The race to climb the outsourcing ladder in the global drug development and discovery market has intensified between India, China, Japan, South Korea, Singapore and Thailand. It now seems poised for a close finish. At stake is the $37.1-billion global market for pharmaceutical and biotech outsourcing?expected to reach $48 billion by the end of this year. With fortunes to be made, every major Asian country is rushing to establish itself as a major player and prime destination for foreign investment. Naturally, the Indian life sciences industry is on an alert and is gearing up to attract the fast-growing drug outsourcing work.
The cost savings for outsourcing drug development are enormous, to the tune of 80% on labour and 50-75% on facilities and equipment. For any startup on a tight budget or a mature pharmaceutical or biotech firm wanting to expand their operations, these are savings that cannot be ignored. Thus, a company must have a firm understanding of why, or if, it should be outsourcing and what is the best strategy to achieve its goals. And, if outsourcing is the way forward, it becomes pertinent to explore the pros and cons of each possible country.
To zero in on the right destination, it is important to unravel the kind of work that is being outsourced by the American and European life sciences companies. Above all, where is India located on the drug outsourcing radar vis-a-vis its Asian counterparts? With life sciences considered the next IT, it is equally important to decipher the measures needed to replicate the IT outsourcing success story.
?Outsourcing is actively being pursued, given the existing competitive pressures and demand driven dynamics of various industry markets, and the life sciences market is no stranger to it,? says Shivani Shukla Raval, industry manager, healthcare practice, Frost & Sullivan. She adds, ?The global market for pharmaceutical and biotechnology outsourcing was valued at $37.1 billion in 2006 and is expected to grow at a rate of 13.37% to reach $89.6 billion by 2013.?
Not surprising, it is seen that virtually every part of the R&D process is being outsourced. Outsourcing is taking place across the spectrum of the pharmaceutical and biotech value chain from drug discovery services to manufacturing of intermediates, active pharmaceutical ingredients (API) and dosages, besides the traditional areas of accounting, payroll and HR functions. While big pharmaceutical companies often outsource selectively and mostly to gain scale, small biotech companies are dependent upon outsourcing for most of their critical functions. The fastest growing areas of this business are early stage discovery, investigational new drug application (IND) and human clinical trials.
Clearly, Japan and South Korea have long been, and still are, on par with their American and European counterparts in high-end research and development. And, Singapore leads the pack with its advanced infrastructure and equipment. However, neither of them offers any cost savings over their Western counterparts, and thus are of limited value in outsourcing. Thailand, Vietnam and the Philippines have not yet developed their life sciences economy and thus rank low when considered for outsourcing. That leaves the field wide open for the two Asian giants?India and China?to slug it out and make a serious bid for the life sciences outsourcing pie.
Here?s a quick snapshot in order to ascertain attractiveness indices for outsourcing between the two countries. While China is rapidly building a network of industrial and science parks which promise to offer uninterrupted power, water and internet access, a major shortcoming is that infrastructure is getting built around Beijing and Shanghai only. Instead, the pharmaceutical and biotech growth in India is being powered by infrastructure build-up in several cities and across geography?Bangalore, Hyderabad, Chennai, Pune, Mumbai, New Delhi and Chandigarh.
Then, the Chinese fiscal incentives are predominantly focused on export-oriented pharmaceutical and biotech firms. Instead, the Indian incentives usually involve government support with pilot facilities and other project incubator functions. Various state governments also offer tax holidays.
Most importantly, the cultural and language barriers are significant for any of the Asian countries, but least for India. The country can boast of millions of technical graduates and hundreds of thousands of postgraduates as its key strength over others. And, they speak good English.
?One of the biggest moves of the decade has been that India and China are going from generics production to adding discovery chemistry and biology to their service offerings. This has resulted in several big pharmaceutical companies exiting either partially or fully from the US and Western Europe, to go to India and China for discovery services,? says Anand Bidarkar, vice-president (business development), SIRO Clinpharm.
India?s drug discovery outsourcing market amounted to just $470-million in 2005, and is expected to be around $900-million by 2008-end.
?Currently, the portion of work being outsourced to India is just a fraction of the total outsourced work and there is thus a large window of opportunity,? Bidarkar adds.
Presently, outsourced work is coming in the areas of clinical trials, process R&D, medicinal chemistry, formulation development and contract manufacturing, says Uday Baldota, vice-president (investor relations), Sun Pharmaceuticals.
The outsourcing market comprises of two broad components. The first is licensing or outright purchase of innovative products or IP developed in India. Many of the leading domestic generic pharmaceutical companies have active programmes of new chemical entity (NCE) and new drug delivery systems (NDDS) research. As Indian companies often lack the financial and establishment resources to bring a drug to the market, they have actively pursued a partnering strategy for their molecules and novel formulations. Typically, the smaller companies partner products after preclinical or early clinical development, while the larger ones are increasingly going in to further development. Large global pharmaceutical and biotech majors are collaborating with these companies in India to boost their product pipeline. The second component pertains to contracting specific research services. This comprises drug discovery services including chemistry and biology services and human clinical trials.
Raval says India has always been looked at for its cost advantage for outsourcing opportunities; it is generally assumed that India can offer a cost advantage ranging from one-sixth to one-third the cost. Capital costs can be reduced up to 75% owing to good quality of local materials and skills.
?The major advantage pertaining to India is the low cost of innovation that stems from the highly competitive nature of the domestic pharmaceutical market, consequently imposing strong low-cost manufacturing discipline, which is a key strength in this industry,? says Utkarsh Palnitkar, head of life sciences practice, Ernst & Young.
In addition to cutting-edge operations by Indian pharmaceutical and biotech players, their steadfast commitment to transparency of financial reporting, business processes, and compliance controls have tilted the scale in India?s favour. This has resulted in the largest number of
USFDA approved plants outside US, he adds. Furthermore, the Indian pharmaceutical industry has moved up the value chain. It has started to deliver high value services to the global pharmaceutical giants.
?India has become the country of choice for collaborative research and manufacturing services for companies to help them build their competencies at affordable costs. With most of the Indian companies adopting good clinical practices (GCP), it has helped India to build a lot of partnerships and reduced apprehensions about the quality offered,? adds Palnitkar.
To keep the momentum going, the industry is advocating a two-pronged strategy. Firstly, increase the industry-academia collaboration to ensure talent development to match industry needs as well as benefit from the research focus in academia. This includes funding universities to set up state-of-the-art labs and creating an environment for seamless transfer of academic discovery to commercial product.
Secondly, invest in creating infrastructure for world class R&D. This includes initiatives like ramping up facilities in hospitals and training doctors to conduct clinical trials, setting up centres of excellence to facilitate research in focused areas and adoption of new technology to make processes more efficient.
The recent announcement of the government to set up a National Biotechnology Regulatory Authority is a positive step in this direction; however the government needs to invest much more in terms of infrastructure and policy to be able to reap the benefits in the years to come, Bidarkar sums up the mood in the industry.
?With inputs from BV Mahalakshmi