India drug discovery thrives in competitive R&D market

Drug discovery hits India

23 July 2007 00:00  [Source: ICB]

Long a giant of the generic drug industry, India is now moving toward a new system of innovation and originality, where contract drug development thrives

FELIZA MIRASOL/NEW YORK

The global pharmaceutical industry is rallying to infuse flagging pipelines with innovative new drugs. But outsourced drug discovery is expected to gain, and India, intensifying its activities in chemistry, biology, and research capabilities, will be a winner.

"India has become a hot spot destination for offshoring research and development [R&D] for globally operating companies," says a study by Business Insights, a UK-based market analysis firm. "India's special advantage resides in its provider base, which is abundant, nimble and resourceful. It can achieve voluminous, high-quality output at low cost."

Research costs in India are about 40% less than in the West. The estimated cost of trials for developing a standard drug in India is half that of the US, according to Rabobank India.

"India has clearly moved away from the mainly generic and specialty contract manufacturing to innovative drug discovery and development, thereby actively taking part in global competition," says Business Insights.

The market for outsourcing of drug discovery in India - preclinical and clinical investigational stages - was valued at $3.7bn (€2.7bn) in 2006, according to the firm, which expects it to reach $7.5bn in 2011.

The preclinical discovery and development market was valued at $1.5bn in 2006, with an expected compound annual growth rate (CAGR) of 15.6% from 2006 to 2011, when it will reach $3.1bn.

Demand for the services of contract research organizations (CROs) by both pharmaceutical and biotechnology companies has grown in the double-digit range for many years, "motivated largely by the need to augment capacity and contain rising R&D costs," observes the Business Insights study.

Other factors driving the growth of CRO use include the rising volume, scope and complexity of clinical activity on the global level the growing number of smaller companies or sponsors conducting clinical research and increasing regulatory requirements.

"In response, the CRO industry has introduced tremendous logistics and capabilities in the last 15 years, adding productivity and efficiency to the drug development process," says Business Insights.

The global CRO market was estimated to be worth $14bn in 2006, with revenues expected to continue growing at 14-16%/year through 2010. Revenues are projected to reach roughly $23bn by that year.

Despite continuing consolidation, there remain more than 1,100 CROs worldwide. Together, they account for about 20% of the pharmaceutical and biotechnology industry's R&D budget, says Business Insights.

Global market conditions are driving growth of the Indian drug discovery sector, bolstered by continued investments by international R&D-focused pharmaceutical firms.

India is well on its way to becoming a global "innovation-intensive pharmaceutical giant," helped by the fact that policy makers and the government are planning to increase national spending on pharmaceuticals R&D. Further, private equity firms and venture capital funds are investing in some of the leading pharmaceutical companies in India in order to cover clinical trial costs and the costs of developing new chemical entities (NCEs).

Investment in pharmaceutical R&D in India is considered small by global standards, although R&D spending has risen dramatically in the last five years. R&D spending as a percentage of sales has gone up from 2% to 10%. This may be largely due to the Indian pharmaceutical market still being dominated by generic medicines. Generics currently account for 70% of overall sales. However, Indian pharmaceutical companies are expected to climb up the value chain, away from generics and toward innovative drug discovery.

LAURUS AND APTUIT MOVE IN

In addition to outsourcing, western companies are also getting into India by creating their own subsidiaries or claiming activities at the local level. A recent example is the joint venture (JV) established by the US' Greenwich, Connecticut-based Aptuit and Hyderabad, India-based Laurus Labs in June.

Aptly named Aptuit Laurus, the new company offers contract drug development services combining Aptuit's global network with Laurus' R&D and manufacturing expertise.

The subsidiary will operate out of newly built state-of-the-art facilities in Hyderabad, with additional facilities in Vishakhapatnam and Bangalore.

"One of the main reasons for us to do business with Aptuit is to utilize their expertise in biology-related discovery services. We are gearing up to offer all discovery-related services by 2009 as opposed to 2011, which was our initial expectation," says Chava Satyanarayana, founder and CEO of Laurus Labs.

Aptuit Laurus will initially provide services to clients in early-stage drug discovery, medicinal chemistry, lead optimization, formulation and process development, scale-up and process optimization, safety and hazard assessment and analytical chemistry.

"We started offering discovery services in October 2006. Drug discovery services were an integral part of our business model from the inception. We wanted to provide an integrated approach to our clients and help them speed up their drug development," says Satyanarayana.

Aptuit had been looking in India for 10 years with the goal of getting into the local market with some significant size. Laurus not only offered an attractive package, as a company well on its way to global growth with or without any alliances, but also a strategic fit with Aptuit's own activities.

"There are no significant differences between the practices used in Kansas City and Edinburgh and those used in Hyderabad and Vishakhapatnam. We expect to operate within a single quality and legal envelope, and for our clients to freely move projects between facilities," says Aptuit CEO Michael Griffith.

Through Laurus, Aptuit gets a scientific staff starting at 220 and growing to 800 scientists. Laurus also provides a management team that's well proven and deep.

The cost differential between resources in the West and India remains significant, but it is diminishing.

"The labor cost advantage in India is shrinking (particularly for the most qualified and experienced scientists), but is still 25-30% below comparable rates for experienced scientists and 30-50% below comparable rates for new graduates with scientific degrees. The cost of semiskilled labor is less than 50% of that for new graduates," says Griffith.

"Wages for skilled and senior management positions are almost comparable to western markets. If low wages are considered an advantage, it will drift slowly, or the gap will shrink sharply between western countries and so-called low-cost destinations," says Satyanarayana.

He also notes that drug discovery services cannot be compared to IT-related business process outsourcing services. Drug discovery falls under knowledge process outsourcing.

"In the long term, companies engaged in knowledge-based services or product-based services will occupy leadership positions," says Satyanarayana.

"When combined with some of the offsetting costs such as the infrastructure disadvantage - transportation, intermittent power, and government fees [in India], we expect to operate at a 25-35% cost advantage," says Griffith.

Aptuit Laurus will operate out of a new facility in Hyderabad, which offers more than 40 labs for process chemistry, formulation and analytical development and kilo lab production. The facilities allow for the handling of highly potent active pharmaceutical ingredients (APIs) as well as low-temperature and high-pressure chemistry.

In Vishakhapatnam, Laurus is constructing a large-scale manufacturing site, the initial phase of which will create stand-alone process R&D and scale-up capability. This will include a dedicated pilot plant and flexible manufacturing blocks capable of producing kilo to multitonne quantities, with more than 120 vessels in-house.

"The cost to build FDA GMP facilities in India is approximately one-third to one-quarter the cost in the US and Europe. The Aptuit Laurus facilities are every bit as compliant, well-equipped, and well-staffed as Aptuit's pharmaceutical sciences facilities in Edinburgh, Scotland, and Kansas City, Missouri," says Griffith.

"Additionally, the facilities in India enjoy the advantage of having been purpose-built from the ground up, including electronic notebooks and quality systems that minimize the use of paper-based systems," he adds.

NEW POLICY TAKES ROOT

In January 2005, India began to recognize patents on drug products, not just patent processes, to meet the terms of its membership in the World Trade Organization. After three decades, the legal loophole through which Indian drug companies had squeezed enough low-cost copycat drugs to build a thriving pharmaceutical industry snapped shut.

One set of opportunities vanished, as generic pharmaceuticals became a different business altogether. But with the new patent plan and its promise to better protect intellectual property rights (IPR), new opportunities have been created for ambitious Indian firms willing to innovate and develop their own drugs, rather than produce copies.

Indian CROs have also benefited from the greater trust engendered by the new IPR laws. But every firm still has to demonstrate that respect for intellectual property is part of its culture and ensured by its systems.

Potential customers have other concerns to consider as well, such as capacity constraints.

"India conducted 1.5% of global clinical trials in 2006. This share will rise to 5% by 2008 and 15% by 2011," Business Insights estimates.

Meanwhile, staffing levels and infrastructure could conceivably grow overstretched should clinical trial work continue to expand at current growth rates, while the training of skilled personnel remains at current levels.

However, despite these challenges and more, there is no doubt that India is emerging as one of the most competitive CRO markets in the world. It houses more than 70 clinical research organizations and central labs, and still has primary advantage of offering a low-cost base coupled with a large potential patient population.

Among the multinational CROs to have set up camp in India is US-based Quintiles, the world's largest CRO, which entered India with its own offices and facilities in 1997. Others that followed since then include ICON Clinical Research, PharmaNet, Omnicare, Simbec and Pharm-Olam International, according to Business Insights.

On India's soil, local CROs providing the full spectrum of services include Vimta Labs, India's largest provider, Asian Clinical Trials and ClinInvent Research.

Three major mergers and acquisition (M&A) and JV deals between multinational firms and local Indian firms went through in 2006: US-based PRA International's acquisition of Sterling Synergy Systems Parexel's joint venture with India's Synchron Research Services and private equity investor Barings' acquisition of a 30% share in Siro Clinpharm. These deals represent the increasing significance of major multinational companies intensifying their involvement in the Indian contract research sector.

Leading firms in the drug discovery sector in India include Chembiotek, GVK Bio, Sai Life Sciences, Research Support International (RSIL), Syngene, Jubilant Organosys, Advinus Therapeutics and Aurigene.

Hyderabad-based GVK Bio, established in 2001, gained worldwide attention when it signed a high-profile outsourcing deal last year with Wyeth Pharmaceuticals, the first large multiyear contract awarded to an Indian company for contract research services, according to the two companies.

Meanwhile, Syngene, based in Bangalore, was founded in 1994 and has offered medicinal chemistry services since its inception.

A newer player to the scene, RSIL, established in 2004 and based in Mumbai, showed strong initiative last year, with the goal of growing its chemist staff from 85 to roughly 300. The company estimates that revenues are growing 25%/year, based exclusively on its chemistry services.

WHERE DOES BIOPHARMA FIT?

Increasing costs, complex regulatory issues, high prices, fierce competition and other factors are forcing outsourcing in biopharmaceuticals as well.

Although most top service providers to biopharmaceutical companies, such as Boehringer Ingelheim and Lonza, are based in the West, outsourcing to low-cost Asian countries remains a strategy for some firms.

As a result, says Satyanarayana, "biology is very crucial in offering integrated drug discovery services. Indian companies started building expertise in biology."

"There are emerging opportunities in Asian countries, which is driving offshoring of Bristol-Myers Squibb's recombinant insulin product," states Evalueserve, a global custom research information provider.

"In the area of clinical trials, the Biopharmaceutical Manufacturing Technology Center (Singapore), a part of the Bioprocessing Technology Institute, has opened a pilot-scale facility to produce materials through Phase II clinical trials," it adds.

However, by and large, the degree of outsourcing of biopharmaceuticals in the different segments of R&D clinical trials, marketing, sales and packaging differs on a case-by-case basis, notes the firm.

"Contract biopharmaceutical manufacturing represents the most attractive segment in biopharmaceutical outsourcing," says Evalueserve.

Statistics from a 2003 survey by Rockville, Maryland, US-based BioPlan Associates, showed that 35% of biopharmaceutical companies were expected to outsource their activities in 2004, with growth expected to reach 47% by 2008.

"Clearly, by 2008, approximately half the biopharmaceutical companies will be riding the outsourcing bandwagon," says Evalueserve.

Microbial fermentation is the leading category within biopharmaceutical manufacturing that is outsourced, with roughly 46% of market share. It is a relatively standardized and mature technique.

India's capabilities across the value chain

Capability	Status
Biology research	Few innovative capabilities, mainly with government institutes
	About five companies with proven skills in basic molecular biology and protein expression
	Only a few multinational pharma companies present, mostly with captive biology investment
	Innovative research focused on bioinformatics and biochips
	Limited talent pool due to historic focus on generics
Chemistry research	Large pool full service providers with strong capabilities
	Extensive activities of large pharma companies with top-tier service providers
	IP protection has improved, but remains a major concern
	Large pool of skilled and low-cost chemists
Preclinical trials	Good opportunity for preclinical trials in rodents, limited for dogs, none for primates
	Government increasingly supportive, though hurdles exist for export/import of biological material
	Only six GLP-certified labs, others awaiting certification
Clinical trials	Experienced CROs with full service, quality of output is similar to that of developed markets
	Very strong data-management capabilities and IT skills
	Advantage in cost and patient enrollment
	Uneven infrastructure and shortage of clinical research assistants could hamper future growthSource: BCG analysis 2006, Business Insights Ltd

Source: BCG Analysis 2006, Business Insights Ltd

 

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