INDIA BUSINESS WORLD - APRIL 2006
THE MONTH THAT WAS

PHARMA R&D OUTSOURCING MAY REACH $53 B BY 2010

WITH a slowdown in patented drugs sales and drying R&D pipelines, global pharma companies are increasingly exploring low-cost options for outsourcing research and manufacturing.

According to industry sources, the global pharmaceutical outsourcing market, currently at $24 billion, could reach $53 billion by 2010. Low cost manpower and a large base of FDA approved plants, positions India high on the outsourcing list, Suven Lifesciences, GVK Biosciences, Jubilant Organosys, Nicholas Piramal and Shasun Chemicals & Drugs counting among the leading Indian players in this segment.

Custom manufacturing for innovator companies stands out as the most attractive outsourcing opportunity for pharma companies. According to a recent SSKI India report, this market could reach from an estimated $16 billion today, $25.7 billion by 2010. With the largest number of FDA approved plants after the US, India could potentially capture 10% of this opportunity.

In fact, custom manufacturing is already a major contributor to the overall business model of some Indian pharma companies such as Jubilant Organosys, Nicholas Piramal, Dishman pharma, and Shasun Chemicals & Drugs. Nicholas Piramal's custom manufacturing business recorded revenues of around Rs 300 crore in 2005-06, the company spokesperson said. Jubilant Organosys recently added to its order book annual contracts with various global life sciences companies worth $68 million for calendar years 2006 and 2007.

Furthermore, these companies are rapidly ramping up their manufacturing capacities, mainly through inorganic growth strategies. With the acquisition a few months ago of Roche's API business in Mexico, DRL expects its custom manufacturing business to grow from its current base of Rs 45 crore to Rs 450 crore in the next 14 months. Interestingly, Indian companies are looking out to buy distressed contract manufacturing organisations to create a global footprint. Recent acquisitions of UK's Avecia Pharma by Nicholas Piramal and French Rhodia Pharma Solutions by Shasun Chemicals & Drugs are examples of this new trend.

“With this new acquisition, Shasun's contract manufacturing business expects to witness a 20% growth in revenues in 2006-2007, and a 40% to 45% revenues growth in 2007-08,” said S Vimal Kumar, joint MD, Shasun Chemical & Drugs. Shasun' contract manufacturing business revenues stood at Rs 38 crore in 2005-06, representing a 52% rise against last year. According to SSKI India's report, discovery research is expected to become a $600 million market in India by 2010. Suven Lifesiences and Biocon, also count among the major players .