Contract manufacturing activity in India is looking at a big leap forward, as an increasing number of pharma majors begin to value outsourcing more of a strategic imperative than a mere cost-cutting option.

India’s $1.1 billion custom manufacturing market is growing more than three times the rate of the global CMO market, to reach $2.3 billion in 2010, according to a new survey conducted jointly by the Organisation of Pharmaceutical Producers of India – the umbrella body representing largely the pharma MNCs operating in India – and Ernst & Young analysts.

This fast-paced growth in CMO business, along with other outsourcing activities, is expected to propel India to a 5.5% share in global outsourcing market in 2010, up from the sub-3% share it registered two years ago.The global outsourcing industry is currently valued at $51.0 billion and is growing at 14%.

India’s Contract Research and Manufacturing market, with a CAGR of 51%, will touch $3.8 billion by 2010, while the global CRAMS market is expected to reach around $66 billion (excluding clinical trials).

“Strong cost competition and a well-developed local industry base, combined with the large pool of technical talent, has necessitated the inclusion of India as a part of all global sourcing initiatives across global pharmaceutical businesses,” noted Dr. Hasit B. Joshipura, chairman, GlaxoSmithKline Pharmaceuticals Ltd., India. The British drug giant has a wider outsourcing interest in India.

Trustworthy Partners

Using cost-effective technologies as forte, Indian CMOs make around 500 different APIs. A few among them have also begun trying their luck in the complex cytotoxics, lyophilized injectables and ophthalmologicals, as well. Nearly 64% of total outsourcing is happening in the area of APIs or intermediates. At present, India is the world’s fourth-largest pharmaceutical producer, accounting for approximately 8% of global pharmaceutical production.

The CMO potential is further bolstered by the shifting trends in global outsourcing. Over and above the obvious cost-advantage, Indian CMOs are turning out to be valuable partners in the drug development value chain.

Big pharma companies have been increasingly looking at expanding the scope of outsourcing, over the last few years, to include a number of routine core functions or as a strategic opportunity – a radical shift from the traditional vendor-sponsor relationship.

For instance, a 2009-survey conducted by Contract Pharma has shown that global pharma companies’ preference to regard their outsourcing as a strategic decision has risen considerably to 55%, compared to 42% in a similar survey findings in 2006.

“Earlier, innovator companies saw outsourced services as a transaction, driven by a combination of speed, cost effectiveness and dependability. Today, outsourced services are seen in a much more strategic light. Relationships are going beyond outsourced development to collaborative development,” stated Ajay Piramal, chairman, Piramal Healthcare Ltd.

Piramal Healthcare, with manufacturing facilities in India, UK and Canada, is among the leading CMOs in India. Piramal has several multinational clients and retains a track-record of not infringing on IP rights of innovator companies through Paragraph IV or first-to-file generics.

Indian CMOs need to be trustworthy to become successful as a long-term strategic collaborator in development and manufacturing, Mr. Piramal contends.

End-To-End Services

Unlike the global CMOs that specialize either in APIs or formulations, Indian companies have adopted a vertically integrated model. Leading outsourcing players here offer end-to-end services across development and manufacturing in formulations and APIs.

These capabilities have attracted several western CMOs to work in India. The Swiss CMO Lonza, for example, has plans to set up a $150 million factory in Hyderabad, southern India. Patheon of Canada entered into a pact with the Bangalore-based formulations services provider Kemwell in April. Similarly, AMRI acquired the manufacturing sites of Ariane Orgachem & Ferico Laboratories in 2007.

India has long been considered an ideal location for sourcing of generic APIs. However, in recent years, both Big Pharma and biotech companies have increasingly moved toward sourcing APIs/intermediates and formulations across the pharma life cycle from India. While Pfizer, GSK, Eli Lilly, BMS and AstraZeneca have mainly adopted the outsourcing route, there are also instances such as Zurich-based Nycomed establishing 50/50 partnership venture with India’s Zydus Cadila for making APIs.

S. Harachand is a pharmaceutical journalist based in Mumbai.