Illustration: Anthony Lawrence

Andreas Wicki has been keeping close tabs on India’s $8-billion pharmaceutical industry for four years now. Wicki is CEO of Swiss investment firm HBM Partners, one among the many financial investors with a stake in India’s pharma growth story. HBM owns small stakes in 14 Indian drug makers purchased on the secondary market. But recent developments give this biochemist-turned-entrepreneur a chance to be a far more active participant. A growing number of India’s copycat drug makers are carving out their new drug discovery and development wings into independent companies in a bid to derisk generics, sharpen focus on R&D and, happily for Wicki, invite more long-term investors in the new units. For HBM, which counts a host of predominantly western R&D hot shops among its investments, this presents a rare opportunity to shape India’s quest for completely new drugs. “HBM is interested in innovation and we are excited,” says Wicki.

Several thousand miles from Wicki’s Zurich headquarters, in the throbbing Mumbai suburb of Andheri, sits Dilip Shanghvi, chairman and managing director of Sun Pharmaceutical Industries, India’s most valuable pharma company. On 18 July, Shanghvi orchestrated the debut of India’s first focused pharma research and development (R&D) company on the Bombay Stock Exchange (BSE). Sun Pharma Advanced Research Company (Sparc) is the demerged new drug R&D activity of Sun Pharma. Shanghvi, chairman of both, says that some of Sun’s investors have already sold Sparc’s stock. “The investors Sun has are growth-oriented,” he had told BW almost two years ago. “But R&D needs those who understand its risky nature.” The forming of Sparc is one step towards getting them on board. Once Sparc showcases its research pipeline, there will be more churn, says Shanghvi now. In recent months, blue chips such as Mumbai’s Nicholas Piramal and Gurgaon’s Ranbaxy Laboratories announced similar plans.

Leading Indian companies have spent hundreds of crores in their quest for a new drug. Yet, 14 years after the first investment, India has not given the world a proven new drug. That is not unexpected. Estimates suggest it takes 12-14 years on average, sometimes 20. But investors who bought into the generics story with alacrity seem to be running out of patience. “The stockmarket is short-term focused,” says Glenn Saldanha, CEO and managing director of Mumbai’s Glenmark Pharmaceuticals. “What analysts value today is the cash flows that come from licensing out of these drugs. They will never value my entire R&D pipeline.” Licensing is essentially the handing over of an unproven drug candidate for human trials to another company with the resources and the skills to do them in exchange for licensing fees. Glenmark is the only Indian drug maker to have earned as much as $100 million in such fees.

With Glenmark’s exception, companies still get revenues from copycats. Shareholders are questioning rising R&D spends and no matching income. “We have to grow generics, continue to make investments in new drug R&D, and keep growing earnings per share,” says Malvinder Mohan Singh, CEO and MD of Ranbaxy. “That’s too many balls in the air.”