The announcement by Zydus Cadila in early June that their new drug to treat diabetics who also suffer from high cholesterol has passed all stages of clinical trials is an important landmark for the Indian pharmaceutical industry. This is not the first new chemical entity (NCE) developed by an Indian company. Ranbaxy, DRL, and Biocon are some of the companies that developed NCEs earlier. But none of these NCEs reached the market (so far), mainly due to hiccups faced at one of the later stages of trials.

Zydus Cadila reports that it has already spent $250 million on development of this drug and estimates that it will spend another $150-200 million on approvals and marketing in developed markets. Their hope is that this drug will be a $1billion blockbuster.

Trend setter?

Should other companies try to emulate Zydus Cadila? It’s too early to say. Press reports suggest that Zydus Cadila has done its trials in India and only sought approval from Indian drug regulators, so far. But the real test is convincing the US Food and Drug Administration (FDA). The big returns on this drug depend on its being launched in developed markets, and that can’t happen without FDA approval.

In fact, I am surprised that Zydus Cadila has sought Indian approval first. All the more so when this drug has already been under development for 12 years. An important lesson from contemporary innovation management is to do “the last experiment first.” After the recent Ranbaxy fiasco we can be sure that the FDA will subject any drug from India to close scrutiny, more so in the case of a NCE.

Even if the drug is ultimately a blockbuster, Zydus Cadila will not be the only beneficiary of this. In the absence of a distribution network, they will have to partner with other companies through licence agreements to enter developed markets. Zydus Cadila will be entitled to upfront licence payments, and royalties on sales, but will have to share the spoils with others.

But we must give credit where it is due. I first heard Pankaj Patel of Zydus Cadila talk about his NCE plans at a seminar about 15 years ago. This was soon after the split of Cadila and Patel’s return to India. I can recall the quiet confidence that he exuded at that time. It’s a tribute to his persistence that Zydus Cadila has been able to reach this milestone.

Future

What’s the future of new drug development in India?

Pioneering Indian pharmaceutical companies started on the journey of new drug development in the early 1990s, when India announced its decision to sign the WTO agreement and bring in a product patent regime in drugs from January 1, 2005. Many of them already had good process capabilities that they had developed during the earlier patent regime, and there was optimism that they would be able to master the new capabilities quickly.

However, India’s entry into this arena coincided with a global decline in the frequency of discovery of blockbuster drugs. The most obvious candidates for new molecules had already been identified and tested. Biology, rather than Chemistry, was the new hunting ground for drugs.

In practice, new drug development has proven to be much more difficult than Indian firms expected because the skill sets required are fundamentally different. Modern Biology skills exist but we lack the critical mass to support a discovery-based drug industry. There is insufficient expertise of, or research on, disease mechanisms in our institutions of higher learning. Inter-disciplinary research collaboration, which is essential for modern drug development, has never been a major strength of Indian academia. The few hundred crores spent by the Government on basic research in drug-related areas pales in insignificance compared to the tens of billions of dollars spent every year by the US National Institutes of Health. Thanks to our late entry into NCE research, we don’t have enough senior scientists who can take critical calls at important junctures in the drug discovery process. Further, due to inadequate investments, drug development pipelines in India are shallow by international standards.

Indian hiccups

Though multinational pharmaceutical companies have used India as a venue for clinical trials, they do very little actual drug research here. Contrary to the prevailing rhetoric, this has little to do with Indian’s intellectual property rights regime. While India has taken a strong stand against the practice of ever-greening by raising the bar for what constitutes novelty, and has shown its willingness to use compulsory licensing provisions to make drugs available at affordable prices to Indian consumers, since intellectual property laws have only territorial jurisdiction, neither of these provisions would apply in developed markets, where multinationals make most of their money.

Our research suggests that multinationals don’t do advanced drug research in India simply because our country does not offer the advanced skills required in sufficient quantity to make drug discovery research in India worthwhile.

Yet, there are good reasons why India needs to embrace pharmaceutical innovation. Some diseases, which are of serious concern to India like tuberculosis and malaria, are not on the agenda of multinational drug companies because of the limited purchasing power of people in developing countries who suffer from these diseases. The Government has started an unprecedented effort to apply the principles of open source innovation to pharmaceuticals in the form of an Open Source Drug Discovery Programme. This programme networks research institutions and individual researchers across the country in an effort to find new cures to combat tuberculosis. Any new drug created will be licensed to multiple manufacturers so as to keep the cost of the drug low. This programme should help sharpen drug-related research skills in India.

So, let’s hope that the pioneering efforts of companies like Zydus Cadila bear fruit. One major success will go a long way in encouraging more investment in new drug discovery, attracting students and researchers to the field, and incentivising NRIs with expertise in this area to return to India and participate in NCE development efforts here.

(Beyond Jugaad is a monthly column. The author is Professor of Corporate Strategy and Policy at IIM-B and author of From Jugaad to Systematic Innovation: The Challenge for India.)

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