Global pharma companies are in a situation like never before. A number of blockbuster drugs have gone off patent, while many are expected to go off patent in the near future. Also, R&D costs are on the rise as against increasing low R&D productivity. Apart, currently there are not enough promising drug candidates in later stage pipeline to replace the off patented blockbusters. Hence, major pharmaceutical companies worldwide are finding it difficult to maintain their bottom-line. As a result, they have taken recourses to outsourcing part of their drug development research and manufacturing activities to lower cost countries, saving cost and time. In the process, they are finding India as a natural choice of destination with plenty of expertise and cheap in cost.
Forms of pharma outsourcing
Contract Research and Manufacturing Services (CRAMS) is an important evolution in the outsourcing scenario of Indian pharmaceutical industry. Currently, CRAMS is music to ears of many mid sized companies, who once used to produce me-too generic products. These companies are facing the heat of implementation of WTO guidelines since early 2005 and as a result looking for alternate business opportunities.
As the name suggests, CRAMS consists of two components of outsourcing activities - contract research and contract manufacturing. Contract manufacturing market in India is growing at a rate of 22 per cent CAGR. In 2007, the contract manufacturing market in the country is expected to be about US $801 million. On the other hand, contract research market is growing at a CAGR of 38 per cent and in 2007, the market is expected to reach about US $197 million. Other than CRAMS, clinical trials are another area of outsourcing. Currently in India, the clinical trials market is growing at a CAGR of 25 per cent and by the end of 2007, it is expected to reach US $200 million.
Why India?
There are few reasons why big companies are increasingly leaning towards outsourcing some of their services. These are lack of capacity, skill, and cost control. In addition, external cost pressures are also acting as a major driver for the pharmaceutical outsourcing market. In countries like India, the outsourcing market has developed in response to the cost pressures, both downward and upward, exerted on pharmaceutical manufacturers' profit margins. Looking at the current trend, one expects that such pressures are likely to increase in the future. In such a scenario, CROs and contract manufacturers will become more important strategic partners for pharmaceutical companies abroad. As a result of all these market dynamics, the big companies are feeling it much safe to outsource their non-core activities and increase the profitability.
Most of the big pharma companies do not maintain a complete set up to include all the different aspects of drug discovery. On the contrary, they prefer outsourcing certain aspects of the drug development process to CROs. This inevitable process of value chain optimization and the consequent incomplete value chain is the first and foremost growth driver for the phenomenal growth of the CROs.
There is an ever increasing demand for New Chemical Entities (NCEs) and Investigational New Drugs (INDs). This is acting as a growth driver for the contract research organizations. At a time, when many blockbuster drugs like Zocor, Zoloft, Lemisil, Ambian, Epogen, Neupogen are going off patent or already off patented, the pharmaceutical industry is frantically looking for new molecules.
Lower cost is another hallmark of the Indian CROs. The cost of trials in India is 50 per cent lower than the US $20 million required in the US for the phase I study and 60 per cent lower than the US $50 million required for the phase II study. India also has a lower cost of hiring investigators, nurses, computer operators and recruiting patients. Further, the estimated cost of patient recruitment in the US could range from US $4,000-US $10,000 per patient, while in India these costs are estimated to be lower by 50 per cent.
Company characteristics
The important characteristics of the companies engaged in contract manufacturing and research in India are:
■ Majority of all the companies are local players
■ The main marketing strength of the companies engaged in outsourcing activities in India is their well-embedded local connections. It helps them to supply their products to local and municipal hospitals, local doctors and dispensaries within the districts in which they operate or at best, within the state boundaries that they are based in
■ Majority of the investments are made for modernization and upgrading of facilities with an aim of meeting good manufacturing practices
■ Indian outsourcing firms are largely influenced by export demand in shaping their innovation strategy
Major outsourcing activities
In the area of contract research and manufacturing, the Indian CROs, contract manufacturers and clinical trial companies are engaged in:
■ Bench top experiments - R&D for new molecules
■ Improvement of existing drugs
■ High throughput screening for therapeutics
■ Stability testing, analytical validation
■ Testing facilities including human cell lines
■ Drug delivery research
■ Clinical trial services and management
■ Clinical trials data management, statistical analysis
■ Designing of facilities for commercial production
■ cGMP facilities
■ Small to mid-scale manufacturing
■ Pilot scale-up & production scale up
■ Contract packaging and manufacturing
■ Providing contractual regulatory affairs services
■ Industrial training and publishing
■ Providing pool of trained scientists/lab resources.
■ Manufacturing of intermediates for New Chemical Entities (NCEs)
■ Manufacturing of Active Pharmaceutical Ingredients (APIs).
■ Contract manufacturing for patented drugs, custom synthesis and scale-ups
■ Contract manufacturing for specialized generics
■ Contract manufacturing for old generics and old molecules
Major players
In India, some of the major providers of outsourcing activities to big pharma companies are:
■ Dishman Pharmaceuticals
■ Jubiliant Organosys
■ Divi's Laboratories Ltd.
■ Matrix Laboratories Ltd
■ Nicholas Piramal
■ Cadila
■ Strides Acrolab
■ Shasun Chemicals & Drugs
■ Jubilant Organosys
■ GVK Bio
■ Manipal Acunova
■ Veeda CR
■ Neeman Medical
■ Nicholas Piramal
■ Matrix Labs and a host of others
Major deals in outsourcing
In the recent years, a number of important deals have been signed between some of the major providers of outsourcing activities and the multinational pharma companies.
Outlook
Some of the major trends that are expected in the future include:
● Mergers and acquisitions in the industry
● New product launches by MNCs and Indian companies
● In-licensing of patented products by Indian companies to launch them in the Indian market
● Increase in the number of contract research organizations
The industry will also face stricter regulatory norms in order to maintain its competitiveness in the global space.
The contract manufacturing market is expected to reach US $900 million by 2010 with the growth primarily driven by increasing number of US FDA plants in the country and rise in DMF and ANDA filings by Indian pharmaceutical companies.
(This article is prepared by Cygnus Business Consulting and Research, Hyderabad)