Contract research and manufacturing services (CRAMS) has been growing at a rapid pace in the last couple of years. And the emergence of newer vendors has kept the momentum going in contract manufacturing and also in clinical research for active pharmaceuticals ingredients and new chemical entities. The CRAMS market can be broadly segmented into contract manufacturing, clinical research and contract research.
In 2006, as per a study conducted by Frost & Sullivan, the global CRAMS market was estimated at US $52 billion, growing at a compound annual growth rate (CAGR) of 10.8 per cent. The market is expected to grow further to US $76 billion by 2010. The Indian CRAMS market was valued at US $929 million in 2006 and is estimated to reach US $3.33 billion by 2010, at a CAGR of 37.6 per cent. The new trends evolving in the Indian CRAMS market create potential opportunities and the leading players are upbeat about such trends and gearing up to cater to the world market as an outsourcing partner of choice for research and manufacturing.
Key trends
World over, the companies are striving to stay competitive in the CRAMS market and India is no exception. The evolving CRAMS trends in India are:
■ Collaborative research and manufacturing services
■ Merger and acquisitions
■ Clinical development
1) Alternative options for phase I
2) Biomarker development and validation
3) Micro dosing
■ Shift of full service preference to functional expertise
■ Research
1) Chemistry based services continue to drive outsourcing
2) 3 out of top 5 service providers generate revenues from chemistry-based contracts
■ Manufacture
1) API and formulation strengths in niche areas
CRAMS to collaborative research & MFG services
With the introduction of intellectual property (IP) regime, major Indian companies moved from contract research for the non IP based intermediates to IP based preclinical intermediates and active pharmaceuticals ingredients (API's). There are more opportunities in full synthesis of preclinical molecules. In addition to that, value added services like method development, impurity profiling and characterisation, stability studies, formulation development and clinical trial supplies are some of the new opportunities happening since January 2005. This will eventually result in full-fledged collaborations.
In recent times, companies have moved from CRAMS to collaborative research and manufacturing services. An increasing number of global pharma companies are outsourcing to India because their research and development (R&D) pipeline is drying up and approval process is becoming time consuming and expensive. Their R&D cost is rising and there is price pressure. As a matter of fact, outsourcing has increased considerably for Big Pharma companies.
In collaborative research, the growth drivers for the market are IP sharing and licensing of innovations. Earlier, the outsourcing business came largely from the global multinational pharmaceutical companies. Later on, even mid-sized companies have started resorting to outsourcing, though at much smaller levels. Also, a few companies have entered into contract research deals with Indian companies. For instance, Elder Pharmaceuticals inked a deal with Enzymotec (Israel) in May 2007, entering into an in-licensing agreement for marketing Cardiobeat, a cholesterol reducing dietary supplement in India. As per the agreement Enzymotec will manufacture and supply the APIs to Elder Pharma, which will in turn be responsible for marketing the products in India. It also signed another deal with Cymbiotics (USA) in May 2007, strengthening its presence in pain management, diabetes and derma care.
Besides, the collaboration agreement between Lupin Pharmaceuticals and Department of Science and Technology (DST) is another example. DST has committed over US $2.5 million to support Lupin's two clinical development programmes in migraine and psoriasis. It also entered into another deal with Symbiotic Pharmalab (India), which will support Lupin to participate in the steroids formulations business in US and Europe.
Also, the Mumbai-based Cipla tied up with Akorn for collaborative business. As per the deal, Cipla will be responsible for development, manufacturing and supply of an oral drug product for the prevention of organ transplant rejection, while Akorn will be responsible for the clinical trial, ANDA regulatory submission, marketing and distribution in US.
Major M&As in 2007
Indian companies are preferring vendor status to develop a long term relationship with multinational companies (MNCS). The industry witnessed some major deals in 2007, particularly in latter half. Sun Pharmaceuticals acquired Taro Pharmaceuticals for US $454 million, while Wockhardt acquired France-based Negma Laboratories for US $265 million. After the Wockhardt's acquisition of Negma, the company's European business accounts for more than 60 per cent of its revenue.
During the period, Organosys Ltd acquired Hollister-Stier Laboratories for US $122.5 million, while Wockhardt acquired Morton Grove Pharmaceuticals, USA for US $100 million to enhance its presence in US market.
To move up the value chain, gain greater access to target markets and build capacities, the CRAMS players are busy resorting to expansion plans. For instance, Aptuit Inc disclosed plans to invest US $100 million over the next four years to build development, manufacturing and informatics capabilities. The company is expected to set up a manufacturing facility for APIs in collaboration with Laurus Labs Ltd. Besides, the France-based Meraux Alliance disclosed their plans to invest about US $27 million in an R&D centre and another US $25-30 million for shifting its manufacturing facility from US. They had also picked up 60 per cent stake in Hyderabad-based Shantha Biotechnics in 2006.
Clinical opportunity
A majority of clinical trials conducted in India are for phase II and phase III. The government is in the process of considering the recommendation of the Drug Technical Advisory Board to allow phase I clinical trials for the drugs discovered abroad. If this happens, it will enable the Indian CRAMS industry to provide a wide range of drug discovery services.
The 'F' factor
In most of the companies, the presence of full service CROs is declining. The major players are presently focusing on functional experts to further leverage the cost advantage. But industry players feel that functional expertise depends on the kind of coordination capability available with the company. It requires tremendous amount of management effort and time to coordinate with multiple functional players. When the companies are outsourcing CRAMS, they look for excellence and speedy completion than cost advantage. Hence, they feel that functional expertise can be adopted for quality rather than for cost.
Even after providing functional expertise, many Indian players are competing pointlessly and offering lower prices - one fifth of the cost of European and American companies. With this type of business, Indian players will have very low margin and no invention. It does not bring any value proposition for both the foreign and Indian CRAMS players.
The other trend is that most of the CROs are shifting from full time equivalents to fee for services (FFS) i.e., payment is given after the deliverance of services. In this phase, functional players play a major role in delivering innovative and quality product. With the help of functional players, India can become a R&D hub, where FFS are moving to collaborations.
Leveraging clinical research & chemistry expertise
The clinical research market includes services such as biostatical, bio-analytical, data management services, biomarkers, regulatory submissions, medical writing and site management services for the four phases of clinical development of new chemical entity (NCE) and the bioanalytical / bioequivalence services for generics. India has emerged as an attractive destination for many outsourcing research services in view of its low cost in R&D, human resources, manufacturing costs, lower capital investment and less operational cost for quality that matches international standards. The rapidly evolving skill-set of Indian vendors in basic research and development has narrowed the skill gap required for NCE research. This trend is one of the key attractions for many research outsourcing companies and has added value to Indian research.
Also, the skills and expertise in chemistry and reverse engineering in India are all set to drive the chemistry-based services. There are four major chemistry services categories provided by CROs. They include building blocks, compound synthesis, process research and library design.
Manufacturing - Major revenue churners
Active pharmaceutical ingredients (APIs) and solid dosage forms continue to be major revenue churners for the Indian contract manufacturing market and have been growing at a phenomenal pace of 35 per cent. Many large pharma companies are outsourcing APIs from specialist drug manufacturing companies and completing final production stages. The key drivers in contract manufacturing include cost, quality, secrecy and reliability.
In contract manufacturing, European countries dominate bulk drug outsourcing business. But in recent times, India has made inroads owing to its quality and cost competitiveness. Many MNCs are not keen on changing to new clients as they are concerned about quality and reliability.
The Indian CRAMS market is expected to grow considerably with trends like M&As, increasing collaborative research and manufacturing services and shift to functional expertise. With the help of M&As, Indian companies are improving their functional and technical expertise and further enhancing their presence in international markets by generating more revenues. The trend of collaborative research and manufacturing services will enable Indian companies discover new molecules with greater focus on quality rather than cost.
(The author is senior research analyst with CYGNUS)