Low costs a draw for foreign drug makersLow costs, high technical capabilities and a skilled work force are making India an attractive destination for research and contract manufacturing of drugs

In spite of concerns over intellectual property rights and data protection, overseas drug makers now see India as an attractive destination for research and contract manufacturing.

This is mainly because of low costs, high technical capabilities and a skilled work force, a report released on Saturday by industry lobby group Organisation of Pharmaceutical Producers of India (Oppi) and consultancy firm Ernst and Young has found.

As many as 67% of at least 50 respondents from 30 pharmaceutical firms in the US, Europe and Asia rated India as an excellent destination for contract manufacturing, according to the report “Taking Wings: Coming of Age of the Indian Pharmaceutical Outsourcing Industry”.

The respondents cited cost efficiency, which is about 35-40% of those incurred in the US, as one of the main reasons for this.

“The country will see several new partnership deals between large-scale drug makers from across the world and local players coming up in this segment in the next few years,” said Ajit Mahadevan, partner, health sciences practice, Ernst and Young.

Although some global firms, such as Eli Lilly and Co., Merck KgaA, Bristol-Myers Squibb Co. and Pfizer Inc., have been collaborating with Indian companies on research and manufacturing, recent deals signed by the world’s two large pharmaceutical companies—Pfizer and GlaxoSmithKline Plc with Aurobindo Pharma Ltd and Dr Reddy’s Laboratories Ltd respectively—to license a significantly large number of Indian-made drugs for their global markets has provided a new impetus to the outsourcing trend. Mahadevan said the new trend will see big multinational companies outsourcing drug development activities, drug discovery research related manufacturing and commercial drug-making for patented and branded products to cater to global markets.

“These services are not exactly easy, but several Indian companies do have the capabilities to match the requirements of these global clients,” he said on the sidelines of the annual general meeting of OPPI on Saturday.

These partnerships between global drug makers and Indian companies could have various business models such as captive off shoring, dedicated research and development units in partnership, fees for services and collaboration, or joint ventures for future growth in India, Mahadevan said.

The report said custom manufacturing of formulations and intermediate drugs contributes almost 65% of the $51 billion (Rs2.4 trillion) global pharmaceutical outsourcing market.

In India, custom manufacturing is worth almost $1.1 billion a year and is growing at a rate of as much as 43%, thrice the growth rate in the global custom manufacturing outsourcing sector.
The study said India was ranked highest for outsourced drug production, with 83% of the respondents rating it above average on technical capability attractiveness. India produces around 1.6 million graduates and 0.4 million postgraduates every year who have studied science subjects.

Despite the country’s advantages, it still makes for only about 3% of the global pharmaceutical outsourcing market. The report said although this is set to change, there are some apprehensions over India’s patents regime and about its branded generic medicines market.