The contract research and manufacturing services (CRAMS) market in India is expected to double next year, notwithstanding the slow momentum in the recent years due to the inventory correction by global majors.

A spurt in activities on the outsourcing front is likely to fire up the CRAMS sector to the level of $7.6 billion by 2012 from $3.8 billion a year ago, forecasts a report by ICRA, a credit rating agency from India. 

Rising at 41.4% during the fiscal years 2010-12, the speed of growth is estimated to be more than thrice the global average of 12.6% CAGR in the outsourcing market worldwide.

Reasons attributed to the rapid growth rate are many. Undoubtedly, the dynamics shaping the global outsourcing industry — including declining revenues from new drugs, increasing role of generics, pricing pressures — are propelling this leading low-cost location to the center-stage. Indian CRAMS players see several other factors working in favor catapulting them to the high growth trajectory.

CMOs in India continue to be the big-time favorites of some global majors looking to get some of their non-core activities outsourced to the third parties.

Again, Indian firms figure high on the radar of those who look to source cost-effective formulations as generics begin to displace the domain of branded medicines all over the world. Alliance with Indian players for manufacturing of generics has almost become the order of the day. Nearly a dozen deals have been forged in the recent past by innovator companies that wanted to source generics from India. 

CMOs Lead Rally

Now more and more branded medicine companies have started adding generics to their portfolio as part of their strategy to offset dipping sales in leading markets. India expects to boost its share in the $64 billion global CRAMS market as a large number of drugs are set to lose patens and fall into the generic domain very soon. 

Of late, an increasing number of larger domestic players have started the practice of outsourcing manufacturing and packaging services in order to focus more on marketing, sales and new product development in the fast-emerging desi market. In the meantime multinational companies operating in India are outsourcing work to captive CROs to save operational costs.

It is quite well known that Indian companies offer pharma products and services at far less a price than anywhere else. With manufacturing facilities gaining endorsements for their quality standards from leading drug regulators like the U.S. FDA, these CMOs in good stead to win the trust of their partners.

With the strength of inherent cost-advantage, CMOs should lead the rally. Contract manufacturing currently dominates the CRAMS space with a nearly 60% share. The CMO business is poised to grow further to reach $7-8 billion by 2015 by expanding to biology and more value-added services like drug delivery systems, combination drugs, etc. At the moment, chemical synthesis remains the mainstay for Indian CMOs.

High Upsides

Strong capabilities in chemistry, together with skilled manpower and cost value proposition, also drive the contract research segment. India’s contract research industry grew as much as $1.5 billion (at a pace of 65%) during the period, from a very low base. This nascent segment can look forward to bigger opportunities even as the outsourcing pie of global R&D spend grows rapidly from its current level of 20%.

“Though India’s CRAMS industry started from a low base, the penetration level is high. The cost advantage factor is quite significant. But the actual growth will depend on the quality of execution,” said Subrata Ray, senior group vice president, ICRA Ltd.

The upside is huge but it may not be representative of the entire cross-section of the industry, as there are too many players with different standards, he added. In the days to come, large pharma companies are expected to free up core activities like API development, dosage development and open them to third parties to cut costs. To grab the opportunity, Indian players are bolstering their service offerings. The trend is either to acquire technologies from outside or develop expertise to become leaders in specialized segments. Many firms have already positioned themselves as niche players in sterile drugs, lyophilization and cytotoxics (see Contract Pharma April 2011, Niche Play) 

“While the outsourcing of drug and discovery development and dosage manufacturing is low as they form part of core activities, they represent a huge scope for future growth as integrated CRAMS players emerge and build entrenched relationships with pharma MNCs,” said the report. 

A few of the players, including Jubilant Life Sciences, Dishman Pharma, Piramal Healthcare, have acquired foreign facilities. Manufacturing setups in key markets would accelerate growth and foster better relationship with innovator companies.

Speeding on the high growth track, however, doesn’t mean that the emerging CRAMS sector is free from challenges. Shortage of skilled manpower, high rates of attrition, rising number of new entrants, and regulatory issues continue to nag the fledgling industry.