By Karan Singh and Manu Krishna
India has never played to its full strength when it comes to research and development (R&D). For example, it has lagged behind Russia and China among members of the BRICS grouping, which also includes Brazil and South Africa, both in terms of investment and results. However, if recent trends are anything to go by, this may be changing. Evidence suggests that India is climbing up the R&D value chain across sectors. This is a positive sign for the pharmaceutical industry. No longer just a venue for lower-end R&D, India has started conducting higher-end research in pockets such as nano-technology, bioinformatics and “cell culture” biosimilars.
Rising costs and decreasing productivity are forcing big pharmaceutical and biotechnology companies to look for R&D offshoring and outsourcing partnerships. Worldwide, the productivity of pharmaceutical R&D has fallen more than 70% in recent years, according to some reports. China’s position as an R&D hotspot is threatened by rising wages—the country witnessed a 22% rise in the minimum wage in 2011 alone. Due to these trends, globally, such companies have attractive R&D opportunities in India.
India has some specific features that make it an attractive R&D destination for pharmaceutical companies. These include India’s large (and English-speaking) talent pool: 3 million individuals gained a graduate or postgraduate degree in engineering, pure sciences and medicine in 2011. India’s strong information technology (IT) capabilities need no elaboration: its IT and BPO (business process outsourcing) industry is worth more than $76 billion and set to grow, providing the technological infrastructure and wherewithal needed for managing clinical data and pre-clinical research. Other elements, such as low wages and associated costs, mean that pharmaceutical research is 30-60% less expensive in India than in the US. And, finally, India’s vast population, with an unusually wide set of diseases, offers a diversified patient base for more sophisticated medical research.
As matters stand, however, traditional barriers remain entrenched for the moment. From infrastructural weakness to the fact that only 20-30% of its 3 million science graduates are prepared for employment in higher-end R&D. The evolving regulatory environment has restricted and delayed clinical trials. The introduction of compulsory licensing and price controls has added to the complications. But for companies that are able to zero in on emerging R&D hotspots, that are willing to enter into creative partnerships and invest for the longer term, India could prove to be a shrewd investment.
For foreign and Indian firms, there are four main areas of opportunity:
- Technology-driven high-end R&D: India’s IT and IT-enabled services revolution has seen the industry grow at a 33% compounded annual rate since 1990. The capabilities provided by this expanding industry are producing advances in bioinformatics, especially the shift from basic database development and data mining to helping enable in silico simulation and the development of analytical tools and services for predictive biological reaction.
- Technology also provides a platform for research in specialized areas such as stem cell and nano technology, which is applicable to new drug delivery systems. One notable proof of concept from India comes from the firm Dabur Pharmaceuticals Ltd. which developed the first nanotech-based oncology drug delivery system outside the US. This favourable climate in India for growth is enhanced by about 400 institutes offering courses in biotechnology.
- India’s special features: Beyond technology, India’s 1.2 billion inhabitants and the relatively high prevalence of communicable diseases such as tuberculosis and malaria, as well as non-communicable diseases such as cardiac ailments, diabetes and cancer, allow pharmaceutical firms to fight these widespread killers by promoting R&D. Moreover, these companies can use the presence of diverse genetic types for unique in-depth studies of co-morbidity across ethnicities. The numbers are staggering. Of India’s 61 million diabetes sufferers, over half also experience hypertension, obesity or heart disease. Clearly, there is a need—and, therefore, an opportunity—for R&D to create and test drugs to address multiple serious conditions where the target population is very large.
- Innovation in diagnostics: Given India’s large population and low per-capita gross domestic product, advances to cut costs have produced some very exciting healthcare developments recently. The Indian Council of Medical Research developed a finger-pricking digital blood sugar measurement tool that retails at one-tenth of the price of existing models, with further developments expected. Healthcare equipment maker Forus has developed a low-cost, portable, non-invasive, non-mydriatic eye pre-screening device that detects five major ailments, including diabetes retinopathy, cataracts and glaucoma. Such low-cost devices will encourage prevention and allow for early and cost-effective treatment. Moreover, there is significant potential for such innovations in other emerging markets and in developed countries. In fact, cost-cutting advances in diagnostics focusing on earlier detection can literally rebalance deployment of dollars in healthcare spending, especially in developed economies where a large percentage of health spending occurs in the last year of life.
- Locally specific opportunities: India’s large population and diverse patient base also provides potential growth areas for local firms. In ayurveda, for instance, a small domestic market is growing strongly, with unbranded herbal products outselling over-the-counter drugs. As consumers turn increasingly to branded healthcare products produced by the organized sector, companies that develop and successfully mass-market these products stand to do well.
Karan Singh and Manu Krishna are head of Bain & Co.’s Asia-Pacific Healthcare practice; and manager at Bain and a member of the Healthcare practice, respectively.