Global pharma majors from US and Europe fail to land in India as policy headwinds divert them to China and Korea to carry out contract research and manufacturing services (CRAMS).
The visible consolidation, financial prudence asserted in R&D and a funding crunch in companies have nearly impaired the domestic CRAMS businesses, which held bright business prospects till a couple of years back. Companies involved in contract research and clinical trials too have slowed down considerably and only those who are engaged in custom manufacturing are able to come out of the woods.
Over-capacity, withdrawal of tax breaks and lack of regular off-take have also created challenges for domestic custom manufacturers (CMOs) and research (CROs) units. The regulatory ecosystem in India has not been facilitative in spurring growth of CRAMS business. The excitement that was visible in the mid-nineties is now missing both from a business standpoint as well as attracting new investments
According to Dr Rashmi Barbhaiya, managing director and CEO, Advinus Therapeutics, the international pharma companies are staying away from India because it is a difficult location to conduct research services. It is disheartening to note that India despite its scientific talent and infrastructure is overlooked by the global pharma majors who are serious on pursuing their research projects either in China or Korea. The main reason is that in these two countries, the tailwinds coming in are not just from the pharma companies but from their respective governments which allow them to make a smooth landing and take-off. On the contrary, the policy headwinds make them evade India to pursue their research projects.
A similar situation also prevails in India’s contract manufacture landscape where the burgeoning South East Asian markets have now proven to be hubs for outsourcing generics and branded formulations, said Gurudatta GG, chief executive officer, Estima Pharma Solutions.
Although industry estimates indicate that outsourcing of activities such as manufacturing and R&D work to India leads to cost-arbitrage of more than 50 per cent when compared to developed countries, yet the CRAMS is now seen as difficult to succeed model for Indian pharma companies, said sources.
The business dynamics that propel companies to South East Asia are the incentives offered by the governments in these countries. They ensure reliable infrastructure including land availability, dependable power, water supply among other public utilities. The blend of infrastructure and incentives make these countries far more attractive for global pharma majors, added Gurudatta.
From a national perspective, this is a serious issue for the Indian pharma sector which was once recognised as a cost-effective, dependable for quality product and timeline delivery point of business. The reality is that Indian pharma , specifically the drug discovery companies are insisting only for a level playing field. We do not need any financial assistance but intend to carry out drug discovery and research services adhering to the highest ethical standards be it proof-of-concept or animal studies, said Dr Barbhaiya.
Advinus Therapeutics, a research-based pharmaceutical company focused on the discovery and development of proprietary new medicines for metabolic and inflammatory diseases is now conducting phase II studies of its type II lead molecule, GKM-001, a glucokinase activator. The company offers end-to-end pre-clinical and early clinical development services to the global pharmaceutical and biotech industry while creating long term value through internal and collaborative drug discovery.
“We have decided to keep away from India for the phase II studies of our lead diabetic molecule GKM-001, a glucokinase activator and prefer the US for the same. This is an identical situation where international pharma majors are now preferring to skip India and land in China or Korea,” said Dr Barbhaiya.
Indian pharma companies had invested in additional plants in hope of strong order flows from the West. But the global slowdown and changing dynamics of the market, particularly in Europe, led to an over capacity in CRAMS, while margins came under pressure due to slashing in R&D budgets with companies not going for high-value drugs. Some EU nations introduced a tendering process, which led to a decrease in regular off-take from domestic CMOs while the erosion in prices of generics worldwide posed more challenges.
The Indian market for CRAMS is estimated at $1.2 billion and growing at 15-20 per cent annually over the earlier estimates to garner a growth of over 25 per cent.
Prospects in the contract manufacture have been sluggish reporting a fall in growth from 25 per cent to 15 per cent. On the research outsourcing front, the sector registered around 10 per cent growth. Yet pharma consultants are confident that the long-term potential of contract manufacturing would be favourable going by India’s strengths of having the highest number of USFDA plants outside US along with MHRA, TGA MCC South Africa complaint units. It would give international companies the confidence to engage in outsourcing of products.
However in the area of contract research and clinical trials there has been a lull following the subdued global economic scenario. Moreover, the recessionary phase has led the global pharma companies to have a relook at saving costs and not off load many projects to India.
Earlier in an interview, Dr. Arvind Shah, managing director and CEO of Arvind Remedies Ltd. (ARL) had pointed out that the CRAMS industry revenues is estimated at US$ 7.6 billion by 2013. The momentum gained by this segment of the Indian pharmaceutical industry is noteworthy. Over the last five years CRAMS industry has been contributing close to eight per cent to the total Indian pharmaceutical business. Factors like a vast expanse of speciality hospitals with state-of-the-art facilities diverse population and gene pool; increasing number of chronic diseases and a combination of diseases characteristic of developing and the developed countries is expected to propel the CRAMS industry to grow at a CAGR of over of 42.2 per cent (2007-2012).
Out of the total CRAMS market, leading companies in India are Nicholas Piramal, Zydus Cadila, Ranbaxy, Intas, Lupin , IPCA, Aurobindo Pharma to name a few.