Competitiveness of Indian Biotechnology Industry by Institute for Competitiveness

COMPETITIVENESS OF THE INDIAN BIOTECHNOLOGY INDUSTRY

Competitiveness of the Indian Biotechnology Industry

AUTHORS

Amit Kapoor Honorary Chairman Institute for Competitiveness, India Manisha Kapoor Senior Researcher Institute for Competitiveness, India Chirag Yadav Senior Researcher Institute for Competitiveness, India

EDITORIAL

Neera Vohra Principal Associate Institute for Competitiveness, India Publisher Institute for Competitiveness U 24/8. DLF Phase 3, Gurgaon 122 002, Haryana, India Website: www.competitiveness.in

ÂŠ Institute for Competitiveness, 2019

The Institute for Competitiveness

ÂŠ 2019 The Institute for Competitiveness. All rights reserved. For more information about obtaining additional copies of this or other Institute for Competitiveness publications, please visit IFCâ&#x20AC;&#x2122;s website, www.competitiveness.in

About The Institute For Competitiveness Institute for Competitiveness, India is the Indian knot in the global network of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India is an international initiative centered in India, dedicated to enlarging and purposeful disseminating of the body of research and knowledge on competition and strategy, as pioneered over the last 25 years by Professor Michael Porter of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India conducts & supports indigenous research; offers academic & executive courses; provides advisory services to the Corporate & the Governments and organizes events.The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities and thus generate guidelines for businesses and those in governance; and suggests & provides solutions for socio-economic problems.

Visit www.competitiveness.in for more information.

The Institute for Competitiveness U 24 / 8 DLF Phase 3 Gurgaon 122 002 Haryana, India Phone: +91 124 437 6676 Email: info@competitiveness.in

CONTENTS EXECUTIVE SUMMARY 6 INTRODUCTION 10 THE INDIAN BIOTECHNOLOGY INDUSTRY

INDIA VS THE WORLD 15 Enablers 16 Performance 20 PORTERâ&#x20AC;&#x2122;S FIVE FORCE ANALYSIS 22 KEY SEGMENTS IN THE INDIAN 24 BIOTECHNOLOGY INDUSTRY ANALYSING THE COMPETITIVENESS 28 OF THE INDIAN INDUSTRY Advantage India 31 Issues and Challenges 32 THE BIOTECHNOLOGY CLUSTER 40 RECOMMENDATIONS 44

EXECUTIVE SUMMARY

It has been widely recognized across the globe that the only way for countries to ensure sustained growth and prosperity is to be more innovative and to focus on sectors that give the nation a competitive edge in the world economy. For India, the biotechnology industry holds such potential to substantially build India’s competitiveness and deliver on its long-term developmental goals.

The Indian government also realizes this potential that biotechnology will be leader among knowledge base industries in the 21st century.Therefore, the government aims to make India a global biotechnology hub by 2020. In fact, the biotechnology sector is more prevalent in Indian lives than is often acknowledged. It enabled the Green Revolution, which enhanced farm yields and made the country selfsufficient in food production. A similar contribution from the sector was witnessed in the White Revolution. It can play a key role in driving India’s growth story forward by meeting its healthcare needs, addressing the challenges of food security and meeting its energy needs. The Indian government realised the potential of the sector quite early and has been proactively working towards its development to its maximum potential. In fact, when the size of the biotechnology industry was merely $4 billion in 2011, it had set a target for it to touch $100 billion by 2025. As of 2016, the Indian biotechnology industry was valued at $11 billion. The industry is still at a nascent stage when compared to more mature economies. The developed world has a history of heavy expenditure on research and development and has superior manufacturing capabilities. India on the other hand has a very low spending on research and development activities. It has managed to develop research facilities, but they are not comparable to the facilities in the developed economies. Another major problem that is hindering the country from achieving its full potential is the lack of knowledge on commercialization of research, which happens due to weak industry-academia linkages. Since India is already behind on the curve, it is imperative that it works towards establishing a policy and regulatory environment that is conducive to the sector’s growth. Against this backdrop, this report analyses the competitiveness of India’s biotechnology industry. It starts by comparing the Indian biotechnology sector with other emerging biotechnology economies such as China as well as developed biotechnology economies such as United States. It helps in analyzing where India stands in comparison to the world in the biotechnology inputs such as human capital, technology transfer etc. and biotechnology outputs such as exports, agricultural production, usage of biofuels etc. Going forward, the competitiveness analysis brings out the issues that need to be addressed, the opportunities that will shape up the future of the biotechnology industry in India and provide recommendations for policymakers to enhance the competitiveness of the industry with the aim of attracting investments. The report suggests to work on four broad areas – infrastructural facilities, access to capital, legal & regulatory system and human development.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Reforming the legal and regulatory system • Establish transparent and predictable policy environment • Should work towards implementing ICH guidelines • Increase the level of coordination between different ministers that control the biotechnology regulations in India • The union Budget 2016-17 reduces the weighted deduction on R&D expenses from 200% to 150% from the FY 2017-18 to FY 2019-20. This should be reversed • R&D expenses incurred outside India should be included under expenses allowable for weighted deduction

Investing in Human development Improving availability of capital • Provide a constant source of funding, especially during the valley of death period • Create a platform where budding entrepreneurs can showcase their technologies to VC

VISION $100 Bn by 2025 01

Access to world class infrastructure • Adoption of electronic health records that will impact the data available for research purposes • Improves the animal breeding facilities in India • Focus on increasing the size of biotech incubators that will impact the productivity of firms • Providing the state-of-the-art infrastructure for conducting clinical trails • Increase the R&D spending as % of GDP • Ensure high quality inspection procedures

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

• Address the skill gaps in the biotechnology industry by designing new curriculum after industry consultation • Retain the talent by expanding initiatives such as Young Biotechnology Award, Tata Innovation Fellowship etc. • Strengthen the industry academia linkage with training programs in industry for students, easing the process of technology transfer

IP Regime • The government should discus the issues of compulsory licensing with the industry • It should also discuss with the industry about the Section 3(d) of the Patent Amendment Act and how it can incentivize Indian biopharmaceutical companies to invest in innovation in India.

As for infrastructural facilities, it is suggested that the government should increase the R&D spending (as a percentage of GDP), should work on providing the state-of-the-art infrastructural facilities for conducting clinical trials, focus on increasing the size of the biotechnology incubators that will positively impact the productivity of the firms. In the healthcare space, the government should put efforts for adoption of electronic health records to impact the data availability for research purposes. For utilizing the full potential of the India’s bioagri sector, activities in agricultural research should be increased. For access to capital, it is important to incentivize Venture Capital (VC) investment. For the same, the government should build a platform where budding entrepreneurs can showcase their technologies to the Venture Capitalists and provide tax breaks for VC investment. Apart from VC investment, it is important to provide a constant source of funding, especially during the valley of death period. Within the legal and regulatory framework, the government should take four steps. First, increase the level of coordination between different ministers that control the biotechnology regulations in India. Second, establish transparent and predictable policy environment.. For the same, the government should implement globally recognized standards such as ICH guidelines, ensure high-quality inspection and address the problems with the legal environment vis-à-vis clinical trial approval protocols as well as procedures for addressing trial-related injuries. Third, address the challenges in India’s IP environment. The government should reform the Section 3(d) of the Patents Amendments Act of 2005 to incentivize biopharmaceutical to invest in innovation in India; it should work on the issue of compulsory licensing and it should protect the full breadth of biotechnology innovations including nucleic acids, proteins, cells, plants and animals. Fourth, the Union Budget 2016-17 reduced the weighted deduction on R&D expenses from 200% to 150% from the FY 2017-18 to FY 2019-20. It would be beneficial to reverse this change in provisions. R&D expenses incurred outside India could be included under expenses allowable for weighted deduction. For enhancing the potential of India’s human resources, the country should address the skill gaps in the biotechnology industry by designing new curriculum after industry consultation. It should retain the Indian talent by expanding initiatives such as Young Biotechnologist Award, Tata Innovation Fellowship etc. Apart from this, it is critical to strengthen the industry academia linkages with training programs in industry for students, easing the process of technology transfer, and enhance biotechnology programs in secondary schools and in universities.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

INTRODUCTION

There have been unmistakable signs over the last few years that the idea of globalization has come under fire by people across the world who have become disenchanted over inequity in the distribution of its gains. In such times, the only way for countries to ensure sustained growth and prosperity is to be more innovative and to focus on sectors that give the nation a competitive edge in the world economy. For India, the biotechnology industry holds such potential to substantially build India’s competitiveness and deliver on its long-term developmental goals. It can play a key role in driving India’s growth story forward. In fact, the biotechnology sector is more prevalent in Indian lives than is often acknowledged. It enabled the Green Revolution, which enhanced farm yields and made the country selfsufficient in food production. A similar contribution from the sector was witnessed in the White Revolution when India became a milk-surplus nation and improved the nutrition level of its citizens. More recently, the meteoric growth of the Indian pharmaceutical industry is a result of process innovation that has given the country a cost advantage in the manufacture of drugs. Further, the growing energy needs of the rural areas in India are being increasingly met by biomass fuel. Thus, the sector has made indelible forays into the Indian economy. Its performance through the years has shown how the sector can bring about transformational change across various aspects of the economy and address the myriad challenges that a developing nation faces; ranging from healthcare to food to fuel security. With such a huge population, these issues are the most pertinent for a country like India and the growth of the biotechnology sector can provide innovative ways of combating them. Fortunately, the Indian government realised the potential of the sector quite early and has been proactively working towards its development to its maximum potential. In fact, when the size of the biotechnology industry was merely $4 billion in 2011, it had set a target for it to touch $100 billion by 2025. As of 2016, the Indian biotechnology industry was valued at $11 billion. The industry is still at a nascent stage when compared to more mature economies. The developed world has a history of heavy expenditure on research and development and has superior manufacturing capabilities. Since India is already behind on the curve, it is imperative that it works towards establishing a policy and regulatory environment that is conducive to the sector’s growth. Against this backdrop, this report analyses the competitiveness of India’s biotechnology industry.

It starts by comparing the Indian biotechnology sector with other emerging biotechnology economies such as China as well as developed biotechnology economies such as United States. It helps in analyzing where India stands in comparison to the world in the biotechnology inputs such as human capital, technology transfer etc. biotechnology outputs such as exports, agricultural production, usage of biofuels etc.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Going forward, the competitiveness analysis brings out the issues that need to be addressed, the opportunities that will shape up the future of the biotechnology industry in India and provide recommendations for policymakers to enhance the competitiveness of the industry with the aim of attracting investments. In particular, it will answer the following questions: • • • • •

What has India done so far in the biotechnology sector? o What are the steps taken by the Indian government and how have they impacted the biotechnology industry? Where does India fit in with the global scheme on biotech innovation o How are the various segments within the biotechnology industry performing and where are they lacking? What are the fundamental factors affecting the competitiveness of the Indian biotechnology industry? What aspects of the Indian environment are providing momentum to the biotechnology industry and what is holding back the industry? What are the policy recommendations that will help India in attaining the ambitious target of building a $100 billion biotechnology industry by 2025?

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

The Indian Biotechnology Industry The biotechnology industry in India has been growing at a phenomenal pace. From merely $500 million in 2003, it has grown exponentially in size to a $11 billion industry as of 2016. This amounts to a sustained annual growth rate of over 20 percent for more than a decade. The growth of the industry has been

visualised in Figure 1. Globally, India is among the top 12 biotechnology destinations in the world. The industry is comprised of firms that cater to various segments of biotechnology including biopharmaceuticals, bioservices, bioagriculture, bioindustrial and bioinformatics. This is shown in greater detail in Figure 8.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Biotechnology Revenues

11.6

3.8

Figure 1: Biotechnology Revenues

The industry has over 500 companies put together. In the last few years there has also been an explosive growth of start-ups within the industry. As of 2016, there were more than a thousand biotechnology start-ups in India. To put matters in perspective, Australia has a total of 470 biotechnology companies. More than half of these start-ups are involved in healthcare – drugs, medical devices and diagnostics – while about 14 percent are in agricultural biotechnology and about 18 percent in biotechnology services. The government has played a crucial role in enabling this pace of growth for the industry through all these years. As early as 1986, Rajiv Gandhi recognising the potential of biotechnology in the country’s development, set up the Department of Biotechnology with a modest budget of somewhere between 40 million to 60 million rupees. In fact, with its establishment India became one of the first countries in the world to have a government department solely dedicated to biotechnology. Over the years, the Department of Biotechnology has made immense contributions to the development of the industry. The department has set up 17 Centres of Excellence in biotechnology at higher education institutions across the countries and has supported the establishment of 8 biotechnology parks across

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

4.3

2012

2013

2017

2015

2014

2011

2010

2.6

2009

2006

2.6

2008

1.5

1.9

2007

1.1

2005

Revenues in USD billion

different cities. The latter is meant to provide a platform for industry-academia interaction. The parks provide facilities for scientists and small to medium scale enterprises to come together to develop and demonstrate their technologies. The biggest contribution of the department was setting up the Biotechnology Industry Research Assistance Council (BIRAC) It is a not-for-profit, public sector enterprise that was established in 2012 to “stimulate, foster and enhance the strategic research and innovation capabilities of the Indian biotech industry, particularly start-ups and SMEs.” Since India has always been good in basic research but has failed to convert that into commercial outcomes, BIRAC was set up to address that challenge. In its six years of existence, it has successfully supported 316 start-ups that have generated $125 million in revenue through creation of 122 products and technologies. These have included innovations like a cattle-feed equipment, microfluidics-based diagnostics, a new process to manufacture human albumin and immunoglobulin and a quick test for malaria. The government amidst all of its efforts has also aimed to expand the Indian biotechnology industry to over $100 billion by 2025. However, to achieve the target the status quo will not be sufficient as an industry

growth rate of 20 percent will not suffice. The industry needs to grow at least at a CAGR of 30 percent for the remaining period. Two crucial resources that India possess to achieve this goal are its vast pool of human resources and a healthy supply of capital.

capital, the biotechnology sector in India has accessibility to funding from both government and private sources. India does especially well on the availability of venture capital when compared to other countries like United Kingdom, Canada and Australia.

A LinkedIn report released in 2017 showed that India has the second-largest workforce in the world employed in the pharmaceutical and biotech industry. In fact, India accounts for 13.7 percent of the global workforce engaged in the industry. This has been a result of a focussed effort by the state to train graduates in the field of biotechnology. The Department of Biotechnology set up the Biotech Industrial Training Programme in 1993 to skill recent graduates in the field. As a result of the programme, a large number of institutions or departments of biotechnology within institutions were created that has produced the current pool of biotech-skilled human resources that we witness today. As for

An added advantage for the biotechnology industry in India is the pre-existing consumer demand within the domestic market. The country has a population of 1.36 billion and rising, for whom the demand for healthcare will only escalate driven by the rising purchasing power of its citizens and an increasing prevalence of lifestyle diseases. Other segments of the industry command an equally wide consumer base. Therefore, the industry has strong factor and demand conditions in the Indian market. The only challenges that can prove to be impediments in Indiaâ&#x20AC;&#x2122;s road to the creation of a $100 billion industry mostly lie in the domain of regulation and infrastructure.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

India Vs The World This section analyses how the Indian biotechnology sector performs in comparison to other emerging biotechnology economies such as China as well as mature biotechnology economies such as United States, Switzerland etc. This assessment is done by looking at two types of measures â&#x20AC;&#x201C; inputs and outputs. The input indicators reflect the enablers such as human capital, policy landscape etc. that help to develop and sustain a successful biotechnology sector. Together these indicators measure the degree to which a country has created an environment

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

conducive for the biotechnology sector to grow. The output indicators measure whether the government, along with other stakeholders, has been able to build a successful biotechnology sector or not. Together these indicators reflect the benefits that the economies derive from the inputs in terms of biotechnology outputs, knowledge creation and exports. Figure 2 depicts the framework that is used to analyse the performance of Indian biotechnology sector performs in comparison to other economies.

Technology Transfer

Regulatory Environment

Investment

ABLERS N E Human Capital

Safety & Legal Environment

BIOTECHNOLOGY PERFORMANCE

Figure 2: Assessing the Biotechnology Sector

ORMAN

Clinical Trials

Biotechnology Output

Enablers Human Capital It is critical for both emerging as well as developed biotech economies to focus on the education levels of its population. The education system ensures functioning of the innovation system by providing quality human capital such as engineers,

scientists, researchers who implement new concepts and strive towards new processes, that is important for the development of the biotechnology sector. The number of researchers in the country are representative of the quality of its human resources. The same is depicted in Figure 3.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

7k 6k 5k

Researchers (per million population)

4k 3k 2k

Lesotho Cambodia Mazambique Iraq EI Salvador Paragguay Oman India South Asia Pakistan Jordan Puerto Rico Bosnia & Herzegovina Chile Uzbekistan Uruguacy Moldova Egypt, Arab Rep. Montenegro Macadonia,FYR Romania Ukraine Cyprus China Georgia Macao SAR, China Croatia Tunisia Latvia Malta Bulgeria United Arab Emirates Italy Serbia Poland Malaysia Hungary Spain Slovak Republic Lithuania Russian Federation Estania Greece Hong Kong SAR, China Euro area Czech Republic Slovenia Portugal United States Germany United Kingdom Netherlands Ireland Belgium Austria Luxembourg Japan Iceland Norway Finland Sweden Korea, Rep Denmark

Figure 3: Researchers per million population

The number of researchers per million in India more striking that number of researchers in are 216, while China has 1177 researchers India are more than just 30 countries in the per million. For other mature economies such world. as South Korea this value stands at 7113. Itâ&#x20AC;&#x2122;s

Investment Despite the importance of innovation in the growth and development of a nation, the focus of the Indian state on its promotion has

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

been left wanting. To begin with, India devotes a paltry expenditure to research and innovation, especially when compared with the rest of the world.

GERD (as a % of GDP)

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50

Indiaâ&#x20AC;&#x2122;s gross expenditure on research and development as a proportion of the countryâ&#x20AC;&#x2122;s GDP has consistently fallen in the last decade after reaching a peak of about 0.85, which has now settled below 0.7. It is worrisome that India features so low on R&D expenditure when compared to other nations and, in fact, is the worst-performing among all the BRICS nations. This can be seen in Figure 4. Moreover, India presents a queer distinction from the rest of the world based on where

India

Government

China

Germany

Pakistan

Sri Lanka

India

Mexico

Argentina

South Africa

Spain

Russia

Italy

Brazil

Canada

Norway

Australia

Netherlands

China

Singapore

USA

France

Finland

Germany

Austria

Denmark

Japan

Sweden

Switzerland

Israel

Figure 4: GERD Source: UNESCO, 2015

South Korea

0.00

most of the expenditure is raised. Figure 5 shows that the private spending in India towards R&D is seriously lacking. Compared to 77 percent in China, the share of private expenditure towards R&D in India is merely 43.5 percent. So, the private sector needs to step up in driving the spirit of innovation forward in India. Meanwhile, the government spending should be diverted to creating enabling factors for innovation in India like creation of a larger pool of human capital and improving industry-academia linkages.

Korea

Japan

Israel

100 Business

University

Private Non-Profit

70 60 50 40 30 20 10

Figure 5: Share in investment 0 Source: UNESCO, 2015

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Technology Transfer Universities across the world are seen as hubs of innovation where experts from varied fields come together to share their ideas for developing new technologies, systems and processes. Such innovation originating from universities usually attracts huge demand from the industry. This results in diversified product and market development, which leads to the nation gaining a competitive edge in the world markets. However, in the Indian universities the focus on research is quite abysmal and the linkages within different universities and industry academia linkages are missing. This leads to challenges in both the roles that universities are supposed to play â&#x20AC;&#x201C; knowledge creation and knowledge transfer. Many of the universities work on the same issue without interacting with one other, which fails to create crucial synergy effects.

A conflict of interest is created when it comes to co-creating a product by industry coming together with academia. This happens because only 33 percent of Institutions of National Importance, 24 percent of central universities and merely 12 percent of state universities have an IPR policy. This lack of clarity on who owns the IP and how information will be shared between different parties makes the industry hesitant to collaborate with the universities for research work.

Regulatory Framework There is a feeling among the industry members that the Indian regulatory framework is unpredictable. For instance, some changes are made at a very short notice in an arbitrary manner. The government should work towards creating trust among the industry.

Safety and Legal Environment

Further, there are many research ideas that academicians work on which are not commercially viable and hence industry shows no interest in investing in such ideas.Therefore, it becomes important for the authorities to play a role in finding the right channel of knowledge creation and dissemination.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

The U.S. Chamber of Commerce Global Innovation Policy Center (GIPC) in their sixth edition of International IP Index analysed the intellectual property (IP) climate in 50 world economies. The report ranks economies based on 40 unique indicators that benchmark activity critical to innovation development surrounding patent, trademark, copyright, and trade secrets protection1. India, due to its higher patentability standards got a rank of 44 (A complete analysis of Indiaâ&#x20AC;&#x2122;s IP regime is provided in the next section). However, for the first time the country did not get placed in the bottom ten percent of economies measured. This is mainly due to the passage of guidelines to improve the patentability environment for technological innovations, as well as the implementation of some tenets of the National Intellectual Property Rights Policy.

Performance Figure 6 depicts the performance of India, along with other economies, on three indicators that reflect the biotechnology output. The indicators are clinical trials for biologics (per million population), biopharmaceutical exports (percentage share of world exports) and biotechnology crops (hectare under cultivation, percentage of total). The figure depicts that the level of clinical trails in the country are low compared

to other economies. It holds 2.87 share of the total world export of biopharmaceutical industry, which is lower than United States (9.25), China (3.81) and Switzerland (13.44). In the bio-agri sector India is highly competitive and therefore has a higher cultivation of the biotechnology crops – 5.83 percent of the total hectare under cultivation.

Clinical Trials India has a huge potential for clinical trial activity due to its large and low-cost market. Despite these advantages, it currently hosts only 0.2 clinical trials per million population, which is among the lowest rates globally. This gap exists because of three main reasons.

https://www.uschamber. com/press-release/uschamber-releases-sixthannual-international-ipindex 1

• • •

First, there is a lack of adequate resources for capacity building and infrastructure that is required to ensure high-quality clinical research system in the country. Second, India’s patentability requirements remain outside established international best practices. Third, there are problems with the legal environment vis-à-vis clinical trial approval protocols as well as procedures for addressing trial-related injuries.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Figure 6: Performance Indicators

A report by Pugatch Consilium showed that an improvement in Indiaâ&#x20AC;&#x2122;s clinical research policy environment that roughly equals the median level of international best practices could increase Indiaâ&#x20AC;&#x2122;s number of new clinical

SWITZERLAND | 48.37 | 13.44 | None

trials per year to above 800 and add close to 1 billion dollars in direct monetary transfers and indirect economic gains.

DENMARK | 60.06 | 1.08 | None

CHINA | 0.7 | 3.81 | 1.51

USA | 27.87 | 9.25 | 39.38

INDIA | 0.2 | 2.87 | 5.83

AUSTRALIA | 29.57 | NA | 0.49 Clinical trials for biologics (per million population) Biopharmaceutical Exports (Percentage share of world exports) Biotechnology Crops (hectare under cultivation, percentage of total)

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Porterâ&#x20AC;&#x2122;s Five Force Analysis We use the Porterâ&#x20AC;&#x2122;s Five Force Analysis to identify the forces that shape the Indian biopharmaceutical industry and to analyze the competitive strength of different stakeholders.

It will help us in gaining insights about industry attractiveness and will shed light on how current trends will affect competition in the industry.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

BARGAINING POWER OF SUPPLIERS (LOW) Presence of large number of suppliers. Mostly companies work with dedicated suppliers.

THREAT OF SUBSTITUTES (SEGMENTED)

THREAT OF NEW ENTRY (LOW)

This depends on the segment of the market.

High research costs. Stringent government regulation.

COMPETITIVE RIVALRY (MODERATE)

For instance, the threat of substitutes in biopharmaceutical markets moderate.

There are some opportunities for other players. Segmented price competition.

PHARMA

BARGAINING POWER OF CUSTOMERS (SEGMENTED) The bargaining powers of customers depends on the segment of the market.

Figure 7: Porterâ&#x20AC;&#x2122;s Five Force Analysis

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

For instance, one of the unique features of the biopharmaceutical market is the difference between the buyer and the influencer. In most cases, buyers have no other option than to purchase the drug prescribed by the physician which drives down the power of the individual buyers. But there are many companies in the market offering similar products. So, the hospitals and other bulk purchasers have an option to select which gives them certain authority over the companies.

Key Segments in the Indian Biotechnology Industry 1. Bio-pharmaceuticals The bio-pharmaceutical industry is the largest and the fastest-growing segment of the Indian biotechnology industry. It accounts for over 62 percent of the total share of the

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

biotechnology sector. The bio-pharmaceutical industry has almost doubled from the $ 1.271 billion in 2007-08 to the $ 2.336 billion in 2011-12. The pace of growth must have continued given the immense opportunities that have been available to the industry. Globally, the market for bio-pharmaceutical products has increased from $78 billion in 2006 to $179 billion in 2014, which is

expected to amount to $278 billion in 2020. The share of biologic drugs in global prescription sales is also on the rise. Between 2006 and 2014, it has gone up from 14 percent to 23 percent. The segment provides India with an opportunity to build a niche for itself in the global markets exactly how it did for generics.

Biotechnology

Bio-Pharma Biosimilars Vaccines Insulin Regenerative Medicine

Bio-fuels Industrial Enzymes Bio-polymers

Hybrid Seeds Bio-fertilizers Bio-pesticides

Bio-Services Contract Manufacturing Clinical Research

Figure 8: Key segments in the Indian Biotechnology Industry

Bio-Industrial

Bio-Agriculture

The Indian bio-pharmaceutical market mainly comprises of biosimilars, vaccines, insulin, regenerative medicine, diagnostics, and animal biologics. Biosimilars, the generic versions of biologics medicine made from animal and plant proteins instead of chemicals, present the biggest growth opportunity for Indian biopharmaceutical manufacturers. As patents for more biologics expire in the next few years, the market for biosimilars is expected to grow exponentially. This growth can go a long way in making healthcare much more affordable in India.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Bio-IT Bio-informatics Big Data Precision Medicine

As for vaccines, India commands $3 billion of the $30 billion global vaccine market and has grown at an average of 18 percent since 2010. About two-thirds of the vaccines produced in India are exported. As of 2016, India had 12 major manufacturing facilities that manufactured vaccines for 150 countries around the world. Meanwhile, the market for insulin is very large and increasing at a rapid rate. India has almost half of the worldâ&#x20AC;&#x2122;s diabetes burden. So, the domestic demand for insulin is substantial in itself. The insulin market in India is expected to reach $1 billion by 2025. So, enormous potential for growth exists for Indian bio-pharmaceutical manufacturers.

2. Bio-Services The bio-services industry in India is the second-largest segment in the bio-technology industry. It commands a market share of 18 percent. As of 2015, the sector was valued to be just short of $2 billion. The bio-services market majorly comprises of the business of contract manufacturing and contract research. In 2015, the global market for contract manufacturing was $4 billion while India accounted for $1.3 billion of it. Although, India is a major player in the market, there is still a lot of scope to scale on this front. India is the global leader in generics and it can use that experience to build a competitive edge in high-quality manufacturing.

research market and that has been struggling to grow in India due to regulatory uncertainty. India has the advantage of having Englishspeaking researchers and the required medical infrastructure to conduct medical research. The contract research market, on the other The country can easily leverage on these hand, is in a more problematic state. Clinical factors and help the sector grow at a healthy services form a majority of the global contract pace.

3. Bio-Agriculture The third-largest sector of the domestic biotech industry is bio-agriculture. It accounts for 14 percent of the industry size. As evidenced from the famed Green Revolution, the sector can play a vital role in ensuring food security for the country. Biotechnology research in the field of agriculture have resulted in the development of numerous drought and pest-resistant crops. Bt cotton is a popular example. It is estimated that one biotech crop benefits India by about $15 billion. Apart from production of geneticallymodified crops, the segment also delves into secondary agriculture that includes â&#x20AC;&#x153;all practices and processes which add value to primary agriculture commodities by using efficient technologies, market information and consumer preference.â&#x20AC;? This includes products like bio fuels, enzymes, fertilizers and

chemicals. Estimations show that secondary agriculture carries the potential to enhance farm incomes by about 30-40 percent and create additional jobs. With rising population and Indian governmentâ&#x20AC;&#x2122;s sharp focus on ensuring food security of its citizens, the segment can grow to become a major growthdriver of the Indian biotechnology industry.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

4. Bio-IT The industry that emerged as an interplay between biology and information technology is termed as Bio-IT. It involves data creation and assembling, data analysis and interpretation, and modelling of biological phenomenon through software. The global Bio-IT market is evolving at a tremendous pace and is expected to grow in double digits. This growth is mainly attributed to the rising need for technology to make sense of the huge data that is being generated by R&D labs, hospitals, clinics etc. Currently, Bio-IT forms just 1 percent of the Indian biotechnology market but it has immense potential for growth, this sector can see a similar rise as IT industry since India has the experience of scaling within the IT space.

5. Bio-Industrials The bio-industrial segment, also known as white biotechnology forms 4 percent of the Indian bio-technology industry. It uses cells or components of cells like enzyme, organic amino acids and yeast to produce industrially useful products. The Indian sector is mainly dominated by the multinationals that contribute to 60 â&#x20AC;&#x201C; 65 percent of the market. In recent years, the industry Indian players are showing interest in the industry and the share of local players is on the rise. The sector can be further disaggregated into bio-fuels, industrial enzymes and biopolymers. Enzymes, which constitute a major segment of this sector, are used in industrial processing of starch, distilleries, alcohol, textile & garments, leather processing as well as for

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

supplementing healthcare products. The sector offers its biggest opportunity in the Bio-fuel segment given the current and future energy needs of India.

Analysing the Competitiveness of the Indian Industry Porterâ&#x20AC;&#x2122;s diamond model is used to assess the competitiveness of the Indian biotechnology industry. The diamond works as a system, and the effect of one point often depends on the state of others. For instance, lack of physical infrastructural facilities drives down the

growth of related and supporting industries in the region. Or, the presence of a high, domestic market leads to the development of industries, that drives infrastructural development in the region and attract other industries.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

UNIVERSITIES :

VENTURE CAPITAL :

Curriculum development along with industry exposure for students is necessary.

The VC funding in Indian market is low due to the lack of technical know-how about biotechnologies.

Research output of the universities is not comparable to mature biotech economies.

ENTREPRENEURIAL ECOSYSTEM :

The country also needs to focus on faculty improvement programs. HUMAN CAPITAL : India is home to young and affordable high quality skilled workforce. However, talent retention is a major problem for the country.

Government efforts have significantly improved the ease of doing business

There is lack of coordination between different departments which makes the system confusing.

Law research and development expenditure.

INDUSTRY ACADEMY LINKAGES : Technology transfer development of products and services that can be commercialized unemployable workforce are some of the challenges faced due to

FACTOR CONDITIONS

There is lack of predictability and changes are made in the system at a short notice.

IP REGIME: Industry has a view that section 3(d) of the India's Patent Act sets a higher standard of patentability and impacts investment.

The lack of state-of-the-art testing facility and animal breeding facilities forces Biotech companies to seek facilities outside India enter lack of adoption of electronic health records.

GLOBAL GROWTH:

CONTEXT FOR STRATEGY AND RIVALRY

state governments have come up with their own Biotech policy to attract investments.

Government has come up with an industry-academia collaborative mission of department of biotechnology (DBT) in collaboration with World bank for accelerating Discovery research for too early development of biopharmaceuticals. INFRASTRUCTURE:

in India.

POLICY INITIATIVES: National biotechnology development strategy highlighted the major obstacles in India way towards becoming a global Biotech hub and listed down steps to address them.

lack of linkages.

RELATED, SUPPORTING INDUSTRIES AND INSTITUTIONS

The government needs to address Industries view on compulsory licensing.

The Global Biotech industry is growing at the rate of 7.4 % and is expected to reach $727.1 billion. There is huge demand within each segment of the industry that Indians can cater to. Biosimilars are the DEMAND biggest opportunity CONDITIONS given the fact that many biologics acid to lose patents exclusivity. India has a huge potential for Clinical Research given its population. Biodata is transforming the Biotech industry and there is an increasing demand for an integrated database. India can tap the bio-IT market given its robust IT infrastructure and development of the IT industry. DOMESTIC DEMAND: The burden of diabetes is high in India and insulin is an opportunity that Indian players can tap. Large market for Healthcare with unmet medical needs. The focus of Indian government on agriculture and food security provides an opportunity for the players. Biofuels are of strategic importance to Indian given its increasing energy needs.

INSTITUTE FOR COLLABORATIONS :

INCUBATORS AND BIOTECHNOLOGY PARKS :

Government has set up Department of Biotechnology, Department of Science and Technology and Department of Scientific and Industrial Research for promoting research, formulating policy and providing financial assistance.

Central and the state government both have worked to setup incubators and biotechnology parks in India. However, biotechnology incubators in India smaller in size compared to mature economies such as US.

Figure 9: Diamond Model for the Indian Biotechnology Industry

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

The competitiveness analysis of the Indian biotechnology industry, presented in Figure 9, shows that India has immense potential to become a global biotechnology hub by tapping the global and domestic opportunities available. Within India, a lot of opportunities are available for biotechnology companies in each segment: • • • • •

If one talks about Bio-services, India has the potential huge potential for clinical trial activity due to its large and low-cost market. Despite these advantages, it currently hosts only 0.14 clinical trials per million population, which is among the lowest rates globally. Biofuels and Bio-energy are gaining popularity as leading alternative resources. Presently, India is a net importer of fossil fuels, with the increasing rate of growth the demand for energy and our dependence on imports is also going to increase. Therefore, companies can strategize to reduce our dependence on fossil fuels through biofuels and bioenergy. The share of biologics in the global prescriptions is on an upward trend. They are expected to contribute to almost 27% to global prescription sales by 2020. Given the growth of biologics, the opportunities for biosimilars are evident. Biosimilars are the biggest opportunity available to the Indian biopharmaceutical firms, especially when the 12 biologics products are expected to lose their patents in US by 2020. Indian government’s plans to enhance farm productivity and its focus on food security is clearly reflected in the Union budget. This focus will be conducive to the development of bio-agriculture. Bio-IT is an emerging segment of the Biotechnology industry and has immense potential for growth given the rising need for technology to transform data generated by R&D institutes, clinics, hospitals etc. into useful form. India has witnessed exponential growth in IT industry and has the requisite IT infrastructure for catering to the needs of global Bio-IT industry.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Advantage India Home to young affordable human capital India, currently with a population of around 1.3 billion, is projected to surpass China and become the most populous country in the world by 2025. In India, more than 50% of the total population is below the age of 25 and almost 65% is below 35. The median age 65+

in India (26.5 years) is much below that of China (35.9 years) and the US (37.1 years). The effective utilization of this demographic advantage will provide India a competitive edge over all other emerging economies.

1,800 1,600

15-64

1,400

Note - These are projected population figures.

(Figures in millions)

0-14

1,200 1,000 800 600 400 200

2012

Figure 10: Age Group Wise Population Statistics Source: DBT India

2025

Russia

Brazil

Europe

China

India

Russia

Brazil

Europe

China

India

Russia

Brazil

Europe

China

India

2050

The ease of doing business in India In the recent years, the Ministry of Corporate Affairs have taken many steps to bring greater transparency in corporate structure and improve corporate compliance that has enhanced the efficiency of the processes under Companies Act, 2013. Some of significant ones include the amendments in Insolvency and Bankruptcy Code, establishment of National Financial Reporting Authority (NFRA), streamlining the business processes etc. India also replaced the valueadded tax with GST making the registration process faster. The country has focused on reducing the time and cost of export

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

and import through various initiatives, including the implementation of electronic sealing of containers, the upgrading of port infrastructure and allowing electronic submission of supporting documents with digital signatures. These measures have impacted almost all steps of doing business from starting a business to protection of minority interests. The results are reflected in World Bankâ&#x20AC;&#x2122;s Ease of Doing Business Rankings. India moved up from 142nd to 77th position in four years.

Government Support As discussed in the previous section, the Indian government should be credited for providing support to the biotechnology industry. Its various departments and ministries have played a pivotal role by setting up scientific research institutes to develop innovative solutions, opening incubators and technology parks to provide facilities to scientists and enterprises, focusing on bridging

the infrastructural gap, and awarding research fellowships to promote commercial research. The government, in its National Biotechnology Development Strategy has recognised the challenges that are hindering the growth of the industry and is developing strategies to address these issues.

Issues and Challenges

2000 2015

To capitalize on its potential, the government would need to overcome a few obstacles, the most essential of which relate to regulatory practices, IP regime, human capital, finance and infrastructure.

Low Investment in Research and Development Indiaâ&#x20AC;&#x2122;s research & development expenditure is low, not only compared to mature biotechnology economies such as Japan, and the US but also in comparison to emerging economies like China. The research and

development expenditure (as a percent of GDP) of the mature economies such as US, Japan, etc. is around 3 percent while for India it stands at 0.67. This is depicted in Figure 112 .

Research & Development Expenditure in Mature Economies Research & Development Expenditure (as per % of GDP)

Research and development expenditure as a percentage of GDP is defined as gross domestic expenditures on research and development (R&D), that includes both capital and current expenditures in the four main sectors: Business enterprise, Government, Higher education and Private non-profit. R&D covers basic research, applied research, and experimental development. 2

Germany

Japan

United Kingdom

United States

30 25 20 15 10 5 0 2000

2015

2000

2015

2000

2015

2000

2015

Figure 11: Research and Development Expenditure in Mature Economies

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

This becomes more worrisome for India since its competitor China has shown scintillating performance on this. A comparison on research and development expenditure between India and China (Figure 12) reveals that India’s investment was greater in 1996. This trend continued for two more years, till

China India

1998, after which China overtook India. The rate at which China’s investment has grown is higher than most of the mature economies, and its present value is comparable to most mature economies.

2.066

Research & Development Expenditure (as per % of GDP)

1.776 1.662 1.710 1.310

0.896

0.628

0.676

0.749 0.693

1.055 0.939

1.214 1.124

0.722

0.713 0.743 0.647 0.639 0.563

1.371

0.707 0.712

1.443 1.374

0.815

0.811 0.744

0.789

0.822 0.867

0.628

0.831 0.627

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Figure 12: Research and Development Expenditure: India and China

2012 2013 2014 2015

India’s IP Regime The Indian IPR system is shaped by a number of policies, laws, and international agreements that provide protections for domestic rights holders as well as how the country views its global obligations. The main categories of innovation that are eligible for IP protection in the Indian system are: patents, trademarks,

copyrights, geographical indicators and industrial designs. The two main aspects of India’s approach to intellectual property that have been at the crux of conflict between the government and the industry, especially US industry, are: Section 3(d) of the Patents (Amendment) Act of 2005 and the propensity to grant compulsory licenses.

Interpreting Section 3(d) Section 3(d) is mainly criticised for setting a higher standard for patentability than mandated by TRIPS. Article 27 (1) which mandates that patentable inventions, whether products or processes across all fields of technology, must be i) new; ii) involve an inventive step; and iii) must be capable of industrial application. India has added a

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

http://icrier.org/pdf/ India’s_IPR_Regime.pdf 3

http://www.birac.nic.in/ webcontent/Make_in_ India_2016.pdf 4

fourth requirement of enhanced efficacy. The industry states that this fourth requirement discourages incremental innovation and adversely impacts the environment for innovation on the whole. It is also possible that it is impacting foreign investment. However, this is compliant with the TRIPS regulations.

The issue is keeping many foreign investors out of the Indian markets. However, the government maintains the view that it has used this just once. Therefore, it is important for the Indian government and the industry to chalk out a plan of action that will be beneficial for both the innovators as well as the general public.

Compulsory Licensing

Regulatory Practices

This gives rights to the Controller to suspend patent privileges in cases where the best interests of their citizenry are at stake as a result of force majeure or wilful exploitation of patent privileges by the patentee3. In Indian context, the issue came to global spotlight when the Controller General of Patents awarded a compulsory license to Indian generic manufacturer NATCO for producing Bayer’s kidney cancer treatment Sorafenib Tosylate, marketed under the name Nexavar. The Controller claimed that instead of focusing on local manufacturing the patentee relied on imports and charges well beyond what is affordable for the general public. This means that the patentee failed to work the patent in the territory of India.

The Indian biotechnology industry is regulatory by four main bodies – Ministry of Science and Technology, Ministry of Environment and Forests, Ministry of Chemicals and Fertilizers and Ministry of Health and family Welfare. It is depicted in Figure 13. The problem arises when some approvals are to be granted by two different bodies. For instance, Bio-Services fall under the purview of Ministry of Family and Health Welfare but the clinical trials in case of biotechnology are to be reviewed by the Department of Biotechnology4. The lack of coordination between various departments create problems for the industry in form of tracking applications and obtaining approvals.

Lack of Infrastructure Facilities The growth of biotechnology industry requires access to world class physical (roads, rails, ports etc.) and research (incubators, instruments, animal breeding etc.) infrastructural facilities. There are certain challenges that India face specially in terms of research infrastructure: • • • •

Clinical trial activity in India is way below the potential due to lack of world class clinical trial infrastructure. For instance, India has just 1.3 beds per 1000 population. The biotechnology parks and incubators set up by the Indian government are smaller in size as compared to other economies. For instance, Biotechnology park in US employs around 20,000 – 50,000 employees while the strength of Indian incubators is 100-1500 employees. This leads to a difference in productivity of Indian companies vis-à-vis companies in other countries. India has limited animal breeding facilities, 71 to be precise and none of them has the capacity to be categorised as a large animal breeding facility. There is a lack of clear roadmap for adoption of electronic records that hinders research.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Government of India

Ministry of Science & Technology

Ministry of Environment & Forests

Ministry of Chemicals & Fertilizers

Ministry of Health & Family Welfare

Department of Biotechnology

Department of Environment, Forests & Wildlife

Department of Pharmaceuticals

Central Drug Standards Control Organization

Genetic Engineering Approval Committee

Review Committee on Genetic Manipulation

Clinical Trials

Recombination DNA Advisory Committee Institutional Biosafety Committee

Figure 13: Regulatory Bodies Source: DBT India

Lack of Skilled Human Capital India has a young workforce, but it currently does not provide a competitive edge to the economy due to the lack of skills. The ratio of postgraduates to graduated and PhDs to postgraduates in India is very low. Its striking to note that India produces three times as many postgraduates as UK, but UK produces 1.5 times more PhDs.

• First, the education system is not industry oriented and hence produces students that have low employability rates.The industry has to invest in months of intensive training before freshly passed out students can become productive.This deficiency exists because of the weak linkages between the industry and the universities and the lack of co-ordination between the two on designing curriculums.

There are two major challenges that the Indian higher education system is facing. Due to these weak linkages, sometimes enough interest is not generated in the students to work in the biotech industry. This coupled with low compensation forces many students to seek employment in other areas. Furthermore, the lack of talent retention capabilities increases country’s problems. The Scientific American’s Biotechnology Scorecard ranked India on the 1st position in reverse brain drain. These challenges are spread across the value chain and leads to loss in productivity for the firms at every step.

• Second, the focus on quantity instead of quality.The universities focus more on the number of hours taught and not on the quality of education imparted.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

• Lack of investment in R& D • Weak industry academia linkages

Challenges Across Value Chain

Research

• Insufficient award for innovation

This includes conceptualization of ideas and risk assessment

• Lack of skilled human capital • Small size of incubators and technology parks

Development

• Lack of skilled human capital

This includes data generation, technology process optimization etc.

Approvals This includes validation, trails approvals and scale up planning

Commercialization

• Lack of world class infrastructure for trials Issues in addressing trial related injuries • Lack of coordination between various departments

• Lack of infrastructural facilities

This includes bulk manufacturing, post commercialization survey

Figure 14: Challenges across value chain

Apart from these challenges that are faced by describe the risk of failure in the transition all the segments of the biotechnology industry, of innovative products and services from there are certain segment specific challenges. discovery to marketization. The risk comes to play because biopharmaceutical is a highly capital-intensive industry with a long 1.Valley of Death in the gestation period. Most of the early research Biopharmaceutical Industry funding, often provided by universities or the government, runs out before the Valley of Death is described by Auerswald and marketization phase, the funding for which Branscomb as the gap between demonstrating is mostly provided by venture capitalists. the soundness of a technical concept and It becomes difficult to attract further readying the product technology for the capital between these two stages because a market purely technical risks are coupled developing technology may deem promising, with the market risk inherited in innovation. but it is too soon to validate its commercial In simple words, it is the term used to potential.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

This phenomenon is illustrated in Figure 15. development, clinical trials, approvals and The biopharmaceutical development process commercialisation. is a four-stage process, involving basic research,

Organizations involved in Research

1.5 years

• Proof-of-concept • Risk Assessment

US $250Mn 02. Development Phase • Lab-scale Testing • Data Generation

Lead Optimization

• Technology/Process Optimization

US $250Mn Phase 2 a

Phase 1

Phase 2 b Phase 3/ Launch

03. Advance Development

Clinical CROs

Pre-Clinical

• Validation by Clinical Trials • Product/Process Scale-up Planning

US $250Mn 04. Commercialization

• Bulk Manufacturing • Post Commercialization Market Surveys • Technology Upgradation

Product Mainetance

Preclinical CROs

6 years

Lead ID

US $250Mn

Pharmaceutical Companies & Biotech Companies

• Conceptualization of Ideas • Pre-proof of Concept Ideas

Biotech (Tech Companies)

2+ years

01. Early Stage Research

Hit ID

Target Selection

Academia & Startups

5 years

Commercialization Evaluation

Source: DBT India

Figure 15:Value Chain of the Biopharmaceutical industry Source: DBT India

The entire process that costs as much as 1 billion USD, takes around 15 years, in which the Valley of Death spans up to seven years from pre-clinical trials to clinical trials. It is difficult to get capital investments till the Phase III trials as in pipeline due to the high rates of failure. The failure rates coupled with the gap in resources has a huge impact on the

commercialisation of innovative ideas. It will not be wrong to say that the industry is not constrained as much by the lack of innovative ideas as it is by the ability to process those ideas in usable forms. A positive contribution towards the biotechnology industry can be made by the government by creating a policy landscape that bridges the valley of death.

2. Price Controls in the Biopharmaceutical industry Policymakers across the world are becoming more and more conscious about the costs of the drugs as questions are being raised on the pricing strategies of biopharmaceutical companies. The policy actions to reduce drug expenditures can be grouped into three categories: • • •

Price Controls: This includes policies such as implementation of essential drug list, mandatory price cuts, reduction of mark-up for distributors etc. Reimbursement Policies: This includes delisting of products on reimbursement lists, increase in patient co-pays etc. Promoting biosimilars: These actions include providing incentives for to prescribe biosimilars etc.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Policymakers in India have also resorted to such measures in order to provide access to healthcare. These steps are much appreciated, especially in the light of the fact that 70

percent of the Indian population is driven towards private uninsured medical care due to the lack of an effective public healthcare system (Figure 16).

Total Government/ compulsary Voluntary

India Indonesia China (People’s Republic Of) South Africa Mexico Colombia Brazil Russia Costa Rica Turkey Latvia Chile Lithuania Poland Hungary Greece Estonia Korea Israel Slovak Republic Portugal Slovenia Czech Republic Spain Italy New Zealand Finland Australia United Kingdom Canada Iceland Belgium Ireland Japan Austria France Denmark Netherlands Sweden Germany Switzerland Luxembourge Norway United States

Out of Pocket

Figure 16: Healthcare Spending by country Source: OECD

However, these moves have several unintended consequences and can prove to be counter- productive. The economies might benefit in the short term but the long-term effect of regulating the markets is a loss in the overall welfare due to two reasons. First,

the decrease in profits due to price controls erode the incentive to invest in the research and development activities. Second, controls might lead to a completely opposite corollary than what is expected i.e. higher healthcare costs with lower healthcare quality.

Also, one should keep in mind that the providing access to healthcare is more than a pricing issue. A report on Increasing Access to Healthcare in India by Institute for Competitiveness, India identified six principles for looking at increasing access to healthcare. They are: • • • • • • •

Accessibility – The system should be accessible to the population with minimum delays Affordability – The system should be accessible with minimal costs possible Accountability – The system should be accountable to patient groups and citizens etc. Availability – The system should have availability of adequate medicines, medical equipment and healthcare professionals. Acceptability – The elements of the system should get accepted by the patient groups and citizens. Awareness – The system should try to reduce the information asymmetry between producers, patient groups, citizens etc.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Accessibility

Affordability

Accountability

Availability

Acceptability

Awareness

Some principles for looking at increasing access to healthcare

Figure 17: Principles â&#x20AC;&#x201C; 6As Framework Source: Increasing Access to Healthcare in India

https://aspe.hhs.gov/ system/files/pdf/188741/ ImpactofReimbursement onInnovation.pdf 5

Therefore, governments need to work with the industry to adopt new strategies that not are not only aimed at providing affordable healthcare through price cuts but also encourage innovation. Reimbursement policies can be a solution for the same. Reimbursement is an umbrella term for the policies and practices that define the terms of coverage and payment for a healthcare technology5. It is shown by various studies that lack of restrictions on reimbursement create an environment that is generally conducive to greater R&D expenditure.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

3. Lack of knowledge about usage of Bio-Agri Products The Indian economy has intrinsic strength to development of Bio-Agri industry due to availability of large arable land. It has 61.6 percent of the agricultural land that is arable. However, there is a lack of knowledge about the usage of bio-fertilizers and bio-pesticides and the advantages they provide in the form of increase in yield. The sector would benefit immensely from the training programs for farmers that address this issue.

The Biotechnology Cluster The analysis in the previous section highlighted two things. One, overall challenges faced by the industry. Two, segment specific issues. However, there are certain region-specific issues that need to be addressed by the state level policymakers. For the same, we look at the major pharmaceutical clusters in India.

Presence of the Cluster The cluster is mainly present in Maharashtra, Gujarat, Madhya Pradesh, Tamil Nadu and Karnataka. However, if one looks at the change in cluster share then we can see that the cluster is growing in Himachal Pradesh, Rajasthan and Maharashtra.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Job Creation -59,565

22.00%

59,565

20.00% 18.00%

Maharashtra

16.00% 14.00% Cluster Share

Change in cluster share vs Cluster Share. Colour shows change in value. Size shows total employees in the cluster. The data is for 2014.

12.00%

Gujarat

10.00% 8.00% 6.00%

Himachal Pradesh

4.00%

Madhya Pradesh

Goa

Rajasthan

2.00%

Sikkim West Bengal

0.00% -3.00%

-2.50% -2.00%

-1.50% -1.00%

-0.50% -0.00%

-0.50%

-1.00%

-1.50%

-2.00% -2.50% -3.00%

-3.50%

Change in Cluster Share (Relative to 2009)

Figure 18: Presence of the cluster

The Performance of the Cluster is measured across four indicators.

number of linkages within a cluster increases with an increase in the number of participants.

Specialization reflects how strong a region is in a cluster category compared to all other regions. This is captured by identifying top 20 percent of the locations by Location Quotient. Location Quotient (LQ) is a measure of a regionâ&#x20AC;&#x2122;s specialization. It captures the degree to which a particular industry or cluster is concentrated in a region compared to the nation. (Delgado, Bryden, & Zyontz)

Productivity reflects how well is cluster operating. This is measured by identifying the top 20 percent of the locations by gross value added and average wages.

Size is measured by identifying top 20 percent of the location by employment. This is a significant measure of performance as the

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Dynamism, captured by the top 20 percent of the locations by employment growth, reflects whether a cluster is benefitting from strong cluster effects from its development. It also highlights the emerging areas.

Table 1: Cluster Performance Size

Specialization

Productivity

Dynamism

Maharashtra

Himachal Pradesh

Goa

Himachal Pradesh

Gujarat

Goa

Karnataka

Rajasthan

Himachal Pradesh

Uttarakhand

Maharashtra

Uttarakhand

Himachal Pradesh

Tamil Nadu

Delhi

Karnataka

A star is assigned for each of the four dimensions to the regions that are in top 20 percent. For instance, if Maharashtra is in top 20 percent of the regions by employment for a particular cluster, it will be assigned one star, and it will be a one-star cluster in Maharashtra. But if for the same cluster it lies in the top 20 percent regions by location quotient then it will get two stars. Being in the top 20 percent regions for the same cluster by productivity and dynamism will earn Maharashtra four stars. We look at the cluster in Maharashtra as Biotechnology is a three-star cluster in the region â&#x20AC;&#x201C; size, productivity and dynamism. This means that despite the locational advantage available to other states over Maharashtra, the state has provided an environment conducive for the development of the cluster. Figure 19 depicts the cluster linkages in Maharashtra.

We use a cluster map to analyze the linkages of different stakeholders within clusters (such as the government, manufacturing firms, suppliers etc.) and their linkages with other related clusters. The analysis brings out region specific insights such as the quality of infrastructure, policy environment, incubators and biotech parks, presence of related industries etc. In the case of Maharashtra, we find a strong presence of Institute for Collaboration (IFCs) that are playing a major role in the development of the cluster by bringing together different stakeholders. The basic infrastructure facilities are also in place however the state faces certain challenges such as power supply and lack of cold storage facilities.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

FINANCIAL SERVICES CLUSTER

GOVERNMENT BUYERS

Maharashtra is the financial capital of the country

INTERNATIONAL AGENCIES

Ministry of Health

Credit availability is better than other states

PRIVATE BUYERS

PAHO WHO UNICEF

Domestic Hospitals International Companies Pharmacies Marketers and Agents

Some MSMEs still face issues in obtaining credit TRANSPORT AND LOGISTICS Proximity to ports (Jawaharlal Nehru port trust) National highways, road connectivity through Maharashtra state corporation transport

MEDICAL TOURISM

Airport connectivity

HEALTHCARE

INFORMATION TECHNOLOGY

DELIVERY HIGHER EDUCATION

EQUIPMENT MANUFACTURERS

IN-HOUSE R&D PRINTING AND PACKAGING MATERIALS

BIOTECHNOLOGY Research and Development Marketing Manufacturing

IFCS AND GOVERNMENT BODIES All India Biotech Association The Confederation of Indian Pharmaceutical Industry Figure 19: Cluster Map

Biotechnology Industry Research Assistance Council

Indian Pharmaceutical Association

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

EDUCATION AND TRAINING

Recommendations Create a sound and effective IP regime Innovation is the key driver for enhancing productivity and prosperity in a region. The policymakers in India should focus on creating a robust IP regime that recognizes and protects the value of innovation and caters to the biotechnology industry. For

the same, two steps should be taken by the policymakers. First, it should hold discussions with the industry regarding the Section 3(d) of Patents (Amendment) Act of 2005. Second, it should recognize that compulsory licensing is impacting Indiaâ&#x20AC;&#x2122;s investment attractiveness and therefore there is a need to work with the industry and come-up with a strategic solution for the same.

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

Strengthen Industry Academia Linkages The lack of industry academia linkages not only impacts the quality of human capital but also lowers the investment made by the industry. The government take the following steps to address the issue: • • •

Create a platform where budding entrepreneurs can showcase their inventions to venture capitalists and therefore can enter the commercialisation stage. Encourage biotechnology companies and universities to sign MOUs so that commercially viable technologies can be produced. Ease the process of technology transfer

VISION $100 Bn by 2025 05

Access to world class infrastructure

IP Regime

• Adoption of electronic health records that will impact the data available for research purposes • Improves the animal breeding facilities in India • Focus on increasing the size of biotech incubators that will impact the productivity of firms • Providing the state-of-the-art infrastructure for conducting clinical trails • Increase the R&D spending as % of GDP • Ensure high quality inspection procedures

• The government should discus the issues of compulsory licensing with the industry • It should also discuss with the industry about the Section 3(d) of the Patent Amendment Act and how it can incentivize Indian biopharmaceutical companies to invest in innovation in India.

Figure 20: Recommendations

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

The industry and the university can also work towards strengthening their linkages by carrying out programs where students work and interact with scientists, experts on clinical trials and regulatory agencies which will help them to observe the industry closely. For instance, the Indian Biotechnology firm Biocon has started a joint program with Keck.

Right Policy Environment An enabling policy environment is important for the growth of biotechnology industry. For the same, following steps should be taken: • • • •

Streamline the review and approval process to address the confusion that arises from the multiple control agencies. The Union Budget 2016-17 reduced the weighted deduction on R&D expenses from 200% to 150% from the FY 2017-18 to FY 2019-20. This should be reversed. R&D expenses incurred outside India should be included under expenses allowable for weighted deduction. Move towards becoming a full member of ICH

Invest in the development of Human Capital India’s effective utilization of its demographic advantage depends on how the country addresses the issue of skill development and talent retention. The following three steps will help in the development of human capital. First, design new curriculum after industry consultation that can increase the employability of students. Second, retain Indian talent by expanding initiatives such as Young Biotechnologist Award, Tata Innovation Fellowship etc. Third, provide incentives to academia for conducting research that can benefit the industry.

Invest in Infrastructural Development The lack of world class infrastructural facilities undermines the foreign investment in the industry and puts its vision of becoming a $100 billion industry at risk. The following steps should be taken to develop state-of-the-art facilities in India: • • • • • •

Adopt electronic health records that will impact the data available for research purposes Improve the animal breeding facilities in India Focus on increasing the size of biotech incubators that will impact the productivity of firms Provide the state-of-the-art infrastructure for conducting clinical trails Increase the R&D spending as % of GDP Ensure high quality inspection procedures

Competitiveness of the Indian Biotechnology Industry The report uses the latest available data

The report uses the latest available data

Institute for Competitiveness, India is the Indian knot in the global network of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India is an international initiative centered in India, dedicated to enlarging and purposeful disseminating of the body of research and knowledge on competition and strategy, as pioneered over the last 25 years by Professor Michael Porter of the Institute for Strategy and Competitiveness at Harvard Business School. Institute for Competitiveness, India conducts & supports indigenous research; offers academic & executive courses; provides advisory services to the Corporate & the Governments and organizes events. The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities and thus generate guidelines for businesses and those in governance; and suggests & provides solutions for socio-economic problems.

The Institute for Competitiveness U24/8 DLF Phase 3 Gurgaon 122 002 Haryana, India

Phone: +91 124 437 6676 Email:info@competitiveness.in www.competitiveness.in The report uses the latest available data