India is one of the fastest growing clinical research destinations with a growth rate of over 2.5 times than the overall global market growth. According to the latest FICCI-E&Y report, about seven per cent of global phase III and 3.2 per cent of global Phase II trials are conducted in India (CAGR of 39 per cent; 2004-2008). India is ranked next to Japan in its number of Industry-sponsored Phase II-III studies and accounts for nearly 20 per cent of all Asian study sites. Further number of Investigator sites has also grown the fastest among Eastern European, Latin American and Asian countries with 42 per cent CAGR (2002-2008). Global averages of dropouts, screen failures and retention rates are almost double in the multinational global multicentre studies. It contributes sizeable ratios (close to 15 to 20 per cent) in most of the studies it participates. All these factors enable India to be a part of the global clinical initiatives of pharma, diagnostics, devices and biological programmes.
What are the factors would drive Indian contract organizations?
● Growth drivers would be through differentiated models
● Organic growth through “value differentiators”
● Inorganic growth and building process optimization through offshore models
● Strategic alliance in form of equity or non-equity through captive models
● Risk-sharing model in the developmental process of pharmaceutical development.
Organic growth via value differentiators
In any new business, organic growth depends on developing capacity, capability and competence (3Cs). 3Cs is a subset of the business opportunity and the size of the opportunity. Traditionally Indian pharma has been dominated by generic business and growth initiatives in generic business have yielded good results. Bioequivalence CROs have shown organic growth much higher than the clinical trial Industry per se in the last eight years. They have registered higher growth and profitability compared to the CROs in the clinical trial space(Phase II/III). Clinical trials have shown a linear growth and momentum is seen the last couple of years. Newer generic developments in 505b(2) regulatory filing and marketing exclusivity for three to five years is growing popularity in the Indian CRO space. A mix of generic and new chemical entities may drive a CRO for a double digit growth in less than 5 years. Organic growths are high valuation drivers and it is built with less capital.
Inorganic growth and building process optimization
Many Indian CROs have made rapid global expansion by using acquisitions of small CROs to enter new countries. This route provides a quick approach to new markets and technologies and brings on board, new clients and services. Most important factors are to look at the complementary capabilities with respect to assets, business, and client relationships. Estimated business growth and capabilities are a source of major concern while acquiring a company. Most of the companies are proprietary basis and limited information is available in the public domain or during the due diligence process. This model is high risky, but a careful assessment of bringing work to India on niche areas like data management, statistical programming and medical writing could be cost differentiator for the customers and for increasing profitability.
Strategic alliance through captive models
Captive models are highly successful in the chemistry, bio-informatics, pharma manufacturing and IT space. It’s important to replicate this highly commercial business models in the clinical development, consulting and pharmaceutical development space. These models can be operated as a build-operate and option to transfer model and it can eb integrated on a ongoing basis with the parent company. This model should not be the subset of parent company. These models fail in terms of providing productive gains as they will get too involved in building versus delivering low cost delivery. Speed to market will not be motto. Quality at high price should not be the model. If strategic alliance through captive models is outside the parent company, these units can be cost effective centres built at low cost to deliver projects quickly.
Risk-sharing model in developmental process
Risk sharing model are the new models on which pharmaceutical development will thrive. More drugs are getting out of the patent, new generation delivery systems are getting evolved and partnering for results will be the key model on which developments will thrive. You would see new generation developmental leadership would drive more and more companies to participate in this model. In this model, it will be the strategic imperative of the major players to actively scout for partners who will share risks. High risk and high value model at cost effective destinations enables bigger companies to share risks and benefits in the ‘niche’ developmental process. This will be entry barrier for many service industries to reach critical mass in a shorter span of time. Companies would like to look at partners who can provide single stop pharma provider for providing consultancy, creating a product development cycle, preclinical work or in conducting proof of principle studies.
India will be in the forefront of global pharmaceutical development and it should enable conductive business environment to meet the emerging requirements. Its cost leadership and system capabilities, coupled with an abundant skilled and talent pool will be the key drivers for the growth of pharmaceutical development.
- The Author is Associate Director-
Business, Semler Research Centre Pvt. Ltd.