To say that the global drug industry is grappling with a severe crisis would be an understatement. Industry is facing pressures in terms of rising costs of drug development and getting new drugs into the market quickly. The likes of Pfizer, Astra Zeneca, GlaxosmithKline, Novartis and Wyeth?often called the Big Pharma in industry parlance?are grappling with challenges, which are formidable enough to not only derail the growth story, but also rewrite the rules on how medicines will be discovered and developed in the future.

Firstly, drugs worth $47 billion are going off-patent in the US market alone by 2010. Naturally, the biggies in the industry are a worried lot as these drugs fetch considerable revenues to them. Secondly, generics produced by the reverse engineering of existing drug molecules are having a free run in global markets, as they nibble away the market earlier dominated by innovative products. Compounding these challenges is the fact that approvals for new drugs are becoming stricter by the day. Last year, US Food and Drug Administration (USFDA) approved just 19 new drugs, the lowest in 24 years. Further, the pressure exerted by several governments, especially in the developing countries, to bring down the cost of drugs and make them affordable for the masses, is sustained and shows no signs of relenting in the near future.

In such a bleak scenario, several questions cloud the minds of decision makers at drug companies: how to overcome the obstacles? What could be the best business strategy to make optimum use of resources and become more efficient? After all, challenges give birth to opportunities and the heads of drug companies are well adept with this age-old market reality. A broad consensus seems to be emerging wherein the outsourcing of drug development and manufacturing operations to low-cost markets like India and China is seen to be a sound value proposition.

But first, a quick look at the slim and trim forays planned by some of the biggies in the industry. As per estimates by global financial services and research firm Merrill Lynch, Astra Zeneca is looking to reduce costs by $900 million by 2010 by reducing 11% of its global workforce?that is, 7,000 jobs?stopping production in many of its 27 manufacturing sites and resort to outsourcing to low-cost destinations like India, China and East Europe.

Novartis is planning reduction of approximately 2,500 jobs and a cut in spending by $1.6 billion by outsourcing even before 2010. Bristol-Myers Squibb is looking to reduce spending by $1.5 billion and a net 10% reduction in workforce by 2011, by simplifying, standardising and outsourcing its processes and services. Here again, the plans for discovering and developing medicines in India and China are gaining momentum.

During the same period, Pfizer is looking to increase outsourcing of its manufacturing from 15% at present to as much as 30% to facilities in India and China. The idea is to reduce costs by $2 billion and reduce 10% of its workforce?10,000 professionals.

Interestingly, an unfortunate yet seemingly realistic trend cutting across the cost cut-down initiatives by the big drug companies is the closure of manufacturing and research facilities in the US and Europe. And transferring discovery and manufacturing operations to low-cost destinations like India, China and East Europe is the order of the day.

A piquant question arises. Can Indian contract research and manufacturing companies (CRAMS) make inroads in this space? Can they transform the challenges facing the global industry into opportunities for themselves?

?Challenges facing the global industry are real and happening. Indian CRAMS providers will benefit immensely because of the huge outsourcing. But that will give players like us only volumes, not values. Therefore, the need of the hour is to graduate from undertaking contract work to becoming collaborative. This will not only give us revenues, but we can share the upside potential of delivering innovation by means of collaboration,? says Venkat Jasti, vice-chairman and CEO, Suven Life Sciences. He adds: ?We need to be in the total cycle, that is, discovery, development, manufacturing and marketing, both as a provider of services and also as a partner in innovation.?

It is notable that the global outsourcing opportunity is expected to touch $73 billion in 2011, up from $44 billion last year. In recent times, India has demonstrated the ability to deliver high quality yet low-cost pharmaceutical and biotech products. Home-grown CRAMS players like Dishman Pharma, Jubilant Organosys, Piramal Healthcare, Dr Reddy?s Labs, Divi?s Labs, Suven Life Sciences and Cadila Healthcare have also shifted their focus from generics, to emerge as all-in-one providers spanning the entire drug development and manufacturing value chain.

?CROs have expanded their portfolios to include pre-clinical trials, Phase I-IV trials, data management and site management. Companies today are looking for a one-stop shop and Indian CROs are providing value-adds, primarily by helping in study design, reducing time and cost of studies by effectively utilising technological solutions,? says Pradep Nair, vice-president and global head (life sciences, healthcare and chemical practice), HCL Technologies.

?The environment for pharmaceutical outsourcing is favourable as innovators look to reduce costs and increase the speed of research,? say Dr Reddy?s Laboratories (DRL) officials. In a new concept, DRL has combined its custom pharmaceutical services (CPS) and active pharmaceutical ingredients (API) divisions to form a new segment called pharmaceutical services and active ingredients (PSAI). In 2007-08, CPS and API division together contributed $415 million, or over 30%, of DRL?s total revenue. Going forward, the company expects revenue from this segment to grow at more than 40% pace in the coming years. Similarly for Divi?s Laboratories, CRAMS revenues contribute about 50%, driven by global customers. Company officials say that most of the top 25 innovator companies globally are clientele for Divi?s Laboratories.

At present, India has about 75 USFDA approved plants. This is the highest number of USFDA approved plants outside the US. ?The cost of manufacturing in India is a fraction of the cost of manufacturing in the US or in Europe. India has one of the lowest costs of manufacturing and one of the lowest manpower rates in the world,? says Shiv Raman Dugal, chairman, Institute of Clinical Research (India). ?India therefore demonstrates strong credentials to play a critical role in the global contract manufacturing opportunity,? he adds.

At the same time, there are still a few concerns in terms of strengthening the regulatory infrastructure and framework within the country, investing in developing educational infrastructure to ensure a continued adequate skilled talent pool supply, and building stronger capabilities on the discovery front. Experts feel that India still needs more investments in infrastructure in the CRAMS segment and invest in building the regulatory infrastructure and IPR.

What about competition, especially from China? HCL Tech?s Nair informs that a newly-released study published by researchers from the Massachusetts Institute of Technology (MIT), ranked India 16th in a tally of the most popular outsourcing destinations, with China in only 23rd place behind Brazil, Sweden, Mexico, Hungary, South Africa and Austria.

?Reasons for this success are a vibrant pharmaceutical market with patient protection in place since 2005 and a larger number of doctors with a far better reputation than their Chinese counterparts,? says Nair.

Thus as the global drug industry is in a dynamic state and constantly transforming, India is making a strong bid to attract the business opportunities by providing higher efficiencies in terms of cost, quality and time.