Contract manufacturing has become an integral, ongoing element of pharmaceutical companies' business strategy. Earlier, the use of third parties to do research and development (R&D) and manufacturing of drugs was confined to providing access to resources not available internally or resources during peak times. But, today contract manufacturing is a first-line decision. It is estimated that the US market for contract pharmaceutical manufacturing is growing at a rate of 10 to 12 per cent annually. In India too the pharmacutical majors are shifting gradually towords contract manufacturing, keeping the brand name and own marketing network intact.
Strategies of major pharma players
Pharmaceutical companies will continue to fuel much of this growth as they outsource an increasing number of products and services. Biotechnology companies also contribute to this trend, as they seek ways of bringing their products to market without making capital investments in their own manufacturing facilities.
Global scenario
Today, the cost of hiring a medicinal chemist in the US is very high - approximately US $250,000-300,000 per year. The US pharma industry employs roughly 50,000 chemists. Indian discovery research firms charge global pharma companies only around US $60,000 per chemist, which is roughly one-fifty of what the pharma companies pay abroad. While it is difficult to pin down an average pay for chemists in India for doing a similar work, conservative estimates suggest it to be around Rs 1 million per annum. So it is a win-win situation for both overseas and Indian companies. While the overseas pharma saves about 50 per cent cost, the Indian company makes it about 50 per cent margin.
Global pharmaceutical companies are increasingly outsourcing and offshoring their discovery research, clinical testing and manufacturing functions. High quality service delivery coupled with greater cost competitiveness offered by Indian companies have catapult India among the preferred offshoring destinations for global pharma majors.
For instance, attracted by the benefits, US-based Actavis has started outsourcing some of its active pharmaceutical ingrediants (API) from contract manufacturers in India and China. Apart, the company also has acquired an API division that mainly conducts API contract manufacturing for both the Indian and international pharmaceutical markets.
In a recent report, Kristmannsson, the spokesperson of Actavis Group of US, was quoted as saying, "the API component currently accounts for a high percentage of the total cost of making our generic drugs. Currently we source a big proportion of our APIs from contract manufacturers in India and China, although we can make the API in our own in-house facility in India and reduce our cost base. As well as focusing on our in-house API production, we will continue to grow the contract services part of the business because in terms of volume this is the smart thing to do."
Kristmannsson also said that the new SSCL business is complimentary to Actavis' existing operations in India, providing the 'first link in the value chain' for its drug manufacturing.
The group has API and finished dosage manufacturing capabilities in Chennai, acquired from Grandix Pharmaceuticals in December 2006, as well as an API development facility and a contract research business, Lotus Laboratories, in Bangalore.
Indian scenario
Contract research in India is estimated to grow at 40-50 per cent per annum. According to estimates, contract research and manufacturing market (CRAMS) in India was valued at US $532.10 million in 2005. Out of it, contract manufacturing accounted for 84 per cent of the total market, while contract research, excluding clinical trials accounted for the remaining 16 per cent. Both the segments of CRAMS have registered a robust growth of over 40 per cent in 2005.
According to the Associated Chambers of Commerce & Industry in India (ASSOCHAM) the clinical trial market in India will be US $200 million by 2007 and US $1 billion by 2010. The contract manufacturing market is expected to reach US $900 million by 2010. The ASSOCHAM-Cygnus paper said that FDI in the pharmaceutical industry was $172 million during 2005-06, reflecting a growth rate of 62.6 per cent in the past four years.
CRAMS - A growing industry
Dishman Pharmaceuticals, Sasun Chemicals, Jubilant Organosys, and Nicholas Piramal are some of the leading Indian players in the CRAMS sphere. Reliable estimates are not available for the size of the Indian CRAMS industry, which is at a nascent stage. But according to the report, the contract research industry in India is expected to grow at a compounded annual growth rate of 30-35 per cent between 2006 and 2011.
Over the last 5 years, the CRAMS industry has been contributing close to 8 per cent to the total Indian pharmaceutical business. The following factors would play an important role in the growth of CRAMS in future.
■ A vast expanse of specialty hospitals with state-of-the-art facilities (nearly 700,000 hospital beds and 221 medical colleges)
■ Increasing number of chronic diseases
■ Combination of diseases characteristic of developing and developed countries. It is expected that the value will reach US $2.7 billion in 2010
Presently, there are more than 300 players in the Indian CRAMS space. Multinational companies such as Pfizer Inc., GSK Plc., Novartis AG, Eli Lilly and Co., Bristol-Meyer Squibb Co. and Teva Pharmaceutical Industries Ltd have tied up with Indian companies for both drug development and manufacturing services.
CARMS is an important area in pharma industry. In India it is reviewed in many seminars. CRAMS SUMMIT 2007 - Emerging Opportunities and Business Models - was held in Mumbai this year. Frost & Sullivan released a report 'The Indian Contract Research and Manufacturing Services market' covering the summit.
We can say that the pharma companies are increasingly adopting the concept of 'virtual pharma'. They retain the marketing rights, while outsourcing all manufacturing activities and related processes. This allows companies to deliver goods to the market at a faster rate than an internal plant would allow. The emergence of 'virtual pharma' as a successful, risk-sharing business model in comparison to the present big pharma, 'blockbuster' model is likely to be a major driver for the pharmaceutical contract manufacturing markets.
Indian CRAMS is a fast growing business. One of the reasons may be that India offers both quality and cost advantages to the global pharma companies.
(The author is a specialist in chemicals and pharmaceuticals)