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How fares the Industrial In-house R&D in 2006?

Now that most of the Annual Reports of the public and private companies are out it is time to take stock of the trends in in-house R&D investments in industry. Spread of awareness about the importance of R&D, booming economy and the need to retain our export markets have kept the R&D interest going by our industrial sector. Just how good is the growth?

Following is the summary of R&D trends in 2005 and 2006

[Rs. Crores]

Turnover

R&D

Capital Exp.

R&D

Revenue Exp.

R&D Total

R&D Intensity

% of turnover

2005

1128349.53

1550.79

4315.7

5866.49

0.52

2006

1332599.09

1845.72

4824.35

6670.07

0.50

Companies with Sizeable R&D Investment

2005 2006
Annual Change

Rs. Crores Rs. Crores

Ranbaxy Laboratories Ltd. 639.33 483.82 -155.51

Tata Motors Ltd. 393.34 476.12 82.78

Hindustan Aeronautics Ltd. 306.63 433.58 126.95

Dr. Reddy'S Laboratories Ltd. 297.79 253.95 -43.84

Sun Pharmaceutical Inds. Ltd 115.98 161.49 45.51

Cipla Ltd. 98.38 155.4 57.02

Bharat Heavy Electricals Ltd. 125.2 151.7 26.5

Mahindra & Mahindra Ltd. 110.58 139.64 29.06

Bharat Electronics Ltd. 127.14 130.15 3.01

Wockhardt Ltd. 81.08 127.86 46.78

Oil & Natural Gas Corpn. Ltd. 105.27 125.75 20.48

Cadila Healthcare Ltd. 103.2 118.7 15.5

Indian Petrochemicals Corpn. Ltd 28.3 110.44 82.14

Reliance Industries Ltd. 61.32 110.34 49.02

Lupin Ltd. 83.61 108.02 24.41

Ashok Leyland Ltd. 92.38 104.95 12.57

Infosys Technologies Ltd. 74 102.16 28.16

As we could see the R&D investment trends of those industries with R&D investment are positive. This is so both in terms of turnover and also the R&D investments. The total expenditure on R&D among the listed companies has gone up by Rs. 800 crores in 2006 as compared with the figures for 2005. There are other positive signs too. In 2005 there were 10 companies with R&D investment of over Rs. 100 crores. This figure has increased to 17 in 2006. The new entrants to this elite club are: Cipla Ltd; Wockhardt Ltd.; Indian Petrochemicals Corpn. Ltd.; Reliance Industries Ltd.; Lupin Ltd.; Ashok Leyland Ltd. and Infosys Technologies Ltd. Most of these companies are in automobile or pharma sector. This reinforces the earlier trend of industrial R&D concentrating only in these two sectors.

But there are some negative trends too. Pharma majors Ranbaxy and Dr. Reddy’s have considerably reduced their R&D expenditure. The intensity of expenditure on R&D too has taken a hit. For the industries with R&D investment as a whole it has comedown from 0.52% of the turnover to 0.50% , and this in the face of increased turnover among these companies as whole.

Other positives on the R&D trends are:

Most of the top spenders have increased their investment under this head;

R&D investment shows an increase of Rs. 800 crores, of which over Rs. 500 crores is shown as revenue expenditure during the period on this head;

On the whole 502 of about 1000 companies, which invest on R&D, have increased their outlay on this line item;

350 companies, from about 1000 in the R&D league, have shown a negative trends in R&D spend during 2006. Among these are the Ranbaxy and Dr. Reddy’s laboratories. However, Ranbaxy is still on top of the list of R&D spenders in the country’s industrial sector;

It is good to see Infosys is coming to the top league of R&D investors.

On the whole R&D investments among the listed big companies remains more or less where it was. The larger trends noticed in the earlier years, of pharma and automobile sectors dominating the scene continues. Considering only 10 per cent of the companies have R&D investment, with many of them as little as Rs. 100,000 annually.

The public sector dominance in R&D has comedown considerably over the years, with only five of the top 17 Rs. 100 crore plus spenders in the league.

Indian prowess in R&D seems to be exploited more by the MNCs, and smaller private companies. The R&D news that hit the daily newspapers is full on this sector. This is reflected in the US patents being awarded for MNCs operating in India with Indians as inventors.

On the whole there is reason to be hopeful about the R&D picking up in the industries.

What do the top investors in R&D say about their R&D?

US patents post 2000

What do the top investors in R&D say about their R&D? This was examined by looking at their recent annual reports. The selected 17 companies have invested over Rs. 100 crores in 2006. It could not be expected that companies reveal their R&D in full detail in annual report information, which is more often oriented to investor needs. Nonetheless, this important document of the business concern is mandated to provide R&D and technology absorption notes in their respective annual reports, along with the financial investments made on these activities during the financial year. As could be read from these notes in their respective reports, public sector companies in the top league tend to give more detailed account of the R&D. The companies that standout among these are ONGC, IPCL.

The report of these companies are detailed and list all the new technologies adopted and new efforts in R&D. Bharat Electronics ltd., Bharat Heavy Electricals ltd., and Hindustan Aeronautics ltd., the three other public sector companies in the league list only the development aspects of their R&D efforts. Perhaps their efforts are only directed towards development and not to research. BEL lists its current projects and improvements accomplished in some of their electronic weapon systems.

Twelve of the 17 in the top list are the listed companies in the private sector. Companies such as Lupin, Cipla, Sun Pharma give a relatively detailed account of their R&D efforts as a contrast to DRL, Wockhardt which are known to be doing research of considerable importance tend to be very brief in describing their efforts.

Ranbaxy Laboratories Ltd.
62

Tata Motors Ltd.

Hindustan Aeronautics Ltd.

Dr. Reddy'S Laboratories Ltd. 64

Sun Pharmaceutical Inds. Ltd 1

Cipla Ltd. 3

Bharat Heavy Electricals Ltd. 6

Mahindra & Mahindra Ltd.

Bharat Electronics Ltd.

Wockhardt Ltd. 15

Oil & Natural Gas Corpn. Ltd.

Cadila Healthcare Ltd. 2

Indian Petrochemicals Corpn. Ltd 8

Reliance Industries Ltd.
4

Lupin Ltd.
8

Ashok Leyland Ltd.

Infosys Technologies Ltd. 1

In the automotive sector the impression we get is that of technology importation rather than local R&D, both in the case of Mahindra & Mahindra and Tata Motors. Ashok Leyland also seems to be focusing more on development than on research. Infosys new entrant to this league and long software company lists it publications, R&D collaborations, participation in seminars etc.
On the whole the impression one comes out with is that of Industrial R&D majors are focusing more on development – product and processes – than focus on research of more fundamental nature which could be trend setter for the future. Most of these top R&D league companies have several patents, including those issued by the USPTO in 2000 and later years. It looks as though they do not seem to think that these intellectual property per se are impressionable issues to the investors, as reflected in their company reports.

News Picks of the Quarter

AYURVEDA CONSORTIUM TO SET UP Rs33 CRORE R&D LAB

A consortium of Ayurveda industries, Care Keralam, will set up Rs33 crore Research and Development (R&D) laboratory and other facilities to boost export of Ayurveda products and promoting the Kerala brand. The laboratory will be based at Koratty in Thrissur district and will undertake scientific validation of ayurvedic herbal drugs. Care Keralam is a tripartite venture between the Government of India, the Government of Kerala and the Ayurveda industry.

PETROCHEM R&D TO GET Rs500-CRORE CATALYST FUND

The Government of India will come out with a Rs500-crore fund to aid research and development R&D in the petrochemicals sector. This fund will be available to enterprising individuals, research institutions and the industry. The Government is expected to give priority funding for developing technologies that will address feedstock supply shortages. The Department of Petrochemicals is yet to evolve the modalities of the fund but it will entail a non- repayable grant-in-aid. During the Eleventh Five Year Plan, the Department would like to have a corpus of Rs500 crore.

R&D GROWTH SEES SHORTAGE OF DRUG SCIENTISTS

India is witnessing a slow but steady growth in R&D work in pharmaceutical sector in the recent years. The number of scientists working in laboratories across India has increased to 5,000 now from 4,000 in 2006. The strength is likely to grow by 30 percent annually in the next three to four years. With such a growth, the sector is likely to face shortage of drug scientists in the years to come. This is because Indian pharmaceutical companies are investing large amounts in R&D. In addition, overseas companies are re-locating R&D work to India to save costs on discovering a new drug. Besides, contract organisations like Advinus, promoted by Tata Group, have come up in the country to take part in the global R&D initiative. With these growth in opportunities, the salaries of the scientists are expected to match that of the corporate executives.

R&D COSTS MAKE MNC PHARMAS RUSH TO INDIA FOR NEW MOLECULES

Global pharmaceutical companies are facing rising discovery research costs.This is prompting them to look at alternatives to develop innovative drugs at a lower cost. They are increasingly looking at India for new molecules in-licensing opportunities. Boehringer Ingelheim of Germany is completing its first in- licensing deal with an Indian pharmaceutical company.It is also talking to two Indian companies for new molecules in advanced stage of development. Indian pharmaceutical companies like Dr Reddy's Laboratories, Ranbaxy Laboratories Ltd, Glenmark Pharma, Orchid Chemicals & Drugs and Wockhardt Pharma are looking for international research partners.Glenmark Pharma is in talks with potential European partners for its asthma molecule Oglemilast. It is also in talks with several global companies for two research molecules targeted at neuropathic pain,inflammatory and dental pain. It recently licensed out its diabetes molecule to Merck of Germany in a deal potentially worth Euros 190 million.

DELL OPENS GLOBAL R&D CENTRE

Dell opened its global R&D centre in Bangalore on 31 May 2007. At this centre, Dell will conduct cutting-edge R&D on the next generation of network servers, data storage systems and software products. This is the second largest R&D unit of Dell with a seating capacity of 1,000. It is spread over 2 lakh square feet and houses 20 state-of-the-art laboratories with about 600 engineers. The centre is now working on next generation enterprise products that enhance performance and customer experience and also make them easier to deploy and manage.

INDIAN GENETIC DATABASE OFFERS R&D ADVANCES

A consortium of Indian scientists has completed a genetic database for India that will allow researchers to understand the genetic pre-disposition of ethnic groups to diseases. The genetic map will enable international and domestic pharma companies to enhance research on predictive medicine and targeted drugs. The genetic variation mapping has been undertaken by the Indian Genome Variation Consortium.

R&D HELPS TCS SAVE Rs33 CR

Tata Consultancy Services saves that it has managed to save about Rs33 crore in 2006-2007 as a result of in-house research and development. The company's savings have increased by 139.6 percent to about $8.05 million in 2006-2007 from $3.3 million achieved in 2005-2006. The company says that in-house development enables it to save on licensing costs associated with procuring R&D tools from outside vendors. TCS was issued 3,489 licenses in 2006-2007 as a result of its R&D efforts, of which 3,479 were used internally.

INDIA TO BE MOTOROLA'S R&D CRADLE

Motorola India Research Lab (MIRL) in Bangalore will be the hub of Motorola for developing technologies for the emerging markets. On a trial basis, MIRL will shortly implement a new technology that facilitates seamless mobility. Also, it is working on a few other technologies, including augmenting the battery life of mobile handset. MIRL, which has 30 researchers, is collaborating with six Indian Institutes of Technology and Indian Institute of Information Technology, Bangalore.

DST TO PROMOTE INDUSTRIAL CLUSTERS

The Department of Science and Technology (DST), Government of India, will promote cluster formation for industries to enhance manufacturing, marketing, servicing and R&D in a synergistic manner. DST has already received the approval of the Planning Commission for the project. DST is currently conducting preliminary surveys for identifying at least two cluster groups by 31 Mar 2008 and has received a sanction of Rs5 crore from the Planning Commission for the purpose.

MICROSOFT'S HYDERABAD CENTRE TO FILE 80 PATENTS

The Microsoft India Development Centre (MSIDC) will file for 80 patents by the end of Jun 2007. In the last 2 years, MSIDC has filed for 100 patents. MSIDC, which has 1,300 engineers, is developing many technologies. Microsoft will introduce the radio frequency identification (RFID) platform, incubated and developed at MSIDC, in 2007. MSIDC is also working on the second version of data protection manager as well as Windows Vista and Longhorn server.

TCS STRENGTHENS PATENT PORTFOLIO

Tata Consultancy Services (TCS) has filed about 200 patent applications over the last five years. The company continues to strengthen its intellectual property(IP) portfolio in areas such as development and design, business systems and cybernetics, embedded systems,performance engineering and broadcasting. TCS made 25 patent applications in 2006-2006. The patents filed include virtual ads in video presentation, a system of calculating vehicle insurance premium and a method to encrypt a video sequence.

BEML TO SPEND 3% OF TOTAL EARNINGS ON R&D

Bharat Earth Movers Ltd (BEML) proposes to spend 3 percent of its total earnings every year towards research and development (R&D) to increase productivity and introduce sophisticated products. The company currently invests only 1 percent of its income for R&D activities. BEML's revenue for 2006-2007 was Rs2,600 crore and it will invest Rs78 crore for R&D work in 2007-2008. BEML intends to increase the number of R&D professionals and undertake R&D for other companies too. By increasing its R&D activities, BEML aims to achieve its revenue target of Rs5,000 crore by 2013- 2014.

LOCKHEED MARTIN EYEING INDIA FOR R&D, PRODUCTS

Lockheed Martin Corporation (LMC) is planning to source some of its research and development (R&D) and products from India. The company has signed a memorandum of understanding (MoU) with Hindustan Aeronautics Ltd (HAL) for design of in-flight refuelling for F-16 fighters. LMC has also signed an MoU with Bharat Electronics Ltd. The company entered into a tie-up with Larsen & Toubro for the integrated platform system of the Navy. LMC is planning to establish the Lockheed Martin brand in India and has set up an office in Delhi.

COKE PLANS R&D CENTRE IN INDIA

Coca-Cola is planning to establish a research and Development (R&D) facility in India. The facility would mainly focus on non- carbonated drinks and flavours. The operations of the R&D facility would include product development, packaging, environment, scientific and regulatory affairs and sales equipment. After commencing the operation, the centre is likely to cater to the Asia Pacific region. Currently, the company, which is considering to launch juices in local flavours, energy drinks, sports drinks and flavoured water, outsources its R&D function to its Shanghai facility.

NEW GE R&D HUB IN HYDERABAD

General Electric (GE), which has research and development (R&D) centres in New York, Shanghai, Munich and Bangalore, is considering setting up its fifth R&D hub in Hyderabad. It is looking for 25 acres of land in Hyderabad. The Government of Andhra Pradesh has suggested that GE should consider establishing the unit within the campus of the University of Hyderabad. GE is likely to hire 2,000 scientists and engineers to work in the facility by 2009.

MNCs STILL BULLISH ON INDIA R&D

Multi-national pharmaceutical companies including Allergan, Eisai Pharma, Dupont, AstraZeneca and Bristol-Myers Squibb have selected India as a safe destination for investment in drug research and development (R&D) since Jan 2005. Johnson & Johnson is investing about Rs37 crore to expand its Analytical and Pharmaceutical Development Centre (APD) in Mumbai. About 10 multi- national pharma companies are conducting large-scale clinical trials in India while others are engaged in contract research and contract manufacturing business with Indian partners.

NOVARTIS WITHDRAWS PATENTS CASE AGAINST INDIA

The Government of Norway has requested Novartis to withdraw its patent case against India. The Norwegian government has asked the pharmaceutical firm to seek a solution, in order to facilitate continuation of India's contribution to developing countries. In Feb 2006, Novartis had challenged a clause in the Indian Patent Act in the Madras High Court, when the Chennai patent office had refused to grant patents to its leukaemia drug on the grounds that it is a new version of an existing drug.

DRUG COMPANIES IN PATENT WAR TO PROTECT TURF

Manufacturers of generic drugs are now waging legal battles against each other to protect their market share in the US. This will affect the Indian generic industry in 2 ways. Firstly, challenging patents will become expensive, as an Indian generic company will have to invalidate an innovator's patent as well as wage a legal battle with other generic companies wanting to enter the same market. Secondly, Indian generic makers will have a fight on their hands for launching their drugs in the US, as large generic manufacturers employ all legal and technical means to prevent new companies from entering the market. In 2006, $54.1 billion worth of generic drugs were sold in the US as compared to sales of $220.6 billion worth of branded pharmaceuticals. The market for unbranded generic drugs grew by 22.3 percent in the US in 2006. In the US, generic drugs account for 63 percent of the drugs prescribed. In 2007, $27 billion worth of blockbuster products are coming off patent while $29 billion worth of these drugs are coming off patent in 2008. Generics are cheaper by 30-80 percent than branded counterparts saving consumers $8-10 billion every year.

INDIA, CHINA TO DRIVE GLOBAL PHARMACEUTICAL SECTOR

A survey by PricewaterhouseCoopers (PwC) reveals that India and China are growth drivers of Asia's pharmaceutical industry. Asia will register increased multinational companies (MNCs) in the next one year through green-field projects and acquisitions. There is a spurt in research and development (R&D) activity and clinical trials by MNCs in India. The survey covering 9 countries shows that 34 percent of Asian companies plan acquisitions and 52 percent are eyeing for overseas stake.

Indian Biotech Industry R&D Focus

Discovery, research and innovation are major areas that the Indian biotechnology industry must focus on, was the overwhelming opinion of the experts at Bangalore Bio 2007 held in June 2007. India's biotech industry is ranked third in Asia-Pacific, behind that of Japan and Korea, is growing at 30 percent every year according to Ernst and Young. It is forecast that pharma sales in India will exceed $2 billion in 2007, up from $1 billion in 2004, of which $1.4 billion will come from the biopharma sector.

India's biotech industry is on course to meet sales of $5 billion every year by 2010, industry representative feel. Challenges facing the Indian biotech industry include handling a shift in focus from generic drugs to new molecules as well as optimizing various activities such as discovery research; the setting up of pre-clinical development facilities, infrastructure and funding. Out of the 340 biotech companies in India, 183 are located in Karnataka and 137 of those are in Bangalore.

Growth of US Patents for Indian Inventors

Impressive growth in Indian R&D is now well documented. But how impressive it is, is a matter of debate. In one of his recent observations Dr. RL Mashalker states that 0.3 percent of the country's workforce engaging in R&D as ideal. The figure for India is 12 times lower. India has 120 scientists per million as opposed to 5,085 in Japan and 4,526 in the USA. Even China has 633 science workers per million.
This seems to be reflected in the patents granted to Indian inventors irrespective of the assignee company / Institution by the USPTO. The figures in Table show a continuous upward trend in the years post 2000. There seems to be a catch though. We do not seem to be doing as good as other some of our competitors especially China on the same criteria. China has grown about eight-times as contrasted by India which has grown about three-fold in the period after 2000. One compensation though is the hi-tech nature of all the patents Indian investors have been granted, as opposed to that of China where utility patents seem to be in considerable numbers. Some of the titles Chinese inventors have been granted USPTO patents in 2007 include: manicure device; mirror with light; bubble squeezing toy; portable umbrella stand; bottle design etc.

India China

2000 184 274

2001 232 472

2002 342 626

2003 445 724

2004 460 951

2005 519 963

2006 699 1621

2007(till Aug.) 537 1217

Parliamentary Standing Committee takes a View of R&D at HAL

Hindustan Aeronautics Ltd.(HAL) is one of the top league investors in R&D over the years. This public sector company has taken up R&D in the areas of aircraft, helicopter, aero-engines, and accessories and avionics. HAL has nine R&D centers collocated with production division which strive to bring out new products, continuous up gradation of existing products besides providing services in the areas of modernization, technological up gradation and cost effective solutions.

The Parliamentary Standing Committee on Defence acknowledges various accomplishments of HAL in the R&D front over the last 10 years, including open system architecture mission computer, digital map generation systems, virtual cockpit system, Solid state flight data recorder based array antenna etc.

The Committee expresses that Ministry should fix R&D targets and strive to achieve the same. It also feels that proper care should also be taken to ensure ample staff strength for the R&D activities and also make strategy to attract the best talent available in the market and the best job package be offered to them to check the on going attrition of manpower. The Committee emphasized n the time bound projects and also role of private sector in R&D related work.

Statistically Speaking

Average Broad band Capacity in Different Countries
Four-year Bachelors in Engineering, Computer Science and IT awarded

Country Speed (Mbps) 2000-01 2001-02 2002-03 2003-04

Japan 61.0 United States 114,241 121,263 134,406 137,437

Korea 45.6 China 219,563 525,024 351,537 442,463

Finland 21.7 India 82,107 109,376 129,000 139,000

Sweden 18.2

Netherlands 8.8

Portugal 8.1

Canada 7.6

Norway 7.4

Austria 7.3

Belgium 6.2

Iceland/Germany 6.0

US 4.8

India 2.0

End Notes

$90 billion is the wealth India loses every year due to lack of sufficiently large broadband network.

Confederation of Indian Industries