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Cover Story
 

Does R&D Really Pay?

Issue Date - 03/02/2011
 
Even the industry estimates support GTL’s logic to increase its investment in R&D to come out with technologically advanced and efficient equipments & towers. As per the estimates, India would need more than 4,50,000 telecom towers by the end of 2013 to feed the “Great Indian Telecom Boom”. As most of these towers would be set up in the rural and semi-urban areas having low telecom penetration & frequent power cuts, therefore GTL will have to offer its customers solutions that can bring down their operating costs and reduce carbon foot prints (carbon emission from telecom towers is estimated to be around 5.3 million tonnes annually in near the future). Agrees Neeraj Jain, Director, KPMG, as he tells B&E, “Green energy, given its potential to reduce site energy bills by 15-25% will help in increasing the viability of the business case for operators to expand in rural and semi urban areas.”

Further, the green solutions will also help GTL in some of the international markets, particularly Kenya and Nigeria, where it is already present as it will use its India experience to make the venture profitable.

No doubt, GTL has sensed the opportunity at the right time, but the road to success still remains challenging for it as green towers would increase the infrastructure set up cost, putting an additional burden on the telecos. However, given the technology’s long-term benefits telcos won’t mind shelling a few extra bucks from their pockets. After all, it’s where the future lies for them!

By Akhilesh Shukla
 
Case Analysis : PHARMACEUTICALS
Can they indeed change their spots?

Indian pharma has commenced a stronger push into r&d, but will need a more calibrated approach to be able to deliver profitable and sustainable R&D models

For decades, the spirit of superiority has driven US patent-hungry pharma giants to feed their R&D machineries with billions of green bills. Result: Today, Pfizer’s blockbuster drug Lipitor is set to go off patent by end-2011. Similarly, J&J’s Levaquin will also lose its exclusivity. Endless rounds to district courts over patent rows, uncountable law suits from individual consumers, and the fear of their multi-billion investments in a fairy-tale being served on a platter to generic-drug manufacturers. The fact is that despite such major monetary binge into R&D; their pipelines simply dried up over time and so did the pay offs.

Indian drug makers, on the other hand, have historically relied on the opposite; i.e. entering the market when the ‘patent’ effect on the drug wears off! And it paid off for years in some cases. But the shocking capitulation of Ranbaxy when it was acquired by Daichi Sankyo highlighted the inherent flaws in such an approach. Moreover, the introduction of the Product Patent era in 2005 ensured that the players had two choices – to shape up or ship out. As a result, there has been a focus on new business models, and higher R&D spends.

Numbers alone may not do justice to the buzz around Indian firms’ research push, but they are worth acknowledging. Last fiscal, Sun Pharma spent about 8.5% of its sales revenue on research and product development, Aurobindo Pharma spent 3.06%, whereas Ranbaxy invested 10.9% in 2008-09. The pool of pharmaceutical companies is still largely dominated by standard generic manufacturers. However, some first line companies are now slowly embracing the innovator tag.

According to experts, with many blockbuster drugs facing impending patent expiration, slow growth and US healthcare policies that promote generic drugs, pharmaceutical companies are now turning to emerging revenue generators such as as India, China and Russia. The cost of conducting research and developing products in India is far lower than that in the West, and this serves as a big advantage for companies here. Other favourable factors are scientific talent, patent protection and a large patient pool, a high percentage of which has not yet been exposed to the benefits of modern medicine.

According to some estimates, the cost of carrying out R&D activities in India is one-fifth of that for creating a new drug in a developed country. However, whether such estimates are true or not can be gauged only if an Indian company and a foreign firm involved in research here bring out new products in the market at the same time.

          

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