A review of the expenditure on research and development in the books of several top domestic and multinational drug makers shows this includes cost incurred on generic development, regulatory compliances, litigation, staff salaries and consultancy charges.
Among domestic majors, Piramal Enterprises, Glenmark, Dr Reddy’s Labs, Alembic Pharma and Orchid Chemicals were the five biggest spenders on R&D during financial year 2011-12, based on percentage of sales.
Piramal spent Rs 233 crore (Rs 2.33 billion), or 10.9 per cent of its total sales, on R&D during 2011-12.
It says this was primarily spent on two areas, development of cartilage repair gel and on various new chemical research activities.
“Main items include spend on manpower (mainly scientists), lab materials, analysis charges and clinical trial costs,” the company said.
For Chennai-based Orchid, the R&D expenditure of Rs 69 crore (Rs 690 million) was “mainly on account of salaries, consultancy charges, patents & filing-related charges, material purchase and the expenses related to outsourced trials”.
Auditors and analysts say such costs are permissible under basic accounting.
“Apart from staff and technician salaries, the cost of appointing a clinical research organisation for trials, reagent cost and depreciation cost of equipment form a major part of R&D expenditure for domestic as well as multinational pharma companies,” admitted a partner of an auditing firm.
Pharma companies enjoy a significant tax benefit on R&D expenditure. The government allows weighted deduction of up to 200