Indian pharma R&D spends stay stagnant three years after pandemic downturn

Spends are now lower relative to sales than before Covid-19, stand at 4.4% of net sales, compared with 20% in the US

Indian pharmaceutical companies have not been stepping up research and development spends even amid rising sales.

The industry’s research and development (R&D) spends are the equivalent of 4.4 per cent of net sales, shows a Business Standard analysis of listed pharmaceutical companies with combined sales of Rs 2.4 trillion. The R&D spends have been stagnant at this figure for three years in a row. In comparison, companies in the US can spend upwards of 20 per cent.

The amounts have been declining over time. It was 6.2 per cent in 2016-17, up from 5.4 per cent in the previous year. It slipped below the five per cent mark in the last three years even as sales have continued to grow.

The sample’s net sales rose 57.8 per cent since 2015-16. Research and development expenditure grew 28.8 per cent in the same period.  

Much of the R&D spends come from a handful of companies. The top five companies in the sample account for 59.4 per cent of R&D spends. They account for 50.5 per cent of net sales. The same five companies accounted for the majority of R&D sales in each of the last seven years.

“A new programme to promote research and innovation in pharmaceuticals will be taken up through centers of excellence…We shall also encourage industry to invest in research and development in specific priority areas,” said finance minister Nirmala Sitharaman in the union budget speech in February.

The government is reportedly looking into a research-linked incentive (RLI) scheme for the pharmaceuticals sector. The target is reportedly to incentivize companies to increase spending to 15 per cent of sales.  

The share of capital expenditure has been coming down from double-digit figures recorded in earlier years (chart 2). Capital expenditure broadly refers to when a company’s expenditure is expected to result in a future payoff, or when development has reached a point where technological feasibility is established.

Capital expenditure was 11.5 per cent of total R&D spends in 2015-16. This increased to 12.8 per cent the next year. It has since come down to 7.9 per cent in 2021-22.

Government research incentives can spur investments, according to Kiran Mazumdar-Shaw, Executive Chairperson, Biocon and Biocon Biologics.

“India is one of the largest producers of generic medicines in the world; it ranks four in terms of volumes, but in terms of value, India ranks 14th. The only way to create value is through innovation. In this, biologic molecules need much higher R&D investments than small molecules (chemical molecules). India has been investing in the small molecules space mostly, and not much into biosimilars or novel biologics,” she said.

A biosimilar is a drug that is safe and works in the same way as an already approved medicine. It may cost less than the reference drug. Biologics are created using living cells or organisms and include a range of products including vaccines and gene therapy; and production often involves cutting-edge technologies.

Some suggested that multiple factors would need to come together to push innovation.

The former managing director of a multinational firm said on grounds of anonymity that funding is fundamental to encourage innovation. He said that efforts would need to integrate regulatory reforms, industry-academic collaboration, innovation clusters and funding.