 "Pharma firms to step up R&D spending")
Pharmaceutical companies are increasing their research and development (R&D) spending to launch differential and speciality products as their core US business comes under pressure.
Overall, their business in America has been impacted due to pricing pressure and supply channel consolidation. The margins have declined for some, owing to pricing pressure, increased spending on R&D and currency fluctuations.
On a positive note, progress in remediation for companies with regulatory issues are set for completion and in line with expectation, according to Religare Institutional Research.
Going forward, pricing pressure is expected to increase by five or 10 per cent. Drug makers are gearing up to overcome the challenges by focusing on speciality products. In a post-results conference call with analysts, Sun Pharma managing director Dilip Shanghvi said they would do this in the US and this could impact profitability in the short term. “ Our strategy is to build stable long-term profitability,” he said.
Sun Pharma's R&D spending rose 23 per cent to 9.1 per cent of sales in the March quarter, year-on-year. In FY17, too, the company is expected to spend around nine per cent on research. Lupin's R&D spending will be 12-15 per cent of sales in FY17, up from 12 per cent in FY16 as the company increases the number of product filings. Nilesh Gupta, managing director, said the company would also spend more on innovation, with a focus on dermatology and biosimilars. It plans at least two clinical trials this year.
Cipla has also indicated it will spend more. “We are also targeting some speciality portfolio products for development. This will drive our R&D spend to eight-plus per cent, global chief operating officer Umang Vohra told analysts. In FY16, their R&D spending was 6.5 per cent of sales.
Some companies are increasing their capital expenditure. Alembic is building manufacturing facilities for injectables and tablets; it is also expanding its Active Pharmaceutical Ingredient capabilities. Divi's Laboratories is investing in a Rs 500-crore plant at Kakinada in Andhra.
Dr Reddy's Laboratories has indicated capital expenditure of Rs 1,200 crore in FY17, with most of the spending in biologics and for modernising the information technology and automation processes.
“Over the past few years, pharma companies have increased their R&D budgets significantly, in view of their growing focus on both regulated markets and complex molecules/therapy segments. Aggregate R&D spends of the top few companies in domestic pharma increased from six per cent of sales in FY11 to more than nine per cent in FY16,” ICRA said in a research note. It believes this will continue, as most leading companies are trying to expand their presence in the complex therapy segment such as injectables, inhalers, dermatology, controlled-release substances and biosimilars.
However ICRA expects the growth trajectory for Indian pharma to moderate, with slowing US growth, given the relatively moderate proportion of large-size drugs going off-patent, increased competition, generic adoption reaching saturation levels, regulatory overhang and the base effect catching up.
LOOKING AHEAD
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Pharma companies are planning to hike R&D spend
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Increases no of product filings, launch specialty products in the US
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Focus on innovation higher as companies are impacted by price erosion
- The aggregate R&D spends of top few companies in domestic pharmaceutical market have increased from 6% of sales in FY11 to more than 9% in FY16
