Guj pharma cos seek budget push for clinical trials

As the Union Budget draws close, mid-sized pharma companies are hoping to have a budget push for supporting clinical trials. "India has now become a supplier to the whole world. While, this boosts the pharmaceutical business on the whole, it also calls for conducting country specific clinical trials if they want to enter overseas geographies.", said Ketan Patel, managing director, Troikaa Pharmaceuticals. Clinical trials comprise nearly 75 per cent of the cost of development of a pharmaceutical product.

On an average, a company ends up spending around Rs 3-5 crore to conduct clinical trials to generate safety related data specific to each country. As most pharma players are now looking at cracking multiple countries spread across Europe, Asia, Africa along with the US. Hence, the expenditure on clinical trials is on the rise. If a reputed clinical research organisation is hired for the purpose, which increases the chances of getting approvals. "If one hires a reputed firm, the costs go up several folds, but it also ensures the quality of the data generated and hence, higher chances of approval.", said an industry insider who has recently hired a similar firm for its injectable product.

Companies are looking forward to this year's budget to have something in store for them on the clinical trial front. Patel says, "The Centre can come up with a subsidy scheme for supporting clinical trials, or a soft loan for bonafide research projects." He added that the union government already has a scheme in place for income tax benefits related to a company's expenditure on research and development. Last year's Union Budget has increased the weighted deduction for research and development (R&D) expenditure to 200 per cent from 150 per cent, thereby enabling an improved cash flow by reducing the tax burden. This means if a company is spending Rs 100 crore on R&D, it is eligible for a Rs 200 crore deduction from its taxable income that will directly impact its profit after tax. If we consider a 33 per cent tax on income together with surcharge, that amount is saved directly.

R K Baheti, director, finance, Alembic Pharmaceuticals, which has already applied for a tax rebate based on the weighted deduction scheme, said, "A government push for clinical trials is most welcome, as it is indeed an expensive affair. Instead, companies can utilise their other lines of business to fund the R&D costs." Alembic spends around 4 per cent of its turnover on research, and it uses the strength of its domestic and international business to offset the cost of R&D. Baheti, also mentioned that there is little clarity now as to which categories of clinical trials are currently eligible for the income tax deduction. "We can look forward to the government providing some clarity on that front.", he says.

A senior official in Intas Biopharmaceuticals, a research oriented pharma major in Gujarat, said that as clinical trials get expensive by the day, some sort of government support indeed has become necessary now. "If India has to grow into a formidable pharmaceutical player in the future, clinical trials need support from the Centre. Our drugs are one of the cheapest available in the global markets, in comparison to big pharma players in the US and Europe. They can allocate around 8-10 per cent of their turnovers into R&D, as their margins are high. For Indian companies, it is much lower at 3-4 per cent of turnovers, and hence the difficulty to sustain clinical trial expenses," he said.