Flattening budgets, rising costs attract West to Indian R&D

The pharmaceutical sector in the West is threatened by flattening budgets and rising costs. Under the scenario, alternative delivery models are being worked out and are being professed aggressively.

Pharma research and development (R&D) productivity output has remained flat for the last 10 years and the cost of new drugs has more than doubled to anywhere from $800 million to $1 billion.

Pharma companies are struggling to meet the market's growth expectations. Costs of R&D are rising as diseases and clinical trials become more complex and regulatory pressures continue to increase whilst output remains relatively flat or even stagnant, Arjun Bedi, partner of Accenture told Business Standard.

"Investment in new capabilities is being squeezed due to the ever-growing cost of running existing operations. Old business models are not delivering at the rate R&D needs to deliver. Using new models in R&D is challenging due to the need for deep domain skills and other R&D-specific requirements," he added.

Also, the availability of trusted business partners with a proven capability to deliver R&D needs are critical when in the development of alternative delivery models as well, he further added.

Under the scenario, there is an urgent need to invest in innovation and to continue funding value-creating investments. With flat budgets cutting costs with alternative delivery models, it is said to be the best approach presently.

For alternative deliveries, pharma companies' models are driven primarily by outsourcing a few non-core functions which give cost and productivity advantage to companies. Non-core functions' outsourcing leads to virtualisation of industry, thereby bringing down the cost drastically.

Cost advantage is said to be 20 per cent to 30 per cent of the R&D budget (10 per cent of turnover).

It is here that India is gaining ground, with significant cost advantage through availability of talent in scientific R&D in pharma sector mainly in pharma and medicine. This is in addition to the convergence of technology and science in healthcare sector, said Bedi.

According to him, "continuing innovation in R&D is essential to the long-term future of pharma companies. But pressure on R&D budgets will lead to limited or declining discretionary investments within five years under a flat budget scenario."

"It is here, Accenture with its experience with Wyeth has developed alternative delivery models such as Life Sciences Centre of Excellence which provide an opportunity to reduce non-discretionary budgets to fund ongoing investment in innovation," said Bedi.

The company's global network offers scaleable, efficient outsourcing solutions that meet a range of client needs. The Life Sciences Centre of Excellence has an optimum model for R&D delivery designed for the needs of the pharmaceutical R&D. It combines deep industry skills and experience with technical expertise, he added.