Why Indian Drugmakers Are Cutting R&D Spends

For Aurobindo Pharma, the R&D as a percentage of sales rose to 6.3% in the second quarter-end September, but it’s expected to remain 5.5-6% by yearend.

Sun Pharma and Dr Reddy’s have guided for higher absolute spends. “With our continued investment on Ilumya (forplaque psoriasis)as well as additional indication plus the recently licensed product from SPARC, for which also the Phase II studies will start shortly, the overall spend, if the clinical studies get into the normal rhythm, will go up a little bit”, Sun Pharma said in its second-quarter earnings call.

Dr Reddy’s said it has strengthened its development pipeline across markets, including multiple products related to Covid-19. “In the coming months, this will increase our investment in R&D and accelerate our submissions of new product filings,” it said after the second-quarter earnings.

But R&D cost as a percentage of sales is still lower or at the same level as the previous year for both the firms. For Sun Pharma, it was 6.5% in the first half compared with 8.6% a year earlier. Dr Reddy’s maintained it at 8.9% compared with 8.8% in FY20.

Way Ahead

Jefferies, however, expects the spends to rebound. “A revival in US generics is likely to increase R&D spend, but as companies have just come out of a long capex cycle, the cumulative R&D plus capex figure will remain in control,” the research firm said in its report. The cumulative R&D and capex amount, according to the report, stood at Rs 21,300 crore in FY20.

Manchanda expects the R&D cost to remain below 10% of sales. “8% would be a comfortable zone for most.”

Surajit Pal, research analyst at Prabhudas Lilladher, also sees spending on R&D reviving. “Due to Covid, many clinical trials were stopped due to various obvious reasons leading to lower spends,” he said. “Those restrictions are now gradually removed and R&D costs are expected to go up in coming quarters.”

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