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CRAMS opportunities – India is strongly poised, a time to leverage

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Cost containment pressures due to various factors have prompted the global pharmaceutical companies to contract out various research related and manufacturing activities, over a period of time, from Europe and North America to low cost destinations like India and China. Such activities started gaining momentum before the turn of the new millennium and have now emerged as huge business opportunities to many domestic Indian pharmaceutical companies. This lucrative business opportunity of ‘Contract Research and manufacturing Services’ is now popularly known in its abbreviated form CRAMS.

Many global pharmaceutical companies have already engaged themselves in the CRAMS space with India and some of them have commenced the pilot programs and are seriously contemplating to offshore a significant part of their research related and manufacturing operations in India.

The Market Size:

Global market for CRAMS was around U.S. $ 55.47 billion in 2007 and is expected to be of U.S $ 76 billion by 2010 with a CAGR of 10%.

Contract research market alone was U.S $16.58 billion with a CAGR of 13.8% and contract manufacturing at U.S $38.89 billion accounted for around 70% of the total global pharmaceutical CRAMS market, according to a study done by Piribo, a Business Intelligence Organization.

According to ASSOCHAM, CRAMS market in India was valued at U.S $532.10 million in 2005, of which contract manufacturing accounted for 84% of the total market and the remaining 16% came from contract research excluding clinical trials, with a growth of over 40% over the previous year.

According to Frost & Sullivan, contract research market in India is estimated to be around U.S $ 1 billion by end 2010.

Preparation started much earlier – unknowingly:

In 1970 when product patent law was abolished to encourage domestic Indian companies to manufacture and market low cost modern medicines in the country, the skill sets to make the best use of this opportunity started developing at a faster pace. Brilliant chemists of India got encouragement to hone their reverse engineering and efficient manufacturing process development skills, which are of immense importance to manufacture low cost medicines in the country. Availability of skilled and high quality technical talent pool at much lower costs together with capital efficiency of the local entrepreneurs further helped the country to acquire cutting edge expertise in the CRAMS space.

CRAMS – not just a bed of roses:

Days of struggle:

CRAMS business cannot be developed overnight. It needs months, if not years of negotiation and fulfilling all technical, financial and regulatory requirements of the innovator companies to commence business.

Days of continuity:

Since financial costs are high and regulatory requirements are stringent to switch over to new outsourcing arrangements, there are very good chances that once CRAMS business is commenced, the partnership with innovator companies will continue for a long time, unless any breach in the supply agreement takes place.

Days of nightmares:

All offshore supply contracts need to be successfully executed within the given timeframe. If not, relationship with the innovator companies may get strained. At the same time, if the innovator company fails to take delivery of the custom made material from the CRAMS partner, costly inventory at the manufacturing location will pile up and consequently precious working capital will get blocked, adversely impacting the manufacturing capacity utilization.

Operating margin:

In CRAMS business operating margins are usually quite good. For patented products margins are generally higher than the products which have gone off patent. The volume of business in CRAMS usually picks up over a period of time.

Contract Research:

While developing a New Chemical Entity (NCE), the research based pharmaceutical companies need smaller quantities of variety of intermediates and active pharmaceutical ingredients (APIs). As the NCE gradually passes through various advancing stages of clinical developmental processes, quantity requirements of such material also increases.

Contract Research outfits develop and deliver such smaller quantities of specific chemicals and intermediates to the innovator companies through custom chemical synthesis (CCS), which usually attracts relatively higher margin .

Although in India early and late stages contract research services are doing well, the segments like medicinal chemistry and bioinformatics with high business potential have not been adequately tapped, as yet.

Key areas of outsourcing in future are expected to be:

• Genomics
• Screening technology platforms
• Therapeutics

Contract Manufacturing:

Contract Manufacturing market for pharmaceuticals spans across mainly USA, Europe and Asia. The market is segmented into solid, liquid and injectable dosage forms. Although sold dosage form covers almost 50% of the total market, injectable forms are registering the fastest growth and the liquid dosage forms being the laggard.

Contract manufacturing in India involves both patented and off-patent APIs and formulations manufactured with world class standards conforming to international regulatory norms like the US-FDA, MHRA- UK, TGA – Australia and EMEA.

India, with more than 100 US FDA-approved manufacturing facilities, is one of the most preferred locations for outsourcing manufacturing services by the global pharmaceutical companies.

Companies like, Divi’s Labs, Jubilant Organosys, Dishman, Piramals, Shasun, Cadila healthcare, Aurobindo are gradually establishing themselves as strong CRAMS players having large global pharmaceutical companies like, GlaxoSmithKline, Merck, Wyeth, Eli Lilyy, Astra Zeneca, Pfizer as their major clients.

Competition:

In the CRAMS space the key competitor to India is undoubtedly China driven by its economies of scale. Overall manufacturing costs in China, be it labour or power, are much less than India. This has already made China a formidable competitor to India in majority of the bulk drugs and intermediates. Even, many domestic Indian pharmaceutical companies now source their raw materials from China.

Pharmaceutical manufacturers in China, over a period of time, have become quite proficient in filing Drug Master Files (DMF) and Abbreviated New Drug Applications (ANDAs). Together with significant cost advantage, China has started making huge progress to capture a sizable share of CRAMS business from the developed markets of the world. Along with China, countries like South Korea and Taiwan are also making considerable progress in this field.

To combat with this threat some Indian pharmaceutical companies have started setting up their businesses in China, collaborating and even acquiring stakes in the Chinese pharmaceutical companies. This process is expected to accelerate further in future.

Conclusion:

CRAMS business in India is expected to grow at a rapid pace and offer relatively high operating margins to the Indian pharmaceutical companies. As a result, companies of various scales of operations with interest in CRAMS business, have started initiating all possible measures to prove themselves as the best option for offshore activities of the global players. All these companies are trying to leverage the wide diversity of the country, rich English speaking talent pool and strong manufacturing base in pharmaceuticals created over last four decades. Thus it appears that capturing at least 10% of the global CRAMS market by 2015 may not be a big deal for India.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Innovative use of the new-age ‘Social cyber-media’ as a pharmaceutical marketing tool has the potential to open a goldmine of opportunities.

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The new-age marketing tool:
With more and more doctors not giving adequate time and even showing reluctance to meet the medical representatives and the important hospitals following suit, the global pharmaceutical companies are now in search of new marketing tools.

To get the marketing communications across to important target audiences, many of them have started experimenting, quite seriously, with the digital world. Effective networking media like ‘Facebook’ , ‘YouTube’, ‘MySpace’ and ‘Twitter’ are showing promises to become powerful online pharmaceutical marketing tools. Recent report of Pfizer’s new RSS feed and the plan for a unique ‘Pfacebook’ site for internal communication perhaps is an important step towards this direction.

Global pharmaceutical companies have already started ‘testing the water’:

Some global pharmaceutical giants who have already started using this new age media for pharmaceutical marketing are as follows:

1. Bayer uses ‘Facebook’ page to promote its Aspirin for women

2. Merck is using ‘Facebook’ to promote its cervical cancer vaccine, Gardasil

3. GlaxoSmithKline is using ‘YouTube’ for ‘restless-legs syndrome’ awareness film. The popularity of this video spot perhaps has prompted the company to come out with its own ‘YouTube’ channel last year with a name, ‘GSKvision’.

4. AstraZeneca is also using ‘YouTube’ for their anti-asthma drug Symbicort

5. Johnson & Johnson and Novartis use ‘blog’s, ‘YouTube’ and ‘Twitter’ to channel patient groups and deliver news.

Why have these pharmaceutical companies started using the social media as a marketing tool?

This is because social media like, ‘Facebook’, ‘Twitter’, ‘YouTube’ etc. provide a very important platform towards patients’ outreach efforts of the pharmaceutical companies exactly in a format, which will be preferred by the target group.

With the new-age social media these companies are now joining communities to begin a dialogue with the important stakeholders. It has been reported that some of these companies have already created un-branded sites like, silenceyourrooster.com or iwalkbecause.org, to foster relationship with patients’ group through online activity, the contents of which have been generated by the users themselves of the respective social medium. With the help of click-through links these sites lead to the branded sites of the concerned companies.

As reported by TNS Media Intelligence, internet media spending of the global pharmaceutical companies had increased by 36% to US$137 million, in 2008, which is significantly higher than their spending in Television advertisements.

Why is the entry of pharmaceutical companies in the new-age social media so slow?

Pharmaceutical companies are currently delving into marketing through cyber media with a very cautious approach, though the new social media will become more central to many global marketing strategies in not too distant future. The cautious approach by the pharmaceutical companies is primarily due to evolving regulatory requirements in this new space

In the USA, very recently the FDA cautioned the major players in the industry to refrain them from publishing any misleading communication through social media. This is primarily because of absence of any published guidelines for online pharmaceutical marketing. How to use this powerful social media for maximum marketing and other benefits will indeed be quite a challenging task, at this stage. Many pharmaceutical companies are, therefore, slow to use the social media to the fullest extent.

Not only in the USA, there are no specific regulatory guidelines to promote a pharmaceutical brand or create brand awareness through these media in most of the countries of the world, including Europe and Japan. In this much uncharted territory, as there are not enough foot-steps follow, the pharmaceutical companies are now just ‘testing the water’. Most probably to fathom how far regulatory authorities will allow them to explore with this new media.

Effective use of social media is expected to be financially attractive:

Low costs associated with creating internet promotional inputs will make social media quite attractive to pharmaceutical and biotechnology companies, not only as a marketing tool, but also in their other outreach program for the stakeholders. The role and power of social media are expected to play a significant and cost effective role in creating pharmaceutical brand awareness and brand marketing to appropriate target segments.

‘Proof of the pudding is in the eating’:

A recent report indicates that in 2007, well reputed computer maker Dell’s ‘Twitter’ activity brought in US$ half-million in new business to the company.

Thus the innovative use of the new-age social cyber-media indeed has immense potential to open a goldmine of opportunities for the global pharmaceutical industry.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

To reap rich harvest from emerging global opportunities, Indian Biotech sector needs a ‘lifeline’ from the new Government… Now.

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Growth of Biotech Industry in India took a dip in 2008. It registered a turnover of U.S $2.56 billionwith a growth of 20%, over the previous year. The industry was clocking an annual growth of over 30%, before this period.According to the Association of Biotech Led Enterprises (ABLE)this growth rate can still be considered as encouraging. Some industry experts endorsed this view by commenting that 10% drop in the growth rate was mainly due to exchange rate variations impacting exports earning.However, many other do not subscribe to this explanation. They argue that global financial meltdown has caused an all-round liquidity crisis and lower demand in the biotech sector, leading to sharp decline in income generation.

It appears that even 2009 will continue to be a challenging year for the Biotech sector. As is known to many, continuous innovation is the growth driver of this sector and the main fuel for this growth driver is continuous infusion of capital, the pipeline of which is drying up during the current period of global financial crisis.

ABLE Survey on Biotech sector:

A recent survey, conducted by ABLE, reported as follows for the biotech sector:

1. 56% of revenue (U.S$ 1.44 billion) was generated from exports

2. Bio-pharma accounted for about 70% of exports

3. Bio-services are about 26% of exports with an encouraging growth of 46% followed by bio-informatics with 31% growth rate

4. The top 20 Indian firms accounted for 48 % of the total biotech market

5. Last year investments in Biotech were reported to have grown by around 21%.

ABLE expects a decent growth of the bio-pharma segment over the next five years. Bio-services and bio-generic exports to the regulated markets are expected to be the key growth drivers during this period. However, the moot question is: will the current global financial crisis act as a dampener to such bullish expectations?

Market forecast for Biotech sector:

‘Bio-spectrum’, in one of its recent reports, highlighted that with the new biotech policy of the Government of India (GoI), the sector is expected to grow to U.S$ 13-$16 billion by 2015. Serum Institute of Pune is at the top of the league table with a turnover of Rs. 9.87 billion followed by Biocon and Panacea Biotech.

Some analysts feel that the Indian biotech sector has the potential to register a turnover of U.S$5 billion by 2010 and U.S$20 billion by 2020. This is mainly due to increasing global demand for more affordable medicines in general and biotech medicines in particular. Recent introduction of ‘The Promoting Innovation and Access to Life-Saving Medicine Act’ in the US House of Representatives vindicates this point.

It is envisaged that this bill will enable the US Food and Drug Administration (USFDA) to create regulatory pathways for marketing approval of ‘bio-similar’ drugs in the USA. Many Indian biotech companies, analysts feel, are preparing themselves to make full use of this golden opportunity as soon as it comes.

How is the ‘Global Financial Meltdown’ affecting the Biotech sector?

The impact of ‘Global Financial Meltdown’ is all pervasive in the Biotech sector, all over the world, India is no exception.

Because of global liquidity crunch, availability of capital to fund the growth of this sector has become scarce, leading to most of the growth plans, if not all, are being put on hold. Fear among the Indian Biotech companies of turning an easy prey for the predators in search of a good biotech portfolio, is looming large. It was recently reported in the media that GlaxoSmithKline and Sanofi-Aventis are interested to acquire a majority stake of Shantha Biotech of Hyderabad.

In abroad, we have witnessed such instances when Roche acquired Genentech, Astra Zeneca bought MedImmune, Eli Lilly acuired Imclone and Merck took over Serno.

Why is the impact of global ‘liquidity crunch’ more on the Biotech sector?

The impact on ‘liquidity crunch’ on the Biotech sector is more pronounced because all over the world this sector is dominated mainly by much smaller companies, engaged in the drug discovery and development research. Continuous flow of fund is of utmost importance not only to fund growth of these organizations, but for their survival, as well. Private equity funding is also dwindling up pretty fast.

GoI initiatives to encourage growth of Biotechnology sector:

Mr. Kapil Sibal outgoing Minister of Science and technology of the erswhile UPA government, not too long ago, announced the plan of the GoI to build 20 more biotech parks in India, in order to provide the required infrastructural facilities to this sector and promote high quality R&D initiatives related to biotechnology.

It is indeed encouraging to note that the Department of Biotechnology (DBT) has already signed a 10-year contract with the Welcome Trust towards developing human resources of high quality, for the sector.

Emerging outsourcing opportunities:

Despite such pessimistic scenario, Indian biotech sector is bullish on the business opportunities from various types of emerging outsourcing opportunities being offered by the global pharmaceutical companies, because of their business compulsions, particularly in Contract Research and Manufacturing services (CRAMS) space.

Zinnov management consulting recently reported that outsourcing opportunities of over U.S. $ 2.5 billion will come to the Indian Pharmaceutical Industry, including its Biotech sector by 2012. This will indeed help the domestic pharmaceutical companies in a big way, as many players are now finding the transition from manufacturing ‘copy cat’ generic drugs to devising new therapies, pretty difficult.

Conclusion:

To reap a rich harvest from of all these emerging global and local opportunities, the biotech sector of India now needs a ‘lifeline’ from the new Government. Ensuring easy availability of capital will be the ‘lifeline’, at this moment of global financial crisis.

In the battle against disease let the Biotech parks of India be seen as the ‘Armageddon’, as it were, global hub to cater to the needs of poor and needy – a symbol of scientific supremacy.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.