The Bangalore-based Aurigene Discovery Technologies Limited, an independent subsidiary of Dr Reddy's, is now competing in a mature contract research organization space in the country. Established in 2003, Aurigene Discovery Technologies is a partnership focused collaborative discovery organisation. CSN Murthy is chief executive officer of the company. In an interaction with Nandita Vijay, Murthy cut a clear picture of the contract research scene. Excerpts:

What are the factors led to the scores of partnerships in research and drug discovery space?
India is a cost-effective destination but there is lack of expertise, as it has so far not witnessed a complete cycle of discovery, development and marketing of a compound. Therefore, the possible solution is to enter into strategic business partnerships to combine low costs and excellent global skills. Such alliances make a lot of business sense, because no Indian company can afford to invest in resources to research on clinical development of compounds or identification of new drug targets, which is a highly risky area. The Indian CROs have so far focused largely on chemistry-based projects. But of late, there has been some attempt by CROs to offer biology services. The chemistry services have taken off well and there could be at least 2,000 chemists working in Indian CROs. But the biology service is still in the incipient stage.

Biology demands expertise in areas such as DMPK, cell and assay biology and vivo expertise, which is not as common as chemistry expertise in India. There is also a paradigm shift in assignments for CROs, as they are gearing up to gain higher value from existing projects, including Intellectual Property (IP) generation. Probably, this is where Aurigene has a head start over other CROs. Although we are in research services, our success is in IP generated work. We work with world-class companies like Novo Nordisk, Rheoscience, Debiopharm, Forest Labs and Merck Serono on integrated discovery projects.

What do you think is the uniqueness of Aurigene that sets it apart from other companies?
We are the oldest and know the ins and outs of the Indian pharmaceutical market. Our strengths include modern infrastructure and resourceful, talented scientific pool. Right now, we are working with Forrest Labs to meet the first milestone. We are adding more customers and there is value-addition to projects from existing customers. We are also able to add more customers in the area of drug discovery. This has led to expansion in infrastructure and manpower.

It is understood that a major chunk of the business for CROs is from global customers. What is the reason for this?
That is true. Even Aurigene is not favoring Indian customers. The situation is similar to the information technology sector in the country where local giants like Wipro and Infosys augmented businesses through global partnerships. However, after two decades, they are now serving Indian customers. The same thing will happen in India in the CROs space. Right now, I doubt, if any Indian pharma or biotech company will look for collaboration or business development with Indian counterparts. It makes more business sense to work for global customers.


The whole concept of drug discovery outsourcing business has caught on in the last 18-month. Could you give us an overview of the market?
The reason for the sudden interest in drug discovery is the cost arbitrage. There is downward pressure on prices and upward pressure on costs. Globally, the market size for drug discovery is around $8 billon, excluding the licensing costs. I feel the overall market expansion is not going to happen in terms of increased research spends. The opportunities will come from shift in spend to India from Europe and US. The amount of outsourced value will actually increase substantially in the next few years. In the western countries, pharma giants are busy partnering with biotechnology companies to license early/late-stage compounds. In other words, the biotech companies offer novel technology platforms. In a situation such as this, while the former gets the license rights, the latter earn milestone payments and royalties.

In India, CROs operate differently. The innovation driven companies are taking on 'collaborative drug discovery' projects, leveraging the mutual strengths each has to offer the other (cost and expertise respectively). Therefore, the complexion of business is different from that of the Western countries. We would see large outsourcing companies positioning themselves as offshore partners for pharma-biotech majors. They could also go in for a BOT (Build Operate Transfer) model. Under this model, companies will set-up the facility and manage it to make it a 'centre of excellence', focusing on certain disease segments. Another option is that some companies can take up their own programmes to develop compounds and enter into licensing partnerships. This is similar to the US and Europe biotech style of working. Both of these practices are likely to happen in India.

How much do you acknowledge science and strategy in Aurigene's growth?
Science will translate into good value if there is an appropriate business direction to it. The same is true of Aurigene. We are adding value by generating IPs, because it does not need massive infusion of manpower. It definitely costs less to do a discovery in Bangalore than in Boston. Although time taken to generate an IP is higher, it can create potential revenues.

What according to you is the future of the drug discovery sector?
It is at an interesting stage. There is lot of scope for large and medium cap companies to enter India. Pfizer has a large presence in Mumbai for clinical and analytical work. Novartis is setting up a new facility in Hyderabad to focus more on clinical development and analytics. Even Wyeth is reportedly moving towards an expanded relationship with its Indian partners. Bristol Myers Squib has already teamed up with Biocon's subsidiary Syngene. Companies like Aurigene are gaining visibility. There has never been such a huge interest towards drug discovery partnerships. New players like Advinus and Jubilant have set-up large facilities in Bangalore and Pune, respectively.