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How to start a discovery based R&D company in India?


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By - Swaroop Vakkalanka
Incozen Therapeutics
SP Biotech Park, Genome Valley
Hyderabad, India

Published in: Business, Economy & Finance
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How to start a discovery based R&D company in India?

  1. 1. Swaroop Vakkalanka<br />Incozen Therapeutics<br />SP Biotech Park, Genome Valley<br />Hyderabad, India<br />How to start a discovery based R&D company in India?<br />
  2. 2. When development costs are high and failure is common, pharmaceutical companies should structure research to seek truth first, success second<br /><ul><li>Eric Bonabeau et al</li></ul>A more rational approach to new product development<br />Harvard Business Review, March 2008<br />
  3. 3. Pharmaceutical Research - Background<br />Business Model<br />Infrastructure<br />Operations<br />
  4. 4. Background - Global<br />Diminishing R&D Productivity<br />IRR on small molecule R&D is now ~ 7.5%<br />Average return falls below the cost of capital – NPV ~ $65million<br />Key factors – POS decreased by 5 percentage points, time required for R&D increased by 12-18 months and R&D costs rising 8% annually<br />Identified levers for change – Cost, Speed and Quality of Decision making<br />Pharmaceutical R&D – Road to positive returns<br />Nature reviews – Drug discovery, Vol.8, Aug 2009, P-609<br />
  5. 5. Background – Indian till 2000<br />Highly divided pharmaceutical market – numerous players<br />Largely branded generics due to non-recognition of IP till 2005<br />Biggest players are known as leading global generic companies<br />Risk aversion due to lack of reward<br />Lack of understanding of key factors for early stage R&D success<br />Operations – extension of existing facilities<br />Global turbulence in pharmaceutical R&D<br />
  6. 6. Background – Indian 2000-2009<br />Introduction of Patent Law in 2005<br />Better profit margins due to global generic sales – increased R&D allocations<br />Indigenous industry adopted Biotech Route<br />Increased number of Out-Licensing deals<br />Market recognition of R&D companies<br />Return of trained manpower from West<br />An encouraging progress of CRO activity<br />Resource availability and simplification of government procedures – due to economic liberalization<br />
  7. 7. Business Model - Opportunity<br />The success of early stage new drug discovery in India<br />Availability of high quality resources<br />Growth pressure in the generic industry<br />Alignment with global need – Decrease in the cost of R&D by 15% increases IRR to 9.5% and rises NPV to ~ $ 250 million<br />Acceleration of drug development by 18 months – Increase in IRR to 11% and pushes NPV to ~ $ 440 million<br />Improved decision making – Fixing the Phase II problem – increases IRR to 13% and rises NPV to ~ $ 1.2 billion<br />
  8. 8. Business Model - Gaps<br />Drug research in India – not capable to provide end to end activity<br />Significant gaps – Safety evaluation, Clinical development, Global regulatory compliance etc<br />Lack of support to Start-up biotech industry<br />Non-availability of risk capital<br />Absence of scientific activity – discussions, annual meetings etc<br />Lack of Industry – Academia collaboration<br />Global market understanding<br />
  9. 9. Business Model - Licensing<br />A license is permission to do something that would, in the absence of permission, infringe intellectual property rights<br />“ Big pharma would capture the greatest expected value from early stage licensing virtually 100 percent of the time because the greater risk of failure for these assets was more than offset by the low terms available early on” <br /> - The New math for Drug Licensing, <br /> McKinsey Quarterly 2002, No.4<br />
  10. 10. Infrastructure – Factors for success<br />Management <br /> - Leadership connecting clinical and market needs to discovery research<br /> - Team that shares ambitious vision and intellectual honesty<br /> - Long term commitment of the founders and the team<br /> - Entrepreneurial culture<br /> - Proven track record<br /> - Experience and networking<br />
  11. 11. Infrastructure – Factors for success<br />Ability to Adapt and timing<br /> - Adherence to the vision<br /> - Flexibility to change business plans<br /> - Allow the business model to evolve<br /> - Priority for long term sustainability<br /> - Constant market and competitor evaluation<br /> - Timing the market removes product risk<br />
  12. 12. Infrastructure – Factors for success<br /><ul><li>Location</li></ul> - Key factor in risk reduction<br /> - Availability of academic and research institutions<br /> - Acceptability to investors<br /> - Must allow the business to focus on core activity<br /> - Biotech clusters – Ideal Choice<br /> - Gains by proximity to established firms<br /> - Personal and professional ties will help<br />
  13. 13. Infrastructure – Factors for success<br /><ul><li>Financial</li></ul> - VCs, Angel Funds, Seed Investors, PEs and Corporate<br /> - Helps to be honest with deliverables<br /> - Vision for long term commitment<br /> - Managerial policies for attracting and retaining the required talent<br /> - Emphasizing on key value drivers<br /> - Focus – Short term, Expandability – Mid term, Value creation – Long term<br />
  14. 14. Operations – R&D Structure till ‘80s<br />“Waterfall” model. For profit industry at downstream.<br />Dominated by random screening methodology<br />Low hanging fruits – Less complexity. Flexibility in selection.<br />Integrated large R&D activity<br />“Open science practice” – Government funded basic research.<br />
  15. 15. Operations – R&D Structure till ‘80s<br />Extensive preclinical evaluation based on animal studies<br />Driven by mechanism and disease process<br />Preclinical evaluation – 5 years and clinical – 2 years<br />Less integrated with development<br />Help from CRO restricted to Toxicology majorly<br />Success is driven by correlations in disease based models<br />
  16. 16. Operations – R&D Structure from ‘90s<br /> Translational Research<br />Significant entry of more focused players having<br />better coordination with “Open Science”<br />Rational drug design at centre stage<br />Revolutionary changes in scientific, technological,<br />economic and legal aspects of drug discovery<br />Era of collaborations and contracts<br />Active academic participation with shift to molecular level exploration<br />
  17. 17. Operations – R&D Structure from ‘90s<br /> Translational Research<br />Signal transduction in cellular studies<br />Animal models to mimic in-vitro evaluations<br />Introduction of knock-out and transgenic models<br />Preclinical evaluation – 2 years and clinical – 5 years<br />Focused CROs shifted to collaborative role<br />PK/PD correlations to establish Conc.-Response<br />Biomarker assessment to help clinical designs<br />Potential of combinations - explored<br />
  18. 18. Current model – Two faces of drug development<br />Early stageLate stage<br />R&D Goal<br />Seek Truth Seek success<br />R&D Approach<br />Reduce risk Maximize value<br />Loyalty to Expt Loyalty to product<br />Focus on science Focus on business<br />Operate with low cost High fixed cost<br />Small expt based teams Large prod. based teams<br />Emphasize testing Emphasize refining<br />
  19. 19. Thank You<br />