More than 70 percent of the 40 global biopharma executives surveyed by The Boston Consulting Group said that they are satisfied with their R&D alliances in India, and three out of four expect to increase their R&D activities in India. Despite such positive appraisals—and the growing prominence of emerging markets as a destination for biopharma R&D funding—India remains a relatively minor player in the development of new drugs, according to the BCG study. (For more on the study, see “Methodology,” below.)
The BCG study, which was commissioned by the USA–India Chamber of Commerce (USAIC), was based on proprietary research and in-depth discussions with more than 40 key R&D decision makers in India, Europe, and the United States. It was complemented by a survey of Western biopharma companies and Indian research companies; the survey focused on the measures used to enhance R&D activity in India and to increase local innovation. The study was released in June 2011 during the annual US–India BioPharma & Healthcare Summit in Cambridge, Massachusetts.
Yet clear signs are emerging that India is poised to play a more substantial role. Several multinationals—having recognized the potential for India’s research sector not only to lower costs but also to spur innovation—are transforming their vendor-based relationships into strategic partnerships. They are broadening the scope of work, bolstering their partners’ capabilities, and ramping up their investments in India. By laying the groundwork for more effective partnerships, these companies will be able to improve their R&D productivity through a combination of higher output and lower costs, thereby gaining an edge over companies that hold fast to a one-dimensional view of India.
Low-cost countries such as India are bound to see continued growth in such investments, given the decades-long erosion of R&D productivity across the biopharma industry. The level of R&D spending required to realize one new molecular entity (NME), adjusted for inflation, increased from roughly $50 million in the 1950s to $1 billion in the 1990s—and is now close to $2 billion. Faced with returns on R&D that are below the cost of capital, global biopharma companies are committed to finding more efficient ways to develop new drugs.
In the competition for R&D investments, however, India has some catching up to do. Although its share of U.S. biopharma R&D dollars increased tenfold from 2002 to 2009, to about $500 million, India still accounts for only about 1 percent of these investments—similar to China’s share (also about 1 percent), but much smaller than the share commanded by Eastern Europe (about 8 percent) and Latin America (about 4 percent).
So what has kept India from growing faster? The problem is one of perspective—or the lack thereof. Our interviews showed that executives at multinationals see India primarily as a lever to curb costs, rather than as a source of new capabilities or insight. (See Exhibit 2.) Having such a narrowly defined goal can be a double-edged sword. On the one hand, the vast majority of multinationals were satisfied with their partnerships in India (largely because their goals were relatively circumscribed and straightforward). On the other hand, none of the multinationals reported being “very satisfied.”
For India to play a more substantial role in the global biopharma industry, its research sector needs to help multinationals both minimize inputs (i.e., costs) and maximize outputs (i.e., new drugs).
R&D productivity is a function of the “value generated” (the number of new drugs launched) divided by the “value invested” (the resources required to bring a single drug to market). Over the past ten years, the global biopharma industry has seen a steady decline in the value generated, along with a steady rise in the value invested. The former has been undermined by a leveling off in the number of drugs submitted for approval, an increase in regulatory hurdles, and a downward trend in peak sales. The value invested has been inflated by the lengthening of clinical timelines, together with a 50 percent drop in success rates since the 1990s and a doubling in R&D costs over the last decade.
India can help companies improve both parts of this equation—but only if biopharma companies and Indian stakeholders move beyond the prevailing low-cost sourcing model.
Costs will continue to matter, of course, and there are steps that multinationals can take to get more from the value invested in R&D.
Generate greater value from collaborations. There is growing recognition that the transactional R&D sourcing model, while often effective in lowering costs, is wholly inadequate for spurring innovation. Strategic partnerships are gaining traction, both globally and in India. In these relationships, the partners exchange knowledge and work toward shared goals, which sometimes include building or enhancing capabilities. By helping its local partner develop world-class capabilities, a global biopharma company will ultimately see its own productivity improve, whereas a vendor-based approach—almost by definition—will limit the contribution of local partners. “A model in which a company is asked to develop a drug and not given any support does not work and is doomed to fail by its structure,” remarked the CEO of an Indian drug discovery company.
Expand the scope of sourcing. Local research companies have invested heavily in broadening their services, giving multinationals an opportunity to increase both the depth and breadth of the activities they source from India, which tend to be concentrated in chemistry and clinical research. Several biopharma companies in the survey had sourced early-discovery activities from India and were satisfied with the results. “Our partnership in India has exceeded expectations,” one R&D executive said in an interview. “We were initially planning on conducting only some back-up programs in India, but now we are doing novel drug discovery.”
Establish clinical hubs. Approximately 1,300 clinical trials have been conducted in India, where the trial cost per patient is half of what it is in Western countries, and the process of recruiting patients is four times faster, owing to the sheer size of the patient populations. As a result, companies can conduct twice as many proof-of-concept (PoC) trials in India as they could for the same cost in Western countries—and in a much shorter time.
Global biopharma companies and research organizations are stepping up their efforts to conduct more cost-effective PoC trials in India and reduce global bottlenecks. In February 2011, for example, Duke Medicine and Medanta–The Medicity, a medical institute in India that focuses on clinical research, education, and training, put the finishing touches on a deal launching a joint venture, the Medanta Duke Research Institute. The new institute will focus on early-phase clinical research and will collaborate with Duke-affiliated research units in the U.S. and Singapore, thus creating a global network of PoC facilities.
To maximize the value generated from R&D—that is, to get more innovation out of every R&D dollar—biopharma and research companies should focus on two opportunities.
Develop niche-busters. Only about one in five drugs launched by global biopharma companies generate enough revenue to offset their R&D costs. This harsh reality keeps many companies from pursuing so-called niche-busters—drugs that have great potential to improve patient outcomes but lack a large enough population to ensure an adequate return on investment. But India’s research sector—with its 60-percent cost advantage relative to the traditional R&D model—can allow global biopharma companies to develop such drugs economically; it effectively lowers the cost of failure.
Biopharma companies can develop R&D models that are not only more efficient, owing to their greater scale, but also more effective, since best-in-class capabilities can be sourced from different vendors. A network model can be particularly useful in bringing niche-busters to market; such a model might draw on various government agencies, scientific experts, and clinical suppliers. Dr. Reddy’s Laboratories took this approach when it spun out its in-house R&D unit and merged it with a wholly owned subsidiary, Aurigene. The company’s R&D work is awarded to partners deemed to have the best mix of quality and costs; no preference is given to Aurigene.
Leverage research capabilities in emerging technologies. India’s government is working to establish an innovation ecosystem by improving regulations and policies governing intellectual property, increasing compensation for academics, and steering funding to specific areas of research. These efforts are already bearing fruit. India was one of the first countries to establish a nationwide bioinformatics network, for example. Its Biotechnology Information System Network (BTIS) connects 57 key research centers and covers the entire country. India’s bioinformatics space includes more than 200 companies, from pure plays to generalist IT companies, and more than 100 databases. The government is also supporting the development of nanobiotechnology through the development of 11 centers of excellence and a special grant for nanobiotechnology start-ups. It has also earmarked more than $250 million for R&D labs and academic research.
To realize the full potential of R&D in India, biopharma companies need to begin by changing their perspective on what the country has to offer. They should look at their R&D investments not merely as levers for generating cost advantage or springboards for accessing domestic demand but rather as down payments on future innovation.
Several global biopharma companies have already begun making the transition from vendor-based relationships to partnerships that are geared toward developing new products. In 2007, Bristol-Myers Squibb and Biocon, an Indian biotechnology firm, agreed to develop drug discovery and development capabilities at Syngene, a subsidiary of Biocon. Two years later, Syngene opened a 200,000 square-foot R&D center dedicated solely to this relationship. Its ambit extends from initial hit and lead optimization to Phase I and Phase II studies.
The opening of the R&D center was not the start of a new relationship but rather a milestone in a long journey. Bristol-Myers Squibb began outsourcing routine chemical work to Biocon in 1998. It gradually expanded the scope of work to include facets of biology and process chemistry, gaining more trust and confidence in its partner along the way.
To enable a vendor-based relationship to evolve into a true partnership, multinationals should focus on three imperatives.
Invest in capability-building. This accomplishes two important objectives. First, it allows the multinational to spend less time and effort supervising the work, thereby lowering the cost of managing the relationship. Second, it lays the foundation for a broader scope of work. The net effect is a more efficient, effective partnership—one that is well worth the extra investment in new capabilities. “Successful relationships are ones where we realize we need to invest early and often, sometimes even put people on the ground,” noted an R&D executive from a global biopharma company. “Efforts spent in educating the partner have paid off.”
Make a long-term commitment. This is critical to enabling the first imperative. Both companies need their senior leaders to endorse the relationship and guide its development. The global biopharma firm needs to involve its head of research or head of development (at a minimum), while the Indian company should make its CEO the point person. A long-term commitment makes it easier to chart a course for the escalation of activities and capabilities. It also ensures that both parties are willing to tolerate a gradual learning curve, as well as the occasional misstep.
Develop a shared agenda. For the relationship to last, each partner must bring to the table a clear value proposition, which should evolve as capabilities are enhanced and the scope of work expands. In the short term, the partnership will continue to revolve around costs. As time goes on, however, each partner will need to make a sustained commitment to broadening the scope of work and increasing the degree of collaboration.
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