ICRA Limited, an associate of Moody’s Investors Service, expects Indian Contract Research And Manufacturing Services (CRAMS) market to grow at a CAGR of 41.4 per cent over the FY10-12 to reach a market size of US$7.6 billion with custom manufacturing leading the pack.
The growth will be supported by high number of US FDA approved plants, skilled manpower coupled with inherent cost advantages which will enable India to capture a significant chunk of the current US$ 67 billion global pharma outsourcing market.
The global outsourcing market is expected to grow at a CAGR of 12.6 per cent during FY10-12 to reach a market size of US$ 85 billion by FY12 as innovator companies are expected to lose patent protection to the tune of US$ 97 billion over 2011-2015; steady erosion in new product launches in relation to R&D spend and such new launches not enough to justify loss of existing block-busters. This coupled with increasing role of generics and pricing pressure played out by in the developed nations have forced big pharma players to look for cost-containment measures to protect bottom line.
As per industry estimates, 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. As a fallout of that non-core activities such as manufacturing of APIs, dosage development, packaging have been out-sourced to low cost destinations such as India and China. Of late, global pharma companies have partnered Indian companies for drug discovery and development of new chemical entities with focus on biological skills to take advantage of skilled manpower and scientific talent pool. However, ICRA notes that outsourcing of such service requires building up entrenched relationships with innovator companies over a period of time; initially with smaller projects and gradually moving on to mission critical high value add projects.
Indian companies have in the past taken inorganic route to acquire assets abroad in order to acquire new clients and niche technologies such as lyophilisation, sterile drugs, cytotoxics etc. that offer higher margin and higher entry barriers. As per ICRA, acquisition of such facilities would accelerate growth and foster better relationship with innovator companies, though generating adequate returns on same needs to be monitored. The Indian CRAMS business has also benefited by large domestic branded generics players who are outsourcing manufacturing activities to such players and focusing on marketing & sales, new product launches and customer centric activities.
The key CRAMS players such as Piramal Healthcare, Biocon Limited, Jubilant LifeSciences, Divi’s Lab have all displayed strong growth over the last few years, though concerns on economic slowdown has led to inventory rationalisation by global pharma majors leading to slowdown in growth during FY10 and H1 FY11.
Notwithstanding the short term impact which has been partly reversed during H2 FY11, the long term prospects of the Indian CRAMS business appears healthy supported by Contract Manufacturing Outsourcing for APIs and increasing presence in high-end contract research business. In the long run, companies which provide integrated drug development, research, clinical trials and manufacturing outsourcing services will prove to be one stop shop for all the needs for innovator pharma companies resulting in long term partnership and better customer franchise.