How structural changes are driving R&D activity in India’s pharmaceutical sector

Abstract

Rising Research and Development (R&D) activity has led to dramatic growth in India’s pharmaceutical market in the last decade. This increase in R&D was occurring at a time of significant changes in the sector, notably in the intellectual property rights (IPR) system and the sector’s increased focus on biopharmaceuticals. The objective of this study is to examine the impact of these structural changes along with the traditional drivers of R&D activity to better understand the transformation in India’s pharmaceutical sector during this period and shed light on its future trajectory. We extend the traditional model to estimate the determinants of R&D by incorporating the changes in India’s pharmaceutical sector during this period. With pooled data for the top 16 pharmaceutical firms during the last decade, this model is estimated using feasible generalised least squares. Our results show that R&D is affected by firm size, global reach, and profitability. Experience, particularly successful patent experience, is important. However, at some point, R&D activity resulting from longevity succumbs to diminishing returns. Also, the IPR environment and firm investment in biopharmaceutical treatment are important drivers of R&D. Promoting R&D activity is vital to keep India’s pharmaceutical sector on its growth trajectory. Policies supporting the sector’s shift from imitation to innovation and promotion of biopharmaceutical treatment will ensure its continued success.