The fresh global wave of outsourcing has now witnessed heightened activities in this space as the Big Pharma has planned unprecedented aggressive cost reduction initiatives for the next few years. These efforts have led to the creation of a new market potential particularly for countries such as India and China that have the capabilities to deliver high quality-low cost pharmaceutical products worldwide.
The global outsourcing opportunity was estimated at about USD 44 billion in 2007. This market is projected to grow at a healthy compounded annual growth rate (CAGR) of 13 percent over the next 4 years to touch USD 73 billion by 2011, according to a Merrill Lynch report in March 2008.
CRAMS Potential
The Indian contract research and manufacturing services (CRAMS) industry took off a few years back as a result of India's ability to position itself as a low cost manufacturer and supplier of high quality pharmaceutical products and services.
Over the years several Indian companies have shifted their focus from the pure generics play and meager revenue streams from the CRAMS segment, to establish themselves as full-fledged CRAMS service providers spanning the entire drug development and manufacturing value chain.
The Indian companies in this CRAMS segment have progressed from being the 'Vendor of Choice' to becoming the 'Partner of Choice'. Companies are now motivated to build long-term sustainable relationships with the multinational pharma companies - a vital factor in developing a successful CRAMS model.''Over the next 20 years, the CRAMS market will go on increasing year over year. Right now it is just the beginning phase.
Multinationals are currently identifying their partners. They are building their comfort level, because supply chain at the end of the day is the most important criteria, said J R Vyas, founder and managing director, Dishman Pharmaceuticals & Chemicals, Ahmedabad.
''All outsourcing has to be in partnership. Earlier, MNCs were only buying the intermediates and treated us like a vendor. But they saw this as the biggest challenge to their own supply chain. So they now treat the suppliers as partners and make sure that their partners are also in a healthy shape so that their supply chain is not affected,'' added J R Vyas.
India's Manufacturing Capabilities
The existence of process patent act, which heavily relied on reverse engineering (process re-engineering) for almost four decades, has played a vital role in setting the foundation of India's manufacturing expertise and fostering a highly skilled talent pool with excellent chemistry skills.
India is now ranked the world's fourth largest pharmaceutical market in terms of volume and 13th largest in value terms. It accounts for 8 per cent of the global pharma sales in volume and 1per cent in value terms.
It is one of the most dominant players in global exports of generic formulation and active pharmaceutical ingredients, exporting over 50 per cent of its total pharmaceutical production.
At present, India has about 75 US FDA approved plants. This is the highest number of US FDA approved plants outside the US. In terms of Drug Master Files (DMFs) as well, India's market share has grown multifold to almost 46 percent in 2007, from a mere 14 per cent in 2000.
All of these factors stand testimony to India's regulatory and technical capabilities in manufacturing and boost India's potential to emerge as a pharma manufacturing hub.
Further, the introduction of product patents in January 2005 gave a significant boost to India's pharmaceutical manufacturing outsourcing industry, since this TRIPS compliant regulatory framework has instilled confidence of multinational pharma companies in the Indian market.
The cost of manufacturing in India is a fraction of the cost of manufacturing in the US or in Europe. India has one of the lowest costs of manufacturing and one of the lowest manpower rates in the world.
India therefore demonstrates strong credentials and holds an excellent value proposition to play a critical role in the global contract manufacturing opportunity.
However, more investments need to channeled into this industry to scale up the operational and regulatory infrastructure in order to capitalise well on the India advantage and seize a larger share of the market opportunity.
''Basically if you look at the cost in Europe and US, with all the laws like maximum 40 hours working per week and the hostile weather conditions, working in second and third shifts is getting difficult. It's not only that the cost of manpower is high, finding the manpower resources is equally challenging. And to run the plant on a 24X7 basis is extremely difficult. The productivity that an Indian or a Chinese plant can give is far more than what they get from their own plants,'' noted J R Vyas.
The Indian contract manufacturing market was estimated at USD 869 million in 2007. It is projected to grow at a CAGR of about 41.7 per cent to touch USD 2.46 billion by 2010.
The Indian contract manufacturing industry typically comprises of:
● Old generics and old
molecules
● Specialised generics
● Patented drugs, custom synthesis and scale-ups
Indian companies, through their high quality-low cost production models, have bagged some impressive deals in the contract manufacturing space. These deals validate India's potential to achieve a larger share of the global manufacturing outsourcing market. They also signify that Indian companies have been able to win the trust and confidence of multinational companies. Also, the corporate culture plays an integral role in building a sustainable CRAMS model and building long-lasting client relationship.
Old Molecules
Besides these, business ethics is another very important factor that determines the success of the CRAMS partner in this business.
Experienced Indian CRAMS players are now acquiring better technologies and developing expertise in niche segments that offer higher margins and have higher entry barriers, thereby creating a niche for themselves.
In the years to come, Indian CRAMS service providers are likely to consistently move up the pharma value chain. Over the medium-to-long term, they are expected to progress from their traditional experience in the manufacturing of APIs and intermediates, solid and liquid dosage forms and simple vaccines to developing expertise in the manufacture of high-complexity segments such as injectables, biologics and other niche therapeutic areas.
Also, more and more traditional generics players are likely to explore this segment as a lucrative business opportunity.
Competition from China
In the manufacturing space, India is ahead of China. India has over three times as many US FDA approved plants as China. In terms of DMF filings too, India has filed about 1,155 DMFs between 2000 and June 2007, as against 329 filings by China during the same period. In formulations manufacturing space, India has a head-start of over three to five years over China.
Besides, Indian companies also have significant expertise in regulatory compliance and supply chain management.
Eastern Europe is gradually losing out on its cost efficiencies as compared to India, as costs escalate in this market.
''Many European, US and Japanese companies who were interested in China some years back, have in last couple of years lost confidence in China due to the supply chain risks. China has not been able to give them the quality consistently. China will continue to be a competitive supplier of the raw materials or some commodity bulk drugs. But for high end products China is certainly not a preferred destination for most of the European or US countries,'' according to J R Vyas.
Contract Research
India has already sufficiently demonstrated its competencies in the manufacturing arena. However, it is now rapidly emerging as a strong global player in R&D as well.
The pre-clinical drug research services segment is still in its nascent stages and is expected to take-off over the next few years. The number of preclinical and early phase research facilities is rapidly growing. The drug discovery services market in India comprising biology-based services, chemistry-based services and pre-clinical toxicology services was estimated at USD 118 million in 2006. This market is expected to touch USD 820 million by 2013.
In the future, Indian companies are likely to build their portfolio of offerings to be able to service clients spanning the entire drug discovery process.
India has a strong talent pool with expertise in chemistry and synthesis skills - the most important resource for drug discovery and research activity. India's pool of trained technical manpower with English speaking abilities is steadily rising as it produces about 150,000 M Sc Chemistry graduates per year. This fundamental human resource is available at a fraction of cost, compared to developed markets. The cost of employing a medicinal chemist in India is approximately USD 60,000 per annum as against USD 250,000-300,000 per annum in the US.
More and more Indian contract research organisations (CROs) are also adhering to the international regulatory and quality standards such as ISO, International Conference on Harmonization (ICH), Good Laboratory Practices (GLP) and Good Clinical Practices (GCP). These regulatory compliances provide tremendous confidence in India's expertise and its credentials to emerge as a dominant provider of drug discovery services in the future. India is now also building its expertise in biology-based research.
Indian players have strengthened their positions in the CRAMS segment by actively pursuing some synergetic acquisitions. The recent years have witnessed a spate of outbound acquisitions in this space, enabling Indian companies to get closer to their global customer base.
These acquisitions have boosted their capabilities in terms of newer technologies, expanded service portfolios, global manufacturing and research sites with international regulatory approvals and a ready client network.
Clinical Research
India has registered impressive growth and development in the clinical research space. It is now high on the radar of several multinational pharmaceutical companies as a preferred clinical research destination. Foreign companies are now increasingly outsourcing their clinical research activities to India either by setting up their own research facilities here or by outsourcing such work to local Clinical Research Organisations (CROs). In fact a number of multinational CROs have set up shop in India.
Globally, the clinical research outsourcing market was estimated at USD 12.3 billion in 2007. This market is expected to reach USD 23.1 billion by 2011.
The Indian clinical research market was estimated at USD 200 million in 2007 as against USD 140 million in 2006 and a mere USD 70-80 million in 2001-02. According to the US National Institutes of Health trial registry, about 272 trials are actively recruiting patients in India. Of these, around 60 per cent are Phase III clinical trials. Delhi, Mumbai, Chennai and Bangalore are some of the leading destinations for conducting trials.
About 80 government and private hospitals in India are estimated to be involved in conducting clinical trials.
''There is also a strong trend to increasingly globalise drug development, primarily to drive efficiencies and reduce timelines. I expect India to benefit from these trends of increased outsourcing penetration and globalisation of research,'' said Dr Ferzaan Engineer, CEO, Quintiles Research India.
US FDA New Drug Application
India at present houses over 100 CROs. Many leading multinationals such as Quintiles and Parexel, have already set-up their operations in India. Other leading multinational CROs such as US Aptuit, Russia's Synergy Research and Canada's ethica Clinical Research have collaborated with their Indian peers to leverage on India's value proposition.
Indian CROs, on the other hand, are on the look out for acquiring attractive foreign targets to build international operational capabilities and a global client base.
Shifting clinical trial operations from the traditionalWestern countries to India, can rake in substantial benefits for the R&D sponsor, chiefly in terms of huge cost savings and easy and faster patient recruitment. Further, India also has availability of good healthcare infrastructure and medical set-up for conducting the clinical trials and an improving regulatory framework in these markets.
''The most successful CROs will be those with a strong global footprint. Speaking from the Indian perspective, I think a beneficial model for many of our technology services is a front office-back office model, where you have a global service delivery model and you are able to put things which are geography sensitive near the customer and perform transactions in the most efficient geographies,'' commented Dr Ferzaan Engineer.
The average pay-out to an IT programmer in the clinical data management function is about USD 6000-8000 as against USD 8000-9000 in China.
Besides the cost factor, India has a naive patient pool with a diverse disease profile that matches that of developed countries. The dense patient pool facilitates speedier recruitment, thereby creating more efficiency in terms of time and costs.
The growing number of CROs adhering to international ethical and regulatory standards such as ISO, International Conference on Harmonization (ICH), Good Laboratory Practices (GLP) and Good Clinical Practices (GCP), brings tremendous credibility to India's potential to become the chief clinical research outsourcing destination in the world.
Further, the Indian healthcare system and infrastructural set-up is on a path of continuous improvement with world-class medical facilities. This is re-iterated by the growing share of foreign medical tourist inflows into the country. India also offers a large talented pool of well-trained physicians, nurses and para-medical staff, a vital support for conducting large scale and high-complexity clinical research activities.
Regulatory Support
The regulatory authorities in India have recognised India's potential to capture a larger share of the global clinical trials outsourcing market. A number of regulatory initiatives have been put in place in the recent years to strengthen India as a global hub for clinical research activities and for multinationals to take a closer look at India.
The revision of Schedule Y of the Drugs and Cosmetics Rules, 1945 in 2005 provides the guidelines for conducting clinical trials in terms of prior approval for the trial, responsibilities of sponsor, investigator, ethics committee, informed consent, human pharmacology (Phase I), therapeutic exploratory trials (Phase II), therapeutic confirmatory trials (Phase III), Post Marketing Trials (Phase IV), studies in special populations like the elderly, pediatrics and pregnant women. It also includes post marketing surveillance, bio-availability, and bio-equivalence studies.
Also, prior to 2005, Phase II and III trials were allowed only after those phases were completed elsewhere. However the revised Schedule Y permits multicentric concurrent clinical trials. This initiative is certainly welcoming and provides more flexibility to the clinical research sponsors to explore India as their base for global clinical trials.
In July 2007, India took the first initiative among Asian countries to launch a Clinical Trial Registry - India (CTRI) by the Indian Council of Medical Research, in order to enhance transparency and accountability of clinical trial activities in India and bring more credibility to clinical research operations conducted in the country, thereby increasing the participation of stakeholders across the process.
With effect from April 2007, the government has exempted clinical trial of new drugs from service tax culminating into a saving of 12.24 percent.
The Indian clinical trials outsourcing market is displaying positive industry dynamics to drive India to the foremost rank among the preferred destinations for clinical research work. The Indian clinical research market is projected to reach USD 500-600 million by 2010. As per industry estimates, India can capture a share of about 15 percent by 2011 in the global clinical trials market.
The impressive growth and increasing share of revenues from this segment for several Indian companies reiterates India's potential in the outsourcing space.
Companies are acquiring world-class technical and regulatory capabilities and building long-term client relationships to become the preferred partners with the outsourcing companies. In addition to leveraging on India's existing strengths, it also needs to build new capabilities particularly in the area of innovation that can build a strong foundation for a leadership position for the next 50 or more years to come.
Courtesy: KPMG-CII Report 2008