Corporate Apr 2, 2013
"Investors want returns, but intellectual property environment is unfavourable in India. So, big pharmas would not want to invest (here)," Ranjit Shahani of Novartis India said yesterday, reacting to the Supreme Court order rejecting the Swiss drug major's patent plea for cancer drug Glivec.
True. Pharmaceutical companies spend a lot on research and development of drugs and they would want returns from the investment they make.
According to this report, at 90 billion euros the pharma and biotechnology sectors spent the most in R&D globally in 2012. The sectors' R&D spend-to-net sales ratio was 15 percent, which too is the highest.
But how much of this actually results in new products and what is the actual cost of the R&D? The fact is that there is no objective figure to this.
According to a study conducted by the Tufts Center for the Study of Drug Development funded by pharma companies, the R&D cost of one drug is $1.318 billion (as per 2005 exchange rate). This was up from $138 million in 1975, according to a report by European Federation of Pharmaceutical Industries and Associations (EFPIA).
Interestingly, there are no updates on this figure, which has been severely criticised by various researchers and healthcare experts.
Matthew Herper of Forbes rightly says that pharma industry likes the $1.3 billion figure because it is in the midway: it justifies the high prices of drugs and at the same time hides the higher cost of failure attached to many drug researches.
Adjusting the failure rates, the cost of research and development for each drug approved will hit an unbelievable $4 billion, the Forbes article says quoting Bernard Munos of the InnoThink Center for Research In Biomedical Innovation.
The $1.32 billion figure was contested by sociologist Donald W. Light of the University of Medicine and Dentistry of New Jersey and economist Rebecca Warburton of the University of Victoria, according to this article on slate.com.
Their study showed that the cost could be as low as $55 million per drug (as per 2011 exchange rate). According to this study the $1.32 billion figure, arrived at by the Tufts Center, was an average of R&D cost of 68 "randomly chosen new drugs" obtained through "a survey of 10 pharmaceutical firms".
Most importantly, the data submitted by these companies were non-verifiable as they were confidential, the Slate report said.
Moreover, the companies have not deducted the tax breaks they enjoy on the R&D expenditure from the cost. This would decrease the cost by 39 percent, claim the researchers.
Another fact that the Tufts Centre did not take into account was that 84 percent of the spending on the basic research of a drug is covered by the government, private universities etc. The Tufts Centre has estimated the basic research spending by pharma companies at $121 million, without considering this, the Slate article said.
Another report on Huffingtonpost quoting BMJ (formerly British Medical Journal) beats the pharma industry's claims hollow by saying that the ratio of spends on basic research to marketing is 1:19. In other words, pharmaceutical companies spent 19 times more on self-promotion than basic research, says the report.
Whatever, the actual figure is, consumers are definitely at a loss. There is no way for them to know the actual development cost of the medicine they take. However, yesterday's Supreme Court order is a big relief to the common people as it will give them access to affordable medicines.
According to a report in the Economic Times today, the order is likely to force multinational drug companies to overhaul their business strategy for India. They are seen striking more deals with India generic firms and even cutting the product prices to remain in a highly lucrative market like India.
A report in the Mint today says the department of pharmaceuticals expects the Indian pharma industry to grow from Rs 1 lakh crore to Rs 5 lakh crore.
"Multinationals cannot afford to ignore a market like India, so they will have to balance public policy and profitability," Aliasgar Dholkawal, advocate and IP expert at Wadia Ghandy and Company, has been quoted as saying in the ET report.
He sees Big Pharma adopting dual pricing and striking licensing agreements with local generic companies to remain competitive here.
In this background, Novartis's claim yesterday that it will not make R&D investment in India is at the best a blackmail tactics. Moreover, India is a country where they can do research and development at lower cost. Ignoring this fact will be detrimental for the Big Pharma.
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