Contract research to grow at a healthy clip: ICRA

The domestic market for outsourced pharma research and manufacturing activities — also called CRAMS — is in the pink of health and looks set to capture a sizeable chunk of the global outsourcing pie by 2012, a new report by ICRA says.

The CRAMS (contract research and manufacturing services) sector in the country is expected to almost double to $7.6 billion (around Rs 34,000 crore at current rates) in 2012, up from $3.8 billion in 2010. Of this, contract manufacturing was $2.3 billion.

The segment will grow at a globally high 41.4 per cent CAGR during fiscal years 2010-12 ; in contrast, worldwide, the outsourcing market is expected to grow at a far lower 12.6 per cent CAGR, the report says.

Sourcing from Indian companies will also more than halve the spend of global majors on these activities. “Global pharma majors are tying up with Indian companies to get drug discovery and development of new chemical entities with focus on biological skills to take advantage of skilled manpower and scientific talent pool,” it says.

“ICRA sees healthy prospects for the Indian CRAMS sector on the back of custom manufacturing and increasing presence in contract research,” it says.

Among some significant CRAMS players, the report mentions Jubilant, Biocon, Strides Arcolab, Dishman Pharma and Divi's Labs that have gained from some winning global deals. CRO players grew five-fold in three years, from around 20 in 2005 to around 100 in 2008. The number may reach 150-200 by 2012, it said.

Custom or contract manufacturing will lead the segment. “The growth will be supported by a 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 $67 billion global pharma outsourcing market,” it says.

In 2010, globally, contract manufacturing was about 64 per cent of the total CRAMS market. The global contract research market was $ 25 billion with a CAGR of 19 per cent over 2007-10.

For the same period, the Indian contract research industry grew quickly to around $1.5 billion at a CAGR of 65 per cent but on a small base. It sees huge scope for growth as only around 20 per cent of global pharma R&D spend is being outsourced.

As big pharma players look for measures to cut costs and sustain their profits, they are expected to outsource activities to the extent of $85 billion by fiscal year 2012. This is because of loss of patents and pricing pressure from generic medicine in the developed countries.

According to the ICRA report, during 2011-15, products worth $97 billion of many innovator companies are expected to lose patents. There will be fewer product launches in relation to R&D spends and these new launches cannot fill the revenue loss from blockbuster drugs [those that fetch $1 billion in yearly sales] that go off patents.

“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 fall-out of that, non-core activities such as manufacturing of APIs [active pharma ingredients], dosage development, packaging have been outsourced to low-cost destinations such as India and China.”

Large domestic branded generics players are also outsourcing manufacturing activities to such players while they focus on marketing and sales, new launches and customer-centric activities.

However, Indian CRAMS players need to build “entrenched relationships with innovator companies over a period of time; initially with smaller projects and gradually move on to high value-add projects,” it says.

For their part, Indian companies, in order to bag new clients, have acquired overseas assets that give them new technologies such as lyophilisation, sterile drugs and cytotoxics.

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