Date:03/03/2007 URL: http://www.thehindubusinessline.com/2007/03/03/stories/2007030305990300.htm

Back Biotech industry lauds Budget measures on drug trials, R&D

Our Bureau

`Venture capital funding set to rise'

Ms Kiran Majumdar Shaw

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Bangalore March 2 The biotechnology industry gets a breather and a boon. For one, the suspense has ended on the incentive on R&D spend, which was closing this financial year. It gets a five-year extension on 150 per cent weighted average tax deduction on R&D expenditure.

For the other, the exemption from 12.24 per cent service tax should add to the country's edge in outsourced clinical trials for new drugs. According to Dr K.K. Narayanan, President, Association for Biotech-Led Enterprises (ABLE), this was a major demand of the industry, along with exemptions for drug development research.

DUTY ANOMALY

However, ABLE said there is a serious persisting anomaly about customs and excise duties levied on imported and indigenous life saving drugs and diagnostics. Indigenous manufacturers of these products are charged the duties on raw materials and components; imported products are duty free.

The service tax levy was making clinical services uncompetitive in the global market, he said. "We were not as competitive as China or Thailand though we have much more potential and diversity."

Mr R. Basil, Managing Director and CEO of Manipal Health Systems, said, "The (move) will help our clinical trial initiatives attract more foreign and domestic partners."

India already figures in the top five destinations for clinical trials. An estimated 85 CROs (clinical research organisations) - among them Quintiles, Biocon's entity Clinigene International, Manipal Acunova, Lotus Labs - are said to be operating across the country, conducting 100 trials worth $300-500 million currently for both international and domestic drug companies.

This is expected to grow to $1 billion by 2010 - or 10 per cent of the global clinical research market, according to Mr Sudhir Pai, Commercial Director of Lotus Labs, a leading CRO. "We expect to sign 5-8 trials worth Rs 25-30 crore this year and this gives us a huge advantage. There will be more business flowing in," Mr Pai said.

While domestic players could get a rebate on the service tax, it will now make a huge difference for foreign projects and give India - already a low-cost player - an added edge over European or US CROs, according to Mr Pai.

About the rebate on R&D spend, Ms Kiran Mazumdar-Shaw, CMD of Biocon Ltd, said, "The industry has been pursuing this single point for five years. Biocon, for instance, spends at least Rs 100 crore on R&D.

"The Finance Minister has announced incentives for innovation and research, development and growth and manufacturing. By passing on tax benefits to VCs investing in biotech, he has created a positive entrepreneurial environment."

The $1.5-billion domestic biotech industry is growing towards $5 billion by 2010 and $25 billion by 2015. "The extension of the weighted average tax exemption on R&D investment, service tax exemption for technology business incubators and pass-on direct tax benefits to VCs investing in biotech and related technology sectors will provide the much needed support to innovation," Dr Narayanan said.

Dr Narayanan said though there has been much VCF (venture capital fund - with estimated investments of $300 million in 2006) interest in biotechnology, they were hesitant about start-ups. The announcement of benefits signals that the Government acknowledges this industry as a key sector.