Cost containment pressures due to various factors have prompted the global pharmaceutical companies to contract out various research related and manufacturing activities, over a period of time, from Europe and North America to low cost destinations like India and China. Such activities started gaining momentum before the turn of the new millennium and have now emerged as huge business opportunities to many domestic Indian pharmaceutical companies. This lucrative business opportunity of ‘Contract Research and manufacturing Services’ is now popularly known in its abbreviated form CRAMS.
Many global pharmaceutical companies have already engaged themselves in the CRAMS space with India and some of them have commenced the pilot programs and are seriously contemplating to offshore a significant part of their research related and manufacturing operations in India.
The Market Size:
Global market for CRAMS was around U.S. $ 55.47 billion in 2007 and is expected to be of U.S $ 76 billion by 2010 with a CAGR of 10%.
Contract research market alone was U.S $16.58 billion with a CAGR of 13.8% and contract manufacturing at U.S $38.89 billion accounted for around 70% of the total global pharmaceutical CRAMS market, according to a study done by Piribo, a Business Intelligence Organization.
According to ASSOCHAM, CRAMS market in India was valued at U.S $532.10 million in 2005, of which contract manufacturing accounted for 84% of the total market and the remaining 16% came from contract research excluding clinical trials, with a growth of over 40% over the previous year.
According to Frost & Sullivan, contract research market in India is estimated to be around U.S $ 1 billion by end 2010.
Preparation started much earlier – unknowingly:
In 1970 when product patent law was abolished to encourage domestic Indian companies to manufacture and market low cost modern medicines in the country, the skill sets to make the best use of this opportunity started developing at a faster pace. Brilliant chemists of India got encouragement to hone their reverse engineering and efficient manufacturing process development skills, which are of immense importance to manufacture low cost medicines in the country. Availability of skilled and high quality technical talent pool at much lower costs together with capital efficiency of the local entrepreneurs further helped the country to acquire cutting edge expertise in the CRAMS space.
CRAMS – not just a bed of roses:
Days of struggle:
CRAMS business cannot be developed overnight. It needs months, if not years of negotiation and fulfilling all technical, financial and regulatory requirements of the innovator companies to commence business.
Days of continuity:
Since financial costs are high and regulatory requirements are stringent to switch over to new outsourcing arrangements, there are very good chances that once CRAMS business is commenced, the partnership with innovator companies will continue for a long time, unless any breach in the supply agreement takes place.
Days of nightmares:
All offshore supply contracts need to be successfully executed within the given timeframe. If not, relationship with the innovator companies may get strained. At the same time, if the innovator company fails to take delivery of the custom made material from the CRAMS partner, costly inventory at the manufacturing location will pile up and consequently precious working capital will get blocked, adversely impacting the manufacturing capacity utilization.
Operating margin:
In CRAMS business operating margins are usually quite good. For patented products margins are generally higher than the products which have gone off patent. The volume of business in CRAMS usually picks up over a period of time.
Contract Research:
While developing a New Chemical Entity (NCE), the research based pharmaceutical companies need smaller quantities of variety of intermediates and active pharmaceutical ingredients (APIs). As the NCE gradually passes through various advancing stages of clinical developmental processes, quantity requirements of such material also increases.
Contract Research outfits develop and deliver such smaller quantities of specific chemicals and intermediates to the innovator companies through custom chemical synthesis (CCS), which usually attracts relatively higher margin .
Although in India early and late stages contract research services are doing well, the segments like medicinal chemistry and bioinformatics with high business potential have not been adequately tapped, as yet.
Key areas of outsourcing in future are expected to be:
• Genomics
• Screening technology platforms
• Therapeutics
Contract Manufacturing:
Contract Manufacturing market for pharmaceuticals spans across mainly USA, Europe and Asia. The market is segmented into solid, liquid and injectable dosage forms. Although sold dosage form covers almost 50% of the total market, injectable forms are registering the fastest growth and the liquid dosage forms being the laggard.
Contract manufacturing in India involves both patented and off-patent APIs and formulations manufactured with world class standards conforming to international regulatory norms like the US-FDA, MHRA- UK, TGA – Australia and EMEA.
India, with more than 100 US FDA-approved manufacturing facilities, is one of the most preferred locations for outsourcing manufacturing services by the global pharmaceutical companies.
Companies like, Divi’s Labs, Jubilant Organosys, Dishman, Piramals, Shasun, Cadila healthcare, Aurobindo are gradually establishing themselves as strong CRAMS players having large global pharmaceutical companies like, GlaxoSmithKline, Merck, Wyeth, Eli Lilyy, Astra Zeneca, Pfizer as their major clients.
Competition:
In the CRAMS space the key competitor to India is undoubtedly China driven by its economies of scale. Overall manufacturing costs in China, be it labour or power, are much less than India. This has already made China a formidable competitor to India in majority of the bulk drugs and intermediates. Even, many domestic Indian pharmaceutical companies now source their raw materials from China.
Pharmaceutical manufacturers in China, over a period of time, have become quite proficient in filing Drug Master Files (DMF) and Abbreviated New Drug Applications (ANDAs). Together with significant cost advantage, China has started making huge progress to capture a sizable share of CRAMS business from the developed markets of the world. Along with China, countries like South Korea and Taiwan are also making considerable progress in this field.
To combat with this threat some Indian pharmaceutical companies have started setting up their businesses in China, collaborating and even acquiring stakes in the Chinese pharmaceutical companies. This process is expected to accelerate further in future.
Conclusion:
CRAMS business in India is expected to grow at a rapid pace and offer relatively high operating margins to the Indian pharmaceutical companies. As a result, companies of various scales of operations with interest in CRAMS business, have started initiating all possible measures to prove themselves as the best option for offshore activities of the global players. All these companies are trying to leverage the wide diversity of the country, rich English speaking talent pool and strong manufacturing base in pharmaceuticals created over last four decades. Thus it appears that capturing at least 10% of the global CRAMS market by 2015 may not be a big deal for India.
By Tapan Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.