Any R&D activity in Pharmaceutical Sector is highly cost intensive and risky. As per the available estimates for the developed countries, the cost of discovering a single drug molecule and its further development representing a journey from mind to market place, ranges between US $ 250-500 million (Rs.1000-2000 crores) and takes about 10-12 years. Further, commercial success of a drug is somewhat uncertain. The rate of success can be as low as 1%. In India, the cost of discovering a drug could be as low as Rs.140 to 200 crores. This provides a great opportunity and competitive strength for drug discovery within the country.

Presently, the available financial resources for funding drug research include in house R&D inputs by industrial houses, government funding through publicly funded R&D institutions and promotional funds set up by the government through Technology Development Board of DST as well as a special new drug development fund operated by DST. However, the total support available through all these financing routes is not adequate to meet the needs of the ambitious programmes that need to be launched .

Considering the size of the Indian companies and their financial resources, it may not be feasible for the industry to invest the required funds in high risk R&D projects. Further, with the risks being high, funding of R&D projects by financial institutions/banks in the country also becomes difficult. Innovative approaches to financing R&D therefore, need to be evolved. The Committee considered the following ways of funding R&D in the pharma industry.

Venture Capital Funds (VCFs) can provide seed capital for unproven ideas, products or start-ups. They can also be an important source of funds for companies, who are too young to raise capital through conventional routes such as term loans or public offers. The instruments used also vary - straightforward equity, quasi-equity (e.g. preference shares or convertible debentures), subordinated debt with varying swap and call options, and other financial derivatives.

Internationally, Venture Capital Funding has been a major resource facility to fund New Drug Discovery and Biotechnology Research. Basically, a Special Purpose Vehicle (SPV) is created by the Discoverers and Venture Capitalists, which then undertakes further research efforts and brings the product to the market. This SPV receives the proceeds, either in the form of royalties, dividends or contributions from the market players. The SPV then repays its various investors (both researchers and venture capitalists) their initial investment. If inflows exceed the total investment in the research efforts, the SPV realizes profits.

In India, however, there are bottlenecks in following this route. These have to be addressed if New Drug Discovery activity is to realize its potential by relying on this means of funding. The roadblocks are: -

• Non-provision of free inflow and outflow of capital without going for separate approvals from the FIPB for the defined project and RBI for receipt or payment of funds.
• Non-provision of evaluation yard sticks and tax treatment on the lines applicable internationally.
• Inability to bring in new investors or their substitution into an existing SPV.
  

The following steps have to be immediately taken to overcome these road blocks.

• Units undertaking New Drug Development Research (NDDR) and Novel Drugs Delivery System (NDDS) activities be registered with the DSIR.
• An automatic approval system for sourcing within defined limits of funds from both overseas and domestic sources to such approved units has to be evolved.
• Inflow/outflow (including repatriation) of funds should be permissible on the basis of quarterly returns to be submitted by the SPV.
• Tax treatment, as applicable to infrastructure and software industry, in the Income Tax Act as amended in the Finance Bill, 1998 be extended to cover any company or vehicle engaged in the NDDS Research, subject to necessary approvals from the Department of Scientific and Industrial Research (DSIR).
• No restriction should be applicable to such SPVs for expenditure undertaken overseas for the purpose of approved research activities.
• Modify SEBI’s takeover code for VCFs. Just as the public financial institutions are excluded from the takeover code, so too should be the registered VCFs. The venture capital assisted listed company should be allowed to purchase its stocks from its VCF without the 5% annual cap on creeping acquisitions. Moreover, like IDBI, ICICI and IFCI, a VCF should be allowed to sell its shareholding to a new promoter or acquirer at a negotiated price without triggering the 15% cap for an open offer.
• Provisions of the Indian Trust Act, 1898 should be modified to accommodate limited partnership and pass-through in line with the Venture Capital Trust Act of the UK. This will definitely attract larger investment to VCFs.
• It should be appreciated that such SPVs would be engaged in the development activities consequent to discovery of New Chemical Entities (NCEs). The development includes various phases of clinical trials which may extend up to 7 to 10 years. In the case of NDDS activity, the SPV would be required to finance its clinical research and bioequivalence studies, international registration etc., which may also involve a large amount of expenditure overseas.
  
  

A detailed note by Shri Omkar Goswami of Confederation of Indian Industries (CII) on "Financing Knowledge Based corporate Growth by galvanising Venture Capital Funds in India" which articulates the broader issues on Venture Capital Financing is at Annexure 5. Several of the ideas enunciated in this note need to be implemented if the Indian knowledge industry, of which drugs and pharmaceutical industry is only one player, has to take a leap forward.

It is often pointed out that stiff price control measures for the controlled drugs leave little scope to generate resources for R&D. On the other hand, outputs of R&D tend to remain out of the reach of common man due to high costs not matched by commensurate returns. In order to resolve the situation arising out of the above conflict of interests, the Committee after careful examination of various aspects involved, considered a model to attract R&D towards high cost-low return areas. This model is narrated below:

• A sur-charge of 1% of the Maximum Retail Price (MRP) of all formulations sold within the country could be collected by the concerned Central Excise or other authorities as mandatory contribution to a fund called "Pharmaceutical R&D Support Fund" (PRDSF). This fund could be expected to generate around Rs.100 crore annually. As suggested in para 23 above, the DDPF could be entrusted its utilisation.

• A significant portion of the proceeds of Drug Price Equalisation Account (DPEA) created by the Drug Price Control Order (DPCO), 1979 when finally closed, may also be credited to PRDSF.

The high cost- low return areas of research required by the country may be identified and prioritised. For example, the highest priority could be possibly accorded to malaria, TB, filaria, leprosy, kalaazar and the like. The R&D support fund will be used for partially assisting the projects in those areas, where entire R&D upto the final stage of Drug Development Promotion is undertaken within the country.

Tax holidays and concessions will help an industrial unit retain its internal resource generation for specified purposes. Such a measure reduces the dependence on external resources as the ownership of retained earnings is with the retainer, there is an incentive for utilisation of the earmarked funds for the specified and required R&D activity.

The Committee also recommends that the following tax holidays and concessions be provided in respect of self-financed projects certified by DSIR.

• Treating royalty receipts, and other gains from R&D for the purpose of exempting them fully from Income tax.
• Permitting writing off R&D expenditure on consumables as well as equipment within a period of one year for the purposes of Income Tax.
• Exemption from the payment of import duty on chemical, bio-chemicals, special consumables, equipment and spares for R&D.

Despite the incentives suggested in the foregoing, there may still be areas of national importance where investment in R&D may not be forthcoming. The only way to stimulate focused pharmaceutical R&D in such areas could be through outright grants or soft loans. The committee recommends that such grants or loans may be given on a selective basis from PRDSF.

Presently DPCO 1995 provides various incentives to manufacturers by exempting specific drugs or drug delivery systems from price control. The Incentives are as follows:

1. Bulk Drugs produced in India for the first time from basic stages by a process developed through indigenous research and development for a period of five years.
2. Production of a bulk drug by a process, which is significantly different from a known process and results in substantive cost reduction for a period of five years.
3. Formulations manufactured by using a Novel Drug Delivery System which has been approved and certified by the Drug Controller General of India for a period of five years.
4. A new drug, which has not been produced elsewhere, if, developed through indigenous research and development for a period of ten years.
5. Genetically engineered drugs produced by recombinant DNA technology and specific cell and tissue targeted drug formulations are exempted for five years from the date of manufacture in India.

• The committee recommends that these exemptions be continued and in case of (iii) and (iv), they may be extended for the entire period of patent life.

The Committee further suggests that a company or a firm to qualify as R&D intensive company in India for price benefits for the drugs under DPCO as recommended by the Drug Price Control Review Committee, should meet the following conditions:

• Invest at least Rs.10 core per annum in innovative research including new drug development, new delivery systems etc. in India,

• Employ at least 100 research scientists in R&D in India: A scientist as defined by DSIR is a person having qualifications and training in science and engaged in basic or applied R&D, non-routine testing and analysis, design engineering, R&D project planning and control and intellectual property and technology management,

• Has been granted at least 10 patents for the research done in India before filing an application for exemption from DPCO,

• Own and operate manufacturing facilities in India and has obtained a cGMP approval (to be instituted by DCGI as suggested in Chapter X ).

• The intention of setting the above `gold standards' is to ensure that in India, we will fuel the emergence of firms, who are deeply committed to innovation and demonstrate this commitment by
  

1. enhancing the financial inputs in R&D,

2. switching over to cutting edge and frontline innovative new drug development research, rather than just imitative research

3. creating significant employment opportunities for Indian scientists who do not have such adequate challenging opportunities in R&D today,

4. raising the Indian standards of manufacture to contemporary international levels and

5. creating a strong IPR culture in the firms.

The committee recognises that none of the firms in India today meet all the above criteria. However, it is hoped that by providing such stimuli it would be

possible for them to move on the path of becoming R&D intensive, quality conscious, indigenous contenders to global players. In recognition of reaching their global status, the government may eventually consider exempting such firms from the DPCO, subject to sustainability of these indicators year after year.

The fundamental paradigm needs to change. The reasons of the future are within yourselves.

                                                                       Konusuke Matushita

The committee, as brought out in the preceding chapters, has developed a dream for the Indian pharma industry. The realisation of this dream is needed in our research. It is for the government and industry to translate this dream into reality. Accordingly, the committee would urge upon the government to quickly set-up an enabling mechanism by the Department of Chemicals & Petrochemicals to initiate implementation of these recommendations. The important and urgent actions are listed in Table 7.

S.N.	Action point	Responsibility for action	Time frame suggested
1.	Establish a Drug Development Promotion Foundation	Dept. of C&PC	<1 year
2.	Revamp and modernise the CDSCO	Min. of Health & Dept. of CPC	1 year
3.	Notify and establish Pharmaceutical R&D Support Fund	Min. of Finance & Dept. of C&PC	1 year
4.	Establish & operationalise GMP/GLP/GCP Monitoring Authority	Dept. of Science & Technology, ICMR, DCG(I)	<1 year
5.	Amend the Indian Patent Act	Min. of Industry & Dept. of C&PC	1 year
6.	Notify and amend IT Act for tax exemptions (a) on royalty & licensing from abroad (b) export of pharma R&D	Min. of Finance & Dept. of C&PC	1 year
7.	Amend the customs duty structure to exempt imports for pharma R&D from custom duty	Min. of Finance & Dept. of C&PC	1 year
8.	Modify /amend legislation /rules/guidelines for contract research use and import of animal for pharma R&D	Min. of Welfare & Dept. of C&PC	<1 years
9.	Strengthening & establishing a tenable system of quality assurance of indigenous system of medicines	Dept. of ISM	2 year
10.	Strengthening and establishing new Drug Discovery infrastructure	Dept. of C&PC, CSIR, ICMR, DST, DBT & Dept. of ISM	2 years
11.	Documentation & digitisation of indigenous knowledge systems	CSIR, ISM, ICMR & Dept. of C&PC	1 year
12.	Human Resources Development for New Drug Discovery and ISM	CSIR, ICMR, ISM, DBT, DST, Universities & Dept. of C&PC	2 years

 

 

Whether we have to cover one step or a thousand: the first step always remains the first: for the second step cannot be taken until the first has been taken.

Mahatma Gandhi
from "Thought for the Day" Pune 5-3- 1946

 

 

 

 

 

XIV     LOOKING AHEAD

30. A peep into the future

As we enter the next millennium, we have to set up a vision for the new India of our dreams. This vision can not merely be a derivative of the past. It has to be, of course, based on the reality of the present, but it has to have a boldness, ambition and hope which is commensurate with the aspirations of our great nation. A new national health policy to build a healthy Indian nation of the twenty first century assumes a national priority in this context.

An innovative drugs and pharmaceutical industry will play a crucial role in this grand endeavour. It needs to be recognised that drugs and pharmaceuticals form only a small component of the total healthcare system; that too in terms of cost of healthcare. The others being hospitals, medical professionals, insurance companies and ancillary services. In India, a crucial component is the provision of adequate public health system, which includes sanitation, drinking water and general nutrition standards. On its part, the Indian pharma industry will have to take up the challenges of discovering, developing and making available quality drugs, vaccines and other medical devices for preventing and curing the diseases of the people of India at an affordable price. The committee was happy to see Indian Industry’s deep commitment to this cause during its deliberations. The optimism in this report is fuelled by this enthusiasm.

The early part of the next century will unquestionably see dramatic changes in the Indian pharma industry. It will have to restructure itself through mergers, acquisitions, brand sales and forging the strategic partnerships nationally and globally. The Committee sees a great opportunity for the Indian Industry to become a major supplier for the world market of generic drugs and drug intermediates contributing to a significant portion of the world production.

Indian companies will undoubtedly get into exciting challenge of new drug development research, both to meet Nation’s needs as well as to explore the great potential in the global market. The opportunity areas that will open up will include primarily novel drug delivery systems, chiral molecules and new clinical indications for drugs in use. Most importantly, endeavours in health promotion and care will be driven by creative use of the explosive advances in life sciences. A fundamental understanding of the disease at the genetic, molecular and cellular level will open new vistas for curative, preventive and predictive medicines. Modern information and communication systems in healthcare will have to be used most innovatively, with a backdrop of special Indian situation.

We already see the winds of change. The world is going digital and also herbal. There are great opportunities for India in both areas due to its vast reservoir of intellectual capital, its rich bio-resource and its rich heritage of knowledge of traditional medicinal system. Whereas we are already tapping into the multibillion dollar "Digital" market, we have an opportunity to be a significant player in a multibillion dollar "Herbal" product market too. Opportunities for becoming a global player in this market exist, but it will require an astute combination of new and traditional knowledge, innovation and creativity, and that too in the entire journey of mind to market place.

We must set up the dream and vision centred around the promise of a "Healthy India", which will encompass the idea of not only longer life but also a superior quality of life with a determination to fight diseases and conquering the sufferings of all Indians. We do hope that the implementation of the recommendations in this report will provide a launching platform to create a new environment for innovation in pharma industry, on which we could build the "Healthy Indian Nation of the 21^st century".

 

 

Who will play the melody
A melody vast, deep, grave and exquisite!
All bondage will break away,
A new song with a new rhythm.

Rabindranath Tagore.
Dance of the Universe

 

 

 

 

 

 

XV     The Dream For India

                                     Imaginary cover page of the Economist

 

If you were to fast-forward to 15^th August 2004 – a month after India adopted the global IPR regime in advance of the deadline of 31^st December 2004. What prompted India to take this bold step? What would an international magazine like The Economist or the Wall Street Journal write about us? We played with fundamental questions – What if? Imagine that ? Do we have the courage?

 

 

Here’s what the Economist may write on August 15^th 2004 on India’s remarkable turn around

Emboldened by the outstanding performance of the Indian Pharmaceutical Industry in new drug discovery, the Indian Government has enacted a comprehensive Patents Act, six months in advance, of the deadline, for bringing it in alignment with the requirements of WTO. This new legislation is a model for even the others countries to emulate in terms of the protection it affords to indigenous knowledge systems and biodiversity. The remarkable turn around of the Indian Pharmaceutical Industry dates back to 1999 when the Government of India constituted a Committee to lay the framework of R&D in India’s pharmaceutical industry and a Task Force for knowledge based industry.

The enabling framework

The success of the pharma industry owes a great deal to the vision of the Committee in recommending setting up of a Drug Development Promotion Foundation. The generous support of the Government to this Foundation, its independent status , its unique style of functioning and direction has set an enabling path for state-industry partnership to realise the synergy of the system for risk sharing and responsibility.

New funding Initiatives

A new ‘incentive’ approach of the government has turned the regime of "control" on its head! Venture capital investment into Indian research grew by 25% compounded every year. Companies made good use of fiscal incentives. According to Price Waterhouse Coopers, incentives for research in India are probably the best in the world. Allied with brain power of Indian scientists and the knowledge of information technology India has become one of the most remarkable knowledge driven countries in the world. It has far outstripped in terms of economic value added the output by its neighbour China.

 

 

 

The pharma industry

India’s pharmaceutical industry has graduated from being a late follower to an innovative leader. Presently the market capitalisation of Indian Pharmaceutical Industry is in excess of $30 billion and 25 of the companies are also listed on the NASDAQ. Five research startups have attracted investments over $500 million each. Pharmaceutical companies have doubled the market capitalisation since 1999 and are now account about 20% of India’s total market cap. Foreign investment in this sector has virtually doubled in 5 years. Indian companies are rapidly acquiring marketing companies in the West to drive up exports which have risen 5 fold.

Formation of strategic networks

One of the most successful new networks was the formation of an Indian Research Consortium which includes companies, government labs, universities. This consortium attracted international attention with top investing firms in the world vying to exploit India’s intellectual capital. The consortium networks so as make the best use of resources and avoid waste and duplication of research work. The leadership to the consortium is provided on a rotating basis in order to infuse fresh new thinking into the effort every few years.

 

 

 

Regulatory frame work

The most spectacular development has been the establishment of a professionally managed and transparent regulatory framework that competes in processing time with the best in the world. . A grand new steel and glass building heavily populated by computers gets approvals moving quickly and efficiently. The approval time has recorded a remarkable fall in the no of days to approval from 2 years to 30 days. Legislation now provides for quality control, standardisation and clinical back-up for herbal medicines which were earlier available at street corners.

Human resources

Indian government has invested heavily in creating new facilities in combinatorial chemistry, regulatory toxicology, high throughput screening, knowledge parks in partnership with industry, and so on. These new facilities have added considerably to India’s new young intellectual capital. The scientific manpower in the Indian Pharmaceutical sector, of 5000 persons, is perhaps the highest in the world. India ranks second to USA in the number of new US patents acquired for new drug entities.

Reversing brain drain

Spotting a high growth dynamic growth profile, many non-resident Indian scientists have returned home. They have helped kick-start small specialised firms in innovative areas such as bioinformatics, genomics, new drug delivery etc. Owing to its large, hetrogenous and diverse population, clinical research has developed as India’s core competence. With approval time for clinical trails down to 30 days and world class GCP facilities available at 20 institutions, India has attracted most of the best known pharma companies in the world to set-up clinical facilities in India.

Protecting biodiversity

The new biodiversity laws protected both India’s rich heritage in plants and it’s unique gene pool. New DNA technology helped to fingerprint plant strains and ensured proper standardisation of products. A quantum jump in the export of Indian Herbal medicines by proper branding and marketing in western markets has helped India close the gap with its neighbour China in market share of traditional medicines.

 

 

 

Consumer centric growth

The new policy has stimulated a remarkable growth in herbal medicines and OTC drugs. New legislation has been written to ensure quality control, standardisation and adequate clinical research into herbal medicines. The growth of this sector in the pharmaceutical sector has helped progress important public health initiatives in child blindness, anaemia, diarrhoeal disease, parasitic infestations and respiratory diseases, all of which contribute to high morbidity and mortality. In fact, infant mortality fell by 25% over this 4 year period and maternal deaths from anaemia also fell by approximately 10%. The new initiatives have helped focus healthcare resources on the consumer.

Knowledge-based jobs in agrarian sector

The new thrust on exports of herbals has generated tremendous demand for scientific and sustainable cultivation of medicinal plants and has created numerous jobs in different climatic regions such as Kerala, Assam, Western ghats, the foothills of the Himalayas and Northeast are booming with prosperity.

A fundamental transformation

At least 10 Indian research based companies have done a dramatic growth in only 5 years. Govt and industry partnerships have found new medicines for malaria, tuberculosis and infectious diseases.

The change seen in these five years is a fundamental transformation of research and development in India and the remarkable results seen as a result of the investment in knowledge!

 

 

 

 

Art design & Imaging
Courtesy Multimedia and Cyber Cafe
Nicholas Piramal India Ltd. Digital Cover Pic S. Gankar