Contract research and manufacturing services (CRAMS) is the recent buzzword in the Indian pharmaceutical industry and represents a scaleable opportunity. Contract manufacturing comprises manufacturing intermediates and active pharmaceutical ingredients (APIs) for NCEs (New chemical entities) and the generic segment (drugs sold without patent protection). In the light of the new product patent regime domestic pharmaceutical companies are increasingly capitalising on outsourcing opportunities offering a) manufacturing b) drug development (clinical research) c) customised chemistry services.

Many Indian companies are attempting to enter this new space and competition is extremely high in this fast growing segment of the industry, which is expected to grow at a rate of 10-12% in future. With rising international competition the global pharma companies are seeking to reduce their production and research costs. Indian companies with their strong chemistry skills and low costs offer these kind of advantages. The trend observed is long term relationship between the Indian pharma companies and the pharma MNCs leading to a preferred vendor status for the Indian companies. With the MNCs looking towards India as a major outsourcing partner there is big chance for growth in this segment of the business. The major factor which has lead to the global pharma companies to outsource are 1) The high R&D costs globally and many drugs going off-patent forcing MNCs to increase their product pipelines and reduce the overall time-to-market 2) An ageing population in the US straining the healthcare budgets almost everywhere. Most European & US companies are thus looking for cheaper generics and lower cost drugs 3) With new drug development becoming diffcult, pharma companies can't sustain large R&D spend unless new blockbusters are developed cheaper. Pharmaceutical outsourcing ranges from a one time supply to a partnering agreement An innovator would look for a partner who can be a one-stop shop for its various requirements. Companies having a presence across the entire CRAMS i.e., from the drug discovery to manufacturing would become preferred vendors.

Contract Research: This involves early stage development to test the safety, side effects and efficacy of drugs as well as late stage development to test their long term safety, efficacy and performance compared to the various alternatives available in the market. The services which are provided to the client as a part of this activity are clinical monitoring, data management,bio manufacturing and medical report writing. The vendors undertake contract research for their clients on either pure commercial basis or as a joint developing partner. In the latter case the company shares the research tools with its client/customer with the understanding that upon commercialisation the production of the intermediate/API may be awarded to it by its customer/client as the sole/preferred supplier

Contract Manufacturing: It comprises manufacturing intermediates and active pharmaceutical ingredients (APIs) for the NCEs (New Chemical entities) and the Generic segment. As a contract manufacturer the company undertakes manufacturing on behalf of the innovator/patent holder

Key reaction capabilities of the manufacturers in the contract research segment:
Some of the key reaction capabilities which the manufacturers possess in this segment are: Balz schiemann reaction, Sandmeyer reaction, Grignard reaction, reduction, diazotisation, cyclocondensation, Claisen condensation, esterification,amination,oxidation,dehydration,chiral synthesis and ethoxylation

Opportunity in the segment:
.The global contract manufacturing industry was estimated to be $36bn in 2004 and going forward the market is expected to be $80bn in 2008 by expiry of patents of growing number of blockbuster drugs
.The country has the potential to acquire a significant chunk of the $30bn worth global contract research industry which is growing at a rate if 16-18%
.In the contract research outsourcing segment the clinical research outsourcing segment is expected to reach $14.5bn by the year 2007 while the drug discovery segment is expected to touch $6bn.
.Global R&D outsourcing is on a rise growing at an estimated CAGR of 16% against 10% for the overall expenditure over the last seven years. With rising costs and the compulsions to reduce the time-to-market, this market will acquire a big chunk of the overall global outsourcing opportunity in pharmaceuticals.
.It is expected that $88bn of drugs will go off-patent by 2008 which is a significant opportunity for a number of new lost cost manufacturers
.Increasing number of multinational pharma companies particularly from US, Europe and Japan seeking to collaborate with the Indian companies
.The rise of the generics segment and declining R&D productivity are forcing the pharma manufacturing companies to outsource a part (intermediates) of their manufacturing activities. This allows the companies to concentrate on Drug discovery, Drug development and their marketing and distribution
.The long lead time in this segment and high exit barriers for the innovator companies i.e it is difficult to change suppliers quickly in view of the high costs and lengthy FDA processes which goes in favour of the Indian companies
.India's inherent strengths in this segment i.e., low cost research, trained and experienced scientists and regulations which are aligned with those in the West coupled with increased credibility and visibility making the country grab a higher share of the global pie
.The country has the largest number of USFDA and cGMP compliant approved plants outside US and has six times the number of trained chemists as the US
.Familiarity with the regulatory and quality issues, strong process chemistry skills and low cost manufacturing
.Familiarity in preparing US and European registration documentation
.Manufacturers able to develop robust processes for making pre-clinical and clinical supplies in the kilo-lab or pilot plant, develop and validate analytical methods to support the range of activities from the lab to the plant and to support regulatory filings, conduct stability studies to support manufacturing processes
.Produces a wide variety of bulk actives manufactured efficiently with the necessary DMFs (Drug Master files) and also the finished dosage plants approved by the Medicines control council(MCC) of south Africa, the Medicines control agency (MCA) of UK and the Food and drug administration (USFDA)
.India's cost of manufacturing is 30-40% lower compared to the western countries and the labour cost is 1/7th of that in US
.India offers a definite cost advantage to the Global pharma manufacturers i.e. In India it will cost only about $100-200mn (Rs 450-900 crore) to develop a new drug compared to US $500-900mn (Rs 2250-4050 crore),so a lot of basic research is expected to be shifted to the country
.Apart from relatively low cost development of the molecule and skilled manpower easy availability of Raw materials at competitive prices is also a key advantage factor
.The cost of conducting phase I trials in India is 50% lower than the $20mn required in the US and 60% lower than the $50mn required for the phase II study
.There are about 20,000 manufacturing units operating in the pharmaceutical industry. Of these 80% are into contract manufacturing
.Many drug firms have upgraded their facilities to international standards and number of them are in the process of doing so looking at the growing potential in the CRAMS segment.
.Indian manufacturers also adhere to the IPR (Intellectual Property Rights), have the required infrastructure of process research labs, scale up, pilot plant etc and also compliance with cGMP (Good manufacturing practices) which are the key criteria for qualifying to be a partner for contract research
.Margins in this segment are also good with operating margins of over 25% achievable, which can be maintained over a period of time. Margins are likely to improve as the clients start a comfortable relationship with the partner
.Unique advantage in terms of information technology and software expertise
.Indian manufacturers have the track record of providing quality products at reasonable costs making India the most cost-effective location for manufacturing in the world Some of the key players in the Indian contract research segment are Nicholas Piramal India Limited, Dishman Pharmaceuticals, Shasun Chemicals and Drugs, Jubilant Organosys etc.
Nicholas Piramal has a strong presence across the CRAMS value chain from chemical synthesis to formulations. The company has the advantage of low risk growth sourced from its CRAMS contracts. The acquisition of the UK based Avecia Pharmaceuticals by the company has complemented to the Indian drug major's existing operations in custom manufacturing besides helping it make a mark in the Global Pharma market. Some of the customers of Nicholas in this segment are Allergan, Pfizer and Astra Zeneca
Dishman Pharmaceuticals has its customers Astra Zeneca, Glaxo Smithkline and Merck in the CRAMS segment.

Shasun Chemicals and Drugs, Chennai has the Global customers like Eli lilly,Glaxo SmithKline, Reliant Pharma as its contract research partners.The future is bright for this fast growing and one of the key segments of the pharmaceutical industry. The CRAMS trend has been well recognized across the globe as a prime mover in cutting cost and degenerating efficiency. The trend is most likely to continue in the Indian pharmaceutical industry as most of the US and the European companies intend to focus on core activities of research and marketing. Indian companies definitely have an edge over their global counterparts and are in an advantageous position to exploit this enormous opportunity as they possess low cost, high quality and high capacity manufacturing set up and competencies well supported by the required documentation and the evolving regulatory environment. Indian pharma majors like Nicholas Piramal, Jubilant Organosys, Shasun Chemicals, Dishman, Cadila, Matrix and Divis labs are already in the global scene with their capabilities in this segment. With the growing popularity of the CRAMS segment it can aptly be termed as the "future segment of Indian pharmaceutical industry".
(The author is a strategy consultant for the chemical and pharmaceutical API industry)