Global Outlook

India is poised to be in the forefront of outsourcing by pharma companies

Contributed by Nirmal Bang

By Nirmal Bang

Indian companies have made great strides in the global arena across different business segments. They have also demonstrated their ability to play the leader’s role in each of the segments.

Globally, it has been observed that India is emerging as a preferred destination for pharmaceutical companies’ outsourcing venture of drug discovery, clinical research and contract manufacturing functions. According to a study by PriceWaterhouseCoopers (PwC) on the changing dynamics of pharma outsourcing to Asia, India is being recognized as the best outsourcing pharma destination, followed by Korea and Taiwan.

Currently, the Indian pharma industry ranks third worldwide in volume of production that is, 10% of the world’s total pharma output by volume and 14th by value, which is nearly 1.5% of the global value.

It was valued at $20.97 billion in 2009, growing at 12% compared to 2008. The domestic business garnered $12.37 billion in 2009, thereby contributing around 59% to the industry revenue.

The Indian pharma industry earned $8.60 billion through exports in 2009 and is growing at around 14% as compared to 2008. The contribution of intermediates and active pharmaceutical ingredients (APIs) was around 35%, while formulations was 65%.

The Indian Contract Research and Manufacturing Services (CRAMS) market reached $1.70 billion in 2008-09. Drug discovery services contributed around 15% of CRAMS revenue, achieving $0.25 billion in 2008-09. Clinical research achieved the $0.35 billion mark, thereby contributing 20% to the CRAMS space.

Overall, India has proved itself as an excellent value proposition for global pharma companies, most of whom are leveraging on India’s cost competitiveness and large pool of technically skilled manpower.

The key lucrative features of lower costs and greater market opportunity far outweigh the higher risks compared with the more established and mature regulatory regimes of countries like Australia, Japan as well as Singapore. The domestic pharmaceutical industry has been an outperformer.

The global pharma outsourcing market is worth nearly $55-60 billion and is expected to reach $70 billion by 2010. The different segments would primarily be contract chemistry and biology research as well as contract manufacturing and clinical research.

The Indian pharma outsourcing market, including contract chemistry and biology research, clinical trials and contract manufacturing is roughly valued at around $1 billion each, growing in excess of 25%.

The Indian clinical trial market stands at $275 million and is expected to grow at a CAGR of 30% for the next few years. And according to Zinnov Management Consulting firm, the Indian pharma outsourcing industry will be a $2.5 billion market by 2012.

Contract manufacturing accounts for a maximum share of the total manufacturing outsourcing business in the country. India, China and Singapore are amongst Asia’s most preferred outsourcing destinations for global pharma/ biotech companies. Asian territories provide a significant cost advantage for pharma manufacturing.

India, with its large population has a vast pool of treatment facilities, which helps translate into faster patient recruitment in clinical trials process and helps in meeting the overall timelines faster. This helps pharma/ biotech multinational companies to get their products earlier into the markets.

The Boston Consulting Group estimates that the contract manufacturing market for global companies in India would touch $900 million by 2010, followed by clinical trials, which is growing at a compound annual growth rate of 31% and is set to become a $608 million industry by 2012.

An industry expert comments ,“Indian pharma companies are quick to realize the opportunities in the global pharma manufacturing market and have undertaken significant investments in the last decade in creating capacities of global standards to serve the highly attractive regulated markets.”

As big pharma giants continue to find ways to maintain growth and contain cost, outsourcing is likely to become a compulsion more than a strategic choice and India is well positioned to be at the forefront with its manufacturing prowess and inherent advantage of talent, cost competitiveness and the ability to maintain global quality parameters among others.

The outsourcing deal between global pharma majors Pfizer and Indian pharma company Aurobindo for supply of generic drugs is an indication of the same. Aurobindo Pharma has further expanded its partnership with Pfizer Inc by executing licensing and supply agreements for several solid dosage and sterile products for a number of emerging market countries.

Under the terms of the agreement, Pfizer has acquired rights to 55 solid oral dose products and five sterile injectable products for several countries throughout Asia, Latin America, Africa and the Middle East. These products fall under the broad range of important therapeutic segments like anti-infectives, cardiovascular (CVS) and central nervous system disorders (CNS).

“The expansion of our product portfolio from this deal provides a foundation for us to commercialize branded generics based on patient needs within specific regions,” said Jean-Michel Halfon, President and General Manager of Pfizer’s Emerging Markets Business Unit. PV Ramprasad Reddy, Chairman, Aurobindo Pharma shares his views on strengthening the venture. He says, “We are extremely pleased to be associated with Pfizer in their strategy to focus on the emerging markets business and look forward to a strong relationship.”

Recently, Indian companies have been focusing on new emerging areas such as bio-similars, oncology and other such drugs which are considered tough-to-manufacture due to their complex nature and high skills required.

Oncology is the largest and one of the fastest growing therapy areas in the country. Moreover, it has the highest number of active Investigational New Drugs (INDs). Biologics has the third highest number of active INDs present in the pipeline.

India has nascent capability in these areas currently since they require huge investments and highly specialized technology. Indian companies have identified the need to augment their capabilities in oncology and biologics.

Currently, India has 200 companies that are working in the area of biotechnology with an emphasis on vaccines and bio-services. There are over 100 national research centres in the country that support these activities. At present, the Indian oncology market is estimated to be around Rs 1,200 crore and is expected to reach Rs 3,350 crore by 2012, growing at a CAGR of nearly 30%.

“The industry is aggressively pursuing an increase in its market share. The sale of cancer drugs will grow at nearly double the rate of the global pharma market and reach $80 billion by 2012.

“The overall pharma market is expected to grow at approximately 10%. The global oncology market is expected to touch $48 billion this year primarily due to higher drug spending in emerging economies like India.

The advent and introduction of new treatments, increasing number of patients on cancer treatment in major markets and evidence that more and more people in emerging markets are gaining access to modern therapies, will contribute to the growth in the sale of cancer drugs at a compounded rate of 12% to 15%,” remarked Rustom Mody, the Chief Scientific Officer at Intas Biopharmaceuticals.

OVERWHELMED BY COMPETITION

Though India is already established as a low-cost manufacturing base with significant technical and manpower capability driving its growth, it is important to realize that 80% of the industry is still based out of Europe and the US and they would continue to pose a challenge for India. In addition, China has also been investing in building capability and will influence India’s standing in the medium and long-term.

‘Push’ and ‘Pull’ factors are making outsourcing a prudent option. The ‘Push’ factors are pressure on the company to reduce costs and time-to-market.

The ‘Pull’ factors are proven track record of CRAMSoriented companies to handle product development and comply with good manufacturing practices (GMP) as per international requirements. Indian companies are working aggressively to get a stronger foothold across various segments such as generics, contract research and manufacturing services and clinical research services.