Selling Out To MNCs: R&D Deal Between Glaxo And Ranbaxy23/11/2003
RECENTLY the leading Indian pharmaceutical company Ranbaxy and the leading global pharmaceutical major, Glaxo Smithe Kline announced that they had come to a collaborative agreement on pharmaceutical R&D. This agreement is being hailed in industry circles as an example of the strides that pharmaceutical R&D in India has made in recent years, and also that the deal signifies how the new patent regime that allows Product Patents will actually benefit Indian companies.
ONE SIDED DEAL
Details about the deal are not available, but the companies announced that the they have entered into a drug discovery and clinical development collaboration covering a wide range of therapeutic areas. In a joint statement announced on October 22, the two companies announced that several collaborative scenarios are envisioned, with Glaxo and Ranbaxy leveraging their respective resources and expertise. Ranbaxy will be responsible for activities from optimisation of a lead compound to generation of a development candidate. Leads may be provided by either Glaxo or Ranbaxy. For a proportion of the candidates selected within the collaboration, it is expected that Ranbaxy will conduct early clinical work. Glaxo and Ranbaxy will form an Executive Steering Committee to oversee the research. Once a compound has been selected as a development candidate, in most instances Glaxo will complete development. Glaxo will have the exclusive commercialisation responsibilities worldwide, while Ranbaxy will take the lead in India. Ranbaxy, with the consent of Glaxo may co-promote in EU and US. The financial terms of the agreement were not disclosed.
For Glaxo, a major benefit of the deal would be to accelerate the development of new products at lower cost. Ranbaxy’s head of research, Rashmi Barbhaiya said after the deal that for Ranbaxy, “This is a classical example of a company making a transition from a re-engineering company to an engineering company.” Some would say that this is a “win-win” situation for everybody. But a closer look at the deal would show that things are not as simple as it would appear at first glance.
Clearly, in the deal, Ranbaxy is the junior partner. The global rights would be retained by Glaxo. Also while Ranbaxy will develop the initial identification of “promising molecules” i.e. drugs that seem to have a potential for further research to be conducted, Glaxo will complete the final development. What does this really mean? It means that in the pharmaceutical sector too, as is happening in the Information Technology (IT) Sector, India will become a haven for “outsourcing” of some elements of drug development.
Cheap Indian technical human-power will be used to do the less technology intensive work while MNCs will still control the fruits of this research. Let us remember that this deal involves Ranbaxy, the largest Indian pharmaceutical company. It is extremely unlikely that other Indian companies will be able to negotiate deals with MNCs that offer better terms. The trajectory of Indian companies after the WTO agreement on Patents comes into force, thus becomes clear. Some companies like Ranbaxy will tie up with MNCs as junior partners. Others will face immense competition from MNCs in the coming years and many of them may be forced to close down. The Indian market itself, which today is dominated by Indian companies, will thus be prised open for MNCs to exploit – either directly or through their Indian partners. In return the only carrot that is being dangled in front of some Indian companies like Ranbaxy, is that they may be allowed a share of the global market – but at terms set by the MNCs.
Let us remember that the TRIPS agreement on patents was essentially designed to address the threat posed to MNCs by drug companies from the developing world – India, Brazil, Thailand, China, etc. The Ranbaxy-Glaxo deal brings home how the TRIPS agreement is converting the competitors into collaborators!
Today Indian companies like Cipla are offering drugs to treat AIDS at one-thirtieth or less of the prices that were being charged by MNCs. Faced with such competition MNCs too have been forced to reduce and negotiate the prices that they charge. In the post TRIPS world this will become impossible as MNCs “buy out” potential competitors.
Before the Patents Act was amended legitimate doubts had been expressed that this would result in our indigenous R&D base (related almost entirely to development of process technologies) redundant. We are now seeing that these fears were entirely justified. In the changed situation, where the government has decided to move towards a Product Patent regime, a whole new R&D plan is required for the industry. In such a revised R&D plan public funded R&D – through CSIR labs – has to play the key role. There is no short cut to building of an R&D base, as experiences all over the world have shown. This is true not only in the pharmaceutical sector but in all sectors of the industry. Even in the US today, a large portion of basic research is conducted through public funded R&D. Strengthening of public funded R&D should, of course, go hand in hand with the building of links between public R&D institutions, universities, etc and the industry.
WORLD CLASS FACILITIES REQUIRED
It is unfortunate that in the period since 1970, little or no infrastructure for Product R&D was built up in the country, either by the government or in the private sector. Product technologies require a different kind of R&D infrastructure. Only a part of the R&D expenditure is related to the development of the new molecules. In the case of process technologies, since the drugs under development have already been subjected to toxicity, efficacy, animal and human trials, little infrastructure is required to conduct such trials. In the case of product development a crucial element of the R&D infrastructure is related to the facilities required for such trials. In order for the products to be competitive globally, such facilities need to be world class.
A major constraint for the drug industry in India is the relatively small domestic market (compared to our population). The solution to this constraint cannot be sought within the industry, as it has to do with the extremely low purchasing power of over 80 per cent of our population. Product development in the pharmaceutical sector is estimated to cost around Rs 2500 crore (for a single product) over a period of 10-12 years in developed countries. This is in a situation where there already exists an infrastructure for basic R&D in Product development. Even if we consider a lower figure of Rs 1000 crore (if we assume that R&D costs will be lower in India) and for the sake of argument not consider the lack of existing infrastructure, it still means an annual expenditure of Rs 100 crore. This figure is equal to about 20-25 per cent of the total sales of the largest Indian company. It should be evident that such a jump in R&D expenditure is not possible for any drug company in India to even consider. Let us remember that these projections are for a hypothetical situation where a single product is to be developed. It is well known that less than 10 per cent of “promising” molecules actually make it to the market. Further only a fraction of those that reach the market are commercially viable. It is precisely because of such a situation that opponents of the Amendment to the Indian Patents Act have argued that the stage of industrial development in the country is best served by a Process Patent regime. However, if we are to continue on the course towards a Product Patent regime, no amount of sops to privately funded R&D can contribute to a Research plan for the drug industry. R&D activities for product development can be “kick-started” only through large funding for public funded R&D. Any R&D plan needs to first internalise this fundamental issue.
If this is not done we will see our large pharmaceutical companies being pushed into the lap of MNCs – as we see happening in the Ranbaxy-Glaxo deal.
NEED TO LEVERAGE ON OUR ADVANTAGES
In spite of the constraints mentioned earlier, India (with the possible exception of China) is the only country in the Third World that can conceive of a programme for product development. India has a fairly large domestic market, indigenous manufacturing capability, a large pool of S&T personnel, and a dispersed R&D infrastructure (albeit for process technologies). We also have an advantage over developed countries, in that our personnel and infrastructure costs are a fraction of costs in these countries. It is possible for us to leverage on these advantages, but for us to be able to do so a cogent research plan is required. Since the scale of funding required for product development appears to be too high for individual companies to sustain, new mechanisms need to be developed.
One possible mechanism could be a cooperative structure, with participation from the industry and government, for conducting animal and human trials and for generating efficacy and toxicity data. A major component of costs for product development are incurred in these areas. Only a pooling of resources can lead to the building up of such an infrastructure. The solution lies in such a cooperative exercise and not in disbursing disparate amounts to individual companies.
If we do not do this, the private sector may feel satisfied in acting as R&D subsidiaries of large MNCs. The advantage that we have will then be utilised by MNCs in the form of cheap S&T manpower and low infrastructure costs. But such a route will not result in the building of an independent R&D base. This is what we see happening in the software industry where multinational software companies are using cheap Indian labour to develop products that are patented in their home countries, without contributing to the development of an R&D base in the country. There is a danger of repeating this misadventure in the drug industry, unless public funded institutions play a leading role in setting up our R&D infrastructure. These institutions had done so in the case of development of process technologies, and there is no reason to believe that we cannot do it again in the case of product technologies, provided we do not seek short-term solutions.