Drug R&D spend up 200% in 2 years

Expenditure climbs to 6% of total sales in FY04.

Indian pharmaceutical companies have tripled their expenditure on research and development (R&D) over the last two to three years. Over the next two years, the R&D spend was expected to double from the current level, industry sources said.

From about 2 per cent of the total sales around 2-3 years ago, the average R&D expenditure of the leading research-based domestic drug companies has gone to around 6 per cent in 2003-04.

By 2005-06, it may jump to over 12 per cent. Even then, it will be below the 15-20 per cent average R&D spend by the global research-based pharmaceutical companies.

"We treat R&D expenditure as capital expenditure. The rate at which we are filing drug master files and launching new products, we require a strong R&D backup. The company's R&D spend has increased from 7 per cent in 2002-03 to 10 per cent in 2003-04 and may increase further to ensure our leadership position," a spokes- man for Dr Reddy's Laboratories said.

Ajay Piramal, chairman and managing director of Nicholas Piramal, added a different dimension to the phenomenon when he said, "India is emerging as an intellectual capital of the world. By setting up world- class research facilities, we are able to bring back to India talented Indian research scientists." Nicholas Piramal has doubled its R&D spend from 2 per cent in 2002-03 to 4 per cent in 2003-04.

Torrent Pharma's R&D expenditure increased from around 5 per cent in 2001-02 to 9 per cent in 2003-04 and it is expected to go up to 10-11 per cent of total sales in 2004-05. "It will rise further and may stabilise at around 13-15 per cent of gross turnover. Future growth in the pharma business will be driven by R&D," a senior company executive told Business Standard.

Wockhardt's R&D expenditure increased from around 6 per cent of the total sales in 2002 and around 4 per cent in 2001 to 8 per cent in 2003. Other pharma companies like Glenmark Pharmaceuticals and Lupin have reported around 7 per cent growth each in R&D expenditure.

Sun Pharma (including its US arm Caraco) reported the R&D expenditure of 10 per cent of its sales in 2003-04, up from 7 per cent in 2002-03 and 4 per cent in the previous year.

Cut-throat competition in key growth areas like drug discovery, branded generics, bulk actives, formulations and chemical synthesis has made R&D a prime focus area for most drug makers.

"With the continued reduction in the selling price of drugs in the regulated markets, the manufacturers operating in these markets have to bring down their costs. We have to strengthen our facilities to take advantage of this," Piramal added.

Lupin managing director, Kamal Kumar Sharma, said: "The ability of Indian companies to scale up the level of R&D and drawing encouragement from the success achieved by some Indian companies have also resulted in increased R&D thrust by other Indian companies. Going forward, India being signatory to the WTO, the Indian companies are investing in R&D to develop their own intellectual properties."