Sepsis kills some 3 lakh Americans every year. A destructive bacterial infection, it can result in rapid organ failure, and is triggered by pneumonia, cancer, aids, even burns. There's only one USFDA-approved anti-sepsis drug in the market, launched by Eli Lilly last year. That's why a clutch of pharma majors worldwide is working overtime on trials to bring to market a cure for this fatal infection. Some of that work is happening at a research lab in Aurangabad, Maharashtra, of the Rs 650-crore Wockhardt Ltd.

In 2000, there were 154 million people worldwide suffering from diabetes. That figure should double by 2025. Prevailing dietary habits and sedentary lifestyles make most urban citizens sure-fire targets for diabetes. Obesity, in fact, is one of the most common triggers for an increase in blood sugar levels. Now, what if some enterprising drug firm could come up with a drug that tackles both diabetes and obesity! Well, a number of global pharma majors are trying exactly that: Merck, Glaxo SmithKline, Pfizer and Eli Lilly. And, yes, lest we forget, the Mumbai-based, Rs 290-crore Glenmark Pharmaceuticals.

Across the world, right from the Massachusetts research labs of the world's largest pharma company, the $32-billion Pfizer, to the R&D centre of Glenmark, the relative new-kid-in-town, in New Mumbai, thousands of scientists with supreme skills in chemistry and microbiology are pulling out all stops to deliver the Magic Pill. At least 100 drug majors-including a couple of Indian ones-are working on a miracle cure for aids and aids-related conditions, which killed 3 million people in 2001, close to 6 lakh of them children. Others are working on a treatment for killer disease Hepatitis C, which strikes 10 times as many people as aids does. Still others are working on more effective, innovative treatments for less-lethal, but more widespread illnesses: for instance, a non-injectible, oral, or even an inhalable form of insulin for needle-wary diabetics. Or, who knows, we could finally have a cure-so far elusive-for that rampant, ever so common, misery: the cold. Somebody, somewhere, is working on it.

GLENN SALDANHA/ MANAGING DIRECTOR/ GLENMARK PHARMA Strategy: New drug discovery Expenditure on R&D: $2 million a year Focus areas: Diabetes, obesity, asthma Progress made: Anti-diabetic/anti-obesity and anti-asthmatic molecules in late pre-clinical trials Risk: Huge Returns: High

To be sure, plenty of that groundbreaking work is getting crystallised back home. But don't expect any quick results from the seven-eight companies that are going the whole hog into the discovery of new medicine-they're known as new chemical entities (NCEs) in pharma parlance. They're still miles away from reaching the stage when their efforts could get translated into products on the market. And there's plenty that could go wrong along the way. Industry estimates are that just one in 10,000 compounds that are blueprinted in the very early stages of drug discovery get transformed into that magical medicine on the market, which means exclusive selling rights for 12-15 years. Those odds progressively get lower-that is, if 1:200 appears low-at the pre-clinical trial stage, and whittle down to one in 10 in the first phase of clinical testing (there are three phases, sometimes four). The entire process of drug discovery, right till the time of gettting usfda and Patent Office approvals and commercial launch, could go up to 14-15 years, and suck in $500-600 million over that period. Any setback on the way, and the company might have little choice but to kiss goodbye to the investment made till then. "Very soon, the cost of drug discovery will go up to $1 billion. So the rate of success will be that much more difficult. New molecule (research) is not everyone's cup of tea," shrugs S. Ramkrishna, Senior Director, Pfizer.

Huge Opportunity

Why on earth, then, are puny Indian pharma firms treading on the big boys' turf? After all, total revenues (including global sales) projected for the country's largest domestic drug company, Ranbaxy, are $750 million for the current year-which appears like loose change when you compare it to Pfizer's estimated R&D budget of $5.3 billion for 2002. There are two very sensible reasons for doing so: One, drug research is a huge opportunity for India, as the cost of discovery is 80-90 per cent lower than in developed countries. The second reason for embarking on that high-risk, high-return highway is that perhaps the Indian industry-or at least that part that can afford research-has little choice. Post 2005, once product patents come into force and Indian companies can no longer copy drugs made by Big Pharma-which in turn will be more eager to launch more of its newer drugs domestically-much of the domestic industry runs the risk of losing out on growth avenues (currently, the top seven-to-eight Indian drug companies grow at an annual average rate of 20-25 per cent). Having your own patented drugs might be one way out. "With 2005 round the corner, there is no way out for Indian companies but to discover new molecules. Those who don't will not survive," declares K. Sumesh Reddy, Consultant, Intellectual Property Rights, and In-House Trainer, Dr Reddy's Labs.

SATISH REDDY/ CHIEF OPERATING OFFICER/DR REDDY'S Strategy: Major focus on discovery of new chemical entities; also dabbling in novel drug delivery systems Expenditure on R&D: 8 per cent of sales in 2003 Focus areas: Diabetes, anti-cancer, anti-infectives, anti-inflammatories Progress made: Licensed two anti-diabetes compounds to Novo Nordisk, one to Novartis; Novo suspended trials on one in phase II of clinical trials Risk: High Returns: High

That's why the top Indian pharma majors who have the scale to invest 5-6 per cent of their sales in research are opting for the discovery gambit. The pioneer in Indian R&D, Dr Reddy's-which began the process when it was a Rs 150-crore company 10 years ago-is betting most of its chips on discovering new molecules in the areas of diabetes, cancer cures, non-steroidal anti-inflammatory drugs, and anti-infectives. Ranbaxy Labs has at least five molecules in the pipeline that have reached phase I of clinical trials (this means they've finished pre-clinical trials but have another five-six years of crucial phase II and phase III trials to go through). Wockhardt has three NCEs in the works, one of them being the anti-bacterial treatment for Sepsis, the first anti-infective compound in India to progress to pre-clinical trials.

There's plenty of action coming out of the 23-year-old Dabur Research Foundation and from the low-profile Torrent Pharma in Ahmedabad. The Burmans of Dabur-arguably more renowned for their herbal endeavours-have filed applications for 41 NCEs, most of them in the area of oncology (cancer research). And Torrent has concluded pre-clinical trials on three cardio-vascular compounds, completing close to a fourth of the long and winding journey to market.

What the CEOs and research heads won't forget is that journey can get rudely interrupted mid-way. If they did forget, Dr Reddy's recent experience with its anti-diabetic molecule-which had progressed to Phase II of clinical trials, the furthest an Indian firm had reached-will serve as a grim reminder. Way back in 1998, Dr Reddy's had licensed its first anti-diabetic molecule for further development to Novo Nordisk of Denmark (a second one soon followed, and in 2001 the Hyderabad company licensed a third to Novartis). Licensing a molecule after pre-clinical trials is the only way for Indian firms to progress as they don't have the financial resources to pursue further development and commercialisation (the cost of which could go up to $500 million). So, although the Indian firm will not be able to reap the entire bounty of the efforts, it stands to gain from an upfront compensation, milestone payments, royalties and rights to market in certain markets (if the drug does make it to market).

Of Mice And Men

Even as Dr Reddy's licensing gambit for its blood sugar remedies sent the adrenalin of stockmarket punters soaring, news filtered in a few months ago that the Danish firm had stopped animal trials as the drug was reportedly found to be causing tumours in mice. Further human trials would, therefore, prove dangerous, so Novo Nordisk suspended the process. Dr Reddy's, therefore, will have to kiss goodbye to further milestone payments (industry analysts peg the upside for the company at $50 million till completion of development, and up to 10 times that figure in annual sales if the drug could reach market), and re-focus on other molecules in the pipeline.

D.S. BRAR/ CEO & MANAGING DIRECTOR/RANBAXY LABS Strategy: The best of both worlds. Its booming generics business in the US drives research investment in new chemical entities and novel drug delivery systems Expenditure on R&D: Rs 100 crore Focus areas: Urology, pulmonary and antibacterial Progress made: Filed 5 NCEs, out of which 1 (RBx 2258 in Urology) has reached phase 2. Two NCEs are at the IND stage while 2 are at the pre-clinical stage Risk: Moderate Returns: High

That's doubtless a setback for Dr Reddy's-and also for the punters who mindlessly racked up the stock-but it isn't unusual in the pharma research sphere. "It's no surprise for us. It's too soon to expect anything," says D.G. Shah, Secretary-General of Indian Pharmaceutical Alliance (IPA), a body that represents the top Indian drug firms.

If you're expecting Dr Reddy's to batten down the laboratory hatches, well that's not quite happening. In the current year, it's actually increasing R&D expenditure to 8 per cent of turnover, up from just 3.3 per cent two years ago. "It's part of the process," says Chief Operating Officer Satish Reddy. "There are other molecules under development, although nothing else may be at such an advanced stage."

If Dr Reddy's misadventure with drug discovery comes across as a catastrophe, well it's nothing compared to what the Big Pharma bandwagon has experienced, often after the drug has made it to market. Last August, for instance, Bayer had to pull out a cholesterol reducer from the shelves 12 months into the commercialisation of the drug, as it was seen to be resulting in kidney failure and was supposed to have killed 40 people. That was a huge knock for Bayer, which was expecting sales of close to a billion dollars from this potential blockbuster. Instead, the viability of its entire pharma division (Bayer also makes chemicals) became suspect, and at one point the sale of the German major's drug business appeared likely. Even the king of drug research, Pfizer, had a similar horror experience three years ago, when an antibiotic had to be withdrawn after 18 months in the market as it was thought to be responsible for liver toxicity.

Still Far Away

Commercialisation is still a gleam in the eye for the Indian research-driven sector, but a chunk of the risk involved in that journey is mitigated by the out-licensing gambit. Yet, even in the research phase-as against development-big investments need to be made. Ranbaxy, for instance, spends Rs 100 crore, Dabur Rs 40 crore, Sun Pharma has earmarked 5 per cent of turnover, and Wockhardt 6-7 per cent, a third of which is dedicated to new drug discovery. Even Glenmark-which doesn't figure among the top 25 pharma companies in India-spends $2 million a year on NCE work.

The short point: Indian companies will have to continue growing at double-digit growth rates post-2005 to sustain their research burst. Glenmark, for instance, has operating margins, net of research, of 22 per cent, but the million-dollar question is: Will the company be able grow its operations at the same rate post-2005 when MNC formulations begin trickling in? "We will, if we think global," says Glen Saldanha, Managing Director & CEO, who wants exports to contribute 30 per cent of revenues by 2005, as against 20 per cent currently.

DILIP SHANGHVI/ CHAIRMAN & MANAGING DIRECTOR/SUN PHARMA Strategy: Stress on novel drug delivery systems & NCE Expenditure on R&D: 4-5 per cent of turnover, to go up to 6-7 per cent Focus areas: Less-addressed therapeutic areas Progress made: Not known Risk: Moderate Returns: High

Saldanha, for his part, is hoping to make a relatively quick breakthrough in drug discovery, as the sooner he gets a drug on the market post-2005, the better-much better!-he is placed. But that is without doubt a very high-risk strategy, not too dissimilar to that of Dr Reddy's (the difference, of course, is that Dr Reddy's began its R&D initiative long before Glenmark did and has scaled up into a Rs 1,560-crore company). However, there are a few companies like Ranbaxy, Sun Pharma, and Lupin Labs that are following a more middle-of-the-road gameplan: In the shorter term, they hope to make some quick, but big, money by focusing on the US market for drugs going off-patent, estimated to be worth $80-90 billion over the next five years. In the medium term, they will step up the value by going one step short of new drug discovery, by taking the innovation route. In industry parlance, they're chasing novel drug delivery systems (NDDS), which, to put it rather simply, is a modification of an existing molecule, perhaps in terms of dosage, which can be patented. The NDDS route is expensive too, but still more cost-effective-in some cases by up to 50 per cent-than new drug discovery.

So unlike a Dabur or a Glenmark, which have begun eyeing the generics (off-patent) market more recently, as they felt that new drug discovery is a longer process and more of an imperative post-2005, a Ranbaxy has been eyeing the potential in US generics for some time now.

Dabur, for instance, has filed 41 NCE applications (including NDDS), whilst Ranbaxy, on the other hand, has made all of 78 applications for generics, known as abbreviated new drug applications (ANDAs).

The much-touted generics potential may appear obscenely attractive, but don't forget that these $80-90 billion figures represent the existing value (when the patents exist) of these drugs. Once they do go off-patent, competition will bring down prices (which is exactly why governments are encouraging generics manufacturers), often by a tenth.

Yet, an $8-9 billion market is nothing to be sneezed at. And companies that stand to gain the most are those that can hang on to exclusive marketing rights for as long as possible.

HABIL KHORAKIWALA/ CHAIRMAN/WOCKHARDT Strategy: Generics, bio-generics, drug delivery, drug discovery Expenditure on R&D: Rs 50 crore annually Focus areas: Anti-infectives, anti-cancer Progress made: Three anti-infectives in research pipeline, one set to begin Phase I human trials in India; anti-prostrate cancer delivery system launched in India Risk: Moderate Returns: High

That's not easy. In the generics market, more than research, what matters is investments in litigation, which can be as much as $15-18 million for a drug. Litigation is inevitable, if generic makers want to target an existing patent holder with a new process for an existing drug. If successful, the generic manufacturer can avail of a 180-day exclusivity period, which is adequate time to bring home the bacon. Last fortnight, for instance, Ranbaxy got the green signal from the USFDA for the launch of the generic version of Augmentin, the patents for which are currently controlled by Glaxo. "Regulations pose a big challenge to the generic strategy," avers Ajay Vij, Vice President (Pharmaceuticals), Dabur India, which is just about beginning to get its act together for the European and US off-patents market. Companies can avoid litigation by making plain vanilla filings for drugs already gone off-patent, but the downside of this strategy is that there will be plenty of companies in the fray, and it's ultimately a wafer-margin, throat-slitting, mug's game.

A more sustainable, longer-term and lucrative strategy is the innovation (NDDS) route. "It's less risky than NCEs (new drug discovery), and the returns can be high depending on the level of complexity you go up to," explains Dilip Shanghvi, Managing Director, Sun Pharma, a company that feels more comfortable with the innovation strategy. Wockhardt is another that's carefully balancing risk and reward. Even as it makes efforts in new drug discovery, the company has launched a biotech-based innovation for prostrate cancer. Unlike the conventional once-a-day injection for this condition, Wockhardt has launched a 30-day release technology, which means that the injection has to be taken only once a month, during which the drug is released in a steady, continuous manner. "It is not just convenient but also eliminates many of the side-effects that come along with potent cancer-treating drugs," says Khorakiwala. That's classic NDDS for you: innovation resulting in a reduced dosage coupled with fewer side-effects.

Clearly, given the high skill-sets Indian scientists enjoy-albeit in a few areas-the opportunities for Indian pharma firms are virtually limitless. The strategy too complements the skill-sets: bring in the moolah from generics, and pump it into innovation and drug discovery. Other shorter-term avenues include sourcing bulk drugs to generic manufacturers (Sun Pharma) and targeting export markets in a big way (Ranbaxy, which today makes more money in the US than in India). There may not be enough money going around, but as Ramkrishna of Pfizer puts it succinctly: "It really doesn't matter if they (Indian pharma) don't have the financial muscle of a Pfizer or a Glaxo SmithKline. Merely increasing spend can't guarantee success." Come to think of it, nothing can.

additional reporting by Seema Shukla, Swati Prasad, and E. Kumar Sharma

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