Pharma R&D spending grows as focus shifts to specialty products
Since such products cost far more to
develop, investments are mostly made by top drug makers such as Sun Pharma, Dr
Reddy’s and Lupin
Indian pharmaceutical companies have
increased research and development (R&D) investments in lucrative specialty
drugs and complex generics, as greater competition and lower margins eat into
their bread-and-butter generics business.
Since such products cost far more to develop,
investments are mostly made by top drug makers such as Sun Pharmaceutical Industries Ltd, Dr Reddy’s
Laboratories Ltd and Lupin Ltd. R&D spending at all these
companies has risen over the past three years.
Benefits from a so-called patent cliff (when
patents on many drugs expired, creating opportunities for Indian generic-drug
firms in the US) petered out in 2014, while pricing pressure and compliance
issues have risen since then, creating a sense of urgency. Consolidation in the
distribution channel has added to pricing woes.
“Price
erosion in single digits of about 8-9% will continue. That is a reality of
generics. To counter it, you will have to have new product approvals and the
right kind of new product approvals. As far as Lupin is concerned, the main
challenge is the migration to more complex products, delivering them and
bringing them to market,” said Nilesh
Gupta, managing director of Lupin.
Specialty drugs and complex generics are
high-value products used to treat complex, chronic conditions like cancer,
rheumatoid arthritis and multiple sclerosis.
The cost of developing a complex generic is
around $5 million, against $1-2 million for a simpler final dosage form, while
for an inhalation, complex injectable or a biosimilar product, the cost is much
higher, Dr Reddy’s said in its last annual report.
“Rising
competition in the pure generics segment has led many of the top Indian pharma
companies to focus increasingly on specialty and complex generics through
higher R&D spending. We acknowledge the above-average level of associated
risks, but feel that this shift in focus will be important for the Indian
companies to move to the next level and sustain growth momentum,” Fitch
Ratings said in a report dated XX.
The risks are high, but so are the returns.
Nearly half of the medical spending in the US
currently goes towards specialty therapies, particularly oncology, multiple
sclerosis, auto-immune and haemophilia. New product launches in specialty
therapies have been higher than in traditional therapies, the Fitch report
said.
According to a July report by JM Financial
Institutional Securities Ltd, Indian firms have been a little late to make such
investments, which would diminish returns in the short to medium term given the
complexities and long gestation periods of these products.
In the past six years, R&D spending at
top Indian pharma companies rose 3-6 times, while sales grew 2-4 times, the
report said.
Companies are investing in complex
injectables, complex oral solids, new drug delivery systems, new chemical
entities and biosimilars. They are looking to increase their presence in the
therapeutic areas of oncology, dermatology, ophthalmology and respiratory,
among others.
Investments are one part, timely commercialization
is another—which is why some feel it’s best to acquire products rather than
develop them.
“I
think it makes sense to acquire, as cutting the time to bring a product to the
market is very important. The process to develop and bring these products to
market is difficult,” said an analyst who did not wish to be identified.
Lupin’s Gupta said the company is eyeing
acquisition opportunities in the specialty segment in the US, Europe and Japan.
For the current financial year too, most
companies have guided that R&D spending will be higher than last year. Sun
Pharma expects R&D expenditure to be 9% of sales, while Lupin is likely to
spend 13-14% of sales on R&D. Cipla’s R&D spending is expected at 6-8%
of sales and Dr Reddy’s may spend about 12% of sales on R&D. Aurobindo
Pharma sees R&D spending at 4-4.5% of sales this year.
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