Filling The Gap
Biocon and other large Indian-based biopharmas have stepped up their R&D spending to fill India’s gap in private biotech investment. While many big biopharmas in the U.S. and Europe have been cutting back on internal research costs, Biocon spending on R&D has climbed 36% overall over the past five years, to INR 879 million ($16.3 million) in 2012, from INR 646 million ($12 million) in 2008. Sun Pharma overall R&D spending jumped nearly 50% over five years, to INR 4.253 billion (about $79.1 billion). At Dr. Reddy’s Laboratories, R&D spending rose 76% to INR 5.813 billion ($108 million). Percentages of revenue set aside for R&D range from 5% to 10% for the Indian biopharma giants.
“They are not far from catching up with the average 15% spent by Western pharmaceutical companies,” according to Jones Lang LaSalle’s just-published Life Sciences Cluster Report 2012.
Last summer, the public-private Export-Import Bank of India agreed to administer the INR 2,000 crore ($371.7 million) set aside by India’s Commerce Ministry for biopharma sector development. A venture capital fund for R&D investment is expected, but is still the subject of talks between officials from the government and Exim Bank.
ABLE, which is India’s biopharma industry group, is looking for more help from the public sector.
“Economic burdens exist on this emerging biotechnology industry, which lacks support from financial institution such as banks, private sectors, angel investors, and venture capitalists,” ABLE concluded on December 26, in a statement detailing its expectations for the national “Union Budget” that Prime Minister Manmohan Singh is expected to unveil late next month. “Fiscal and financial incentives from government are needed for its progress and growth.”
According to Kothary, India appears ready to welcome at least foreign direct investment in the domestic pharmaceutical sector. The country’s finance ministry has approved roughly INR 180 crore ($333 million) in investments by foreign companies, following a government decision to permit foreign investors to own up to 49% of established Indian firms. Foreign investors may start a company in India once they have obtained approval to get a share of a domestic drug company, on the condition that they won't stop making the lower-cost drugs they currently produce, and that they will keep investing in R&D with Indian partners for five years.
Significant foreign deals include Abbott Laboratories buying Mumbai-based Piramal Healthcare's Indian business for INR 20,348.4 crore ($3.7 billion) in 2010 and Daiichi Sankyo gaining controlling interest of Ranbaxy for INR 22,974.0 ($4.2 billion) in 2008.