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BW Businessworld

India’s Next-Gen Pharma Firms

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Founders: Supreet Deshpande
Set up in: 2007
Location: Pune, Maharashtra
Key investor: KPEG
Molecules in the pipeline: 11
Molecule in the most advanced
stage: VLD02 Diabetic wound
Completed pre-clinical studies:
VLI27 Pancreatic cancer
In pre-clinical studies: VLD01
Diabetic cataract; VLCA04
Gas gangrene; VLCB313
Fungal infections; VLF02
Fungal infections In-vivo:
VLN244 Colon cancer; VLD571
Malaria, VLDM01 Benign prostatic
hyperplasia, VLIM88 Leukemia,
VLD631 Melanoma

Supreet Deshpande, 39, ambled into the world of pharma fascinated by, of all things, algorithms. A mechanical engineer by education, Deshpande realised early on what a non-scientific perspective could bring to a science-oriented industry. In 2002, Deshpande set up VLife Technologies in Pune along with a friend, Atul Aslekar, another engineer, investing all their savings in the start-up. Their idea was simple: screen all existing drugs for new therapeutic uses. It took about two years to develop an algorithm to design the right drug- screening technology before they could start a research programme, which was later transferred to sister company NovaLead Pharma.
Today, NovaLead is at the doorstep of a destiny that India’s pharmaceutical Goliaths — Ranbaxy Laboratories, Dr. Reddy’s Laboratories and Glenmark Pharmaceuticals, among others — wandered into and faltered despite a decade of research: discovering a new drug. Deshpande has 11 molecules in the pipeline, for conditions varying from cancer to acne, and claims his first drug, a diabetic wound treatment, could hit the market in the next two years.

As the great Indian generic drug success story loses steam, Deshpande and some other pure-play drug researchers could well become the next generation of Indian pharma companies to make their mark globally. Apart from Deshpande, this list includes Sundeep Dugar, who started Sphaera Pharma in Haryana last year; Sunil Bhaskaran, who set up Indus Biotech in Pune in 1997; and Swaroop Kumar, Glenmark Pharmaceuticals’ former R&D chief, who set up his own research firm, Incozen Therapeutics, in Hyderabad last year.
“The great Indian generic drug story is over. Several companies are already on their death bed,” says Nitin Deshmukh, head of the Kotak Private Equity Group (KPEG), the private equity arm of Kotak Mahindra Bank, which has already invested in NovaLead and Indus Biotech. “The next big opportunity is in new drug research.”
The risks involved are enormous. New drug development is costly, success rates are low and investments take a long time to pay off. But a single new drug could generate annual revenues on a par with that of the total sales of an average mid-cap pharma company in India.

Deshpande, Dugar, Bhaskaran and Kumar are leading the pack in search of this magic pill, but the paths they have taken are radically different from each other.

Old Drug, New Indication
Recycling old drugs by finding new therapeutic uses is not a new idea. For instance, a drug that lowers cholesterol levels could also decrease blood pressure. In fact, it is an art that Big Pharma — new drug inventors such as Glaxo- SmithKline, Pfizer and Sanofi-Aventis — have mastered over the years to extend the patent life of their blockbuster drugs, though few have deliberately made it a business model.
Deshpande’s software helped him discover that an existing intravenous tachycardia drug could be made into a topical cream that heals diabetic wounds, which lead to amputation of the lower part of the leg in about 20 per cent of the cases today. “I have learnt over the past few years that common sense is more valuable than anything else,” he says. While the drug cannot be patented, the new indication can be.
Not only that, Deshpande hopes the drug will hit the market within the next two years. “We should be able to start human trials in March,” he says. “The drug will first be tested on 30 patients. And if safety and efficacy can be established, 70 more will be enrolled, about half of them from the US and the rest from India.” Since it is already an approved drug, the safety tests required are limited. NovaLead has consulted a firm in the US to design the trials before submitting the application to the US Food and Drug Administration (FDA). The drug will treat an unmet medical need, so it is also likely to get an ‘orphan drug’ status, which will speed up the approval process.
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SPHAERA PHARMA
Founder: Sundeep Dugar
Set up in: 2008
Location: Manesar, Haryana
Key investor: Baring Private Equity
Partners (India)
Molecule in the pipeline: One
oncology experimental drug in
Phase II of clinical trials
(in-licensed from a
US-based company)

NovaLead is in talks with a consortium of international private equity funds that proposes to invest $8 million in the company, which would roughly cover the cost of clinical trials. In 2006, KPEG had already picked up a stake in the company. Deshpande has also submitted pre-clinical data to the American Diabetes Association that could fund about 50 per cent of the trials. Once the clinical trials are completed, NovaLead will license out the molecule, on which it could claim at least 30-35 per cent royalties on sales.
The company is developing brand new drugs as well, such as the pancreatic cancer treatment, which is about to complete pre-clinical studies on animals. Two other molecules are already under pre-clinical development — an anti-wrinkle application and an anti-acne treatment.

“The focus will first be on existing treatments,” explains Deshpande. “We will license out the drugs as late as possible in the development process to be able to negotiate higher royalties on sale.” For new drugs, NovaLead plans to license out the molecules after Phase I and expects royalties to the tune of 15 per cent.

Reversing Traditional Wisdom
Unlike Deshpande, Sphaera Pharma’s Dugar is an industry veteran. A PhD from the University of California, Dugar was heading cardiovascular research at Bristol-Myers Squibb, and had already co-developed his first drug while working at Schering Plough, when Deshpande was still making his career debut in Bajaj Auto.
Dugar came back to India in 2005 to start his own firm, Advantium Pharma, a contract research organisation (CRO) that was subsequently merged with Hyderabad-based Sai Life Sciences to form Sai Advantium Pharma. He made a quick exit from the company to set up Sphaera in Manesar, with a clear and new ambition: come up with a new drug in 18-24 months.
Reversing the trend, Sphaera plans to in-license drugs from research firms in the West, and not the other way round. “We are close to completing a deal with a US-based company for an oncology molecule in Phase II of clinical trials,” says Dugar. To fund the acquisition, he has roped in Baring Private Equity Partners (India), which will invest $15 million.
“The initial upfront payment for the molecule is, however, insignificant,” he explains. “But we will give the US firm milestone payments as the development of the molecule progresses.” When the drug hits the market, Sphaera may pay 15 per cent royalties on sale to the innovator, which could also retain marketing rights for certain markets that Sphaera is not interested in.
Akhil Awasthi, partner at Baring, is also hoping the slowdown may throw up in-licensing opportunities. “Small discovery research firms — which are not able to raise new rounds of funding for further development of new molecules — may need to rapidly monetise their assets,” he says.
The company has also started its own discovery research programmes. “We are looking at different models; we do not want to put any blinkers on,” says Dugar. “Drug discovery programmes come in different forms and shapes. Our entry point in the drug discovery process may change. We may in-license, out-license or even partner other companies.”
New Collaboration Models
Collaboration is also the route that Kumar, credited with the development of several molecules at Glenmark, has chosen to follow at Incozen. His ambition is not to become another CRO. He has devised an elaborate business plan inspired from a Belgian drug research company Galapagos.
As soon as it identifies potential drug targets, Incozen will sign an agreement with a pharma firm, giving the latter the option to in-license the molecules when and if they reach Phase I or II of clinical trials. Upon signing of the agreement, Incozen will receive an upfront payment that will help fund further development. As the molecule progresses, Incozen will receive new milestone payments, and once the drug is marketed, royalties on sales. “This strategy will allow us to significantly mitigate the risks and cost of new drug development,” says Kumar.
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A separate team will also be working on the company’s own drug discovery programme. “Our focus is on chronic, oncology and inflammatory diseases. The discovery process is progressing fast. We hope to get a new molecule into clinics within the next two years,” says Kumar.
Vadodara-based Alembic has picked up a stake in the company and Pranav Amin, a director at Alembic, is also chairman of Incozen. “NCE (new chemical entity) was an area that we were not present in,” says Amin. “It is still early to comment on our plans, but we do have manufacturing and marketing capabilities that Incozen will need to bring out its new drugs.”






INCOZEN
Founder: Swaroop Kumar
Set up in: 2008
Location: SP Biotech Park,
Hyderabad
Key investor: Alembic
Molecules in the pipeline:
Research programmes for
chronic, oncology and
inflammatory diseases still in
early discovery stages
Plan of action: Separate
team to focus on collaboration
programmes with Big
Pharma through an innovative
IP and cost-sharing model

Going The Botanical Way
Herbal or botanical drugs have long been derided as placebo treatment that may not cause much harm, but not really treat a serious ailment. Indus Biotech’s Bhaskaran has taken it up as a mission to change this perception.
The drug research firm, which he founded in 1997 with Rajan Srinivasan, has an impressive pipeline of nine molecules for chronic diseases ranging from diabetes, HIV, arthritis to Parkinson’s. The aim is not to sell one more dietary supplement or over-the-counter drug, but to introduce a drug under the new framework set up in the US in 2004 for prescription botanical products. The company has developed an innovative technology for isolating, purifying and stabilising botanical products — often a stumbling block for companies that want to scale up production of herbal drugs.
Indus has already filed an IND — investigational new drug application, essential to start clinical trials under the US framework — for an HIV drug that the firm claims could replace chemotherapy treatment.
The project is ambitious. So far only one product, a cream for external genital and perianal warts, has made the cut in the US, although some 300-400 botanical prescription drugs may be under development worldwide, according to Jayesh Chaudhary, managing director of Vedic Lifesciences, a Mumbai-based CRO that focuses on botanical products.
Four more molecules targeted at obesity, diabetes, arthritis and Parkinson’s have also completed pre-clinical trials (study on animals). “The company is on the verge of filing another IND,” says Kotak’s Deshmukh, who invested in the company in June 2007.
What has partly allowed the company to speed up the development process is that it has marketed most of its experimental botanical drugs as nutritional supplements, to establish their efficacy prior to committing resources for further development.
However, while there could be considerable benefits from using botanical products to treat patients suffering from chronic illnesses, and who often need to be under medication for a lifetime, the market for prescription botanical drugs remains limited, points out Chaudhary. “Doctors continue to look at botanical drugs with suspicion, and the chemical lobby is very strong in the US,” he says.
This may have prompted Indus Biotech to also develop several NCEs derived from herbal sources, such as its drug targeted at respiratory diseases, now about to be tested on animals. Company officials declined to respond to our queries. Deshmukh, however, says that he has great hopes for the company. “It is an outstanding company. Just wait and see.”

The Old Order Is Changing
Industry observers have long been expecting Indian generic drug makers to invent a new drug. Some have had successes — Dr. Reddy’s, Ranbaxy, Torrent and later Glenmark licensed out experimental drugs to Big Pharma — but often short-lived. As their R&D pipeline got thinner, global pharma companies started competing to in-licence new molecules under development worldwide.
However, molecules licensed out by Indian firms were returned, except one — Glenmark’s asthma and COPD (chronic obstructive pulmany disease) drug Oglemilast. “The kind of focus required for new drug research is very different than for generics,” says Sanjiv Kaul, a veteran of the Indian pharma industry and managing director of private equity firm ChrysCapital.



INDUS BIOTECH
Founder: Sunil Bhaskaran and
Rajan Srinivasan
Set up in: 1997
Location: Pune, Maharashtra
Key investor: KPEG
Molecules in the pipeline:
Nine drugs — prescription
botanical drugs and NCEs
Molecule
In the most advanced stage:
IND filed for HIV drug INDUS820
Completed pre-clinical: INDUS810
Obesity; INDUS81010
Diabetes type 2; INDUS830
Rheumatoid arthritis;
INDUS815B Parkinson’s
In pre-clinical studies: INDUS82010
Respiratory diseases; INDUS81520
Diabetic nephropathy; INDUS81530
Diabetic retinopathy; INDUS815C
Parkinson’s/dementia

Also, Indian companies will need to innovate to survive in the long run, says Awasthi. “The traditional generic business model is eroding.” Ever-rising competition is putting Indian generic drug makers under increasing pressure, and it is becoming harder for them to compete with giants such as Israel’s Teva Pharmaceutical Industries, which incidentally also markets two patented medicines.
Contract research services, which have witnessed tremendous growth in India over the past five years, may have been a stepping stone for Indian firms to start making their mark in research globally, but margins are already coming down — rates have declined to $45,000 per chemist today, compared to $70,000-80,000 four years ago — and CROs’ ambitions to run their own research programmes alongside never really materialised.

Companies such as NovaLead, Indus Biotech, Sphaera and Incozen offer new hope to Indian medical research. Sure, some may have to shut shop within a few years — pure-play research means enduring a long dry patch with no revenues and escalating development costs. Raising further funds for new research may also prove difficult, especially in these dire financial times.
Last year, ICICI Venture and Citigroup Venture Capital International burnt their fingers, casting a dark shadow on the whole industry. The funds, which had invested $22.5 million in Dr. Reddy’s new drug development arm Perlecan Pharma in 2005, sold their shares back to Dr. Reddy’s last July as molecules failed, losing $4 million in the process.
But the potential rewards of these ambitious projects are tremendous. These firms could create a new industry — on the lines of that of small biotech companies in the US — or become potential acquisition targets for Big Pharma or Indian generic drug makers that have been unable to innovate, points out Deshmukh. Going by drug research statistics — one in 20 molecules in the pre-clinical stage makes it to the market — and considering the four companies have 16 molecules in pre-clinical or more advanced stages of development, there is a fair chance that at least one may make it.
noemie dot bisserbe at abp dot in
(Businessworld Issue Dated 10-16 March 2009)


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