The recent multi-million dollar contract by Quintiles Transnational (NASDAQ: QTRN) to Ness Technologies (NASDAQ: NSTC) lends more evidence to a growing trend in the area of clinical trials offshoring.

Ness Technologies will provide IT services and solutions to establish an Extended Development Center (EDC) at the Ness Technologies facility in Bangalore, India. The new center, Quintiles Extended Development and Testing Center, will provide complementary services in the clinical, laboratory and product commercialization fields. This will allow Quintiles to concentrate on its core competence in pharmaceutical and biotech services and reduce time-to-market.

India: catching up
Overseas companies are increasingly tapping the low cost base offered by India to offshore their clinical research processes. According to a recent study by AT Kearney, India is currently the second most popular destination for companies that want to undertake such trials. Clinical Trials are experiments conducted on animals and humans to establish the safety and efficacy of newly discovered molecules, drug formulations or combinations. While patient recruitment lead-time in India is about 30-40% lower, the country offers a cost advantage of about 40-60%. China emerged as the most favored destination in the AT Kearney list while Russia was third. The scope of the study was spread across factors such as cost efficiency, expertise, regulatory conditions, and patient and infrastructure availability. The study has also listed clinical trial data management, IT, payroll, logistics, HR and F&A as functions that are outsourced the most.

According to another study by Ernst and Young, by 2010 the clinical research activities market in India is expected to go up to $1.5-2 billion. The industry is expected to need about 50,000 trained professionals over the next five years. Companies tapping the Indian market are Eli Lilly, Aventis, Novartis, AstraZeneca, Johnson & Johnson, GSK and Eisai. Some of these already have a substantial operating presence in the domestic drug market in India.

Why India?
The sheer size of the country leads to exposure to a spectrum of diseases and a diverse gene pool. Large private hospitals in India are now equipped with state-of-the-art amenities. English speaking investigators, IPR and patent laws, and an established IT industry are other advantages. On the regulatory front, the revised Schedule Y (2005) of Drugs and Cosmetic rules (1945) conforms to the ICH-GCP requirements, allowing India to partake in global trials.

An increasing number of Indian pharmaceutical companies are now providing outsourcing services and looking to partner with overseas companies. This has encouraged greater outsourcing of high-end services such as drug discovery and development. Companies are also establishing an international presence through acquisitions. Dishman Laboratories, Ahmedabad, India recently acquired Swiss-based pharma service business company Carbogen Amcis, which will help it to identify contract research outsourcing opportunities in areas that complement its services.

Government support critical
With 30% of global clinical trials likely to take place outside the US and Europe, the market for clinical trials especially for III and IV phases is set to increase. The Indian industry is projected to grow by over 15% per annum over the next 5 years. However, the growth of the industry has also led to certain voices of concern, which are indicating that with poor enforcement of laws, illiteracy and poverty and the huge profit margins involved, ignorant patients are being treated as guinea pigs. While the economic potential of conducting clinical trials in India is undisputable, the ‘ethical’ correctness can only be ensured through appropriate regulatory control. Government support will therefore be critical to create an eco-system to take India to a leadership position in clinical research outsourcing.

ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities.

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