Rumble in the R&D Jungle

And this is not the only good news: Pharma players are saying that turning cash rich and invention-oriented will give them strength enough to reverse a brain drain that has gone on for decades and affected the entire medicine value chain.

The buoyancy after the Patents Act, 2005 was passed last month, has been strengthened by ICICI Venture’s announcement this week that it will pump $56 million into the R&D facilities of Dr Reddy’s Laboratories (DRL). The first big investment announcement in Indian pharma this season has the company raring for more.

‘‘ICICI’s pact with Dr Reddy’s Laboratories is not exclusive. We can fund other R&Ds also. I am sure other venture funds will also come forward to invest in pharma R&D,’’ says Renuka Ramnath, CEO of ICICI Venture Fund.

Industry and analysts say a range of new business models will emerge over 2005 and beyond, making for roughly even distribution of funds in all segments ranging from drug research to clinical trials. These include contract manufacturing, R&D alliances, clinical trial alliances, joint ventures for generics production, and marketing tie-ups.

Ramnath explains why ICICI chose R&D: ‘‘We think pharma R&D will provide good returns. As a venture fund we have taken the first initiative and conducted our own research. The risk profile of the business is similar to any other venture we fund. We are not in talks with any other company as of now to fund their R&D but if an opportunity comes, we will not hesitate from financing it.’’

Prior to ICICI’s venture, Santha Biotech is developing an AIDS vaccine with US based Emory University and a TB vaccine with the Aereas Global TB Vaccine Foundation. Ranbaxy and Glaxo have a product development alliance and Glenmark entered into a product development and marketing tie-up with US-based K.V. Pharma.

‘‘The difference today is, it is mostly the international drug manufacturers who have benefitted from setting up shop in India, because of a 40-60 per cent cost advantage. Now, Indian venture funds are going into Indian firms – that’s a new trend that it will continue,’’ says Rajesh Jain, joint-managing director, Panacea Biotech.

In fact, a large chunk of these investments will go into the still nascent biotech segment, which is expected to boom in India.

‘‘International players were always keen to be in India, and so were international investors. The only drawback was that they were not confident that policies will remain favourable. Accepting WTO’s patent rules makes us sure of this,’’ says R Krishna, Delhi marketing head, Pfizer India.

The potential for investment, however, has always been on a high: In 2003, the Business Communications Co (BCC), said that US-based spending on clinical trials is increasing at 12 per cent every year, making for a $26.5 billion industry by 2007. Therefore, if only 15 per cent of this business comes to India, it amounts to over $4 billion — close to the size of the overall pharma sector in India today.

With inputs from Dev Chatterjee