Pharma offshoring will present a $7 billion opportunity by 2013

The pharma outsourcing business in India will grow to around $7 billion (Rs28,700 crore) by 2013, as global firms seek to leverage advantages related to cost and quality the country possesses, said a report by research firm Frost & Sullivan.

Another report, by Pune-based research firm Value Notes, forecasts a growth of 23.6% a year for the industry up to 2010.

India is a preferred destination for pharma outsourcing because of the low cost of research but manufacturing in the country and tapping opportunities in contract manufacturing and research is still a relatively new strategy for Indian firms that have traditionally focused on manufacturing and marketing drugs.

The Frost & Sullivan study, titled The Indian Contract Research and Manufacturing Services Market, said the pharma services outsourcing market in India (also known as contract research and manufacturing services or CRAMS) was valued at $895 million in 2006.

Making raw material for medicines (known as active pharma ingredients or APIs) and oral solid formulations (tablets and capsules) continue to be the major sources of revenue for India’s contract manufacturing industry. And of the various segments in contract research, outsourcing of drug discovery research is slated to show the highest growth of 26% a year, according to the Value Notes report, titled Contract Research Opportunity for the Indian Pharmaceuticals Industry.

“These estimates too are conservative, as several of the top Indian outsourcing vendors are pursuing some combination of international expansion and investment in new drug discovery programmes in the product patent regime,” said Suchita Chaudhari, an analyst at Value Notes and co-author of the report .

The key players in the Indian CRAMS space are Nicholas Piramal India Ltd, Divis Laboratories Ltd, Dishman Pharmaceuticals Ltd, Dr Reddy’s Laboratories Ltd, and Shasun Chemicals and Pharmaceuticals Ltd in the contract-manufacturing sector; Syngene (Pvt) Ltd, Jubilant Biosys Ltd, Suven Life Sciences Ltd, GVK Bio Ltd, Chembiotech (Pvt.) Ltd, Quintiles Transnational Corp.,Vimta Labs Ltd, Lamda Therapeutics Ltd, Lotus Labs Ltd, and Siro Clinpharm Pvt. Ltd are the majors players in contract research and clinical research space. And multinational companies such as Pfizer Inc., GSK Plc., Novartis AG, Eli Lilly and Co., Bristol-Meyer Squibb Co., Teva Pharmaceutical Industries Ltd, etc. have already tied up with Indian companies for both drug development and manufacturing services.

“While (traditional) contract manufacturing, consisting of (manufacturing) API and formulations, has been growing at a phenomenal pace of close to 35%, there are (other) emerging areas (in it) that are also picking up pace,” said Mahesh Sawant, programme manager, biotechnology and life sciences, healthcare practices, Frost & Sullivan.

According to the Value Notes report, global pharmaceutical companies are increasingly turning to Indian vendors offering drug discovery research using newer techniques at much lower costs. Major drug discovery companies are realizing that the question is no longer whether to outsource or not, but one of finding the right partners.

Drug discovery is the process by which molecules are identified for their therapeutic efficacy and can take up to several years. Companies are now finding that improving the hit-to-lead conversion and early identification of unsuccessful compounds can accelerate the process.

While India has enough expertise in areas such as chemistry and drug delivery systems, it doesn’t have enough expertise and enough trained manpower in biological services such as protein structural analysis or expression profiling. This is one of the main challenges facing Indian companies.

The Value Notes report said that Indian firms would enter into various strategic alliances and also acquire companies in India and abroad to build on capabilities to leverage the opportunity.

“There is an increasing trend among Indian contract research organizations to move up the value chain by becoming preferred vendors of a few global outsourcers rather than serving as jack-of-all trades. Preferred vendors often land up with high-margin contracts such as researching and/or developing proprietary technologies for the client,” said Chaudhari.