Issue Date: October 31, 2011
India Perseveres As Drug Discoverer
The pharmaceutical world did a double take in 1997 when India’s Dr. Reddy’s Laboratories licensed a compound it had discovered to the Danish drug company Novo Nordisk in a multi-million-dollar deal. Code-named DRF 2593, the molecule was being developed for the treatment of type 2 diabetes. Hopes were high that the Indian pharmaceutical industry would soon strike it rich in the global marketplace with drugs discovered at home.
After disappointing results from Phase II clinical trials, Novo returned the molecule to its discoverer in 2004. Dr. Reddy’s licensed a second diabetes drug, DRF 2725, to Novo in 2008, but development was discontinued in Phase III trials. A third molecule from the Indian company, a novel insulin sensitizer called DRF 4158, was licensed to Novartis for $55 million. Development was discontinued at the preclinical stage.
Dr. Reddy’s was not the only one to hit the wall. In 2004, for example, Mumbai-based Glenmark Pharmaceuticals licensed a molecule called oglemilast to Forest Laboratories. The $190 million deal was touted as the largest deal of its kind for an Indian company. By 2009, the drug had failed. The same year, in a quiet move, Dr. Reddy’s deleted the words “discovery-led global pharmaceutical company” from its vision statement.
For Indian companies that were eager to move beyond generic drugs and bring an Indian pharmaceutical to the global stage, the setbacks have prompted a reevaluation of the high-risk, high-reward drug discovery process. R&D spending at some firms has been cut back, and research operations that were spun off into separate companies in anticipation of eager investors have been brought back in-house. But companies continue to believe, and invest, in drug discovery R&D, albeit with tempered expectations.
The optimism of the mid-2000s no longer exists, according to Dilip G. Shah of the Indian Pharmaceutical Alliance (IPA), a lobbying group representing many of India’s pharmaceutical companies. “All through the late 1990s and right through the mid-2000s, research on a series of drugs had progressed successfully from preliminary experiments to Phase I or Phase II of clinical trials. Somewhere along the road, though, a string of drugs failed, while others were abandoned,” he says.
Developing new chemical entities (NCEs) is difficult for Indian drug companies because of their generic drug mindsets, which emphasize process chemistry, formulations development, and analytical chemistry, says Sujay Shetty, a partner at consulting firm PricewaterhouseCoopers (PwC) in India. “In retrospect,” Shetty says, “R&D into NCEs was a bit premature, because India did not have the requisite skill sets or the people.”
To do NCE work, drug firms “need people that have taken products to the clinics; they need the backing of universities or to have R&D team up with the industry and government. Several of these had not fallen into place,” Shetty says. “Though they were honest intentions,” he says about initial Indian drug discovery efforts, “they were earlier than their time.”
Despite the difficulty of discovering and developing new drugs, the Indian industry has not given up. “Who is to say how much time will be required?” asks Swati Piramal, a director at India’s Piramal Healthcare. “It takes about 15–18 years from start to finish. One cannot jeopardize target quality by withholding early investment. It was thought at one time that Indian firms had a long way to go if they wanted to play catch-up with the global markets’ big guns in terms of R&D. We are near the end of that nonsense now,’’ she says.
Indeed, Piramal has joined Sun Pharmaceutical Industries, Glenmark, and a handful of other Indian companies that say they are finally on the cusp of a breakthrough. Acknowledging that new-drug research has never been India’s core competence, the companies that did take on the onerous task say it will be a longer road than what they envisaged earlier.
That acknowledgment encompasses a rethink of the strategy of spinning off R&D-oriented subsidiaries with the backing of outside investors. Considered a novel way to separate the predictable revenues of mainstay generic drugs from the uncertainties of innovative drug research, the trend started in 2005 when Dr. Reddy’s created Perlecan Pharma. A slew of Indian drugmakers followed in quick succession.
Three years later, private equity investors exited Perlecan, putting the brakes on the trend. Other drugmakers such as Ranbaxy Laboratories, Wockhardt, and Torrent Pharmaceuticals didn’t go ahead with plans to spin off their R&D arms. And although Piramal, Sun Pharma, and Glenmark did complete spin-offs, they funded the new companies themselves in the initial years rather than turning to outside investors.
For Dr. Reddy’s, the about-face was part of a larger retrenchment from innovative drug discovery. In 2001, its drug discovery program had 280 scientists, some of them Ph.D.-level medicinal chemists. Many of them were placed at the firm’s new facility in Atlanta. By May 2009, though, the company shut down the R&D center in Atlanta and transferred the team to Hyderabad. Now, the firm has only about 30 scientists developing new pharmaceuticals.
Despite the setbacks, company founder Kallam Anji Reddy is not afraid of failure. When the firm’s three licensing deals fell apart, he was devastated, according to senior company officials. They say he was particularly passionate about the first compound, balaglitazone, and has been keen to continue R&D. In 2010, Dr. Reddy’s partly completed Phase III trials of the molecule, funding it from the firm’s own pocket.
However, development was again stopped in its tracks in March of this year after a similar drug, GlaxoSmithKline’s Avandia, was banned in Europe. “The firm’s target fell out of favor after Avandia was associated with cardiovascular events,” PwC’s Shetty says. “As a result, Dr. Reddy’s is unable to license balaglitazone, which is also in the same class.”
Tarun Shah, founder of MP Advisors, an advisory firm focusing on pharmaceutical research, says that of all the NCEs attempted by Indian companies, he had the highest hopes for balaglitazone and DRF-2725, known as ragaglitazar. Both are in the glitazone class. “Though both failed, the failure of glitazones was more of a class effect rather than the failure of the company,” Shah explains. “It was not so much the company’s fault. These things happen in research.”
Earlier this year, Piramal followed Dr. Reddy’s lead and brought its spun-off research business, Piramal Life Sciences, back in-house. “We have brought back our R&D within the fold of the parent because we believe R&D projects are riskier in the early stages than in the later stages,” Swati Piramal says.
Piramal has NCEs and novel drug delivery systems in therapeutic areas such as cancer, inflammation, diabetes, metabolic disorders, and infectious diseases. It has a research pipeline of 24 molecules in different phases of development plus drug discovery and development agreements with Eli Lilly & Co. and Merck & Co.
Mumbai-based Sun Pharma started its drug discovery R&D effort in 2000. In 2007 the firm separated its innovative R&D projects, teams, and assets into a publicly traded company, Sun Pharma Advanced Research Co., or SPARC. Only when molecules reach a certain stage of maturity does the company place them into SPARC. “It is very challenging creating products for the world market, given the success rate of NCEs. Internationally, out of 10,000 leads, only one lead reaches the market,” says Sun spokeswoman Mira Desai.
The firm has a clear philosophy: pump its own initial money into research and only team up with partners as it gets closer to market. “The idea is to build in value and look for partners only post-Phase III,” Desai adds.
Most Indian firms eventually do try to find a Western partner for their innovative products. The multinationals, in turn, see these local firms as a way to tap the country’s market and scientific resources.
“Earlier, multinational drug corporations were not well positioned in India. Quite a few of them even left in the 1990s, when patents were not respected in the country,” IPA’s Shah says. When the country introduced a new patent law in 2005, “all of them came clamoring back, eager to team up for research into NCEs.”
A deal potentially worth $325 million between Glenmark and the French giant Sanofi is typical. The two joined up last year for the development of Glenmark’s TRPV 3 antagonist GRC 15300, which is in Phase I trials as a potential treatment for osteoarthritis pain, neuropathic pain, and skin disorders. The Indian firm expects the molecule to be a blockbuster with annual sales of more than $1 billion, if it gets commercialized.
And in May of this year, Glenmark licensed a biologic drug to Sanofi in a deal valued at up to $613 million. The Indian firm has already received an up-front payment of $50 million. “Glenmark is the first Indian company to have a novel biologic molecule in the clinics that could be marketed globally,” MP Advisors’ Shah says. “Indian firms have clearly come a long way.”
Despite its earlier setback with oglemilast, Glenmark is resolute in its research focus. “We have maintained an unwavering commitment toward building our R&D capabilities, which is without a doubt the crown jewel of the company,” says Managing Director Glen M. Saldanha.
Glenmark is committed to investing more than 5% of its annual sales in R&D. The drugmaker has a pipeline of eight compounds—four small molecules and four biologics—in various stages of development. The firm claims that most of the molecules in clinical trials are either best-in-class or first-in-class and have potential peak annual sales of $1 billion or more apiece.
Although in the past, India enjoyed a reputation as a destination for information technology and business process outsourcing, the country has emerged as a hot spot for conducting cutting-edge R&D. Impressed by the drug candidates emerging from Indian labs, multinational pharmaceutical companies are both licensing compounds and setting up research facilities in India.
“Big pharma in the U.S. and Europe is increasingly willing to conduct sophisticated R&D in India. Their thinking is guided not just by issues of lower labor costs, but also by Indian research and engineering skills and education, and the relatively easy access to participants in clinical trials. The sheer numbers of India’s talent force make a compelling case,’’ MP Advisors’ Shah says.
Indian companies are backing these indigenous resources with solid investment. Since the early 2000s, large Indian pharmaceutical firms have invested around 10% of their total sales in R&D. In 2005, the year the new patent law was implemented, the top five companies increased their R&D spending by a combined 47% to $192 million.
The heady investment pace continues today. Even as the global drug industry cut its research spending for the first time ever in 2010 after decades of increases, the overall R&D spending of the top 20 drug companies in India increased by 7.5%, according to IPA’s Shah. For example, Wockhardt stepped up its R&D expenditure by 8.5%. Strides Arcolab increased its spending by 9.0%. Indian drug majors typically shell out between 6 and 12% of sales on R&D.
“At the international level, several major entities have started cutting down their R&D spending as part of a cost-cutting exercise. Since most of these companies are dependent on old products for generating revenues, many are looking to Indian companies for partnership in R&D,” Shah says.
Nitin Bidikar, associate director at the advisory firm KPMG, says India has moved along the learning curve. “By now, Indian drugmakers have learned the art and are ready to genuinely start the process. Many companies have embarked on this journey, and with 30–40 molecules on the cusp of commercialization, many have taken strategic approaches. It will just be a matter of another three to four years now,” he says.
PwC’s Shetty, too, is optimistic about the industry’s prospects. “Let’s give it time,” he says. “Failures have to be treated like successes. We need that feedstock coming in. When one Indian drug comes to the market, thousands more will follow.” ◾
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