In an interaction with Ground Zero, Mr. Goutam Das – the COO of the Association Biotech Led Enterprises (ABLE) and Ex-COO of Syngene International (Biocon’s research services arm) talks about emerging trends in the global pharma outsourcing space and how the Indian Contract Research and Manufacturing Services industry will benefit from them.
The global pharmaceutical outsourcing industry has certainly been impacted by the global economic slowdown in the last couple of years. Increased regulatory scrutiny has also delayed approval of clinical development projects and this has caused early-stage discovery projects to be postponed. There has also been a steady decline in the R&D productivity impacting the pharma outsourcing. However, of late I see this trend of more new NCE (new chemical entity) / NBE (new biological entity) approvals on the one hand and on the other hand there is this continued loss of blockbuster patents – this will definitely trigger more contract research (CRO) from innovative pharma players.
Similarly, the rising need for life-cycle management of drugs after patent expiry and increasing activity of small biotech companies – those usually funded by private equity and venture funds in advanced markets, specifically in the US – leads to an uptrend in outsourcing of pharma manufacturing (CMO)
Currently the size of the global pharma outsourcing market is about US$ 75bn. I think that the segment should maintain double-digit growth in the near to medium term. The ~US$ 4bn Indian CRAMS market is well poised to deliver a healthy annual growth of 20-30%. Its strong execution track record in contract manufacturing and more importantly its focus on better margin contract development and manufacturing services (CDMO) will drive value growth .
There are three broad categories of pharma outsourcing — contract research (CRO), contract development & manufacturing service (CDMO), and contract manufacturing (CMO). Contract research covers both pre-clinical and clinical development. Contract manufacturing covers generic intermediates, APIs, and formulations.
As far as CRO opportunity is concerned, Indians are way behind and their position in the global CRO space is insignificant. Within that, the most prominent Indian names are Siro ClinPharm, Manipal Acunova, GVK Biosciences, and Lamda Therapeutics. But the leading player is the Indian arm of US-based Quintiles.
On contract manufacturing, Indian CRAMS have gained a significant foothold in the global outsourcing market mainly led by cost advantages — but mostly for the manufacturing of generic intermediates, APIs, and formulations.
As far as CDMO is concerned, India is yet to achieve meaningful progress. Global CDMO companies focus on development and manufacturing of new molecule intermediates, APIs, and formulations. Divi’s Laboratories leads in the Indian CDMO space, followed by Dr Reddy’s Laboratories, Syngene — the CRAMS arm of Biocon, and Shasun Pharma.
Within global pharma outsourcing, the share of contract research (CRO) is highest. Indian companies are almost not present in this segment due to lack of investment in the field of new drug development and lack of quality infrastructure for undertaking discovery research services. This is the main reason for India’s lower share in the global CRO pie, despite the advantages of a large genetically varied population and diverse treatment naïve patient population.
There are two other key reasons India has not being able to attract global innovators in the area of new drug development — one is our country’s pharma industry’s pro-generic approach and the second is lax patent protection for drug innovation. This has restricted India’s progress in the CDMO segment.
On the other hand, thanks to cost advantages and process-development skills of Indians, we have earned a strong foothold in contract manufacturing of generics, which is the relatively low-value segment and a smaller part of overall global pharma outsourcing.
So the key challenges for Indian CRAMS as I see are — a need for large investments in building quality research infrastructure, empowering the patent system to offer strong protection for new drug innovations, and lastly creating a good business environment for global clinical trials in India.
The reason CRAMS has taken a back seat in India are the current clinical trial restrictions of Phase I trials in the country for molecules innovated outside India, then there are restrictions about clinical trials on monkeys, and there are delays in clinical project approvals. All these issues need to be sorted.
No. If you go by the statistics, India owns about 40% share in the overall fillings of ANDAs/DMFs in the US and it is the largest supplier of generics into the US. So, the US would definitely like to ensure quality and safety of the drugs procured from India. Yes, we have seen about 19-20 violations in the manufacturing practices by Indian producers recently and while they may seem high, considering the fact that there are over 170 USFDA-approved plants in India, the number of violations are not really large. So I definitely don’t believe that the recent warning letter or import alert would create any dent in the potential CRAMS opportunity of the Indian industry.
So far, Indians have not really achieved great success in the global CRO space. However, selective Indian CROs like Manipal Acunova have moved abroad to setup their base in various international markets and that should help them grab a share in the growing opportunity of global clinical development space.
China is definitely a big competitor in the space of global pharma outsourcing. Apart from cost advantages, China has a conducive policy framework including better fiscal measures, strong patent system, and faster approval of clinical projects and this has made it the preferred destination for contract research. More importantly, the size of its pharma market, which is expected to become the 2nd largest in the world by 2020, makes it a preferred play in contract research — this is where the big money lies.
However on the contract manufacturing front, India leads because of its strong execution track record coupled with cost advantages — here it holds a superior position compared to China. India’s focus on execution and quality standards in manufacturing should graduate Indians from generic manufacturing to high-value CDMO.
I don’t believe South Korea is a key competitor in the chemical-based pharma space or in the field of generics for India. However, they have emerged as a much bigger player in the field of biogenerics or biosimilars, where India is still progressing. Although Indian peers like Biocon, Dr Reddy’s Lab, Intas, and Reliance Life sciences, have moved forward in the field of biologics, they are yet to find success in the global biologic market.
Likewise, I don’t think Vietnam is anyway a competitor in the global pharma outsourcing space. Rather Malaysia is catching up faster and can become a threat at some point.
The ongoing consolidation among global pharma peers will certainly expand the scope of pharma outsourcing. More importantly, such consolidation enhances the scope of outsourcing business for the already associated/partnered CRAMS player. I see the trend as favourable.
The MNC arms like Quintiles, Covance, and ICON operate their contract research operation in India as a cost centre and most of those contracts are as an extension of their global clinical trial projects. On the other hand, Indian CROs look for bases in India and advanced markets as a need for conducting global trials or to have exposure to the advanced regulated markets. There is no direct competitive threat from MNC CROs. Similarly, MNC CMOs like Lonza and DSM don’t pose a threat for Indian CRAMS.
What I believe is Indian CRAMS peers have already started moving up the value chain of pharma outsourcing, particularly on the manufacturing front, led by their increased focus on research services and product development. With the rising share of CDMO revenue in the overall CRAMS operation, Indian CRAMS industry should deliver healthy growth of 20-30% with better value proposition in the medium term. Specifically, industry leaders like Divi’s Laboratories, Biocon, and Dr Reddy’s Laboratories should be the larger beneficiaries of the anticipated uptrend in the global pharma outsourcing space.
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