation. If we develop breakthrough drugs and focus on the patient, the profits will follow.” US, which is the world’s largest spender on pharma R&D and a global leader in drug discovery, has steadily increased its pharma R&D budget from $2 billion in 1980 to more than $38 billion in 2004. For every dollar spent on health, US spends about 6 cents on research. According to a report by Pharmaceutical Research and Manufacturers of America (PhRMA), the US biotech and bio-pharma investment in R&D went up 12.6% from $34.5 billion in 2003 to $38.8 billion in 2004. This increase in pharma R&D investment in 2004 is about five times higher than that in 1990. Out of the $38.8 billion, PhRMA member organizations invested about $30.6 billion in R&D within the US, while about $8.2 billion was invested in R&D outside US. Moreover, PhRMA member organizations invested about 18.8% of their 2004 domestic sales on R&D within the US. The increased spending on pharma R&D has resulted in the US Food and Drug Administration (USFDA) approving more than 363 new drugs, bio-medicines and vaccines between 1993 and 2003 for the prevention and cure of about 150 various diseases. The bio-pharma has, of late, become the most research-intensive of all industries in the US. Europe is second in the world in pharma R&D spending. Between 1997 and 2002, about 787 foreign investment projects were undertaken in the European bioscience industry. Among European countries, UK and France received the highest number of foreign investment projects in life sciences, while countries like Ireland, Germany, Belgium, and Spain follow closely. The study by PhRMA also revealed that pharma is a highly R&D-intensive sector in the US and UK. Moreover, UK has 7% more ‘R&D rigorous’ organizations (i.e. organizations that spend 4% of their sales on R&D and more than ₤1 million) in 2005 (116) compared to 108 in 2004 and 88 in 2001. It is estimated that the global pharma sector spent about $1.25 billion on R&D for each New Molecular Entity (NME) application approved by the USFDA in 2004, which is four-fold the R&D spending of each NME submission in 1995 (i.e. $317 million). Also, the global pharma R&D spending per worldwide New Active Substance (NAS) launch touched a new high of $2.3 billion in 2004, an increase of 43% over the previous year. Among R&D investments in various sectors, investment in pharma R&D is the highest in the world now. According to CMR International, a research firm that monitors R&D performance of global pharma industry, worldwide R&D spending has soared to a record high of more than $50 billion in 2004. Out of 31 NMEs (chemical and biological) launched globally in 2003, 14 were by US-based organizations, 10 by European organizations, 3 by Japanese organizations, and 4 by organizations in other countries. The cost of drug development is high because the costs of ‘failed’ pursuits are added to the costs of the ‘successful’ marketable drug. According to industry estimates, out of every 10 drugs that enter the clinical trial phase, only one succeeds. Says Nigel Sheail, Global Head of Strategic Alliances and Acquisitions at Roche Pharmaceuticals, “Ninety-five percent of everything we do is going to fail. That’s the nature of pharmaceutical drug development. The really important aspect is how you deal with failures and try to extract the value that’s still there.” Innovation & Research – The Golden Goose of Drug Discovery With the advancement in science and technology, research has become less complex and is now capable of addressing serious challenges in the field of drug discovery. New technologies such as genomics, proteomics, high-throughput screening, and molecular diagnostics are providing the needed versatility for drug discovery research. The emergence of Microfluidics is one such example that has made drug discovery practical and appealing. Microfluidics is not just a research tool, but it is an enterprise discovery platform with the potential to alter the drug discovery process. Microfluidics can transform an organization’s information management, thereby leveraging the efficacy of experimentation process, leading to quicker and shorter innovation cycles. Microfluidics systems are highly powerful and volatile data engines that produce high efficiency and accurate results. Besides pharma companies such as Pfizer, Eli Lilly, Merck, Johnson & Johnson, Wyeth, Takeda, Taisho, Serono, Novartis, Amgen, Millennium, and Sanofi-Aventis, drug discovery technology providers, such as Agilent and Bio-Rad, are also fully exploring the potential of microfluidics in developing new innovations in drug discoveries. Microfluidics enables decentralization of information, which is a vital component of innovation. Microfluidics is a truly breakthrough development that can transform the drug discovery process if deployed properly. Says Kevin Hrusovsky, President and CEO of Caliper Life Sciences, a US-based company that provides unique research tools for drug discovery and development, “Companies that realize the power of this revolution have the ability to retool their discovery engines and experience enormous organizational and scientific advantages.” Industry experts feel that the companies that conduct R&D in innovative ways create new drugs faster. After Ciba-Geigy and Sandoz merged in 1996 to form Novartis, Daniel Vasella, the Chairman and CEO of Novartis, spun-off the company’s research division into a new entity named Novartis Institute for Biomedical Research Inc. (NIBRI), and relocated it from Basel, Switzerland, to Cambridge, Massachusetts. NIBRI focused on development of new drugs for diabetes, cardiovascular, and other infectious diseases. Novartis invested about $2.2 billion in R&D in 1997. Soon, Novartis introduced new drugs and its sales soared to $18.8 billion in 1997, an increase of 10% over the previous year. In a short span of just two years (1996 and 1997), Novartis launched 15 new drugs in the market, which was the highest in the pharma industry. Between 1994 and 1997, Novartis had the highest number of USFDA approved new drugs than any other company. In 2001, the company’s net income increased 8% to $4.1 billion. India Rising and Shining Indian pharma industry, worth about $10 billion, is growing at a robust pace of 8-9% annually and is leading among the Third World countries. The growth of the Indian pharma industry is primarily propelled by exports to more than 65 countries, which contribute about $3.2 billion out of an annual turnover of $5 billion. This is further poised to increase to about $25 billion by 2010. Indian companies’ share in the domestic market too has been steadily rising from about 20% in 1970 to about 70% in 2005. India has also realized the importance of allocating increased budgets to R&D in the wake of the product patent regime. Earlier, Indian companies invested only around 1% on R&D, but are now investing whopping amounts on R&D. In 2003-04, the top 10 Indian pharma companies spent about $400 million on R&D. In 2004, Ranbaxy invested 7% of its $ 1 billion sales on R&D, while Dr. Reddy’s Laboratories (DRL) spent 14% of its sales of $ 446 million on R&D. With the advent of the new product patents from January 2005, India is now facing the best of opportunities and the worst of threats. First, the threats: Foreign companies with huge technological muscle and deep hard currency pockets may develop better drugs faster and patent them in India, enabling them to occupy the shelf-space of medical shops/drug stores, and the mind-space of medical practitioners. There is also the threat of litigations and the costs and damages that can wipe out the smaller pharmaceutical companies. Then, there are the opportunities. Indian pharma industry is now poised to take full advantage of the size they have achieved with the help of process patents. Without doubt, India is a huge market (1.1 billion potential local patients) for a high intellectual capital and capable work-force, a full data-base on drug research till date, and a low cost of drug development and clinical trials. India can also seize the opportunity of out-sourced manufacturing and also out-sourced drug development and clinical trials. According to Syngene, India’s highly successful contract research firm for pharmaceuticals, the cost of doing R&D and introducing a new molecule in India is $100-200 million, which is five times lower than the cost involved in new drug discovery in a developed country ($500-900 million). Out of the global contract research that accounts for $30 billion, a significant share is expected to be captured by India. Moreover, pharma companies globally spend $8-10 billion on clinical trials. India, which accounts for $20 million of outsourced research, is expected to grab $2 billion over the next decade. Order! Order! The current state of patent offices in India may not be fully equipped to facilitate the needs of the Indian pharma industry. India has less than 1,000 registered Patent Agents as per the Indian Patent Office records. Out of this, an estimated 50-75% is directly enrolled from law background. The availability of Patent Attorneys in the pharma sector in India is very low due to the negligible number of experienced Patent Agents/Attorneys and law firms dealing with Intellectual Property. The numbers are very meager when compared to USA and UK. USA has more than 30,000 patent agents/attorneys, while UK has 3,000 members, including 1500 registered patent agents/attorneys in the list of Charted Institute of Patent Attorneys. Moreover, as compared to about 6,000-7,000 Patent Examiners in other countries, India has only about 750 Patent Examiners. Because of the mismatch between the demand and supply of good patent attorneys, patent agents and IP firms in India, many small pharma companies may not be fully aware about the IP issues and may face litigations in future. According to American Intellectual Property Law Association (AIPLA), the median patent litigation costs in the US (excluding the cost of obtaining a patent), with $1 million to $25 million risk, was $1.5 million in 2001, which increased to $2 million in 2003. With the increase in the risk amount, the litigation costs also increase proportionately. The patent litigation costs of risks more than $25 million went up from $3 million in 2001 to $4 million in 2003. In India, the patent litigation cost in 2003 in a lawsuit involving Ranbaxy and Pfizer for Pfizer’s anti-cholesterol drug Lipitor, was estimated to be $2 million. According to a study in 2005 by James Bessen and Michael Meurer of Boston University School of Law, patent litigation is the costliest of all lawsuits, and firms engaged in patent lawsuits lose about 3.1% of their stock market value, which on an average amounts to $20 million. This loss comprises the general cost of the lawsuit including the loss of business and related risks which the company confronts. In the US, the number of patent infringement litigation cases soared from 1100 in 1991 to 2600 in 2002. Given the trend, the increase in patent litigation cases is bound to increase further. In UK, the median cost of full scale patent infringement litigation is between ₤80,000 and ₤500,000, which may further go up depending on the complexity of the case. The cost of obtaining an emergency injunction against a patent infringer is about ₤30,000-₤60,000. Patent litigations may not necessarily bring down the R&D investments of pharma companies in India as seen by the trend of Ranbaxy. Though Ranbaxy incurred a loss of $20.2 million (Rs.10.77 crore) in the third quarter ended September 30, 2005, yet it increased its R&D spending by 79% compared to the previous year. Indian companies, however, are not shying away from litigations and are boldly fighting it. This demonstrates the fact that Indian companies are open to litigations and the R&D budgets will in no way be affected by the litigations. Says Raghu Cidambi, Head (Corporate IP), Dr. Reddy's Labs, "Patents are top of the mind for discovery-driven companies like ours and Ranbaxy.” Indian pharmaceutical companies face the risk of litigations only for those drugs, which are registered in India within the stipulated time, and have unexpired patents, and which do not have any existing process patents in India. If any of these criteria is not met, the question of litigation may not arise at all. But, it is essential to perform a patent analysis/mapping for a company’s newer drugs to ensure that infringement is ruled out, thus avoiding litigations. Patent litigations are very expensive, and the damages are exorbitant. Companies in the process of acquiring other companies should thoroughly investigate the drug offerings to avoid any potential litigation. IPR valuation becomes essential in assessing the right price of the acquisition. The Wonder Drug With the threat of litigations on one hand, and the opportunity of own patented drugs and resultant revenues on the other hand, India is making progress by leaps and bounds. What India needed to invoke the impetus, to ignite the fuel, and to spark the fire has finally arrived! The product patent regime (2005) has proven to be the ‘drug’ that has stimulated Indian pharma industry to rise and shine, to invent, innovate and discover, and to, once again, lead the action in the global arena.