Recently, Glenmark Pharma, a mid-cap Indian pharma company, out-licensed one of its molecules to the United States-based Forest Laboratories for further clinical trials and marketing rights for the US markets.

This was the biggest deal of its kind by any Indian pharma company. Also, this is for the first time that a small Indian company has come up with a breakthrough product.

While this has been made possible by the R&D activity that Glenmark has been pursuing, for the Indian pharma sector as a whole, there is still a long way to go.

R&D is increasingly becoming an area of focus for Indian pharma companies and most of the big companies are spending about 6%-7% of their revenues on R&D activity.

While this is much lower when compared to the amount spent by global pharma majors towards R&D activity (around 12%-15% of revenues), it must be noted that since Indian companies are operating at the lower end of the value chain, they cannot afford higher R&D expenses.

Going back to the early 1990's, Indian companies started their drug discovery programs with Dr. Reddy's and Ranbaxy leading the front. While in early days, Indian companies were involved in recognizing lead molecules and out-licensing several of them at pre-clinical stages, now the scene is changing and Indian companies are conducting clinical trials of drugs on their own.

For instance, Ranbaxy is conducting clinical trial phase II of its asthma compound (Rbx 7796) in Europe while Dr. Reddy's is conducting clinical trail phase I of its anti-diabetes compound (DRF 10945) in Canada.

While bigger companies like Dr. Reddy's and Ranbaxy are much ahead in terms of R&D activity and their new drug pipeline, smaller companies are catching up fast with companies as small as Dabur Pharma having 2 molecules in pipeline.

While there are stories of success for Indian companies on the R&D front, there are failures too. For instance, trials on two of Dr. Reddy's out-licensed molecules have been stopped/suspended.

On the other hand, some major successes on this front include Ranbaxy's drug delivery product Cipro OD, which was out-licensed to Bayer AG and is already in the market. Ranbaxy has received almost $10 million in royalty payment. Apart from that, another molecule of Ranbaxy, which was licensed to Schwarz Pharma, is doing well and Ranbaxy is receiving milestone payments for that.

Apart from this, Indian companies are also entering into R&D alliances with international pharma majors. Ranbaxy is again leading with an alliance with Glaxo SmithKline Pharma through a drug discovery and clinical trial deal.

This deal provides Ranbaxy access to large database of drugs of Glaxo as well as critical technologies for drug discovery, while Glaxo benefits from Ranbaxy's drug discovery and early product development strength.

R&D is a high risk - high return business and it is too early for Indian companies to deliver start-to-finish NCE (new chemical entities) products. However, the licensing deals, which have come up in the past few years show the ability of Indian pharma companies towards innovation.

While generics, in the near to medium term, will continue to be the growth driver, companies that will keep investing their earnings into R&D activity will move up the value chain and transcend into new growth trajectory in the long run.

We firmly believe that Indian companies have the ability for this paradigm shift over the next few years. And when that happens, we shall see an Indian powerhouse of innovation in drug discovery.

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