Trailing in the value chain: Domestic pharma's unfinished agenda

In the first of a 5-part series, we look at reasons keeping Indian pharma sector from becoming the best globally

Of the first generation Indian pharma leaders, Dr Anji Reddy (late founder-chairman, Dr Reddy’s Laboratories) was perhaps the most passionate about discovering a new molecule. In late 1990s, he put his resources behind a class of diabetes drugs called glitazones and partnered Danish firm Novo Nordisk. Reddy named the molecules Balaglitazone (after Lord Balaji) and Ragaglitazone (Reddy alpha gamma agonist). During initial research, Ragaglitazone showed promise and Novo paid more attention to it. But in phase II trials, studies showed that it may result in bladder cancer in lab rats. This prompted Novo to cancel the project.

Failure of a drug discovery project is common globally, but insiders feel it came across as a major setback to the psyche of the local pharma industry. Had Reddy tasted success, it could have altered the trajectory of the industry.

Sample this: Estimates say for every 10,000 molecules screened, only 250 enter pre-clinical testing (animal tests), and just 10 make it to clinical trials. Only one is approved.

The cost, according to Tufts Center for the Study of Drug Development (published in the Journal of Health Economics), is almost $2.6 billion to develop a new prescription medicine that gets marketing approval. The cost has only risen as success rates have gone down — it was $802 million in 2003. The cost is two-pronged — out of pocket and time costs.

India is the world’s pharmacy — one in every six generic tablets consumed is made here. We export $20 billion of medicines and our local market is roughly the same size. We are great when it comes to reverse engineering and finding out cost-effective ways to replicate a molecule. Moreover, with limited resources, India has done cost-driven innovation. Cipla’s Yusuf Hamied launched the anti-HIV drug in 1990s a one-tenth of the international price.

trailing in the value chain

“The Indian pharma industry, known for its affordable quality medicines worldwide, has much to thank the Hatch-Waxman Act, which came into force in the US in early 1980s and paved the way for generics there. It also proved to be a shot in the arm for India’s branded generic drug makers,” said Sudarshan Jain, secretary general of the Indian Pharmaceutical Association (IPA). IPA’s 25 members account for 85 per cent of India’s exports and 60 per cent of the domestic market.

But industry experts highlight that India lacks an ecosystem that enables innovation.

The chairman of a leading pharma firm said that cost of new drug innovation is very high (for clinical development, etc). “When the risks are so high, returns too have to be commensurate. Innovation need not necessarily come from large firms. A small firm, too, can have a bright idea, but it can also fail. The system needs to absorb such failures,” he said. He also said there needs to be more accountability in Centre-funded research institutions.

Indian companies, however, have started moving up the ladder and are treading towards complex generics rather than plain vanilla low-margin generics. This is mainly due to the fierce price competition in the US and other regulated markets like Japan.

Sun Pharma has a portfolio of nine specialty products that it is launching slowly in the US and markets like Japan. Specialty R&D roughly accounted for 25 per cent of Sun’s total research spend in the March quarter.

Was it an easy journey? Not really. In the mid-2000s, Sun was working on a long acting sedating anti-allergy drug with fewer side effects (code named 1334H). Sources say Managing Director Dilip Shanghvi was excited about bringing the first new drug. The team prepared meticulously before their meeting with the US Food and Drug Administration (USFDA), to the extent that they even rehearsed the American accent. USFDA did not seek to abandon the molecule, but politely made it clear it was looking for break-through research in new chemical entities (NCEs) that would fill a big therapy gap and not just another drug in a crowd of existing anti-histamines.

Soma Das, who wrote The Reluctant Billionaire about Shanghvi, said the experience taught the Sun team a valuable lesson from the science of NCEs — you don’t invent for the sake of invention, you invent to solve a problem.

Shanghvi decided to keep his emotions aside and put a lid on the project. Das said: “Drug discovery may sound like the logical next step to generic drug-making, but in practice, it’s a leap. There is a fundamental incongruity in the business of drug discovery and generic drug-making. Generic drug business has to be swift and agile. Drug discovery needs deep investments and decades of patience.”

She said that while being under one roof, discovery arms become money guzzlers, weakening profitability of generic business. “That prompted a set of firms to hive off their drug discovery arms from their generic drug business around a decade and half back.”

Analysts say the government knows there is a lacunae that blocks innovative research in health care. In fact, a committee has been formed by the department of pharmaceuticals on innovation that comprises industry leaders and scientists from academic institutions who are working closely to come up with a framework that would act as an enabler.

“The panel’s recommendations are expected in a few weeks. One has to create the right environment for incentivising innovation. Incentives can be tax breaks, tax credit, grants, and freedom to price a new molecule,” said a member of the committee.

Another member highlighted that work is under way on regulatory simplification, reforms, increased funding and industry-academia linkages. “In developed markets, most innovation comes from universities. India does not have a culture for industry-academia linkage. We need to create anchor institutes and tech-transfers should be easier,” he added.

Stringent price control (regulator) in an already competitive market is another challenge. “Price realisation in the Indian market is not good. Risk is high for new molecule R&D and the rewards are limited,” said an industry insider.

The government had floated a venture capital fund for financing new drug discovery projects about a decade back. However, it has largely remained a non-starter. The story of Indian pharma’s innovation or moving up in the value chain is summed up well in the title of Reddy’s autobiography An Unfinished Agenda.