BioAsia-KPMG study on Innovation in life sciences in India

Innovation in life sciences in India current state and future imperatives

Contents A)

Need for innovation

B)

Assessing India's innovation status

C)

Recommendations

D)

Appendix

06 15

34 47

1

Foreword

Indian biotech and pharma sectors have evolved steadily and significantly over the past two decades – thanks to the progressive policy and initiatives of Government of India. The sector has been growing at an average rate of 20% in the past decade and is estimated to grow at 30% in the next decade. The steep increase in the growth estimates can be attributed to the tremendous potential offered by the sector in addressing major global challenges in healthcare, agriculture and energy.

For India to move towards the next level of maturity, innovation in research and processes holds key and is expected to drive the global bioeconomy in the coming years. Hence, the eleventh edition of the annual international convention - BioAsia unveiled promising innovations in life sciences and offered significant opportunities for new business ideas through its theme — Innovations in Life sciences R&D. Consequently, we felt that the deliberations have highlighted a number of interesting aspects of innovation and that it is imperative to analyze the culture deficit that hampers the innovation potential of the country. Under this backdrop, this report on “Innovations in life sciences in India – Current state and future imperatives” was commissioned with the support of KPMG in India.

Shakthi M. Nagappan Chief Executive Officer, BioAsia Executive Secretary, FABA T: +91 (40) 66446477 E: shakthi@biofaba.org

I, on behalf of the Federation of Asian Biotech Associations [FABA] and BioAsia Organizing Committee would like to express our sincere appreciation and gratitude to Mr. Utkarsh Palnitkar and his team at KPMG India for their efforts and support in carrying out this comprehensive study.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Foreword

The business model that has powered the pharma industry over the last few decades has shown signs of fatigue and is now evolving into something new. This change is being driven by skyrocketing costs, a lack of breakthrough innovation, and intense competition, combined with a much greater requirement from global healthcare systems for better patient outcomes at a lower cost.

Research from KPMG indicates that the return on Research and Development expenditure within the pharmaceutical industry has been falling, from an industry average of approximately 20 per cent 20 years ago, to barely above 10 per cent today. It is evident that the industry needs to switch from a product push to a more serviceoriented model, where the needs of the patient are at the very epicentre. Not only will this lead to new revenue streams, satisfying the increasing demands of corporate shareholders, but it will also help create a better understanding of medical conditions, allowing for more innovative and patient-centred treatments.

We have seen a recent acceleration of corporate M&A in the Life Sciences sector that is reshaping the industry across the globe. Companies are consolidating into a smaller number of therapeutic areas of strength, or divesting in areas of weakness. Collaboration between pharmaceutical firms is critical if the industry is to successfully transform. Initiatives such as clinical trial ‘data sharing’ between organisations, where an independent third-party acts as a gatekeeper to access requests, are starting to gain momentum. And open-source R&D is already speeding up discoveries for the treatment of various diseases.

Christopher Stirling Global Head of Life Sciences KPMG United Kingdom T: +44 (0)7710 835 826 E: christopher.stirling@kpmg.co.uk

Despite many headwinds, the life science industry is well placed to benefit from two key factors: an ever increasing demand for healthcare, and the many exciting new advances in medical research. To capitalise, the industry must be more disciplined than ever before, find better ways to collaborate across the whole healthcare ecosystem and focus on areas where value for patients can be clearly demonstrated.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Foreword

L. Duncan said that “Innovation is the ability to convert ideas into invoices”, and rightly so, the true worth of any innovation, more so in the life sciences space cannot be gauged unless its impact is observed. In India, this impact is on a population of over 1.2 billion, a majority of which fall below the poverty line. Innovation in life sciences therefore cannot be oversimplified, at the end of the day, it is about curing the diseased and finding that new molecule which is more effective, safe and affordable.

Indian companies have undoubtedly risen to the challenge. Our companies have strong research pipelines and have lured global interest in the form of big ticket mergers, out licensing deals and marketing agreements. We have compliant plants, skilled manpower, and strong technical know-how especially in generics. However, the question we must ask ourselves is; “Does it suffice?” From merely a data driven perspective, we still have a significant unmet need in the area of infectious diseases, new chemical entity development continues to elude us and we are yet to capitalise on the tremendous opportunity that the biotech sector is likely to offer in the coming years. As a country though, we are well positioned to leverage the opportunities. India has a globally competent infrastructure, adequate research acumen and hopefully a government that will have a unified vision toward innovation.

The purpose of this position paper is to deep-dive into the current status of innovation in the country, to assess the gaps that need to be bridged and to devise recommendations that are likely to make the innovation ecosystem in India more robust and effective. The paper also aspires to capture the need for end-to-end innovation in India while studying the enablers that would facilitate an ecosystem that nurtures inventiveness.

Utkarsh Palnitkar Head of Advisory Head- Life Sciences practise KPMG in India Pvt. Ltd. T: +91 (22) 30902320 M: +919849040801 E: utkarshp@kpmg.com

While it is not easy to predict the future of life sciences in India, it has been wisely said by Lewis Latimer, “We create our future, by well improving present opportunities: however few and small they be” We at KPMG India are glad to have partnered with the Federation of Asian Biotech Associations [FABA] as the Knowledge Partners for BioAsia 2014 and to have worked on this interesting study.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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In association with BioAsia (1/2)

About BioAsia

With an objective of optimizing the vast business potential of biotech in Asia and showcase its strength, BioAsia enables the creation of an environment that is conducive to collaborations, joint ventures, mergers and acquisitions (M&As). Over the years, it has become an integral part of the industry’s growth agenda. As an entity committed to the development of biotechnology, BioAsia encourages the sharing of knowledge and experience among industry players, academia and young research scientists by promoting innovations and initiatives through appropriate awards and recognitions. BioAsia is committed to playing a key role in advocating appropriate policy measures to government bodies and charting the sector’s roadmap.

Since its inception in 2004, BioAsia has been committed to fulfilling its core objective of serving as a global conclave to facilitate business in the pharmaceuticals and biotech sectors in India. Today, it is widely accepted as a catalyst for the life sciences industry since it provides a critical platform for B2B meetings, helps in speedy resolution of key issues that affect the industry and sets the overall agenda.

BioAsia 2014 BioAsia 2014, the eleventh edition of the event that has emerged as one of Asia’s biggest technology and bio-business platforms, was organized from 1719 February 2014 at HICC, Hyderabad. It brought together stakeholders from the entire spectrum of the biotechnology and life sciences domains.

BioAsia 2014 unveiled promising innovations in life sciences and offered significant opportunities for implementing new business ideas through its theme — Innovations in Life sciences R&D. This year’s event received added impetus through valuable input, discussions, interactions and perspectives shared by industry thought leaders and key stakeholders. The industry research and academia unanimously welcomed the discussions and a variety of opinions that is likely to further drive innovation in future.

The event was organized by the Federation of Asian Biotech Associations (FABA) in association with the Pharmaceutical Export Promotion Council (Pharmexcil), the Government of India, KPMG in India and the Government of Andhra Pradesh. The event witnessed participation from about 1,200 delegates, representing over 500 organizations from 51 Countries, including delegations from U.K., Argentina, South Korea, China, Scotland, Singapore, Iran and the U.S. Moreover, over 900 business partner meetings took place during the event. BioAsia 2014 was supported by various ministries and departments of the Government of India, including the Department of Biotechnology, the Department of Pharmaceuticals, the Department of Science and Technology, the Indian Council of Medical Research and the Ministry of Food Processing and Industries.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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In association with BioAsia (2/2)

Deliberations from the conference Eminent speakers expressed their views on a host of topics relevant to the industry, such as ‘creating an innovation ecosystem’, ‘increasing R&D efficiencies’ , ‘intellectual property’ and ‘the 3A challenge — accessibility, affordability and availability’. This paper aims to analyze the key observations from the conference: • There is an increased need for focusing on enhancing productivity across the value chain. Creativity and innovation have a significant role to play in the fields of marketing and branding, especially with respect to driving compliance or increasing efficiency of manufacturing plants.

• The monumental role of collaboration cannot be underestimated. Open dialogue among all stakeholders is imperative to achieve success. This is evident from the progress of western clusters. A similar model is likely to work well for India.

• Today, companies have innumerable opportunities. Be it in niche areas, such as oncology and dermatology, or in complex molecules, like biosimilars, the companies are expected to play to their strength, choose a domain that is most suitable to their respective business models and unleash their creative potential to achieve value add.

• Affordable innovation is critical to the growth of the Indian life sciences space. The event witnessed several discussions on the various prerequisites to accomplish this. One of the examples is the Rota virus vaccine and its successful strategy can be replicated to harness affordable innovation by facilitating stakeholder collaboration.

• It is imperative to analyze the culture deficit that hampers the innovation potential of the country. This necessitates immediate remediation for the creation of an ecosystem that supports and rewards breakthrough innovation.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

Need for innovation

On one hand traditional powerhouses of innovation are faced with the challenge of R&D productivity...

• Pharmaceutical R&D has become increasingly challenging because of the increased number of plausible targets to pursue for drug development

Number of New Chemical Entities (NCEs)/ New Molecular Entities (NMEs) reducing despite increase in R&D expenditure 40,000 36,374 90

35,000

30,969

77 30,000 25,000

61

70 65 60

21,988

21,364

20,000

80

29,192

66

68

66

90

55 50

17,849

48 40

15,000 11,484

29

11,874

10,000

10,477 7,462

6,422 5,000

-

12,299

26

20 15

1995

Europe

2000

U.S.

10

2005

Japan

30

Europe

2012

U.S.

No. of new chemical or biological entities

R&D expenditure (million of national currency units*)

• These targets are a result of advances in molecular biology, most of which are yet to be validated

100

• Research efforts have been reoriented toward these difficult targets, making the process more risk intensive and the probability of success lower • As the first line of therapy for most diseases has been well established, companies focus their efforts on new, less validated therapy areas

• Drug development in these areas encounters higher attrition rates and consequently lower number of successful molecules, creating a situation where despite increased spending on R&D, the number of successful molecules launched is lower.

• The regulatory process too, has become increasingly rigorous, requiring innovators to clearly demonstrate both enhanced safety and efficacy

-

Japan

*Note: Europe: e million; U.S.: $ million; Japan: ¥ million x 100 Source: European Federation of Pharmaceutical Industries and Associations- The Pharmaceutical Industry in Figures (2013)

Source: KPMG in India analysis

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

...On the other hand, the high incidence of communicable diseases intensifies the need for research in these areas and creates a significant unmet need in emerging countries

High incidence of infectious diseases in developing economies as compared to first world countries Number of reported cases In ‘000s

Malaria - reported cases 30000 Europe

America

Asia

EMR

S-E Asia

• According to a 2010 World Bank Report, India is losing more than 6 per cent of its GDP annually due to premature deaths and preventable illnesses, and it is important that these diseases are contained adequately

Africa

20000 10000 0 EU

WPR

America

Africa

Number of reported cases In ‘000s

TB - reported cases 2,500 2,000

America and Europe

Asia

Africa

• Issues such as drug resistance and tolerance are major concerns; emergence of multidrug-resistant TB (MDR-TB), a form of the disease that is resistant to frontline drugs, and extensively drug-resistant TB (XDR-TB), which is also resistant to some second-line drugs has made TB treatment more daunting and drug development challenging • Despite government intervention to curb these diseases, there is still a large unmet need, making it important for companies to invest in research of these therapies to develop more effective and targeted therapeutic options.

1,500 1,000 500 America

• Diseases like Tuberculosis (TB), Malaria, Visceral Leishmaniasis (VL) and Leprosy are typical to emerging/developing economies and are accountable for thousands of deaths on an annual basis

EU

EMR

WPR

Africa

S-E Asia

WHO regional groupings: EU: European region; WPR: Western Pacific Region; America: Region of Americas; EMR: Eastern Mediterranean Region; S-E Asia: South-East Asia Region; Africa: African Region Source: WHO World Health statistics 2013

Increasing rate of MDR (Multi Drug Resistance)- TB

Reported cases of MDR-TB 2012

Total

Cases tested for MDR-TB

55,611

Laboratory-confirmed MDR-TB cases

16,588

Patients started on MDR-TB treatment

14,143

“Therapies for nosocomial infections are also needed in India, they result in mortalities on a daily basis and the treatment options are limited creating a huge unmet need.”

- Dr. Radha Rangarajan, CEO, Vitas Pharma

Source: WHO World Health statistics 2013

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

Significant commercial potential of chronic therapies implies low focus on communicable diseases when it comes to new product development

MNCs focus more on diseases like Cancer and Diabetes which have a better commercial potential

Communicable diseases seem to have a low commercial potential 14 Anti - diabetics , 36.3

12

• Many multinational drug companies and some larger biotechnology companies have a core business model that depends primarily on generating blockbuster revenues to compensate expensive and risk-intensive R&D and commercialisation

Anti- co-agulants, 8

10

Vaccines, 25.5 Sensory organs,15.7 Anti -rheumatics, 41.1 6 Dermatologicals, 13.7 8

4

• Diseases like cancer, metabolic disorders are high on the agenda from a commercial standpoint as they:

Oncology, 68

Anti- virals , 26.7

2 Broncho- dilators, 34.2

− are prevalent in developed countries where the paying potential is high

MS therapies ,14.3

0

− incur long term therapy making treatment more expensive and extensive

-2 -4

• The top 20 R&D projects worldwide from an investment perspective largely feature oncology, diabetes and cardio molecules

Source: Evaluate Pharma 2013

Top 20 R&D projects in the MNC pipeline are dominated by first world therapies 6 4

• Research on anti malarial and anti-tubercular dugs does not feature in the priority pipelines of the top 15 MNCs globally.

4 3

Onco

Diabetes

Cardio and Blood

Antiviral

• Antiviral research comprised Hepatitis C and HIV therapies which are dominant in both developed and developing economies

1

1

1

MS

Obesity

CNS

Source: Evaluate Pharma 2013

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

India may be suitably positioned to be an important partner as the world tries to answer the innovation challenge given the existing life sciences research eco-system‌

Life sciences companies

Has a strong industry base comprising pharma and biotech companies, Contract Research Organisations (CROs) and other healthcare adjacencies

Academia

An ecosystem that nurtures sustainable innovation

Is home to a large number of nationally recognised academic set-ups equipped with adequate research infrastructure

Physical infrastructure

Government facilitation

Manpower While the regulatory framework is evolving, it is poised to incentivise R&D

Has a large number of private and Government sponsored research facilities, induced clusters in the form of life sciences parks have also been set up Produces a large number of science and pharmacy graduates every year

Source: KPMG in India analysis

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

Net wages per annum USD/pa

Lab space rent per annum

Cost difference in carrying out trials

Rent/sfpa

Cost of conducting trials relative to the U.S.

...the low cost proposition

75.03

80.00 70.00

79400 67900

65.00

60.00

59.81 51.00

USD

In

50.00

U.S.

Japan

9500

8900

China

India

40.00 30.00 20.00

8.00

10.00 -

U.S.

China High

Average

6.50

India

1

0.5

0.5 0.36

U.S.

Brazil

China

India

Source: CIO Wealth Management Research- Prices and earnings September 2012; Jones Lang LaSalle Life Sciences Cluster Report 2012

India offers a cost advantage across the various components required to carry out research • India’s cost efficiency is driven by low rental for facilities like lab space, manpower costs and average hourly wages • The low cost of labour is driven by the large pool of qualified personnel in India being produced by the various institutes set up in the country

• India provides a 30–50 per cent cost advantage over the U.S. or Europe per trial, which varies depending on the number of patients and investigators, and the amount of analytical work done in India • The choice of a clinical trial site is dependent on the overall cost of gathering the required resources for conducting the trial. The cost incurred by the clinical trial sponsors, including the physician involvement, is lower in India

Source: KPMG in India analysis

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

...and a large patient population

Cancer

Diabetes

TB

50800000

2010

2015

900000

2010

1100000

2015

Number of patients

Number of patients

Number of patients

88700000

1654936.25

1323949

2010

2015

Source: WHO Health Stats 2013; KPMG in India analysis

Ease of conducting clinical studies in India is enhanced • India has a significant genetically, culturally and socio-economically diverse population base, patient recruitment rates are therefore 5–10 times higher than the United States • Apart from diseases like diabetes, cancer and TB, there are several diseases including tropical infections and degenerative diseases that are prevalent in India. This makes it easier to recruit patients, especially for clinical trials being conducted for regional diseases • India also offers several other advantages for contract research outsourcing by pharma companies including process, analytical and research chemistry skills, GLP compliant R&D facilities and a large talent pool of scientists Despite regulatory concerns, that have negated this advantage in present times, India does have the inherent infrastructure and capabilities in place to conduct clinical studies in an accurate and cost effective fashion Source: KPMG in India analysis

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Need for innovation

Further, as experience demonstrates, innovation will become imperative for Indian life sciences companies to remain competitive

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

14

Need for innovation

In summary, innovation is imperative for the life sciences industry in India; the questions remains, will India be able to embrace the challenge?

It is important that Indian pharma companies innovate to remain competitive globally “We need medication for unmet needs; we need to start balancing social and monetary considerations. There have to be some efforts in this direction, if we (India) do not do it today, nobody else will help us.”

- Mr. Venkat Jasti, Chairman and CEO, Suven Life Sciences Ltd.

“Companies need to build innovation power because in the brutal new world of healthcare where payors will only reward true breakthroughs, the ability to innovate will separate the winners from the losers. This is especially true as new technologies are enabling a level of innovation that we have never seen before.”

- Mr. Joseph Jimenez, CEO, Novartis*

• Competition is likely to increase at the lower end of the value chain (dominated by tablets/capsules which are relatively easier to formulate and do not require advanced technologies and capabilities) leading to price erosion and making it difficult for companies in this space to sustain profitability.

India has a role to fulfil on the affordable innovation side • The large unmet need created due to the high incidence of diseases like TB and Malaria needs to be bridged • India’s low cost proposition coupled with the ecosystem puts India in a suitable position to assume this role.

India seems to have the basic in place to foster innovation, however stakeholders perceive challenges in execution • India has the academic and industry base needed for innovation • Despite the primary infrastructure and manpower, stakeholders opine that India has not been able to realise its true innovation potential.

It is imperative to identify the gaps that hinder India’s innovation potential *Captured from OPPI Weekly Snapshot

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

15

Assessing India's current innovation status in life sciences

16

Methodology

Introduction to the research: The purpose of this research is to provide an insight in to the current state of innovation in R&D in the Indian life sciences sector. KPMG would want this report to contribute meaningfully to the industry-wide debate revolving around the innovation culture in the sector and consider the need for innovation at a more strategic level.

Research methodology: KPMG in India conducted detailed 20 primary interviews of different stakeholders sitting on various levels of the life sciences value chain and ecosystem (between November 2013 to March 2014). The research was managed by KPMG’s life sciences sector team. The research was focussed in India only and included a broad spread of organisations in terms of size, products or services and strategy.

Participants: The research is based on data gathered from the 20 structured primary interviews conducted with the industry leads across the life sciences spectrum. The primary research focussed on telephonic/face-to-face conversations which lasted approximately one hour. The KPMG team interviewed public sector stakeholders, domestic company research heads/CEOs and R&D heads/CEOs of Multinational pharma companies.

This primary research was complimented with the secondary analysis and industry insights.

Interview questions: The questionnaire was a balance of qualitative and quantitative questions. The primary interviews covered the main quality issues like: • The status of R&D in India • The status of the enabling environment- from a regulations point of view • If (and how) R&D is encouraged in the country • Where India stands in the R&D value chain (moving up or down) • Current state of IP in India • Issues and challenges being faced along with possible solutions • The requirements to stimulate the innovative culture in India.

The information gathered during the primaries including the point of views of the various interviewees was collated and converted in the required format for representation in the report.

Note: The quotes used in the report are a combination of excerpts from interviews carried out by KPMG and quotes made by eminent sector experts in the open domain

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

17

Assessing India's current innovation status in life sciences

Key parameters which are necessary to enable and nurture an innovation ecosystem have been identified and assessed for the life sciences industry in India

Parameters Conducting Research

Enabling Research

Monetisation of Research

Metrics

Presence of Research /Academic institutes

Numerous innovations in the life sciences space globally have emerged from clusters that have a strong academic foundation

1.

Number of research institutes in the country

2.

Research output from academic institutes

Research in Private Indian companies

Private companies have the capability and infrastructure to conduct and monetise research

1.

Research output from private companies

Academia and Industry collaboration

Basic research cannot be monetised or driven in the right direction unless translated. Market focus and orientation are required to sustain innovation. Academia-Industry collaboration is widely considered as an important enabler in this regard

1.

Stakeholder feedback

Right Regulatory Framework

Countries with robust regulatory frameworks and amenable government intervention have a history of being higher on the innovation front. A regulatory framework can enable, expedite and smoothen the innovation process

1.

Stakeholder feedback

2.

Lucidity in the regulatory process

Physical Infrastructure

Any research activity is contingent on the presence of the requisite infrastructure. Laboratory space, equipment and other allied facilities can enable successful research

1.

Evidence of quality research infrastructure

2.

Stakeholder feedback

Availability of skilled and qualified talent is pre-requisite to conducting research

1.

Availability of manpower at all hierarchical levels

2.

Employability of manpower

1.

Financial support to pursue life sciences research

2.

Research spend of Private Indian firms

Quality Manpower

Sustainable Innovation

Rationale

Investment and Funding support

Life sciences research is an expensive proposition coupled with a high risk proposition and long gestation period. Funding through out the process is essential to execute the process successfully

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

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Assessing India's current innovation status in life sciences

There are a large number of institutes in India equipped to carry out specialised research

• India has a large number of nationally recognised institutes, both public and private, that offer courses which cover a spectrum of research areas within the life sciences domain

Growth of technical institutes in India 4,000 3,500 2,972

3,000 2,500

2,388

1,000

2,385

2,262

• Research areas encompass basic chemistry and cell biology to advanced fields like genetic engineering.

2,450

1,940

2,000

1,500

3,495

3,393

3,222

1,523 1,145

1,137

1,114

1,081

1,021

500 -

2008-09

2009-10

Engineering

2010-11

2011-12

Management

2012-13

Pharmacy

Source: All India Council for Technical Education Approval Process Handbook 2013-14

Presence of institutes specialising across different areas of life sciences research Molecular reproduction, development and genetics • Indian Institute of Science, Bangalore • National Centre for Biological Science, Bangalore.

Medicinal chemistry, Pharmacology • NIPER, Mohali • CDRI, Lucknow • Indian Institute of Science Education and Research, Pune.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

Natural products

Immunology and cell biology

• Indian Institute of Chemical Biology, Kolkata

• National Centre for Cell Sciences, Pune

• National Botanical Research Institute, Lucknow

• National Institute of Immunology, Delhi

• National Centre for Plant Genome Research, Delhi.

• Institute of Genomics and Integrative Biology, Delhi.

19

Assessing India's current innovation status in life sciences

The quality of research output seems to be gradually improving, however it is lagging behind other significant Asian countries

Research institutes contribute to a small percentage of pharma patents in India

While India’s score has improved on nature’s index, it is significantly lower than Japan and China 350.00

400

367

300.00

300

276

263

250 200

150 100 0

245.21 216.60

200.00

13 2010 Total number of patents

20

13 2011

2012

50.00 -

110.04 37.38

34.50 3.32 2007

44.30

68.12

6.84

1.22

5.10 2008

2009

India

2010

2011

China

2012

11.45 2013

Japan

Source: Nature Index, accessed March 2014

• However, lack of industry guidance and market alignment may be responsible for the research not being able to make it into journals with high impact factors • This indicates the relatively low value of research that is churned out from Indian research institutes

• Research institutes in India mostly work in silos and lack of collaboration and co-ordination may also hamper the quality of research • Research institutes in India file lower number of patents as compared to other industry assignees in the Indian Patent Office.

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

8.24

8.53

• Academic research output has been increasing gradually as reflected by: − Increase in the number of patents filed over the years − Scores on the Nature’s index which have improved (3.32 in 2007 to 11.45 in 2013)

Source: KPMG in India analysis

150.03

153.83

140.28

Patents by research institutes

Source: Indian Patent Office, accessed March 2014

173.01

156.59

150.00 100.00

50

290.51

234.40

250.00 Numbers

Number of patents

350

“Among our educational institutions, the importance of generating knowledge is known, but the importance of creating wealth is missed out.”

- Dr. R.A. Mashelkar Former Director, CSIR*

*Captured from the interview published in Economic Times, April 2014

20

Assessing India's current innovation status in life sciences

Further, international recognition of Indian research institutes seems to have significant room for improvement

QS rankings

THE rankings

ARWU rankings

24 Number of universities falling in the rank bracket

0

2 0-100

2

3 0

0

4 1

100-200

3

Number of universities falling in the rank bracket

4

4

6

3 0

200-300

300-400

4

3

100-200

Ranks India

China

12

6 3

3

1

0 0-100

Number of universities falling in the rank bracket

14

3

200-300

2

3

2

300-400

5

3 0

400 plus

0 0-100

6 3

India

China

5 1

0

0

100-200

200-300

Ranks Japan

8 5

1

1

300-400

400 plus

Ranks Japan

India

China

Japan

THE: Times Higher Education World University Rankings, 2014 ARWU: Academic Ranking of World Universities, 2014 QS: Quacquarelli Symonds, 2014

Indian research institutes are ranked lower than institutes from China or Japan indicating a significant lack of global recognition • Most ranking systems take into consideration various parameters including innovation potential, infrastructure and research output

• The absence of Indian institutes amongst the high ranks indicate a lack of global appeal and recognition • Institutes from China and Japan fare better in this regard, however most of the top ranks are taken by U.S. schools indicating a larger focus on innovation by the U.S. when compared to India.

Source: KPMG in India analysis

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

“We don't do enough. I spend a month at Harvard every year and one of my collaborators is George Whitesides, who is the highest cited scientist in the world, and the market capitalisation of his companies based on his research and innovation is USD30 billion.

So, there is a link between Saraswati and Lakshmi, if I may say so, and we have been late in establishing this.”

- Dr. R.A. Mashelkar Former Director, CSIR*

*Captured from the interview published in Economic Times, April 2014

21

Assessing India's current innovation status in life sciences

As the products due for patent expiry increasingly become complex…

Estimated worldwide sales of differentiated generics losing U.S. patent protection in the year before patent expiry

Percentage of differentiated generics

80

Differentiated generics: Biologics, Inhalers, intranasal, Injectables, Transdermals and Others

72.22

70

62.71

60

51.72

50

59.46

53.66

55.56 45.00

40 30 20 18.18 10 0 2011

6.78 2012

2013

2014

2015

2016

2017

2018

2019

Complex products with their enhanced specificity of therapeutic action and compliance are likely to be in a position to command more value when compared to their vanilla counterparts • Innovation in delivery system as in the case of transdermals or injectables, differentiate these products. These products are relatively difficult to formulate and incur higher costs and more advanced technology • These products have a more targeted delivery which enhance their therapeutic efficiency and consequently the demand. For example, injections have direct access to the blood stream and hence the increased onset of action.

Source: KPMG in India analysis

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Assessing India's current innovation status in life sciences

...Indian companies have responded by gradually increasing their research prowess and formulating more complex products

Trend in ANDA approvals - Improving product mix in U.S. generic market

100%

90% 80%

0 2 5 0 9

• There has been a trend of domestic companies focusing on niche segments and products with a higher level of technology and complexity

0 2 3

• Segments like oncology, dermatology etc. which involve complex delivery systems are emerging as focus areas for a large number of Indian companies

12

10

• Difficult-to-formulate products like extended-release tablets, patches and inhalers help companies create a more differentiated portfolio.

23

70% 60%

13

50% 40%

Biosimilars is another opportunity that Indian players have explored • India is expected to account for 20-25 per cent market share in biosimilars market over the next five years as spending on research pertaining to biosimilars, by more than 100 major Indian pharmaceutical companies, is on a rise.

74

30% 47

20%

10% 0%

2009

Indian companies are working toward a differentiated portfolio and focussing on incremental innovation

2013

Tabs./Caps./Susp./Soln.

Modified Release

Injections

Oral Contraceptives

Topicals

Ophthalmics

“A few Indian companies currently have a strong biosimilars pipeline, and the untapped potential in the segment is significant.

However, clarity on the U.S. regulations governing biosimilars will be key to capitalising on the biosimilars opportunity.”

Nasal

- Mr. Utkarsh Palnitkar, Head of Advisory, KPMG in India Source: KPMG in India analysis, Primary interviews

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Assessing India's current innovation status in life sciences

With their impressive pipelines and capabilities, these companies have been able to forge alliances with MNCs in the drug discovery and development stage

2014

Glenmark – Forest

Mylan – Biocon

2013

2012

Pieris AG – Stelis Biopharma

Takeda – Advinus

Sanofi – Glenmark

2011

2010

Pfizer – TCG Life Sciences

Pfizer – Biocon

Endo Pharma – Syngene

Endo Pharma – Jubilant Biosys

2009

2008

Eli Lilly – Jubilant Biosys

Amgen – Jubilant Biosys

2007

Merck Serono – Aurigene

Forest Laboratories – Aurigene

Drug Discovery

AstraZenca – Jubilant Organosys Deals that were called off

Novartis – Aurigene

Drug development

Preclinical

Successful deals

Clinical

Source: KPMG in India analysis, Primary interviews

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Assessing India's current innovation status in life sciences

Despite recent initiatives, industry – academia collaboration in India continues to be low

How will you describe the current status of academia–industry collaboration in the country?

Do you see a change in the future with respect to academia–industry collaboration in the country?

Primary reasons for the lack of efficient academia–industry collaboration in the country

62%

65%

70% 55%

30%

25%

25%

13%

10%

8%

Satisfactory

Situation will worsen

Moderate

Limited

Will continue to remain limited

Looks positive in the near future

Lack of Lack of an Different Lack of a functional life open innovation priorities and common sciences culture in India KPIs platform for clusters in the fruitful dialogue country

Source: CIO Wealth Management Research- Prices and earnings September 2012; Jones Lang LaSalle Life Sciences Cluster Report 2012

• Lack of a common platform, different foci and a closed innovation culture in India are cited as examples for this disconnect • The academic institutes in the country have largely maintained a focus on publications rather than patents/commercialisation of technology • Further, the lack of well established geographic cluster as is seen in western economies is missing in India, making this collaboration more challenging. However, the culture is changing in India and stakeholders believe that an improvement is likely in the near future.

“It is evident that there is an inherent mistrust between the academia and industry, both should realise that collaboration is important to be more successful.”

- Mr. Venkat Jasti, Chairman and CEO, Suven Life Sciences Ltd.

Source: KPMG in India analysis, Primary interviews

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Assessing India's current innovation status in life sciences

The multiplicity at the policy making level may result in inefficiencies in policy making

Multiple entities involved in policy making for the pharma/biotech sector

Ministry of Science and Technology

Ministry of Chemicals and Fertilisers

Ministry of Health and Family Welfare

Department of Biotechnology (DBT)

Department of Pharmaceuticals (DoP)

CDSCO (DCGI)

Largely involved in implementation Mostly policy making

• Policy making in life sciences is a distributed responsibility, the DoP focuses on pharma, the DBT on biotech; therefore, most issues that arise from a regulatory stand point could take longer to get resolved • It is likely that inefficiencies occur during allocation of funds due to multiple decision makers in the sector • Implementation is largely driven through a different ministry with the states also playing a role - making the process tedious.

“Unlike the U.S. where all drug related matters are under the purview of the FDA, the Indian regulatory set-up is complicated, under-funded and unequipped. With numerous entities such as the chemicals and fertiliser ministry (monitors pharma companies), Central Drug Standards Control Organisation (CDSCO)( which is under the purview of the health ministry) and the Food Safety and Standards Authority of India, there is a clear need for distinct division in responsibility to ensure effective trouble shooting and efficient policy making.”

- Mr. Utkarsh Palnitkar, Head of Advisory, KPMG in India Source: KPMG in India analysis, Primary interviews

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Assessing India's current innovation status in life sciences

While preclinical research can be carried out smoothly, recent developments have negatively impacted the ability to conduct clinical trials in the country

Decline in number of Clinical trials carried out in the country Number of trials 267

Preclinical studies can be carried out smoothly • Permissions from the DBT are needed if the research involves import of any genetically modified organism or bacterial cells

• The whole procedure is internally driven with pre-requisites categorically defined on the DBT website making it easy for the researchers to save time and energy.

283

189

97

“Most of the checks at the preclinical level are to ensure personnel and environmental safety. It is a relatively smooth process and involves setting up of an IBSC committee. The committee has one member from the DBT and others selected by the company, both internal and external. Together they ensure that protocols and regulations relating to the use of pathogenic organisms, animal models and recombinant DNA are followed. It is a well laid out process.”

- Dr. Radha Rangarajan, CEO, Vitas Pharma

2010

2011

2012

2013

“Regulations are a mess – we have to take decisions on clinical trials.”

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

“We need better regulatory/judicial oversight. No point in halting trials, while it is important to protect the rights of the recruited, the people who benefit from the drug owe it to contribute in its development as much as people of other countries. Hence, setting up a body to monitor and ensure that the trials are conducted properly is more important rather than banning them.”

- Dr. Raman Govindarajan, Head, India R&D, Sanofi

Clinical trials have been plagued with a number of issues that have currently made conducting trials difficult • Ethical issues prompted the intervention of the courts: of the 162 approvals granted by the Drug Controller General of India until August 31, 2013, 157 trials were cleared in 2012, after a nod from just the New Drug Advisory Committees (NDACs). The Supreme court thus, suspended those 157 trials • To tighten the regulation of clinical trials in India, the government has mandated that the ethics committees, which clear clinical trials, will have to be accredited in addition to being registered • While it is important to rectify the ethical issues associated with these trials, impact on the industry is inevitable: − Almost a year since SC’s first ruling, the regulatory framework is still evolving- this delay will impact India’s current attractiveness as a clinical trials’ destination − Since permissions will be a tiered process, the same is expected to be more time consuming − Formation of the adequate number of ethics committee will require significant capacity building as the country does not have enough qualified personnel. This may further impact implementation.

Source: KPMG in India analysis, Primary interviews

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Assessing India's current innovation status in life sciences

The IP framework in the country is considered robust, however, respondents perceive the need for a culture that promotes greater sensitisation towards confidentiality

What are your views on the IP framework in the country?

MNCs have consistently filed more pharma patents in India 31

Percentage of responses

59% 36

44

214

219

316

30%

126.86

11%

Robust IP framework

Scope for improvement

19

Unsatisfactory

2010

2011 International assignees

2012

2013

Domestic companies

Source: Indian Patent Office, accessed March 2014

Majority of the stakeholders believe that the IP framework in India is at par with most when it comes to supporting research. As indicated by : • The number of collaborations in the drug discovery space; MNCs are comfortable in collaborating with Indian players in research intensive ventures. Further, the number of patents filed by MNCs in the Indian patent office are higher than those compared to domestic players, showcasing the global interest.

“Route of investment in India is through partnering and the present IP policy in India does not hinder that.”

- Dr. Gopakumar G. Nair, IP Attorney, Gopakumar Nair Associates

“The Indian labour laws are all in favour of the employees. Even if they break confidentiality, there is very little that the management can do. We need to educate the employees in this regard. Many organisations in India have successfully implemented confidentiality and built fire walls and nothing has been leaked out.“ - Dr. Gopakumar G. Nair, IP Attorney, Gopakumar Nair Associates

However, respondents are wary about certain issues • Employees need to be sensitised more toward respecting confidentiality agreements, so that there is no transfer of IP when employees move companies • The recent issuance of compulsory licenses has further triggered debates (especially from the MNC community) on India’s socialist policies that may hinder innovation. The policy makers are deliberating on these concerns.

Source: KPMG in India analysis

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Assessing India's current innovation status in life sciences

India has evolved considerably in terms of establishing the required physical infrastructure that enables life sciences research

How will you describe the current status of physical infrastructure in the country?

• IKP, Alexandria Biotech Park, TICEL etc. are strategically located across the country and facilities to numerous biotech and pharma start-ups

Percentage of responses

58

There seems to be a gap in terms of incubation support and mentorship • Limited occupancy in incubators has been observed owing to the limited facilities/support provided by incubators

27

Good

• India has witnessed the development of major biotech parks in recent years which provide a good ground for research

Moderate

15

• There is lack of linkage between academia and institutes in incubators which limit the number of start-ups in incubators

Unsatisfactory

“The infrastructure for research has been able to get the attention from global bodies, that is a positive thing.”

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

Alexandria Knowledge Park, Hyderabad

TICEL Bio Park, Chennai

International Biotech Park, Pune

Savli Biotech Park, Vadodara

ICICI Knowledge Park, Hyderabad

Public - Private Partnership Development Model

Public Development Model

PPP Model

PPP Model

Quasi-Government Model

[Stakeholders – Government of TN and Tamil Nadu Industrial Development Corporation Ltd. (TIDCO)]

Stakeholders –Govternment of Maharashtra, MIDC and TCGRE

Stakeholders – GSBTM and TCGRE

[Stakeholders – Government of AP and ICICI]

Original private developer SP group sold its entire equity to Alexandria Real Estate Equities Inc., USA in 2010

Source: KPMG in India analysis

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Assessing India's current innovation status in life sciences

While India aims to meet the need for talent at the entry and mid levels, gap in resources at the leadership levels needs to be addressed

Workforce distribution for L2 roles

60

(in '000)

40 30

11 2 6

(in '000)

50

60 49 4

20 10 -

14 2 6 5 2017-18

27

2012-13 E1

E2

E3

E4

0 1

53

50

8

40

10 2 6

30 20 10 -

E5

Workforce distribution for L3 roles

22 5 6 2 8

28

1

2012-13 E1

E2

2017-18 E3

E4

E5

(in '000)

Workforce distribution for L1 roles

45 40 35 30 25 20 15 10 5 -

39

6 8 2 5

5

22

19 1 11

2012-13 E1

E2

2017-18 E3

E4

E5

E1: Up to secondary, E2: Higher secondary, E3: Vocational/Diploma, E4: Graduate, E5: Post graduate and above L1: Needs supervision, L2: Works independently, L3: Manages a team

While there is adequate availability of manpower in India, analyses reveals a deficit at the leadership levels • Right candidates at leadership levels should be able to drive research toward commercial innovation and train employees in skills needed to sustain growth of the industry • Analysis suggests that the manpower gap at these levels will be widest by 2018, indicating a need for the industry to focus on luring and training the right talent for these roles.

“The manpower base in India is one of the best but leaders lack expertise.”

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

Source: KPMG in India analysis, Primary interviews

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Assessing India's current innovation status in life sciences

Further, while the manpower number is high at the lower level, employability remains a challenge

Some of the major issues with manpower base in Indian R&D

Employable manpower in the country

35%

Employable 34%

% of responses

25% 22% 18%

Not industry ready 66% Limited knowledge on regulatory and compliance norms

High rates of attrition amongst the junior levels

Lack of personnel at the leadership levels

Need for training from an industry perspective

• Studies suggest that a large portion (66 per cent) of the manpower churn in the country is not industry ready, based on key skills identified by a study conducted in India • Lacking in practical, industry relevant skills, these employees require significant training which incurs capital investment and time from the employers, making these employees less attractive hires.

“There is so much talent here, what is missing is direction and focus.”

- Dr. Renu Swarup, Advisor, Dept. of Biotechnology

Source: KPMG in India analysis, Primary interviews, India Skills Report 2014

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Assessing India's current innovation status in life sciences

Funding in R&D in India is low when benchmarked globally, however government initiatives to encourage early stage research are a positive step

R&D expenditure by country

2012 United States

2013 China

2014P Japan

India

Percentage

44

42

40

3.40% 2.80%

3.40% 2.80% 2.00%

1.90%

1.80% 165

163

160

2.80% 284

258

232

3.40%

465

450

447

USD billion

R&D expenditure as a per cent of GDP

0.90%

2012 United States

0.90%

0.85%

2013 China

2014P Japan

India

• When benchmarked globally, R&D spending in India is less than other LMIC and developed economies across all sectors • In terms of pharma R&D, research activities in the United States continue to lead the world, with biopharmaceutical sector leading the U.S. industry in terms of volume of research.

R&D expenditure as a per cent of GDP in India is low when compared to other countries Early stage research has been incentivised by a few government initiatives • The Government of India has labelled the period 2010–20 as the ‘decade of innovations' and it aims to increase R&D spending to 2 per cent of the gross domestic product (GDP) by 2017 • Government agencies have been offering various types of research grants and fellowships through soft loans or equity to promote research in various fields of biotechnology, besides commercialising indigenous biotechnologies.

“When in difficulty we must innovate and have more investments in innovation. The only way to emerge from this slump is to invest and do things differently. This is extremely important. By using your mind, you can create products of tomorrow.”

- Dr. R.A. Mashelkar, Former Director, CSIR*

*Captured from the interview published in Economic Times, April 2014

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Assessing India's current innovation status in life sciences

From a private funding perspective, however, India lags behind, as other sectors are perceived to be more attractive

Private investors find drug discovery least attractive from an investment stand point Diagnostic labs Medical devices CROs Domestic pharma companies

Secondary and Tertiary hospitals Health insurance Medical education Medical tourism

• The private funding in India mostly favours other sectors like financial services and technology which offer more scalability and RoI • Investors also believe that entrepreneurs in these sectors have a better business aptitude • Further the inherent challenges that come with life sciences such as long gestation periods and high risk are obviated in other sectors.

Within life sciences too, healthcare delivery models are considered better investment bets • One of the primary trends that have piqued the interest of PE investors in Indian Healthcare is the evolution of the less cost intensive healthcare set-ups (simple clinics, single speciality clinics, ambulatory care set-ups) • Regulatory challenges in clinical research has also diminished the lure of investments in drug discovery.

Biotech Pharma retail Pharma distribution Drug discovery

“Regulatory challenges in the country are beyond many of us, the clinical trial situation is making it worse. How can you invest in something when you cannot even predict broad timelines for clinical trial approval process?”

- Mr. Nitin Deshmukh, CEO, Kotak PE Group

“Sector focussed funds for life sciences would be great. However, given the abundance of opportunities in India which deliver returns in a shorter time frame to investors, a bigger effort is required to incentivise fund managers to set up such life sciences focussed funds and investors to invest in such funds.”

- Mr. Nitin Deshmukh, CEO, Kotak PE Group

BioAsia – KPMG India Report on Innovation in life sciences in India - Current state and future imperatives

“Investments are very important, investing in the right project is more important, there has to be an ecosystem which ensures that projects with promise are sustained.”

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

33

Assessing India's current innovation status in life sciences

While India scores highly on incremental innovation by private companies, issues such as academic research output, industry-academia collaboration, multiplicity in policy making and funding support need to be addressed

Conducting Research

Enabling Research

Monetisation of Research

Sustainable Innovation Significant development Moderate development Limited development

Parameters

Assessment

Gaps

Presence of Research/Academic institutes

There are a large number of research institutes in India with infrastructure to conduct research across the life sciences spectrum. The quality of research output seems to be gradually improving, however it is lagging behind other significant Asian countries

Low quality of research output

Research in Private Indian companies

As the products due for patent expiry increasingly become complex, Indian companies have responded by gradually increasing their research prowess and formulating more complex products. With their impressive pipelines and capabilities companies have forged alliances with MNCs in the drug discovery and development stage

End to end innovation unachieved

Academia and Industry collaboration

Despite recent initiatives, industry–academia collaboration in India continues to be low

Limited academiaindustry collaboration

Right Regulatory Framework

The multiplicity at the policy making level may result in inefficiencies. The IP framework in the country is considered robust, however, most respondents perceive the need for a culture that promotes greater sensitisation towards confidentiality

Multiplicity in policy making

Physical Infrastructure

India has evolved considerably in terms of establishing the required physical infrastructure that enables life sciences research. There seems to be a gap in terms of incubation support and mentorship

Limited incubation and mentorship support

Quality Manpower

While India aims to meet the need for talent at the entry and mid levels, gap in resources at the leadership levels needs to be addressed. Further while the manpower number is high at the lower level, employability remains a challenge

Low employability of manpower. Deficit in resources at the leadership levels

Investment and Funding support

Funding in R&D in India is low when benchmarked globally, however government Initiatives to encourage early stage research are a positive step. From a private funding perspective, however, India lags behind, as other sectors are perceived to be more attractive

Limited private funding toward early stage research

Assessment

It is imperative to bridge the gaps to unlock India’s innovation potential

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Recommendations

35

Mapping the gaps to solutions

Solutions Low quality of research output

Limited academia- industry collaboration

Improve quality of Research

Channelising private funds toward early stage research

Foster AcademiaIndustry collaboration

Improving employability and filling manpower gap at leadership levels

Resolving regulatory issues

Multiplicity in policy making

Limited incubation and mentorship support

Low employability of manpower Deficit in resources at the leadership levels

Increasing incubation and mentorship support

Limited private funding toward early stage research

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Recommendations

Improving the quality of research that comes from academia involves re-orienting the direction of research so that it is relevant and setting concrete performance indicators to measure quality of the output

“I am interested in working with the academia and young entrepreneurs, but I don’t know where to look for them, if the government can provide for an access mechanism – why not?”

- Mr. Glenn Saldanha, Chairman & MD, Glenmark Pharmaceuticals Ltd.

Improving research output

 Basic research

• Involve industry in a mentorship role in academic institutes to help ensure relevance and commercial potential • Link funding to meritocracy i.e. quality of research output. While gradual improvement has been observed in this regard, stakeholders believe that higher degree of sophistication needs to be built in the model for evaluating the quality of research output • Measurement of quality should be well defined using a standardised quality framework such as the one below.

Eight ‘Big-tent’ criteria for excellent qualitative research Worthy topic

Relevant, timely, significant, interesting

Rich rigor

Uses sufficient, abundant, appropriate, and complex theoretical constructs, data and time in the field, sample(s), context(s), data collection and analysis processes

Sincerity

Characterised by self-reflexivity about subjective values, biases, and inclinations of the researcher(s), transparency about the methods and challenges

Credibility

Thick description, concrete detail, explication of tacit (nontextual) knowledge, and showing rather than telling, triangulation or crystallisation, multivocality, member reflections

Resonance

Influences, affects, or moves particular readers or a variety of audiences through aesthetic, evocative representation, naturalistic generalisations, transferable findings

Significant contribution

Provides a significant contribution conceptually/theoretically, practically, morally, methodologically, heuristically

Ethical

Considers procedural ethics (such as human subjects), situational and culturally specific ethics, relational ethics, exiting ethics (leaving the scene and sharing the research)

Meaningful coherence

Achieves what it purports to be about, uses methods and procedures that fit its stated goals, meaningfully interconnects literature, research questions/foci, findings, and interpretations with each other

Source: Tracy, Sarah J. Qualitative Quality: Eight Big-Tent Criteria for Excellent Qualitative Research Qualitative Inquiry 16 (10 October 2010)

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Recommendations

Collaboration between the academia and industry can be fostered by clearing inherent trust issues and facilitating dialogue

“Marriage between the academic set-up and industry is important to build an ecosystem that promotes innovation. “ - Dr. Raman Govindarajan, Head, India R&D, Sanofi

“We are trying to resolve the trust issues between academia and industry by creating model agreements that consider the rights of both parties.”

Case study Bang and Olufsen (B&O) – Using academic potential to garner innovation • With the belief that running creative exploration for breakthrough innovation outside of the main-company, especially in the case where a strong network of academic research can be put to use, B&O ICEpower (B&O ICEpower for Intelligent, Compact and Efficient audio power conversion technologies was created as a spin-off from B&O. The starting-point of the audio power conversion research in B&O ICEpower was created by Dr. Karsten Nielsen while he was working at the Technical University of Denmark (DTU) during his PhD. This was conducted in assistance with B&O. Realising the potential of utilising the vast network of master students, PhD students and professors via creation of a separate spin-off company in a resourceful university network, Dr. Nielsen moved his team from the B&O premises in Struer to Copenhagen in 2001. The team was also increased from 4 to 20 employees. Enhancing the innovation power of the company by offering a unique playground for exploratory research was the main reason to move to Copenhagen. B&O ICEpower was hence bringing in and coaching a minimum of 15 master students per annum. The B&O R&D resources could consequently drive all its energy toward concept development and unique design, which was conducted in the B&O IDEA LAB. Although B&O does not have any research centre or in-house technology development any more, it sources this from its spin-off company, which in turn relies entirely on universities for cost-efficient exploratory research.

According to Dr. Nielsen, cooperating with universities offers a four factor cost benefit in comparison to internal research.

- Dr. Renu Swarup, Advisor, Dept. Of Biotechnology

 Applied research • Clear trust issues by creating model agreements that help ensure IP protection so that rights of both parties are safeguarded and collaboration is fruitful • Norms for professional exchange between industry and academia to be eased- e.g. 10 years of research focused work in a life sciences company can be treated at-par to a post-doc qualification • Co-locate academia and university in all prospective development of physical infrastructure for research.

Source: “Making innovative use of academic knowledge to enhance corporate technology innovation impact”- Int. J. Technology Management, KPMG in India analysis

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Recommendations

A single consultative platform may facilitate efficient policy making and avoid conflict in agenda

“Policy making has to be swifter, and more efficient, unless that is sorted, we cannot aim to reach higher.”

- Dr. Gopakumar G. Nair, IP Attorney, Gopakumar Nair Associates

 Reduce multiplicity in policy making • While a long term solution can be the creation of a single regulatory body with policy making and implementation powers, this will likely be a gradual process • In the interim, creation of a single Stakeholder consultative platform (SCP) with a fixed charter, proper representation of all stakeholders/ministries and clearly defined leadership can be the way forward: − Such an SCP has representation from all ministries (Health, Chemicals and Fertilisers, Science and Technology) − It has a fixed frequency of meeting- say once every month − Issues pertinent to policy and its implementation can be presented by relevant stakeholders e.g. industry or academia, deliberated and then decided.

Case study European Food Safety Authority - Stakeholder consultative platform • EFSA’s Stakeholder Consultative Platform was created in 2005. The platform is composed of EU-wide stakeholder organisations working in areas related to the food chain and was set up to increase the EFSA’s commitment to transparency and is viewed as an effective measure to build up consumer confidence in the food industry.

Source: European Food Safety Authority, accessed March 2014

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Recommendations

It is important to have a time bound plan to resolve the clinical trial situation in the country

“The clinical trial issue doesn’t mean we halt innovation, we need to go on, so that when the situation is resolved we don’t lag.“

 Time bound plan to resolve the clinical trial issue •

The regulatory body must suggest a time-bound plan which focuses on: − Identification of the accreditation body for ethics committees − Plan for simultaneous capacity building of investigators and ethics committee representatives − Initiation of trials at sites that have credibility and capacity as soon as possible e.g. CMC Vellore, AIIMS.

- Dr. Renu Swarup, Advisor, Dept. Of Biotechnology

“ Competition from Singapore, Korea etc. just make it all the more necessary for us to resolve the issue.“

Case study Korea has created a regulatory framework that supports the clinical trials industry in the country

- Dr. Raman Govindarajan, Head, India R&D, Sanofi

• In December 2007, the Korean Government founded a specialist agency to develop Korea as a preferred clinical trials location • KoNECT (the Korean National Enterprise for Clinical Trials) has three divisions: Clinical Trials Centres, a Clinical Trials Training Academy and a development group for Clinical Trials Technology • The development of specialist facilities has led to Korea becoming a preferred location for Phase I studies, while streamlined regulatory processes and notable centres of excellence support Phase II and III studies.

IRB process Submission

Contract with hospital Review

Approval

Approval timeline: Within one month Clinical trial notification

Source: Korean National Enterprise for Clinical Trials, January 2013

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Recommendations

Providing lab space may not be enough, parks may need to diversify their offerings to help ensure more occupancy and success

“The industry leaders should guide entrepreneurs, they should mentor start-ups.”

 Providing Incubation support and mentorship to entrepreneurs • Incubators need to diversify their offerings and provide entrepreneurs with not just support in research but also mentorship support that enables them to translate their research endeavours to commercial ventures

- Dr. Renu Swarup, Advisor, Dept. of Biotechnology

• Establish necessary linkages with academia and industry to create an ecosystem which not only fosters basic research but is also focused on monetisation of research • While an incubator is being planned, it may be imperative that a portion of the grant received is reserved for consultation and other knowledge based endeavours that provide the business angle to the research activities.

“Without guidance nothing can be utilised well or efficiently.”

- Mr. Glenn Saldanha, Chairman & MD, Glenmark Pharmaceuticals Ltd.

Case study In-House support – offered by the BioCity in U.K. In addition to providing lab space and infrastructure, BioCity supports its tenants by: • • • • • • • • • • •

providing early stage and strategic advice identifying the appropriate business model – optimise route to market, channel partners revenue model, etc. identifying funding requirements, tactics and strategy preparing, revising and finalising a business plan identifying funding sources and optimal balance of debt/equity/grants identifying suitable investors identifying appropriate IP advice, protection and optimal exploitation strategy identifying potential candidates for additional management team posts finalising key staffing/hiring plan finalising equity structure and completion of funding package providing business information and networking opportunities.

Source: BioCity U.K. website, accessed March 2014

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Recommendations

Reverse brain drain has been a trend in China, and incentivising Indians to relocate may solve the deficit at leadership levels

“We need leaders here who have an experience with innovation, who are ready to come back to their countries and drive innovation.”

 Reducing the resource gap at the leadership levels by attracting talent • Incentivising Indians doing research elsewhere to take up leadership roles in India- part of the enhanced innovation funding should be allocated on a structured program to bring such Indians into applied and basic research in India.

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

“Domain leadership is a must – we need people who will lead the path to innovation.”

Case study China’s 1000s talents plan to incentivise research personnel in the country

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

• Established in December 2008, the ‘1000 Talents Recruitment Program (1000Plan)’ is a program aimed at recruiting high-level scholars and talents from overseas • The program includes providing financial assistance for outstanding scientists and leading experts who will work in China and play a leading role in the development of high-tech industries or new fields of study in the nation’s major innovation projects, key programs of study or laboratories, central enterprises or state-owned financial institutions, or high-tech development zones or industrial parks • Some of the compensations under the program are: one-time personal monetary award of RMB600,000; research start-up fund of RMB2 to 4 million issued phase by phase, with the specific amount determined by the nature of research; competitive annual salary among the C9 (Top nine) universities of China; tax exemptions on earnings in the first five years, etc.

Source: 1000 Plan website, accessed March 2014, University of Science and Technology of China, http://employment.ustc.edu.cn/en/, accessed March 2014

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Recommendations

Finishing schools may help freshers garner the extra edge to perform well in the industry

“The students are trained from an extremely theoretical perspective, they need to unlearn most of what is taught to them.”

- Dr. Raman Govindarajan, Head, India R&D, Sanofi

 Improving employability of the manpower churn through finishing schools and skill training programmes • Well structured, industry specific training programs in finishing schools for fresh graduates to prepare them to do their jobs more effectively on induction • The business model can be that of a PPP- where the Government funds the basic infrastructure (say through NSDC) and the private player meets the operating expenses through fees. In India, finishing schools led by the companies in the sector are more successful given that students perceive job guarantee at such schools.

Case study Biocon’s finishing school aims to bridge the gap in availability of employable biotech manpower • Biocon has started an academy to train biotech professional for the Indian and global industry in association with California's Keck Graduate School (KGI). The institution is a part of the company's efforts to reduce talent gap faced by India's bioscience industry and help sustain the growth momentum • The 16-week course will have nine modules covering molecular biotechnology, pharmaceutical development, biopharma quality assurance and control, CMC regulations of pharmaceuticals, introduction to USFDA and European laws and regulations, fermentation principles, mammalian cell biotechnology, bioseparation engineering and science and professional skills development. Initially, the programme will be for people based in India and after a few years it may be thrown open to students from all over the world • the company has invested nearly USD300,000 to run the programme which will have international faculty from KGI and in-house trainers imparting intense courses to bring out industry-ready professionals. Dr. Mazumdar-Shaw said Biocon will provide scholarship to cover three-fourths of the course fee of USD10,000 (INR600,000) and even for the balance amount the students will be assisted with bank loans if required.

Source: Biocon press release, November 2013

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Recommendations

The public sector’s interest in R&D has been well appreciated and continual momentum in the same direction is desired

“I appreciate how government funding enabled things for us, either directly through grants or through visibility outside or access to programs that address particular needs.

There is a real commitment to support innovation.”

- Dr. Radha Rangarajan, CEO, Vitas Pharma

“BIRAC has received great response from the industry.”

- Dr. Renu Swarup, Advisor, Dept. of Biotechnology

needs to target global average of innovation spend as a percentage of GDP over the next five years. For  India achieving the same, we need to equally concentrate on public and private side of funding  Maintain the momentum on the public sector funding • The DBT, which is the nodal agency for promoting biotechnology, has been spending around USD254.54 million (INR1,400 crore) each year, to support R&D and innovation • Council of Scientific and Industrial Research (CSIR) announced a budget allocation of INR1,750 crore for FY13. CSIR provides grant support to the institutions and organisations at low interest loans (three to five per cent) under the New Millennium Indian Technology Leadership Initiative (NMLTI). It has enhanced its budget allocation of INR11.79 crore by adding INR15 crore, thereby allowing the program to spend about INR26.79 crore up to 2017.

• DBT’s scheme Small Business Innovation Research Initiative (SBIRI) to promote R&D in small and medium size biotech companies has assisted more than 112 companies through 19 batches as of 2012. An estimated amount of USD90.90 million (INR500 crore) has so far been spent under this scheme • The government incorporated Biotechnology Industry Research Assistance Council (BIRAC) as a not-for-profit section-25 company in March 2012. Apart from operational cost with an initial outlay of USD127,272 (INR70 crore), BIRAC has an additional USD27.27 million (INR150 crore) to invest in the public-private partnership initiatives. BIRAC's Biotechnology Ignition Grant (BIG) scheme for igniting new ideas was declared in June 2012. The scheme is designed to stimulate commercialisation of research discoveries by providing very early-stage grants for the development and maturation of those discoveries into marketable product or intellectual property (IP), in particular to help bridge the gap between discovery and invention.

Source: Department of Science and Technology Annual Report 2013

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Recommendations

Channelising private funds toward R&D is imperative; showcasing research adequately, at the right platform may help

“Given the constraints in the number of investors investing in life sciences in India, I don’t want to worry about the second round of funding. Good IP development work coupled with a good business model, which ensures cash flow and business minded people, is what I look for in a portfolio company.”

- Mr. Nitin Deshmukh, CEO, Kotak PE Group

 Stimulate private sector funding in early stage research • Large Indian and global life sciences companies and sector focussed funds are interested in funding research which has commercial promise. However, a single mechanism to showcase such projects to the industry does not exist • Create a not-for-profit body which is responsible for collating on-going life sciences research centrally. Further, as part of its function, the body organises quarterly events where it presents the research to interested investors • Initially, the expenses can be borne by the Government and the industry together. Later, the operational expenses of such a body could be met by the commissions it receives through every successful funding.

Some of the active biotech and pharma investors • Domain Associates • HealthCare Ventures

“I am impressed by BIRACs initiative to seed early stage ventures, it may be a way forward for the cutting edge research in the country.”

- Mr. Nitin Deshmukh, CEO, Kotak PE Group

• Polaris Venture Partners

VC investments globally in biotech/pharma depict a few trends, which highlight a few requisites that make a venture lucrative • A strong management team that investors trust is an important consideration – there is a trend of VCs collaborating multiple times with entrepreneurs and ventures that they have funded before

• MPM Capital

• Trend of supporting “game changing therapeutics” as opposed to incremental innovation

• Alta Partners

• VCs are also looking at companies that “address unmet needs”.

• ARCH Venture Partners • Flagship Ventures • SV Life Sciences Advisers • Sanderling Ventures • Kleiner Perkins Caufield & Byers.

Source: FierceBiotech publication accessed March 2014

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Conclusion

And then there is the question of culture

Israel – Creativity in chaos According to the Global Innovation Index data, India slipped from 64 in 2012 to 66 in 2013. While it may not be fair to say that innovation in India has not been accomplished, there is tremendous scope in India to encourage and incentivise innovation.

This paper has attempted to identify the tangible aspects of innovation in life sciences and suggest solutions where gaps exist. However, this discussion will be incomplete without mentioning the one intangible but all pervasive phenomenon – the culture of innovation.

What is the culture of innovation? Simply put it is a culture that encourages entrepreneurship and risktaking and does not disparage failure.

Given that we are an emerging nation and that large parts of the population are still not guaranteed social security, understandably our risk-taking ability has traditionally been low.

Despite the continual political turmoil, Israel is known as the natural hub for innovation owing to the presence of a large number of start-ups and more engineers per capita in comparison to other countries. The innovation in Israel is probably a result of the collaboration and support amongst all stakeholders in the ecosystem. The companies in Israel are offered significant government support and societal acceptance. The R&D expenditure of Israel (excluding defense R&D expenditure) accounts for five per cent of its GDP, which is higher than any other western country. Despite its small size, the focus on innovation has been a priority as implied by the government’s "bottom up“ approach to fund innovative projects in the field of early-stage R&D. The Israeli government believes in complimenting the private sector by co-investing with it rather than replacing it. The annual budget of the office of the chief scientist is around USD450 million (INR2,800 crore), which it always utilises by coinvesting along with the private sector.

Per capita, Israel has attracted more than double the amount of venture capital investment in the United States and 30 times more than all the members of the European Union combined. Israel’s farsightedness is reflected in the fact that the country had set up a seed fund named Yozma more than two decades ago.

The country essentially has nurtured all components of innovation to create an ecosystem that supports inventiveness and creativity. The country's emphasis on education is evident in its 57 colleges and eight universities which have produced six Nobel Prize winners over the last 10 years.

Source: KPMG in India analysis, Primary interviews, Israel Ministry of Foreign Affairs website, accessed March 2014

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Conclusion

And then there is the question of culture

“The Industry in India should be more forthcoming, we have the different stakeholders all holding on to ownership and resisting collaboration we need to stop the whole “entitlement” attitude to create the right ecosystem for innovation.”

Despite this fact, we devised our own niche of incremental innovation – the local entrepreneurs did innovate while capping the downside on risk. Our transition from generics to differentiated generics is a testimony to this.

Breakthrough innovations like a successful NCE though requires a more radical approach.

As a nation we have to celebrate innovation and the failures that come in the process. The change has to start early- perhaps schools are where we need to begin. We need to give the students the latitude to be creative, the assistance to innovate and the freedom to question the “as-is”.

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

“It is important to make a big deal out of innovation, encourage people, motivate them and then reward them.”

- Mr. Utkarsh Palnitkar, Head of Advisory, KPMG in India

“While different people see components of innovation and aspects of it, no one sees the whole picture.”

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

Today, ’India has clusters of excellence that are creating a disproportionately high level of innovation, but the mass of the country still has a lot of underdeveloped potential’.

“We need to think like leaders, we need to think globally.”

Culture along with the other interventions discussed earlier can help us unlock this potential. Of course, it may happen gradually to begin with. But if we believe we wish to be amongst world leaders some day, we will need to begin now.

“It is important to have a coherent process of creation.”

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

- Dr. M.K. Bhan, Former Secretary, Dept. of Biotechnology

“Nothing good happens until and unless we try it out, we have to create the intent, rest will follow.”

- Dr. Rajat Goyal, Country Director, IAVI

Source: KPMG in India analysis, Primary interviews

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Appendix

48

Abbreviations

ANDA

Abbreviated New Drug Application

NCE

New Chemical Entity

ARWU

Academic Ranking of World Universities

NDDS

Novel Drug Delivery System

BIRAC

Biotechnology Industry Research Assistance Council

NGO

Non Governmental Organisation

B&O

Bang and Olufsen

NIPER

National Institute of Pharmaceutical Education and Research

CDRI

Central Drug Research Institute

NME

New Molecular Entity

CDSCO

Central Drug Standards Control Organisation

NSDC

National Skill Development Council

CEO

Chief Executive Officer

PE

Private Equity

CRO

Contract Research Organisation

PPP

Public Private Partnership

CSIR

Council of Scientific and Industrial Research

QS

Quacquarelli Symonds

CTO

Clinical Trial Organisation

R&D

Research and Development

DBT

Department of Biotechnology

SBIRI

Small Business Innovation Research Initiative

DTU

Denmark Technical University

SC

Supreme Court

EU

Europe

SCP

Stakeholder Consultative Platform

FDA

Food and Drug Administration

TB

Tuberculosis

GDP

Gross Domestic Product

THE

Times Higher Education

GLP

Good Laboratory Practices

U.K.

United Kingdom

INR

Indian National Rupee

U.S.

United States

IP

Intellectual Property

VC

Venture Capital

KoNECT

Korean National Enterprise for Clinical Trials

VL

Visceral Leishmaniasis

MDR

Multi drug resistance

MNC

Multi-National Company

NCD

Non-communicable disease

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List of interviewees

We are grateful to the following eminent industry experts for sharing their views with us : 1.

Dr. MK Bhan, Former Secretary, Department of Biotechnology

2.

Mr. Glen Saldanha, CEO, Glenmark

3.

Mr. Ranjit Shahni, Chairman, Novartis

4.

Dr. Renu Swarup, Chairperson, BIRAC

5.

Dr. Raman Govindarajan, Head of R&D, Sanofi Aventis

6.

Mr. Nitin Deshmukh, Director, Kotak PE

7.

Dr. Rajat Goyal, International AIDS Vaccine Initiative

8.

Dr. Shridhar Narayanan, Astrazeneca

9.

Dr. A Venkat, Dr Reddy’s Laboratory

10. Dr. Venkat Jasti, Suven Pharmaceuticals 11. Mr. Sayon Majumdar, Head of NPD, GSK 12. Dr. Venkata Ramana, Reliance Bio 13. Dr. Radha Rangarajan, CEO, Vitas Pharmaceuticals

14. Dr. Mukul Jain, R&D, Zydus Cadila 15. Dr. Gopakumar G. Nair, IP Attorney, Gopakumar Nair Associates 16. Mr. Christopher Sterling, Global Chair, Life Sciences, KPMG U.K. 17. Mr. Utkarsh Palnitkar, Head of Advisory, KPMG in India 18. Mr. Hitesh Gajaria, Partner, KPMG in India 19. Mr. Amit Mookim, Partner, KPMG in India 20. Ms. Karishma Phatpherkar, Partner, KPMG in India

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Acknowledgment

We acknowledge the efforts put in by the team from KPMG in India in preparing this publication

Authors: Amit Misra: Associate Director, Global Strategy Group, India Niloufer Memon: Team Lead, Research, Analytics and Knowledge

Strategic direction: Utkarsh Palnitkar: Head of Advisory , Head – Life Sciences practise

Research support: Ambika Bajaj: Analyst, Research, Analytics and Knowledge

Design: Subashini Rajagopalan: Associate Director, Markets Neelima Balachandran: Executive, Markets Shveta Pednekar: Executive , Markets

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Utkarsh Palnitkar National Head- Life sciences Partner- Transactions & Restructuring KPMG in India Pvt. Ltd. T: +91 (22) 30902320 M: +919849040801 E: utkarshp@kpmg.com

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