Just three years ago, India?s leading generics major Dr Reddy?s Laboratories (DRL) kick-started its transition from reverse engineering to discovery and development of new molecules. It did this by hiving off its drug discovery-related research and development (R&D) activities into a separate company called Perlecan Pharma.
Dr Reddy?s was indeed the trendsetter and soon Sun Pharmaceuticals, Ranbaxy and Nicholas Piramal added strength to the shift from process innovation to building strong capabilities in discovery research. It seemed demerger or the spin-offs of R&D units had become a new trend in the Indian pharmaceutical industry. Cash was a plenty as private equity interest in discovery research too was at an all-time high. It seemed as though it was a matter of time before the country launched its own patented drug molecule globally.
That was then. Recently, Dr Reddy?s decided to amalgamate its hived-off R&D unit with itself. The move comes after venture capital firms ICICI Venture and Citi Venture Capital International had chosen to exit from Perlecan Pharma some time back. A key reason for the exit of private equity investors from the venture was due to lacklustre research results produced so far.
Perlecan had to abandon the development of a new diabetes and obesity drug, codenamed DRL 11605. It is now left with three molecules?DRF 10945, which is targeted at metabolic disorders and is in phase II clinical trials, RUS 3108, a cardiovascular drug in phase I, and DRL 16536, an anti-diabetic drug in late pre-clinical studies.
Forget the declining private equity interest in discovery research, questions are being asked whether the demerger strategy adopted by the drug companies?to explore innovative long-term funding channels and rope in strategic investors to smoothly progress in their discovery initiatives?was right? Not just that, doubts are arising on the drug companies? ability to build a sustained model for carrying out successful new discovery R&D. Indian pharma companies currently have around 60 molecules under various stages of development. But let us not underestimate the harsh reality that they are still in the nascent stages.
Alarm bells are ringing in the industry as three drug majors get ready to join the demerger or ?spin-off? club. Biocon plans to hive-off its R&D activity as a separate company that is expected to be a 100% subsidiary. Aurobindo plans to set up a subsidiary focusing exclusively on R&D and Wockhardt plans to demerge its R&D business into a separate company in order to unlock its value.
The move by DRL to merge Perlecan Pharma with itself might be a company-specific decision but it has certainly brought forward the pitfalls associated with drug discovery. The question foremost in the minds of industry captains is this: is discovery research a doable model? Or is it time to fall back on the more viable generics business Indian pharmaceutical companies are familiar with?
?R&D is not a short-term game from lab to market place and the move to absorb Perlecan Pharma cannot be termed as failure of a successful business model; it is an exit route for the investors,? says GV Prasad, CEO, Dr Reddy?s.
?There is an expectation that every research programme is going to end up on the market. However, there is a need to show that a new product has an advantage over existing gold standard, that is, product of ?differentiated value?. This requires, understanding of the commercial environment, clinical challenges and the regulatory framework,? says a DRL official. He adds: ? A major problem in achieving this goal is sustainability of effort, availability of resources and long term commitment. Above all, the skill-set required has to be a fusion of global expertise of science, medicine and pharmaceutical development. This is still being developed and would bear fruit in time to come.?
Discovery research is a high-risk and high-rewards game with considerable uncertainty and it takes years of dedicated efforts in terms of money as well as time to launch successful drugs, says Hitesh Gajaria, executive-director and sector head (pharmaceuticals), KPMG in India. ?A challenge that these companies will have to overcome is to find sustained financing to nurture their R&D efforts. In the current financial scenario, investors have also become more risk-averse,? he adds.
That?s not all. Indian companies may also face challenges in terms of rising drug research and development costs, scarcity of technically skilled manpower and lack of adequate high-class infrastructure. ?It takes a very focused and dedicated effort to be successful in the discovery space,? says Sujay Shetty, associate director (pharmaceutical and life sciences practice), PricewaterhouseCoopers.
Going forward, a collaborative approach seems to be the way out for new drug discovery and development as it mitigates the risks associated with failure of the drug molecule. Of late, there has been a surge in collaborations between Indian companies and their multinational counterparts. Hence, the overall success rate of achieving breakthroughs is higher through collaborative research rather than through independent efforts, stresses Rena Shukla Ahuja, industry analyst (healthcare), South Asia & Middle East, Frost & Sullivan.
For now on, it seems the wait for a ?Made in India? drug molecule has just got longer.
Spinoff Pittfalls
•VC firms exit Dr Reddy?s drug discovery arm following lacklustre research results produced so far
•IThe move forces Dr Reddy?s to amalgamate Perlecan Pharma with itself
•IBiocon, Aurobindo and Wockhardt plan to spin-off their R&D activity into separate entities
•IIndian pharma companies currently have around 60 molecules under various stages of development
•IA collaborative approach seems the best model as it mitigates the risks associated with failure of a drug molecule