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Firm level R&D intensity: evidence from Indian drugs and pharmaceutical industry

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Abstract

This paper analyzes the R&D profile of Indian drug and pharmaceutical industry during the period 2000–2013, and the factors that influence a pharmaceutical firm’s decision to undertake R&D activities. The study period from 2000 to 2013 has been characterized by a rapid growth in industry’s R&D expenditures, as part of the strategic shift, induced by the Patents (Amendment) Act, 2005. Using the real financial data for the top 91 publicly listed Indian domestic pharmaceutical companies, the study provides new evidence on drivers of R&D intensity in Indian Drugs and Pharmaceutical industry. A panel data random effects Tobit model along with OLS model using firm fixed effects are applied to identify the factors affecting the R&D intensity of the sample firms. Furthermore, McDonald and Moffitt in Rev Econ Stat 62(2):318–321, (1980) procedure is used to decompose Tobit estimates. The empirical findings of the study reveal that firm’s size, past year profitability, past innovative output, leverage ratio; past cash flow; export and import intensities of the firm tend to significantly impact the R&D intensity. While firm size exhibits a non-linear relationship, cash flow, past innovative output shows a positive and significant relationship with R&D intensity. Further, patent count and firm’s overseas presence, considered as additional important determinants of firm-level R&D intensity, influences R&D positively. Lastly, global orientation of Indian pharmaceutical firms has been found to impact R&D activities considerably.

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Source CMIE Prowess Database, 2014

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Notes

  1. It aims to provide a therapeutic amount of drug to the appropriate site in the body to accomplish promptly and then maintain the desired drug concentration. This drug delivery system improves drug potency, control drug release to give a sustained therapeutic effect, provide greater safety.

  2. DRF-2725 (NN622) was a peroxisome proliferator-activated receptor alpha and gamma agonist which, according to Dr Reddy's, has shown potential to regulate these parameters and thereby blood glucose and diabetic dysplasia. This molecule failed after it has been out-licensed.

  3. DRF- 4148 was a anti-diabetic compound, which was out-licensed to Novartis in 2001. It also failed during further development.

  4. RBX 2258 (pamirosin) was being developed for the treatment of benign prostate hyperplasia by Ranbaxy. Ranbaxy later out-licensed it to the German firm Schwarz Pharma which stopped Phase II trials of RBX 2258.

  5. ANDA is an application for a U.S. generic drug approval for an existing licensed medication or approved drug.

  6. DMF is a submission to the Food and Drug Administration, that may be used to provide confidential detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more human drugs.

  7. It is a molecule developed by the innovator company in the early drug discovery stage, which after undergoing clinical trials could translate into a drug that could be a cure for some disease.

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  1. Department of Humanities and Social Science, Indian Institute of Technology Roorkee, Roorkee, Uttarakhand, 247667, India

    Shilpi Tyagi, D. K. Nauriyal & Rachita Gulati

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  1. Shilpi Tyagi
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  2. D. K. Nauriyal
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Appendix

Appendix

See Tables 8, 9, 10 and 11.

Table 8 Descriptive statistics of dependent and independent variables.
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Table 9 Test for Stationarity.
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Table 10 Collinearity diagnostics.
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Table 11 Correlation statistics of dependent and independent variables.
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Tyagi, S., Nauriyal, D.K. & Gulati, R. Firm level R&D intensity: evidence from Indian drugs and pharmaceutical industry. Rev Manag Sci 12, 167–202 (2018). https://doi.org/10.1007/s11846-016-0218-8

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