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Pharma: Contract research, a reality?
Sep 14, 2005

Contract research services, especially in the pharmaceutical and biotech sectors, are beginning to gain prominence in India over the last few years due to various factors, which include low cost advantage and diverse disease characteristics. In this article, we take a look at the potential of these services in the Indian pharmaceutical industry.

Why is contract research gaining importance?
In the global pharmaceutical market, R&D related to drug discovery has become an expensive proposition. It must be noted that for every 10,000 molecules screened, an average of 250 enter pre-clinical testing, 10 make it through to clinical trials and only 1 is approved by the US FDA (Source: The Economist). In addition to this, owing to more extensive clinical trials required by the US FDA, the time taken to develop and introduce a new patented drug has also increased. Therefore, while rising R&D spend has resulted in prices of patented products to ricochet, the results on the same have not been very encouraging. At the same time, the US government as well as global innovator companies are under pressure to reduce healthcare costs.

This has prompted these companies to outsource their research services to India, Eastern Europe, Latin America and China in a bid to reduce R&D costs and also shorten the product evaluation time.

The India advantage
Over the years, the growth of contract research services in India was slow owing to heavy regulation in the US and European markets as well as weak Indian patent laws. However, recently, India has increasingly become a hub for outsourcing of research services. The country offers various advantages, which include a large patient population with diverse disease characteristics, availability of low cost but high calibre scientists and fluency in English. Also, a large number of Indian companies have been adhering to international quality standards, which can be gauged by the fact that there are about 60 plants in India approved by the US FDA. This is the largest number in a country outside the US. Also, the introduction of the product patent law from January 2005 coupled with strong skills in information technology has prompted global companies to set a foothold in India.

Biocon takes charge
Biocon has been a pioneer in encouraging contract research outsourcing. The company has established 2 subsidiaries for this purpose viz. Syngene and Clinigene. Syngene, with its skills in synthetic chemistry and molecular biology, offers services in the area of drug discovery and development, while Clinigene partners with global pharma majors for the purpose of conducting clinical trials. Revenues from Syngene contributed about 8% to the total consolidated revenues of the company, while its bottomline contribution stood higher at 14% (FY05). However, Clinigene is yet to turn profitable. It must be noted Biocon derives it revenues from biopharmaceuticals, enzymes and contract research services. In 1QFY06, sales of the company were flat due to decline in its biopharma revenues. However, a 35% YoY growth in the contract research services provided a cushion to a decline in total revenues. Going forward, Biocon expects contract research services to be the major growth drivers along with insulin, statins and immunosuppressants.

Multinationals have also started evincing interest in India. While Syngene has established a collaboration with Novartis for the latter’s discovery-led programs, Glaxo is also eyeing the option of conducting clinical trials in the country.

Looking ahead…
Considering the advantages that India offers, the contract research field offers an exciting opportunity to Indian pharma companies. However, the barriers to entry are on the higher side as this business stresses on the quality of relationships established with global research majors. With the product patent era triggering domestic pharma majors to look at different business strategies to fuel their growth trajectory, providing research services could be instrumental in further augmenting revenue streams.

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