Life Sciences R&D: Changing the Innovation Equation in India

Life Sciences R&D: Changing the Innovation Equation in India Delivering Affordable Innovation Through Global Partnerships 2011

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This position paper, commissioned by the USA-India Chamber of Commerce (USAIC) and prepared by The Boston Consulting Group (BCG), is being furnished to the recipient for informational purposes only.

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Copyright © 2011 by The Boston Consulting Group

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Life sciences R&D: Changing the innovation equation in India

1

Position paper prepared by BCG for release at USAIC‟s US-India BioPharma Summit in June 2011

In cooperation with the industry, USAIC runs the following industry focused councils: • Biotech, Pharmaceuticals, and Healthcare Council • US-India Investment Council (USIC) • CIO Council US-India BioPharma & Healthcare Summit, held annually in Cambridge, MA, has created an innovation driven ecosystem bringing together all stakeholders: healthcare and life sciences executives, investors, policy makers, and academicians. The annual Summit has become THE Global BioPharma for senior executives focused on Drug Discovery & Development, Licensing, Clinical Research, External Research, Healthcare, Innovation, M&A, Deal Flow, and Emerging Markets. The Summit helps facilitate collaborative research partnerships, cross border investments, public-privateacademic partnerships, and new opportunities to take business to the next level.

Life sciences R&D: Changing the innovation equation in India

The Boston Consulting Group (BCG) is a global management consulting firm and the world‟s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight on the dynamics of companies and markets, with close collaboration at all levels of the client organization. This ensures our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. BCG‟s Health Care practice is the fastest growing practice in BCG and the second-largest industry practice globally, as well as the largest practice in the US. A substantial portion of our work is with the world‟s major Pharmaceutical and Biotech companies, but our clients also include institutions across the entire spectrum of the health care industry, including medical technologies, payers, and providers.

Copyright © 2011 by The Boston Consulting Group

The USA-India Chamber of Commerce mission is to provide a proactive and professional platform for senior business executives, academicians, investors, and high ranking policy makers in the US and India to network, facilitate, and promote trade, investments, and economic cooperation. USAIC‟s four point agenda is: Trade, Investment, Policy, and Advocacy.

The Health Care practice consists of over 100 partners with experience of having completed over 1,900 assignments within the last five years. Founded in 1963, BCG is a private company with 74 offices in 42 countries. For more information, please visit www.bcg.com.

2

Preface This Position Paper was commissioned by USA-India Chamber of Commerce and developed by BCG for the US-India BioPharma & Healthcare Summit 2011.

The document is the culmination of a four month research effort to compile the latest trends in BioPharma R&D sourcing and investments in India, and to analyze the opportunities for improving R&D productivity by leveraging Indian opportunities. While the intent of the report is not to develop detailed recommendations, we do propose a broad action agenda for different stakeholders. The opportunity varies based on the starting position and ambition of the individual companies.

Copyright © 2011 by The Boston Consulting Group

The report‟s articulation of the aspirations, potential roadblocks, opportunities, and imperatives for Global BioPharma‟s R&D activities in India should provide the context to guide discussions among stakeholders at the USAIC US-India BioPharma Summit 2011 to maximize the potential of the sector, as well as act as a reference compendium for the latest state of the industry. The report has been completed with the support of USA-India Chamber of Commerce. We would like to especially thank Karun Rishi, President of USAIC, as well as the members of the advisory board who participated in the research effort and helped enrich the report. The project was managed by Bart Janssens, Simon Goodall, Sarwar Islam, and Kim Wagner, partners in our India and US offices. We would like to recognize the contributions of Rahul Guha, Saurabh Tayal, Kinjal Morakhia, and Gaurav Lal in developing this report. We would also like to thank the BCG health care/innovation experts including Martin Silverstein, Valery Panier, Peter Tollman, John Wong, Ulrik Schulze, and Philippe Guy, as well as Katie Sasser and Carolyn Noble for marketing support. Life sciences R&D: Changing the innovation equation in India

3

Methodology adopted for development of the position paper

BioPharma R&D expert interviews • ~40 in-depth interviews with individuals engaged in BioPharma R&D activities • Interviewees spanned: – US, Europe, and Asia – BioPharma industry, government, academia, and investors

Life sciences R&D: Changing the innovation equation in India

Surveys

Secondary research

Global BioPharma survey • Survey conducted with Western BioPharma to identify levers to enhance R&D activity in India

Databases • Use of databases – Evaluate Pharma – Pharmaprojects – Datamonitor

Indian BioPharma survey • Survey conducted with Indian research companies to understand measures to increase local innovation

Literature review • Extensive literature research including BCG publications, analyst reports, public resources

Copyright © 2011 by The Boston Consulting Group

Interviews

4

Table of Contents Executive Summary

6

Chapter 1: Global context and introduction

9

Chapter 2: India‟s potential role in addressing Global BioPharma R&D issues

10 15

• Overview of Indian R&D sourcing landscape

16

• Opportunities offered by India to address global challenges

19

Chapter 3: Ideas to leverage India for lowering “value invested”

20

• Enhancing scope of sourcing

22

• Establishing clinical hubs

28

• Generating greater value from collaborations

33

Chapter 4: Ideas to leverage India for improving “value generated”

37

• Developing ―nichebusters‖

39

• Leveraging India for emerging technologies

43

Chapter 5: Stakeholder agenda and the “Inno-vision” for India

57

Appendix

62

• Meet the authors Life sciences R&D: Changing the innovation equation in India

Copyright © 2011 by The Boston Consulting Group

• Global BioPharma trends with implications for India

63 5

Executive summary Global BioPharma R&D is at an important juncture today. The rate of innovation is declining, leading to lower productivity and less innovation at higher cost. At the same time, opportunities are shifting to emerging markets, making the ability to deliver cost-effective innovation a key success factor.

Companies are actively pursuing variabilization and externalization to complement in-house research efforts to reduce the cost of innovation to keep up with this decline. India has emerged as an attractive destination for sourcing R&D at lower costs, especially for chemistry and clinical research. There still remains significant room for building upon this opportunity by expanding the scale and scope of sourcing. Moreover, the business models can be optimized to drive closer interaction, thereby driving greater results.

Copyright © 2011 by The Boston Consulting Group

The productivity crisis, however, cannot be solved by addressing the cost aspect only. India cannot contribute holistically to addressing the needs of the BioPharma industry unless there is innovative drug discovery being conducted there. An initial step could be to leverage the cost advantage in India to open up newer avenues of growth by enabling development of products previously uneconomical for Global BioPharma. Further, in research, India can focus on emerging technologies such as bioinformatics, nanotechnologies, and stem cell research. This would help overcome late-mover disadvantage and build a competitive position leveraging existing strengths in IT, engineering, or flexible policies. While the government has taken concrete measures over the last decade to establish an innovation ecosystem, Indian stakeholders have to accelerate their capability and capacity building to enable Global BioPharma to develop an India innovation strategy. Life sciences R&D: Changing the innovation equation in India

6

Our key belief: More to enhancing R&D productivity than lowering costs

Innovation output as measured by number of new molecules/ biologicals launched in market

Value invested

Input resources required to bring a single drug to market, incorporating the cost of failure

= Copyright © 2011 by The Boston Consulting Group

R&D Productivity

Value generated

Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

7

India offers many opportunities to improve R&D productivity However aspirations, business models, and commitments need to be aligned to capture value Value generated • Leverage India‘s low cost advantage to develop ―nichebusters‖ and expand segments targeted Value generated

R&D Productivity

• Pursue emerging technologies where India has demonstrated strengths

= Value invested

Value invested

• Expand scope of sourcing beyond chemistry and clinical to discovery to leverage cost arbitrage between India and Western markets Copyright © 2011 by The Boston Consulting Group

• Establish clinical hubs in India to benefit from large treatment naïve patient populations

• Generate greater value from collaborations by investing in improving productivity of Indian partners to develop a lowcost, high-quality talent pool While improving “value generated” is a long-term opportunity, lowering “value invested” is short-medium term Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

8

Chapter 1

Global context and introduction

R&D productivity is on the decline

NMEs per $B R&D spent (inflation adjusted) 100 FDA tightens regulation post thalidomide

FDA clears backlog following PDUFA regulations and perhaps relaxes on HIV drugs

10

1 Restriction enzymes

DNA sequencing

Recombinant DNA

Dolly the Sheep

Human insulin

Copyright © 2011 by The Boston Consulting Group

Structure of DNA

Human genome v1

0.1 1950

1960

1970

1980

1990

2000

2010

Note: R&D costs are estimated from PhRMA annual survey 2009; NMEs are the total number of small molecule and biologic approvals by the FDA Source: Bernstein Research ―The Long View – R&D Productivity‖ (September 30, 2010) Life sciences R&D: Changing the innovation equation in India

10

Decline in R&D productivity is driven by both a fall in value generated and an increase in value invested

Value generated • Number of drugs submissions for regulatory approval has been flat • Higher regulatory hurdles, lowering drugs approved Value generated

= Value invested

Value invested Copyright © 2011 by The Boston Consulting Group

R&D Productivity

• Downward trend forecasted in peak sales

• Clinical timelines are increasing • Success rates are declining and have halved since 1990s • R&D costs are rising, with a three-fold increase over the last decade

Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

11

Lower innovation, higher regulatory hurdles and reduced sales realization are driving lower “value generated” Drugs submitted for approval has been flat

Declining approvals for new chemical entities

NME1 applications submitted

Pipeline approved till 2007 (%)

Average peak sales ($M)

60

50

1,500

N = xx

Downward trend forecasted in peak sales

# Approved drugs

40 38 35

37 34

30

28%

1,000

-12%

977

707

26 23

20 15%

20

500

N=116

N=86

0 2005 2006 2007 2008 2009 2010

Year

418 264

10

0

687

Copyright © 2011 by The Boston Consulting Group

40

0 1997

20022

Year of pipeline snapshot

2009 2010 2011 2012 2013

Year of launch

1. NME – New Molecular Entity (includes NDAs and BLAs) 2. Full pipeline lifecycle data required hence the age of the sample. Note: Analysis includes chemical new molecular entities that were in Phase II to pre-registration pipeline in 1997 and 2002 respectively. Approval till 2007 has been considered for both 1997 and 2002 pipelines. Does not include biologics. Source: CDER - FDA, Parexel Bio/Pharmaceutical R&D statistical sourcebook 2010/11, Evaluate Pharma, BCG Analysis Life sciences R&D: Changing the innovation equation in India

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Increasing development time and declining success rates are escalating “value invested”

Expanding clinical timelines

Deteriorating success rates

Rising R&D costs

Mean development time in years

Cost per molecule (incl. cost of failure) ($M)

8

4,000 7.2 20151 $3800M

4

Launch

4.4

Phase IV

Phase I

5.5

Phase II

6

Phase III

6.3 3,000

2010 $2300M 2,000

2.5 2

1,000

2000 $800M 1991 $300M

1979 $100M 1990s 69%

46%

66%

86%

18%

2000s 59%

28%

56%

93%

9%

0 60s 70s 80s 90s 00s 10s

Year

0 1970 1980 1990 2000 2010 2020

Cumulative success rate

1. Theoretical extrapolation at historical CAGR of 10.6% Source: Tufts CSDD; Perexel Bio/Pharmaceutical R&D statistical sourcebooks; CMR; BCG analysis Life sciences R&D: Changing the innovation equation in India

13

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7.4

Global BioPharma companies are adopting a variety of approaches to improve R&D productivity

1

Diversification is pursued within a company to broaden its portfolio • Increasing importance of a broad diverse portfolio as more and more payers look for low-cost generics and preventive vaccines as complements to innovative pharmaceuticals

2

1

2

Pharma Co

Variabilization is pursued when work can be more efficiently distributed to network partners than performed in-house • Need for transforming fixed costs into variable costs as cost of drug development is on an upward trend

3

Externalization is pursued to diversify efforts and share risk with partners • Access to alternative sources of innovation to complement in-house output as R&D productivity is on the decline

Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

14

Copyright © 2011 by The Boston Consulting Group

3

Chapter 2

India‟s potential role in addressing global BioPharma R&D issues

Share of India in global R&D spending increased by more than ten times between 2002-2009 Share of PhRMA Member R&D outside US (2002 vs. 2009) Industry R&D spending outside US ($B)

Share

2002 5.3 17%

Western Europe „02 73.1% „09 - 68.9%

Rest of Europe „02 - 2.0% „09 - 8.3%

Japan „02 - 13.2% „09 - 6.1%

Industry R&D spending in US ($B) 2002 25.7 83%

Other Asia Pac „02 - 1.5% „09 - 4.7%

2009 35.4 76% Latin America „02 - 2.1% „09 - 3.7%

Middle East and Africa „02 - 0.7% „09 - 1.5%

India 1.1%

0.1% 2002

Australia and NZ „02 - 1.5% „09 - 1.6%

2009

Note: R&D outside US includes expenditures outside the United States by US-owned PhRMA member companies and R&D conducted abroad by the US divisions of foreign-owned PhRMA member companies. R&D performed abroad by the foreign divisions of foreign-owned PhRMA member companies is excluded. Domestic R&D, however, includes R&D expenditures within the United States by all PhRMA member companies. Source: Pharmaceutical Research and Manufacturers of America (PhRMA) Industry Profiles 2011 and 2004, BCG analysis Life sciences R&D: Changing the innovation equation in India

16

Copyright © 2011 by The Boston Consulting Group

Canada „02 - 5.7% „09 - 4.0%

2009 11.0 24%

Global BioPharma expect to increase R&D activities in India as existing R&D alliances have delivered satisfactory results

>70% of Global BioPharma executives satisfied with R&D alliances in India

~75% of respondents expect to increase R&D activities in India

Level of satisfaction for Global Pharma with current R&D partnerships in India

Expected change in level of R&D activities in India by Global Pharma Increase significantly

0

Satisfied

Increase somewhat

30

Moderately satisfied

42

Minimally satisfied

15

Not satisfied at all

12

Total

100 0

20

40

21

60

80

100

Respondents (%)

55

Stay the same

18

Reduce somewhat

3

Reduce significantly

3

Total

100 0

20

40

60

80

100

Respondents (%)

Source: BCG US and Europe Pharma companies Survey Mar 2011 (N = 33) Life sciences R&D: Changing the innovation equation in India

17

Copyright © 2011 by The Boston Consulting Group

Very satisfied

However, Indian R&D sourcing market has not grown as per expectations At ~$0.9B, the Indian R&D sourcing industry in 2010 is half of what it was projected to be Indian R&D sourcing market in 2010 in $B 2.5

2.0

2.0

1.5

1.0

Copyright © 2011 by The Boston Consulting Group

0.9

0.5

0.0 Projected

Current

Source: Frost &Sullivan projections quoted by India Brand Equity Foundation and other press articles 2007, Avendus Capital report on Pharma, January 2011, Frost & Sullivan website, BCG analysis Life sciences R&D: Changing the innovation equation in India

18

India offers many opportunities to improve R&D productivity However, aspirations, business models, and commitments need to be aligned to capture value Value generated • Leverage India‘s low cost advantage to develop 4a ―nichebusters‖ and expand segments targeted Value generated

R&D Productivity

• Pursue emerging technologies where India has 4b demonstrated strengths

= Value invested

Value invested

3b• Establish clinical hubs in India to benefit from large treatment naïve patient populations

• Generate greater value from collaborations by investing 3c in improving productivity of Indian partners to develop a low-cost, high-quality talent pool While improving “value generated” is a long-term opportunity, lowering “value invested” is short-medium term Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

Xy

X refers to Chapter number and y to sub-section in this report 19

Copyright © 2011 by The Boston Consulting Group

3a• Expand scope of sourcing beyond chemistry and clinical to discovery to leverage cost arbitrage between India and Western markets

Chapter 3

Ideas to leverage India for lowering “value invested”

Summary: Ideas to lower “value invested” 3a

Enhance scope of sourcing

Expand sourcing beyond chemistry and clinical research to sourcing discovery activities to leverage cost arbitrage across the value chain • MNCs have expressed satisfaction with sourcing from India and expect an increase in activities but sourcing is largely concentrated in chemistry and clinical research • Indian research providers have invested in building capabilities across the value chain and the experience of companies with novel drug discovery in India has been positive

3b

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Establish clinical hubs

Leverage India‟s clinical offering to conduct cost effective Proof of Concept facilitating greater innovation at the same cost • India has a demonstrated track record with ~1,300 clinical trials conducted since 2005 • Large treatment naïve patients pools drive a 4x faster recruitment of patients • Cost per patient is half in India as compared to Western countries

3c

Generate greater value from collaborations

Transition from a vendor model to a collaborative partnership • Investment in partner development and long-term commitment identified as critical success factors to delivering innovation • Transactional vendor model may be suitable for extracting cost-based value, but is inadequate for conducting innovative activities

Life sciences R&D: Changing the innovation equation in India

21

Global BioPharma still leverages India largely for low cost activities ―Which of the following capabilities do you expect your industry R&D partner(s) in India to bring to your relationship?‖

Low cost

73

Access to patient pool

70

Data mgmt / informatics

55

Infrastructure set-up

52

Talent

48

Capabilities in new TAs

Copyright © 2011 by The Boston Consulting Group

3a

15 0

20

40

60

80

Respondents (%)

“For us, the reason for sourcing from India is not to generate new IP. It is driven primarily by cost differential.” - SVP R&D, MNC biotech company Source: BCG US and Europe Pharma companies Survey, Mar 2011 (N = 33); Expert interviews Life sciences R&D: Changing the innovation equation in India

22

Sourcing from India concentrated in chemistry and clinical research; some emerging collaborations in biology Research – Chemistry

Biology Target identification

Target validation

Compound generation & assay dev

Screening

Lead optimization

Clinical

Preclinical Ph I

TCG Life Sciences

Ph II

Ph III

Data mgmt

Captive centre SiroClinpharm, Cognizant, Biocon

GVK BIO Syngene, Divi‘s

Ranbaxy

Divi‘s

Advinus

Tata Consultancy Services Aurigene Aurigene

Syngene

Captive

In-house

Biocon BMS Research Center

Accenture

Jubilant, Syngene

Jubilant

Captive research and process center Jubilant

Biocon

Jubilant

JV with Jubilant (Vanthys)

Strands

Zydus Suven

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3a

Piramal

Tata Consultancy Services

Jubilant SAI Advantium Source: Literature review, BCG analysis Life sciences R&D: Changing the innovation equation in India

23

Cost advantage is likely to remain significant at least for the next five to ten years

Costs indexed to 2010 costs for US/Europe 200

150

~20%

~35% 100 ~50% ~60% 50 Copyright © 2011 by The Boston Consulting Group

3a

0 2010

2015

2020

US / Europe

2025

India

Assumptions: Increase in labor costs for R&D is same as overall wage inflation; overhead costs are not included in the above calculations. Source: EIU, Expert interviews, BCG case experience, BCG analysis Life sciences R&D: Changing the innovation equation in India

24

Significant potential exists to increase depth and breadth of activities sourced from India

Target ID & validation

Assay development & HT screening

Lead generation

Combinatorial chemistry and library generation

Bioinformatics Protein expression

Lead optimization

Preclinical development

Medicinal chemistry (SAR)

High Throughput screening

Intermediates and scale-up

In vitro assays and cell lines Protein crystallization and X-ray

Research PK

Preclinical DMPK

In vivo pharmacology (animal models)

Structural biology Target validation (animal models)

Toxicology

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3a

Natural products (extracts and lead structures) Computational chemistry and structure-based design

Most common service offerings, multiple collaborations reported

Less common service offerings, limited collaborations reported

Emerging service offerings, hardly observed

Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

25

Indian research companies have invested in broadening service offerings across the value chain Illustrative

Custom synthesis & manufacturing; analytical services

Medicinal and combinatorial chemistry

Clinical research and data management

Pre-clinical and toxicology

Molecular modeling and molecular biology

Informatics and genomic applications

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Capability of Indian research industry

3a

Widely available services

Time frame Source: Company websites, BCG analysis Life sciences R&D: Changing the innovation equation in India

26

Several companies have sourced early discovery activities from India and have expressed satisfaction with results

“Our partnership in India has exceeded expectations. We were initially planning on conducting only some back-up programs in India, but now we are doing novel drug discovery.” - VP R&D, Global BioPharma

“Our collaboration has resulted in the identification of promising pre-clinical candidates in important therapeutic areas.” - SVP R&D, Global BioPharma

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3a

“We have been impressed by the quality of the science and the progress made to date by the Indian partner team on our ongoing discovery program.” - VP R&D, Global BioPharma

Extension of existing agreements and increase in scope bears testimony to satisfactory results Source: Expert interviews, Press releases, BCG Analysis Life sciences R&D: Changing the innovation equation in India

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3b

India is emerging as a popular clinical trials destination ~1,300 global clinical trials conducted since 2005

Number of global trials with sites in India (Total between Jan 2005 and Jan 2011) 390

400 Phase IV

Phase III

Phase II

Phase I

306 300

200

100

73

63

62

52

49

43

43

40

37

26

22

20

20

16

0 Univ./ Pfizer Non profit

GSK Eli Lilly Novartis

SA

BMS

AZ

BI

Biogen Amgen Novo Roche Bayer Merck Abbott Others Idec Nordisk

Note: GSK – GlaxoSmithKline, SA – Sanofi Aventis, AZ – Astra Zeneca, BMS – Bristol-Myers Squibb, BI – Boehringer Ingelheim; Phase I/II clubbed in Phase II, Phase II/III clubbed with Phase III Source: ClinicalTrials.gov Life sciences R&D: Changing the innovation equation in India

28

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126

3b

Indian sites recruit ~4 times faster than average global sites Examples from vendor case studies Number of patients/site/month 15

Indian sites Global sites

10

Copyright © 2011 by The Boston Consulting Group

5

0 Metast. Breast Cancer

H&N Cancer Non-SmallCell Lung Carcinoma

Myocardial Osteoporosis Infarction

Diabetes

Stroke

Irritable Bowel Syndrome

Ulcerative Colitis

On average 4x faster recruitment in Indian sites Indication-specific speed ranges between 2x and 6x Note: H&N – Head and neck Source: Company interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

29

Faster recruitment is driven by presence of large patient populations

Diabetes

Cancer

Patients (#K) 50,000

Coronary heart disease

Patients (#K)

Patients (#K)

1,500

80,000

45,809 40,000

61,522

37,672 1,061 1,000

60,000

980 46,969

30,000 40,000 20,000 500

20,000

Copyright © 2011 by The Boston Consulting Group

3b

10,000

0

0 2010

2015

0 2010

2015

2010

2015

Source: Datamonitor National Health Profile 2009 Life sciences R&D: Changing the innovation equation in India

30

Observed benefits generate several opportunities to explore

Lower unit cost Indian cost/patient is less than half of global cost Faster recruitment Speed of recruitment in Indian sites is ~4 times faster than average global sites Large diverse patient pool Large availability of treatment naïve patients

Accelerating PoC1 go/no-go decisions at same total cost • Opportunity to conduct twice as many PoC trials at same total cost • Opportunity to reduce global bottlenecks in conducting PoC trial due to significantly faster recruitment • ―Increased ability to recruit ‗treatment naïve‘ patient populations to drive more robust Proof of Concept decisions.‖ - President, R&D, Global Pharma

Improving feasibility and economics for “nichebuster” development • Faster patient enrollment than developed countries for rare diseases at lower cost • US-based MNC conducted study on an orphan drug indication ―Ophthalmology/Uveitis‖ with ~50% patients recruited from India • OneWorld Health got approval for Paromomycin Intramuscular injection for treatment of Visceral Leishmaniasis with 100% patients recruited from India

Copyright © 2011 by The Boston Consulting Group

3b

1. PoC = Proof of Concept Source: BCG analysis Life sciences R&D: Changing the innovation equation in India

31

Models are emerging where Global BioPharma partners with an Indian research company for cost-effective PoC

Working model of Vanthys

Vanthys overview • A 50:50 joint venture between Eli Lilly and Jubilant – Focused on establishing clinical PoC as quickly and inexpensively as possible

Probability of technical success (%) 100

90

• Longer time • Higher costs

80 70 60

PoC

50

Multiple dose Safety study

40 30

• Modeled after Chorus, an autonomous unit of Eli Lilly, which provides fast and efficient drug development by leveraging external contract partners

PoC

First efficacy dose

Single dose Safety study

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3b

• Chorus is considered a successful model and has been replicated through Vanthys and Chorus Resonance

20 10 First human dose 0 Year 1

Year 2

Year 3

Vanthys

Year 4

Year 5

Standard industry program

Source: In Vivo, May 2007, Company website Life sciences R&D: Changing the innovation equation in India

32

There is a global move from sourcing models to collaborative partnerships …and a similar trend is expected in India

Partnerships are gaining in prominence globally…

“There is a need to transition from a vendorbased approach to true partnerships. Partnerships need to have a more strategic imperative.”

Overall sourcing mix of external work (%) 100 23% 80 11% 60

47%

33%

– VP R&D, Global Pharma

26%

“If an organization is just looking to source R&D with no interaction, then the partnership will not succeed.”

40

– CEO, Indian contract research firm

20

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3c

0

Disc.

Pre Clinical

Pharm. Devt.

Clinical

Regulatory

Academic networks

Partnering / Risk sharing

In-licensing

Vendor / transaction model

“A model where a company is asked to develop a drug and not given any support does not work and is doomed to fail by its structure.” – CEO, Indian drug discovery company

Note: Figures exclude ‗don't knows,‘ blanks, ‗not outsourced‘ or partnerships between major Pharmacos Source: BCG survey to top BioPharma companies conducted in ‗08/09, Expert interviews, BCG Analysis Life sciences R&D: Changing the innovation equation in India

33

Evolution from sourcing models toward collaborative partnerships in India will help resolve bottlenecks Obstacles faced by Global Pharma in partnering with India

Need for better coordination and agreed-upon execution approach

What obstacles do you face in your R&D partnerships in India? No good way to measure ROI accurately

“There has to be mutual agreement on execution approach upfront and frequent communication throughout the collaboration. Just giving a problem and expecting an output at the end will not work.”

42%

Lack of coordination with alliance partners

39%

- SVP, Global Biotech

Insufficient senior management support

36%

Difference in execution approach

“The success of any collaboration lies in commitment, knowledge sharing and shared vision on both sides.”

33%

Long development timelines

18%

Selecting the right ideas to develop

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3c

- MD, R&D centre, Global Pharma

15%

Not enough great ideas

12% 0

15

30

45

60

% Respondents

“Commitment from Global Pharma at a senior level is most important for partnerships. Unless someone very senior like the CEO or head of research supports it there will be resistance internally.” - EVP R&D, Global Pharma

Source: BCG US and Europe Pharma companies Survey, Mar 2011 (N = 33), Expert interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

34

Investment in partner development and commitment from senior management critical to successful partnerships

Shared agenda ―What are we looking for?‖

Investment in capability building ―What will we get out of this?‖

Long-term commitment from senior leadership ―What do we need to invest?‖

“A partner needs to bring a sustainable value proposition (technology, capability etc). We are looking for a partner for drug discovery and not just a low cost option.” - SVP R&D, Global Pharma “Our productivity is one of the highest in the Global Pharma‟s R&D network.” - CEO, Indian drug discovery company

“It is important to ensure incentives are in place for the partner. We are helping our partner develop world class capabilities.” - SVP R&D, Global Pharma

“Successful relationships are ones where we realize we need to invest early and often, sometimes even put people on the ground. Efforts spent in educating the partner have paid off.” - SVP R&D, Global Pharma Copyright © 2011 by The Boston Consulting Group

3c

“The senior leadership teams have a strong working relationship, which is very important to getting things done.” - SVP R&D, Global Pharma

“Unless someone senior enough supports the partnership, there will be resistance. It is equally important to have commitment across levels.” - SVP R&D, Global Pharma

Source: Expert interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

35

Two kinds of partners are preferred by Global BioPharma: Integrators or specialists Would you prefer to use several best-in-class providers for a project or one full service firm? Respondents (%) 100

41 Several best-in-class providers

75

“Initially we used an integrated service provider because it is more convenient. However, it is difficult for one CRO to be the best at everything and we now work with several best in class players.” – SVP R&D, Global Pharma

50

25

59 One provider with solid services across the board

“There is clearly some benefit to scale and this has probably dominated Pharma companies‟ preference to invest in few relationships.”

Copyright © 2011 by The Boston Consulting Group

3c

– VP R&D, Global Pharma 0

Source: Jefferies CRO Survey 2007, expert interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

36

Chapter 4

Ideas to leverage India for improving “value generated”

Summary: Ideas to improve “value generated” 4a

Develop “nichebusters”

Pursue opportunities previously uneconomical for Global BioPharma • Current R&D model is too costly for development of ―nichebusters‖ • By combining early stage expertise of Global BioPharma with Indian service providers‘ ability to bring innovation to market cost effectively, newer diseases can be targeted • Indian BioPharma developing innovative products in India could adopt a network approach to optimize business model to deliver innovation faster and cheaper

Leverage research capabilities in emerging technologies

Tap India for emerging technologies where India has a competitive advantage • Potential early mover advantage in technologies of the future • Several new technologies are closely linked to information technology and engineering where India has established strengths – e.g., Bio-informatics, Nano bio-technology • Further, India offers a policy environment where research can take place in select areas – e.g., Stem cell research

Life sciences R&D: Changing the innovation equation in India

Copyright © 2011 by The Boston Consulting Group

4b

38

Current R&D model is not suitable for “nichebusters;” need for a low cost strategy to pursue these opportunities Only 20% of drugs launched by Global Pharma meet R&D costs

Global Pharma looking for partners for developing “nichebusters”2

After-tax present value of sales1 (M of year 2000 dollars) 2,000

1,500

“We have projects with potential for success which have been de-prioritized for cost reasons. We are looking to monetize some of these opportunities by partnering.” – VP R&D, Global Pharma

After-tax average R&D out-of-pocket costs

1,000

“We are partnering with a Chinese company till PoC.3 We retain the right to global commercialization and the partner retains rights to the local market.” – SVP R&D, Global Pharma

500

0

-500 1

2

3

4

5

6

7

8

9

10

New Rx drugs introduced between 19901994, grouped by Tenths, by lifetime sales

Need for low cost player with end-to-end capabilities to make development of “nichebusters” economically viable

1. After-tax average PV of sales is ~$363M 2. Niche-busters refers to drugs for diseases with limited patient population 3. PoC – Proof of Concept Note: Drug development costs represent after-tax out-of-pocket costs in year 2000 dollars for drugs introduced from 1990–94. The same analysis found that the total cost of developing a new drug was $1.3B in 2006. Average R&D costs include the cost of the approved medicines as well as those that fail to reach approval. Source: J. Vernon et. al., ―Drug Development Costs when Financial Risk is measured using the Fama-French Three Factor Model,‖ Unpublished Working Paper, 2008; J. DiMasi and H. Grabowski, ―The Cost of BioPharmaceutical R&D: Is Biotech Different?,‖ Managerial and Decision Economics, 2007, expert interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

39

Copyright © 2011 by The Boston Consulting Group

4a

Indian Pharma strongly placed to take up niche innovation programs Competencies required from partner playing to India‟s strengths

India with ~60% cost advantage over traditional model Percentage 100

Global Pharma Validated targets provided by Global Pharma

80 -60% 60

74%

40

Indian Pharma

Copyright © 2011 by The Boston Consulting Group

4a

30%

Lead optimization to Proof of Concept stage

20

Commercialization in India if project is successful

0

26% 10% Traditional Global pharma model Cost of failure

Drug discovery & development in India Cost of success

Source: Expert interviews, Literature review, BCG analysis Life sciences R&D: Changing the innovation equation in India

40

Network model can help Indian Pharma in bringing “nichebusters” to market cost effectively What does the network model look like in the Indian context? Licensing/ Patent Experts

Govt. Agencies

Pharma/ Biotech

Clinical/ Preclinical Suppliers

Indian Pharma

What are the benefits for Indian Pharma? Lower funding needs Adoption of risk sharing models with partners can help reduce funding required to pursue a single molecule, thereby enhancing success rates

Higher efficiency Academia

Scientific Experts

• Network of best practice partners with one company as coordinator • Focus on core capabilities, e.g., lead generation to pre-clinical compounds; partnerships pursued for targets and clinical studies

Sourcing from players with greater volumes allows Indian company to benefit from scale and best practices of external partner

Copyright © 2011 by The Boston Consulting Group

4a

Better quality outcomes Sourcing from best-in-class players drives better quality outcomes; highly unlikely that a single company can be the best across activities

Source: Expert interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

41

Parallels exist globally in Pharma; smaller companies are adopting network model to manage constraints Biotech companies

Venture capitalists

Small Pharma companies

Example: Vertex pharmaceuticals

Example: TVM capital for portfolio companies

Example: Dr. Reddy‟s Laboratories

• Network of partners developed to tap the best talent

• Virtual asset development: No investment in internal infrastructure

• Platforms established to enable partners to communicate directly with each other to map interdependencies

• Single asset focus: Fixed investment committed to developing single asset to Proof of Concept stage

• In-house R&D unit spun out and merged with 100% owned subsidiary, Aurigene

• Incentives usually include license fee, royalties, or milestone payments, based on the partner

• Early partnering: Asset development through partners • Option deals: Risk shared with partners

• Focus on in-licensing and out-licensing

• Work given to partners with strongest capabilities with no preference given to Aurigene • Payments to partners based on milestone and share of royalties

Source: TVM website, expert interviews, BCG analysis Life sciences R&D: Changing the innovation equation in India

42

Copyright © 2011 by The Boston Consulting Group

4a

4b

Government is actively establishing an innovation ecosystem Historical barriers are being addressed

Historical barriers to India-based life science innovation Intellectual property regulation not supportive Company culture not fostering innovation

Key actions of government to establish ecosystem Intellectual property regulation and government policies: • Introduction of product patents in 2005 • Drafting of Indian Bayh-Dole act; awaiting approval in parliament • Policies permitting faculty to hold executive positions in start ups

61 52

Lack of Infrastructure

52

Govt policies not supportive

30

Funding shortage

27

Difficult to manage partners

Infrastructure: • Creation of bio-parks and educational institutions

24 18

No big success story

Funding: • Increase in government funding for research • Industry funding programs • Government-backed venture capital funds

15

Lack of talent

12

Others

Copyright © 2011 by The Boston Consulting Group

Long gestation

9 0

10

20

30

40

50

60

70

Respondents (%)

Talent: • Increase in compensation for academics • Repatriation programs for overseas researchers

Source: BCG US and Europe Pharma companies Survey, Mar 2011 (N = 33), Press search, BCG analysis Life sciences R&D: Changing the innovation equation in India

43

India can be leveraged for emerging technologies where India has an advantage Focus on new technologies that are extensions of areas in which India has demonstrated strengths Bioinformatics

Nano biotechnology

Life Sciences

Information Technology

Engineering

Select emerging technologies where Indian regulatory environment is more accommodating than Western markets The National Institutes of Health announced that it has suspended funding new human embryonic stem cell research and that all federally funded experiments already underway will be cut off when they come up for renewal if a new court order is not overturned. The announcement—which confirmed fears among proponents that the ruling would result in a comprehensive freeze in federal support for stem cell research—came in response to a court order Monday barring the government from funding the research because it involves the destruction of embryos. – Press search Aug. 2010

Copyright © 2011 by The Boston Consulting Group

4b

Guidelines for Stem Cell Research and Therapy have been prepared for adult, cord blood and embryonic stem cells in response to the support provided by the Government to facilitate stem cell research in India so as to improve understanding of human health and disease, & evolve strategies to treat serious diseases – Press search Aug. 2010

Source: Press search, BCG analysis Life sciences R&D: Changing the innovation equation in India

44

Bioinformatics: India is leveraging IT skills to develop centers of excellence

Bioinformatics network India was one of the first countries in the world to establish a nationwide bioinformatics network Biotechnology Information System Network (BTIS) connects 57 key research centers, covering the entire country

Databases More than 100 databases for biotechnology have been developed Efforts are being made to ensure availability of secondary and tertiary databases and knowledge resources Six international databases pertaining to genomics and proteomics have been mirrored under National Jai Vigyan Mission

Talent pool 20+ M.Tech. and 10+ M.Sc. bioinformatics courses to be introduced in various prominent institutions 300+ colleges offering courses in biotechnology, bioinformatics, and biological sciences Copyright © 2011 by The Boston Consulting Group

4b

Vendor landscape Over 200 companies with some bioinformatics play Pure bioinformatics companies like Strand Life Sciences, Molecular Connections, VLife Sciences, Cytogenomics, LabVantage IT companies like Infosys, HCL Technologies, TCS, Mphasis, IBM Domestic companies with focus on CRAMS like Jubilant Biosys, Avesthagen, GVK Biosciences

Source: Bioinformatics Policy of India 2004, Value notes, Department of Biotechnology, Literature review, BCG analysis Life sciences R&D: Changing the innovation equation in India

45

Nano biotechnology: Indian government is investing in developing a research ecosystem

Basic research

Application development

• ~130 projects supported by individual scientists mainly working on fundamental scientific aspects of nanoscale systems

• 8 centers set up for nano applications

• Significant results have been reported from these projects

• Nanotech incubators created to promote entrepreneurship (e.g., NT-NCL, Pune)

• Special grant allocated for nanotech start-ups

Human resources • Institutes of Nano Science and Technology to be established • 3 international conferences conducted • 3 advanced schools organized • Postdoctoral fellowships initiated

• 6 projects funded under joint institutionindustry linked projects & other programs

Infrastructure development

International collaborations

• ~$250M funding earmarked for R&D labs and academia – 30+ universities/colleges and 15+ research institutes are engaged in nano science research

• Multiple projects funded under the DSTNSF program

• 11 centers of excellence for nano science sanctioned, which will have sophisticated infrastructure

• Indo-US workshops conducted • Ongoing programs with institutions in Germany, Italy, EU, Taiwan, Russia, Ukraine, Japan

Copyright © 2011 by The Boston Consulting Group

4b

Platforms for interaction • Bangalore Nano, annual event conducted to bring together nano experts, companies .and institutions from India and around the world • Vision Group consisting of researchers from academia, industry, and research spheres formed to develop a national nanotechnology policy

Source: Nanomission website Life sciences R&D: Changing the innovation equation in India

46

Stem cell research: Flexible policy in India is supported by coordinated government research efforts India offers a flexible policy environment…

…with players present across the value chain… Stem cell storage

R&D Countries with a permissive or flexible policy on embryonic stem cell research in brown

Clinical trials

Denotes genome sequencing center Stem cell therapy

Lifecell, Stemade, Bioeden

National Centre for Biological Science, National Centre for Cell Science, Centre for Cellular and Molecular Biology, Christian Medical College All India Institute of Medical Sciences, LV Prasad Eye Institute, Christian Medical College, Gangaram Hospital, Reliance Life Sciences All India Institute of Medical Sciences, LV Prasad Eye Institute, Christian Medical College, Medanta, Patki Hospital, Reliance Life Sciences

…and has seen success stories emerge “The Centre for Stem Cell Research at Christian Medical College has succeeded in reprogramming cells drawn from adult mice and making them function like stem cells found in the human embryo” – Times of India, Mar 2009

“In what can be stated to be a huge feat for Indian stem cell treatment, Netaji Subhash Chandra Bose Cancer Research Institute carried out a remarkable transplant from an unrelated donor”

Copyright © 2011 by The Boston Consulting Group

4b

– Zeenews, Jul 2009

~22 public and ~7 private institutions are authorized to conduct stem cell research Source: World Stem Cell Map created by University of Minnesota and last updated May 13, 2011. ―Stem Cell Research: Advantage India,‖ Forbes, Feb. 2010, press search. Life sciences R&D: Changing the innovation equation in India

47

Until recently, many hurdles existed for academia to assume a critical role in life science innovation

Top hurdles to collaborating with academia in India Unclear regulatory stance on technology transfer

“We tried collaborating with Indian academia; however we ran into roadblocks over payment terms.”

61

– SVP R&D, Global Pharma Risk of IP if academicians work with competition

48

Reluctance to work with government institutes

“It is difficult to establish contact with academia in India as they are not very open to business opportunities unlike in the US. This is probably due to high dependence on government funds. Indian scientists have now started exploring/responding to such opportunities.”

39

Misdirected efforts

33

– SVP R&D, Global Pharma Lack of incentives

Copyright © 2011 by The Boston Consulting Group

4b

30

Lack of capability

21

0

25

50

75

100

Respondents (%)

“We have academic collaborations, but not with Indian institutes. It is quite difficult to collaborate with them and moreover the kind of technology we are interested in does not exist with Indian academia.” – CEO, Indian drug discovery company

Source: BCG US and Europe Pharma companies Survey, Mar 2011 (N=33), Expert interviews Life sciences R&D: Changing the innovation equation in India

48

Increased focus on commercial impact: Bayh-Dole and tech transfer introduced to improve migration from lab to market “Indian Bayh-Dole Act” being created to incentivize academia Need: • Clear policy on sharing IP from public funded research • Incentive for researchers in govt. institutes for working on commercially attractive projects Objectives: • To create uniform legal framework for protection and utilization of the IP generated out of public funding • To provide incentives for creating and commercializing IP from public funded research Features: Institutes to constitute an IP management committee that will apply for patents and manage the commercialization process Clear division of royalties with incentive for researcher: • Researchers will receive a minimum of 30% of royalties from the public funded intellectual property • 30% paid into the fund created by committee for IP management • Remainder retained by the institute for further research Status: Currently tabled in upper house of parliament Source: PRS Legislative research, Planning commission of India, Literature research Life sciences R&D: Changing the innovation equation in India

Enablers being instituted to promote tech. transfer from academia to industry Regional cluster

Technology Transfer Cell

Institutes

Proposed to create ten national/regional technology transfer cells (TTCs), with each servicing a cluster of institutions in a region TTCs to provide technology transfer services including: • Evaluating technology and identifying potential commercial uses • Developing and executing intellectual property protection strategies • Negotiating and monitoring the licensing arrangements

Copyright © 2011 by The Boston Consulting Group

4b

Status: Part of current five year plan program – on ground, action awaited 49

Incentives for academia: Compensation increased by more than 3x Average pay for professions with graduate degree

Scientist

Senior Scientist

Director

US$ per month

1200

US$ per month

1600

1,489

1,047

1000

1200

800

2000 1,667

1500 1,031

600

800

1000

480

400

300 178

200

407 267

400

0

0 Existing

Revised

US$ per month

0 Existing

Assistant Professor

Revised

1600 1200

800

Revised

Professor US$ per month

1,489

1,047

1000

Existing

Associate Professor US$ per month

1200

556

500

Copyright © 2011 by The Boston Consulting Group

Scientist

US$ per month

Faculty

4b

2000 1,756 1500

1,031

600 400

407

200

178

1000

400

500

0

0

1,053

480 498 364

0 Existing

800

Revised

Existing

Revised

Existing

Revised

Note: Revised pay includes pay grade Source: Indian Council of Agricultural Research; 6th pay commission Life sciences R&D: Changing the innovation equation in India

50

Talent: Repatriation and immersion programs introduced to develop research talent pool Illustrative Target group: Experienced scientists abroad interested in doing research work in India Program type: Funding for research and fellows Duration: 5 years

Target group: Young Indian scientists Program type: Overseas training in niche research areas in biotechnology Duration: Up to 1 year

Target group: Post graduates in biotechnology Program type: Research fellowship Duration: 3 to 5 years

DBT-Wellcome Trust Fellowship (46 awards)

Associateship for Young Scientist in niche areas (110+ awards; ~$7+M)

Young biotechnologist award (61 awards; ~$9M)

Target group: Young scientists below 35 years age Program type: Financial support for a project along with a fellowship Duration: 3 to 5 years

Ramalingaswa mi Fellowship (40 awards; ~$32M)

Programs to promote biotechnolo gy research

Junior Research Fellowship (290+ awards; ~$19+M)

Tata Innovation Fellowship (25 awards; ~$1.3M)

Target group: Scientists of Indian origin working overseas Program type: Fellowship for taking up research positions in India Duration: 5 to 10 years

Copyright © 2011 by The Boston Consulting Group

4b

Target group: Indian researchers involved in interdisciplinary innovation work Program type: Fellowship and research grant Duration: 3 to 5 years

Scale of programs still small with only ~150 scientists benefitting annually Note: The numbers mentioned above are actual awarded fellowships and not proposed Source: Press information bureau, Govt. of India, Wellcome-DBT website, BCG analysis Life sciences R&D: Changing the innovation equation in India

51

Infrastructure: Educational institutions and bio-parks expanded Both bio-parks and leading academia • Building a critical mass of companies and leading academic institutions in a region is key to transforming infrastructure into an innovation cluster

Not exhaustive

Chandigarh Delhi Only bio-parks, no leading academia

Lucknow Kolkata

Baroda Pune Hyderabad Bengaluru

Chennai

• Bio-parks should be planned around top universities and with strong linkages to the academic organization; currently biopark infrastructure is too dispersed and without strong academic linkages Cluster of leading academia, no bio parks • Concentration of quality academic institutions in a region should encourage companies to establish R&D centers nearby to facilitate easy access to academic talent pool

Copyright © 2011 by The Boston Consulting Group

4b

Existing infrastructure is not optimally planned; need for greater regional concentration to develop innovation clusters Source: Literature review, BCG analysis Life sciences R&D: Changing the innovation equation in India

52

Government life sciences funding quadrupled over last decade, albeit from a small base

Funding for Science and Technology in different plan periods1

Expenditure by government agencies on life sciences2

Funding ($B)

Expenditure ($M)

24

1,000

20 750

~ 5.6x

~3.7x

16

12

500

8 250 4

0

0 9th Plan 1997-2002

10th Plan 2002-2007

11th Plan 2007-2012

2000-01

2005-06

2009-10

1. Funding refers to actual expenditures by departments during 9th and 10th Plan. For 11th Plan funding estimated based on percentage utilization of planned outlay in period 2007-2010. 2. Estimations for major life sciences funding agencies (excluding agriculture related agencies), i.e., Department of Biotechnology, Indian Council of Medical Research, Council of Scientific and Industrial Research, and Department of Science and Technology Source: Planning commission of India, Department of Science and Technology, BCG analysis Life sciences R&D: Changing the innovation equation in India

53

Copyright © 2011 by The Boston Consulting Group

4b

First results: Sharp increase observed in academic output in terms of publications No. of publications in Pharmacology, Toxicology, and Pharmaceuticals

5,000

China

No. of publications in Biochemistry, Genetics, and Molecular Biology

25,000

No. of publications in Immunology and Microbiology

4,000

China

China 4,000

20,000 3,000

India 3,000

15,000 2,000

2,000

South Korea

10,000 South Korea

1,000

India South Korea

5,000

Taiwan 0 1995

India

2005

2010

Taiwan

Taiwan 0

2000

1,000

1995

0 2000

2005

2010

1995

2000

2005

2010

Source: SCImago. (2007). SJR — SCImago Journal & Country Rank, Retrieved March 15, 2011, from http://www.scimagojr.com Life sciences R&D: Changing the innovation equation in India

54

Copyright © 2011 by The Boston Consulting Group

4b

However, innovation role of academia will take time to play out Low revenues from commercialization for academia…

…due to limited IP generation

Earnings from technology commercialization for NRDC1

Share of academia in patents granted

Royalty and license fee ($M)

Share (%)

1.2

16

~15 Share of academia and research organizations in drug patents higher at ~6% for 2009-10

14 0.9

0.9 0.8

0.9

0.8 0.7

12 10

0.6

8 6

0.3

~5

4