Desi pharma cos seek innovation in-house

Source: The Times of India, July 19, 2011

MUMBAI: Pharma industry has long debated a successful strategy for drug discovery— whether it should be pursued within the fold of the parent company, or by hiving off into a separate venture. Globally companies like Novartis, Pfizer and Teva, have successfully created hybrid models, integrating both innovation and generic (me-too) drugs, while most domestic drug companies hived off their innovative research into a separate venture.

Now that is changing with most companies like Glenmark, Lupin, Dr Reddy`s and Piramal pursuing innovative research within the company. A few years ago the industry practice was to hive off the research unit to bring in new technology and talent, specific only for drug discovery. The rationale possibly was it would shield the parent from the high risks and expenses associated with discovering new drugs. Dr Reddy`s took the lead when it floated an integrated drug development research company Perlecan Pharma in FY06 by roping in Citigroup Venture Capital and ICICI Venture Capital.

Since drug discovery has a long gestation period and is fraught with considerable risk, investors may not have the appetite to fund the venture, and take it through, experts point out. That may have been the case as Perlecan folded up after two years in 2008, and was merged with the parent. After Perlecan`s failure, companies like Ranbaxy and Wockhardt junked the plan. However, certain companies like Sun Pharma and erstwhile Nicholas Piramal went ahead and spun off their NCE research in separate listed entities in 2007-08.

A Sun Pharma official says: “Generic business and innovative research business have very different characteristics when measured across several dimensions: size of investments, elapsed time from concept to market, probability of success. It was important for both the businesses to perform without affecting each other. For this, separation of critical resources was necessary. The best time in our view to do this was once the innovation pipeline offered some visibility.” The NCE research was hived off to form SPARC ( Sun Pharma Advanced Research Company) in March 2007. Industry experts say hiving off research provides an exit option for investors if they do not want to invest in the high-risk business. Also, it provides some semblance of certainty to the overall business.

Now, over the last year or so, companies seem to be rethinking their strategy, with most like Glenmark, Lupin, Dr Reddy`s and more recently, Piramal Healthcare pursuing novel research within the company. In May, Piramal Healthcare “consolidated“ its pharma business and merged its new chemical entity (NCE) research unit, Piramal Life Sciences with itself.

Another company, Glenmark Pharma has always believed in pursuing research in-house, and has already reaped rewards. Since 2004, the company earned $191 million from six out-licensing deals, on an investment of $100 million. Says Glenn Saldanha, CMD Glenmark Pharmaceuticals: “We come from the belief that even novel R&D needs to be monetized and thus we were clear that while we will do work at the cutting edge of R&D, we will out-license our molecules to Big Pharma during the later stage of clinical trials. In this way, we would not only hedge our risks as the clinical trials cost millions of dollars, but we would also monetize novel R&D at an earlier stage. We feel that by keeping novel R&D within the parent company, we would continuously remain passionate about our discovery efforts.”

Sujay Shetty, India leader, life sciences, PricewaterhouseCoopers, says: “For domestic companies, it makes sense to float a special purpose vehicle only when their research molecules reach a stage of out-licensing, which is at later stages of development. At that stage, they can attract investors and companies, earn milestone payments and get a better valuation.”