Drug R&D spend up 41%

New IPR regime puts pressure on firms to launch new products.

Despite a sharp fall in revenue and profitability in 2004-05, pharmaceutical companies spent generously on research and development (R&D) last year. This is on account of the new IPR regime which is putting pressure on the domestic drug industry to bring out new products.

The R&D expenditure of the top 12 Indian pharmaceutical companies touched a record Rs 1,063 crore in 2004-05. This is 41.5 per cent higher than the previous year's Rs 751 crore spent on R&D by these companies.

In percentage term, the R&D spend accounted for 7.71 per cent of the net sales in 2004-05, up from 5.8 per cent in 2003-04 and around 4 per cent in 2002-03.

"After the product patents law passed, there has been hardly any new product launch. Since reverse engineering is no more allowed, the only viable option for the domestic companies is to have their own IP portfolio either through basic research or by process development," said a pharma sector analyst.

Ranbaxy Laboratories, which has an R&D team of over 900 people, spent Rs 331.39 crore during the year ended December (it follows a January-December financial year) 2004 compared with Rs 238 crore spent in the previous year. The company's R&D to sales ratio rose to 8.94 per cent in 2004-05 from 6.54 per cent in 2003-04.

Ranbaxy's continued focus on R&D has resulted in several approvals in developed markets and significant progress in its new drug delivery system (NDDS) projects.

Undetracted by the fall in revenue and profits in 2004-05, Dr Reddy's Laboratories, the second largest pharma company in India, stepped up its R&D spent to Rs 283 crore in 2004-05, from Rs 199 crore in 2003-04. Dr Reddy's R&D spending is the highest among all Indian pharma companies and in line with global trend.

The company's R&D expenditure account for 18.1 per cent of its net sales in 2004-05 compared to 12 per cent in 2003-04. Dr K Anji Reddy, chairman of the company, feels that the only viable way of securing higher growth and profits and thereby reaching global scale of operation is through successful R&D.

The other major R&D spenders in 2004-05 were Lupin (Rs 87 crore), Sun Pharmaceuticals (Rs 145.9 crore), Cadila Healthcare (Rs 71.10 crore), Wockhardt (Rs 69 crore) and Torrent Pharma (Rs 51 crore).

The R&D spend of Cadila Healthcare (Zydus) and Sun Pharmaceuticals in 2004-05 have increased by 12.3 per cent and 11 per cent respectively from the previous year. Sun Pharma, which 400 scientists in its R&D team, spends about 10.11 per cent of its sales on research.

While Lupin Ltd has plans to increase its R&D spend to Rs 110 crore in the current fiscal, Sun Pharma would retain the current level of 11 per cent R&D spend in the current year.