The changing scenario has in it everything to tell. With a number of blockbuster drugs valued about US $50 billion are expected to get off-patent and increasing R&D and manufacturing costs, major pharmaceutical companies are in a look out for countries that would enable them to outsource some of their research and manufacturing activities at lower cost. This has led to the evolution of contract research and manufacturing services (CRAMS) as a fast emerging business opportunity for Indian companies.
Contract Manufacturing
Contract manufacturing constitutes a major business segment of CRAMS and primarily includes outsourced manufacturing of intermediates and active pharmaceutical ingredients (APIs) as per the specific requirements of the formulation companies. Cygnus had estimated 2006 global contract manufacturing market at US $109 billion, representing a 13 per cent year-over-year growth. The market is expected to achieve a growth at a CAGR of 12 per cent to reach US $146 billion by 2009. As per Cygnus estimates, 70 per cent of the current contract manufacturing market is driven by generics, including OTC drugs, nutritional products and prescription drugs.
The generic segment includes drugs without patent protection - either not patented or expired ones. The market is led by increased outsourcing, as a large number of drugs going off patent. Contract manufacturing in generics market is currently worth US $35 billion and is expected to grow by 20 per cent. This market is estimated to reach US $80 billion in 2008. India, with its cost advantages, large number of the US FDA approved manufacturing facilities and process chemistry skills, is likely to benefit from the growth in this segment.
Intermediates
The rise of generics and competitive cost pressures are forcing drug manufacturers to outsource manufacturing of intermediates for generics and new chemical entities (NCE's). This allows them to concentrate on drug discovery, development, marketing and distribution. The opportunity for Indian companies lies in working with innovator companies in the custom synthesis segment (for manufacturing intermediates and bulk drugs that are at various stages of research). The long lead times in this segment and high exit barriers for innovator companies (as it is difficult to change suppliers quickly in view of the high costs and the lengthy FDA approval processes) work in favor of Indian companies.
The Indian pharmaceutical market was estimated at US $9.4 billion in 2006. With more than 6,000 manufacturing units, the Indian pharma industry produces about 60,000 finished medicines and roughly 400 bulk drugs, which are used in the formulations. As of now, India has 75 US FDA approved drug-manufacturing facilities. The Indian patent act as amended on March 2005 opens a new avenue for India to make it big in the global pharmaceutical market. Pharma multinationals have earlier maintained a low-key presence in Indian market due to absence of product patents and rigid price controls. In 2005, the Indian manufacturing business amounted to US $445 million, up 48 per cent from the previous year. Cygnus expects the market to reach over US $900 million by 2010.
Indian industry accounts for about 25-30 per cent of the total drug master files (DMFs) filed with the US FDA and are in a position to offer capabilities across the contract manufacturing value chain - from custom chemical synthesis to APIs to formulations. Major multinational companies are taken up by the cost saving prospects of Indian pharma industry. The manpower cost in India is comparatively low and equals to 1/5th of the US. Apart, compared to Western Europe and North America, capital cost related to construction of manufacturing facilities is up to 40 per cent lower in India.
In India, the contract manufacturing service chain consists of:
● Contract manufacturing for patented drugs, custom synthesis and scale-ups
● Contract manufacturing for specialized generics
● Contract manufacturing for old generics and old molecules
Some of the major companies operating in the contract research and manufacturing services realize upto 40 per cent of revenues from CRAMS segment.
Advantage India
Some of the strategic advantages of India in the contract manufacturing are:
● Cost saving: Foreign companies save upto 50 per cent of the cost by outsourcing manufacturing to India
● World-class skills: Indian scientists are armed with intellectual skills and improved confidence to face international challenges.
● Existing strong manufacturing base: India has traditionally strong manufacturing skills and the country is known for generic manufacturing.
● Large FDA approved plants: Indian companies made sizeable investments in upgrading the quality processes and currently India has 75 FDA approved plants, the largest outside the US.
Alliances in the industry
Indian companies are entering into contract manufacturing agreements with innovator companies for supplying complex, under-patent molecules. Companies like Dishman Pharma, Divis Labs and Matrix Labs have been undertaking contract jobs for MNCs in the US and Europe. Shasun Chemicals, Strides Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large Indian companies have taken up contract manufacturing of APIs as a line of business. Apart acquisitions, quite a number of Indian companies have forged alliances with international companies in a bid to bag large contract manufacturing contracts. Major MNCs like Pfizer, Merck, GSK, Sanofi-Aventis, Novartis and Teva are increasingly depending on Indian companies for manufacture of their APIs and intermediates.
China is fast turning out to be a formidable player in the field of APIs. While China offers advantages for manufacturing in large quantities, India has its own comparative advantages in certain areas, as can be seen from the below table.
As per Cygnus estimates, the global contract manufacturing would touch US $178 billion by 2010. Cygnus projects that India to cross US$ 1.5 billion by 2010, growing at a CAGR of over 40 per cent.