At a time when Indian pharmaceutical companies have seen an increase in their research and development (R&D) spend, US-headquartered Mylan has been able to keep R&D costs under control by following a partnership approach, and that, too, with Indian drug firms.
From a 7.5 per cent of its sales in FY14, the share of R&D expenses as a percentage of sales for Mylan has dipped to 6.6 per cent in FY17 and analysts expect the share to be around 5.5 per cent in 2017-18.
According to data from Edelweiss, Indian pharma major Glenmark saw its R&D costs (as percentage of sales) grow from 9 per cent in FY14 to 13 per cent in FY18 (expected). For Lupin, it rose from 8.4 per cent in FY14 to 13 per cent in FY18 (expected).
Though Mylan may have been able to control its operational expenses, this has not come in at a cost of developing a pipeline. In fact, it has readied a product pipeline of brand value worth $327 billion. Mylan has 1,000 projects in pipeline across regions and 1,800 products pending approvals. It has spent $3 billion cumulatively in R&D between 2013 and 2017.
Edelweiss said: “Mylan has followed the partnership strategy, leading to major R&D savings. Large Indian peers, have, however, avoided this approach, even though many of Mylan’s partners are smaller Indian firms like Natco and Biocon.”
Rajiv Malik, president, Mylan, said managing R&D costs was not the primary rationale behind forging deals. “Several markets had specific demands or market needs.
Having a partnership also meant that the ‘time to market’ came down significantly for a product,” he said over phone from the US.
Mylan has especially been able to develop a strong biosimilars pipeline — of the $327-billion product pipeline, around $100 billion are biosimilars and insulin. “Our partnership with Biocon started around 2009. We did not have strong biosimilar capabilities internally then. Sandoz was way ahead and we were late in entering the space. So, we looked across the board and zeroed in on Biocon,” Malik said.
Today, Mylan-Biocon’s insulin analog Glargine (an estimated $10-billion global market) has been approved in the EU and Australia. The US launch is planned around 2020, and it would be launched in the EU in the second half of 2018. The product is already approved in 38 markets and approval is pending in 20 countries.
Edelweiss said that Mylan has posted 8 per cent earnings compounded annual growth rate (CAGR) over the past three years. “Mylan has been able to control its operating expenses, particularly its R&D spend, by following a partnership approach. This has helped it weather the weakness in the US, by investing to keep pace with the rising regulatory bar,” it said.
On the other hand, Indian pharmaceutical companies have gone solo with their investments, leading to a sharp increase in their R&D costs as a percentage of sales. “Glenmark, Lupin, and Dr Reddy’s have increased their R&D spends by 300-400 bps, as a percentage of sales. Consequently, earnings for large cap companies have declined at around 9 per cent CAGR,” Edelweiss said.
Malik said that it takes a village to run and build a partnership. “Our partnership with Natco started from scratch; from the API to the USFDA product approval, we came a long way,” he said.
Last October, Mylan got US FDA approval for multiple sclerosis drug copaxone ($4-billion market size) that it has developed with its partner Natco. Natco will receive 30 per cent profit share from the US company for the 20 mg product and 50 per cent share for the 40 mg product.
