The last few years have seen the Indian pharmaceutical industry transform from a domestic market focused industry to a globally integrated industry. This transformation has happened on the back of cross border acquisitions, alliances and outsourcing partnerships among multinational pharmaceutical companies. Competitive pressures, new growth opportunities, diversification of risk and funding enablers are some of the key factors behind acquisitions, alliances and outsourcing partnerships happening across various segments of the industry. This has made Indian pharmaceutical companies redefine not only the global pharmaceutical value chain by building collaborative networks but has also resulted in increasing their visibility in the global arena.

Indian vendors: improving skill-sets

India has emerged as a preferred destination for outsourcing research services owing to its low cost manufacturing, lower cost of R&D personnel, lower capital and operational costs for quality infrastructure of international standards. The rapidly evolving skill-set of Indian vendors in basic research and development have narrowed the skill-gap required for NCE research, which is one of the key attractors for western companies to outsource from India.

Indian vendors have developed strengths in advanced chemistries, synthesis of complex molecules, and process development, owing to the process product patent regime prevalent in the country until 2005. The TRIPS agreement signed in 2005, which mandated implementation of the product patent regime, has seen Indian pharmaceutical companies alter their business focus and strategies to explore novel and mutually value generating relationships with global pharmaceutical companies. These relationships vary from NCE research collaborations, providing fee-based research services and conducting clinical studies for clients, in-licensing and out-licensing of technologies/novel drug candidates for further development. Perhaps, the most significant development post 2005 is the gradual shift towards R&D driven business growth and increasing appreciation for IPR compliance.

Indian pharma companies are increasingly exploring the contract research space with several providing services in drug discovery, custom synthesis and NDDS. The vendor space can be split into five segments based on vendor size, and degree of focus on contract services.

Tier 1 consists of large pharma players, either Indian or foreign owned. Tier 2 players are smaller and there is significant presence of "pure play" contract research focused players. Emerging players (pure contract research players) are in a separate category while 'Others' account for players not covered under any of the above categories, typically small domestic pharma companies.

Several multinational captives looking to exploit India's low cost quality services, however, are awaiting clarity on data exclusivity issues. With time we expect existing multinationals in India to expand the scope of their services, and attract other global companies to India.

Domestic tier 1 players can benefit from existing contract manufacturing relationships to strengthen their contract research business. However, their focus, going forward, is to develop in-house NCEs. Pure Play companies have a "non-conflicting" business model, with focus solely on providing outsourcing services. Hence, they will possibly emerge as preferred partners for long-term strategic outsourcing contracts. The tier 2 pharma companies are strong contract manufacturing players, also providing contract research services such as custom synthesis and process development.

We expect several of the emerging niche players to emerge as strong players in contract research. These niche players have strengths in chemistry and biology, which is an added advantage as global pharmas are increasingly looking at biotechnology to generate leads for NCEs. They face close competition from tier 2 pure play companies, which already have some market experience and reputation in contract research to depend on.

Potential Winners

Our analysis of Indian vendors in the contract research space, based on their research capabilities and infrastructure, market experience and other parameters, has revealed three players as potential winners - Nicholas Piramal, Dr. Reddy's, Jubilant Organosys.

We have also identified certain promising players who could provide serious competition to the vendors in this space. Currently, these vendors are in start-up stages and hence, would need some time before they establish a strong contract research business supported by sound outsourcing relationships.

This article is an abstract from the new publication "Pharmaceutical Outsourcing in Drug Discovery and Development: Contract Research Opportunity in India " by ValueNotes and KnowGenix