When the industry revenues crossed US $ 6 billion for the first time, a couple of years ago, Indian pharma was quietly passing through a revolution.
In 2005, when India started honouring product patents, a section of industry watchers believed that the new IP law could well sound the death knell -at least temporarily - for India's generic-driven pharma sector that so far thrived by ``reverse-engineering'' proprietary MNC products. Instead, they saw a new sun rise of outsourcing and offshoring - emerge on the Indian pharma horizon marking a new phase.
Indian drug makers lost no time in re-asserting their importance in global pharma marketplace. They started re-horning own skill sets gained through years' of reverse engineering process chemistry. Today, India is one of the hot source-points for cost-effective solutions for drug making which the Big Pharma is desperately looking for. And Indian firms are among the partners trustworthy the pharma giants are in pursuit of.
If figures are any indication, Indian pharma stand to gain in a big way from the third party outsourcing paradigm which is in vogue among western pharma MNCs. Declining productivity and growing concerns on profitability compel the Big Pharma to enhance their focus on core functions and product marketing strategies. This leaves them with no choice but to source out a host of non-core drug making processes.
Firms based in India providing contract research and manufacturing service (CRAMS) have increased considerably over the past 3 years. A report by the analyst firm Frost & Sullivan estimate that CRAMS business would grow at the rate of 33-34% to US$6.6 billion in the next five years. In 2006 the contract services market revenues stood at $895 million or about one-sixth of the Indian domestic industry.
In tandem with the global trend, the largest function being outsourced to India is manufacturing. It grabs nearly 70% of CRAMS market India, while clinical research and contract research account for 16% and 13% respectively. Among the four major components being outsourced to contract manufacturing organizations (CMOs), APIs comes first with over 40%. Custom synthesis (23%) and formulations/dosage forms (23%) and Intermediates (14%) follow.
Manufacturing: Key Driver
Contract manufacturing, which represents the largest opportunity within CRAMS segment, is expected to reach US$30 billion by 2010 from the current US $ 20 billion, globally. Currently, around 30% of the US$50 billion global pharma manufacturing is being outsourced.
APIs: India, with its more than 800 GMP-certified manufacturing facilities and efficient labour pool, is considered a powerhouse of APIs next only to China. Cipla, Dr Reddy's, Ranbaxy, Aurobindo are among the leaders in API sector that comprise hundreds of big, medium and small players. Most of them have multi -product baskets. However, a few midcap API makers are focusing on specific APIs. Shasun, Virchow Labs, Lupin Labs, USV, Malladi, Dabur Pharma etc have become leaders in ibuprofen, sulfamethoxazole, ethambutol, metformin, pseudoephedrine & irinotecan.
Several Indian firms including Piramal Healthcare (formerly Nicholas Piramal), Suven Life Sciences, Alembic, Glochem, Shasun and most recently Lupin have custom manufacturing and research alliances with multinational clients. These companies develop the process, manufacture and supply intermediates to produce NCEs. Though limited to quantities required for testing and trials initially, the production could go full scale if and when the product becomes successful and is marketed. Many of Indian contract manufacturing organisations (CMO) has a multi-clientele list. Piramal Healthcare of Mumbai, which leads the segment, targets nothing less than 40% of its revenues come from CRAMS business.
NDDS muscle for oral solids
Low-cost processes are a forte of formulation manufactures too. As anywhere, oral solid formulations (OSF) dominate the Indian pharma market place. A recent Frost & Sullivan study forcasts a potential of 7 to 8-fold growth in Indian oral solids contract manufacturing in the next five years. Growing at an annual rate of 34 per cent, solid dosage formulation market is expected to cross $1billion by 2013 from a mere $152 million in 2006. OSFs are a major contributor to CMOs' revenue.
``You can't be a successful CRAMS player if you don't have oral solid manufacturing business [in your portfolio offering],'' says Ajit Mahadevan, president & head -Formulations, Custom Manufacturing Division, Piramal Healthcare. OSF contributes roughly 40% of its over $250million custom manufacturing annual revenues. Besides Piramal, Jubilant Organosys, Micro Labs, Zydus Cadila, Dr Reddy's, Wockhardt, Hetero Drugs, Medipharm are some of the noted CMOs in this space.
Nearly 70 per cent of Indian CMOs in formulation segment are involved in OSF business. India currently has 80-odd US FDA, MHRA audited manufacturing facilities and majority of them are engaged in OSF production.
Novel drug delivery: An important segment rapidly gaining currency among a few drug firms engaged in formulations business is novel drug delivery systems (NDDS). India' top drug maker Ranbaxy Ltd, for instance, has identified of adding value to existing drugs - NDDS - as potential growth avenue. ``We are focusing heavily in this area. NDDS drugs will continue to gain importance, as these formulations are patient friendly and represent an immense opportunity for the pharma companies for sharpening their competitive edge in an increasingly crowded market, "says Ranbaxy spokesperson.
Ranbaxy triumphs as the first company to develop a platform technology for once-a-day ciprofloxacin pills and later selling it to Bayer AG, maker of Cipro, in a multi-million dollar deal in September 1999. Ranbaxy has already developed over 45 products in gastro retentive, modified matrix, multiparticulate and aerogel platform technologies. Alembic Limited, which pioneered novel delivery technology for levetiracetam extended release tablets (Keppra XR) for UCB of Belgium; Lupin Ltd (platforms for once-a-day cephalexin and cefadroxil tablets) and Themis Medicare are among the other players.
Apart from cost-effective technologies, their capacity to integrate backwards also make Indian formulations CMOs attractive to outsourcers. The Chennai-based Shasun Chemicals, that recently securedUS FDA approval for OSF plant in Puducherry, is an example. With this facility, this known API CMO can now get into formulations as well. Several other such CMOs engaged traditionally in API sector are reportedly in the process of forward integrating to formulations.
Even though India's contribution to global OSF business remains a miniscule as of now, the country can become a leading player by timely investments in infrastructure and technologies targeted at precise control of manufacturing technologies, aver experts.
"Indian companies can wrest the initiative by targeting at niche areas'' points out Dr Arvind K Bansal, associate professor (Formulations), National Institute of Pharmaceutical Education and Research (NIPER). ``For example, (i) manufacturing of early clinical trial formulations by installing gravimetric filling machines for capsules and bottles; (ii) creating infrastructure for high end technologies like lyophilization, particle engineering by super critical fluid technology, spray drying, micro wave drying, hot melt extrusion technology and (iii) embracing Process Analytical Technology (PAT) initiatives.''
Race for injectables pie hots up
Less competed but high-return injectables are the latest fad of several Indian CMOs. Orchid Pharma, Wockhardt, Lupin, Dabur Pharma, Ranbaxy, Strides Arcolab, Zydus Cadila etc have already thrown their hats on the parenteral products market.
Last year, Jubilant Organosys acquired 100% stake in Hollister-Stier Labs - a contract manufacturer of sterile injectable vials and lyophilization products from US for $122.5 million. The companies are into small volume parenterals (that comprise two-third of the entire sterile formulations market), small lot manufacturing and clinical trial manufacturing are other areas of expertise for the companies.
Jubilant recently announced a record $92 worth of new contracts for proprietary products and exclusive synthesis for the year 2008. ``Given our integrated business model, we have been able to meet requirements across the value chain for our customers,'' say Shyam S Bhartia, chairman & managing director and Hari S Bhartia, co-chairman & managing director of Jubilant Organosys. Similarly Strides Arcolab signed a deal with Sagent Pharmaceuticals Inc in October 2007 to develop and supply over 25 injectable products in the US market.
Parenterals contract manufacturing segment is expected to grow at the rate of 17% annually over the next 5-10 years. Indian players have already mastered skills in making range of complex sterile APIs. Fosphenytoin, ondansetron, ketrolac tromethamine, octreotide, gemcitabine, cephalosporins, carbapenems, betalactams are examples besides other oncological and biotech products.
Aurobindo Pharma of Hyderabad is reportedly among top 5 producers of semi-synthetic penicillins with the largest steriles facility in Asia. Other midsized companies such as Gland Pharma, Biological Evans, Zenotech, Marck Biosciences and Kilitch Drugs have started scaling up their steriles capacities eyeing potential opportunity.
Discovery partnering
Pharma outsourcing to India is not restricted to non-core activities alone. Of late, the trend to farm out drug discovery and development processes are rapidly evolving. Recent big ticket deals between Piramal Healthcare and Merck, Ranbaxy and GlaxoSmithKline, Advinus Therapeutics and Merck are instances.
In November last year Merck handed over two cancer drug targets to identify potential leads and develop them till establishing the proof-of-concept. Piramal is entitled for milestone payments up to $175 million per target and royalties on commercialisation. Earlier, Merck inked a pact with drug discovery services firm Advinus Therapeutics for two metabolic targets. The targets have already advanced the first milestone.
Piramal's is the second such alliance. Its earlier deal with Eli Lilly to conduct toxicology and early phase human studies on metabolic candidates has recently been expanded to another molecule.
Lilly also works with Suven Life of Hyderabad on G-protein coupled receptors. GSK, which forged a multi-year preclinical study deal with Ranbaxy in 2003, took the deal to next level last year to include early phase human trials as well for the chosen leads.
Piramal-Merck, Piramal-Eli Lilly, Ranbaxy-GSK alliances the Indian partnerships actually go beyond the conventional fee-for-service paradigm in outsourcing business. They become partners themselves. They win the trust of innovators by not-infringing their IP resources. ``Lilly offered us the choice of several compounds to work on, '' beams Dr Swati Piramal, director, Strategic Alliances & Communications, Piramal Healthcare. The idea is to share the risks as well, of highly precarious drug discovery process, along with rewards.
Wyeth, BMS, AstraZeneca and Forest Labs are among the top drugmakers who found Indian drug discovery partners in GVK Bio and Syngene (a research arm of the leading biotech company Biocon) and Jubilant Biosys.
One of the chief reasons behind Western companies rush to India is for exploring options to support their flagging pipelines. The less bureaucratic smaller Indian firms also help them save costs by shortened development timelines.
Vast patient pool: CRO BET
Reduced timelines also means higher cost savings. This exactly is one of the key reasons for the sub-continent turning to be a hotbed for offshoring clinical studies. Apart from a vast gene pool of treatment naïve patient population, the Indian contract research organisations (CRO) offer the unique proposition of fast-recruitment of patients for trials. ``The entire cycle of a clinical study may take 10-12 years of time for completion. If done in India, this can be cut short to 7-8 years due to faster recruitment of patients,'' said Dr Umakanta Sahoo of Chiltern International.
When added to the already far lower trial expenses which is roughly 30-50% compared to a study run in US or Europe, the overall benefit will be remarkably huge. No wonder if India currently has nearly 15% of the world's clinical studies run on its land. Phase II and III studies being conducted in India made a jump-start from a mere 20-25 during the years 2003-2004 to nearly 500 in 2007-08 period. Also, there is an almost equal number -between 450-500- of bioequivalence (BA/BE) studies.
An admixture of MNC and domestic players, the Indian CROs segment has over 70 multinationals doing clinical research currently. Quintiles and Covance along with hundreds of desi CROs such as Siro Clinpharm, TCGLS, ClinInvent, Clingene, Synchron, Lotus Labs, Lamda offer a spectrum of clinical development services, viz. project management, clinical trial monitoring, medical affairs, regulatory, clinical trial supplies, quality assurance, data management and statistical analysis.
Streamlining of good clinical practice guidelines through amending Schedule Y regulations; the new Patent Law 2005 have helped preparing a level playing ground and facilitated CRO segment as the fastest growing among the outsourcing industries. India also removed a mandated `phase lag' and allowed overseas companies to conduct trials on new drugs simultaneously as the same phase of studies being done in other countries.
The 2008 Union Budget proposal to allow a weighted deduction of 125 per cent on any payment made to R&D companies also bought cheers to CRO industry.
Estimates suggest CRO business could touch $ 2.2- 2.5 billion creating a demand of 50,000 professionals in the next five years as up to 30% of global clinical trials will take place outside US and Western Europe in the coming years.
Site management: Speedier enrolment due to abundance of trial subjects across the therapeutic spectrum is a big bet for site management organisations (SMOs), as well. Rising number of trials, saturation of traditional sites, rapid emergence of multi-speciality, super speciality hospitals too contribute to SMO growth.
``SMOs in India are witnessing a hundred percent growth and there are good prospects for growth as opportunities are aplenty. SMOs help tapping patient pool in a better way,'' says Renu Razdan, associate director, business development, Neeman Medical International.
SMO-India, Metropolis, Manipal Acunova, Odyssey Research are among the players in the field.
Clinical data management (CDM): This is another business getting spurred by the fast growing CRO business. India's well-known IT prowess, cheaper human resources and other cost benefits fuel the CDM offshoring activity. ``At the moment, there's a lot of hype about India largely contributed by its IT success story. This helps data management business enormously,'' points out Shiv Raman Dugal, chairman, Institute of Clinical Research (India). Several pharma MNCs have multi-year CDM, biometrics alliances with India based IT as well as CRO firms. Pfizer and Cognizant Technology, Wyeth and Accenture, TCS and Eli Lilly are instances. India's IT behemoth TCS has nearly 2,700 employees in its life sciences practice, which accounts for about 4% of the company's total sales. Other stalwarts including Mukesh Ambani-promoted Reliance Industries, Infosys, Wipro, Satyam are also getting involved in CDM services.
Medical devices and packaging are other segments slowly being caught up by outsourcing trend.
Evidently, outsourcing is the new mantra of all drug majors and they increasingly turn vulnerable to farm it out almost everything across the value chain -from drug discovery to drug development; from manufacturing to packaging. It is also clear that India is unfailingly one of the most sought-after destinations for third party manufacturing, drug discovery partnering and clinical research. Greater chemistry skills, higher value, lower costs, faster patient recruitment, coupled with favourable IP climate enable Indian pharma to hold CRAMS a sure bet. ``India's strengths have seen it grow as the powerhouse of generics during the last decade. The decade of generics has now given way to decade of CRAMS,'' observes Sanjiv Kaul, managing director, Chrys Capital. Surely, CRAMS can well be interim future for the Indian pharma before it readies itself to enter into the big league of innovators.