Pharmaceutical and biotechnology-based revenues for India’s contract research industry are set to grow an average 23.6% each year in the near future, reaching $175 million at end-2010 from $75 million at present, forecasts a new report.

Indian companies’ rapidly evolving skill-sets in basic R&D have narrowed the gap required for New Chemical Entity research, and this is one of the key reasons for Western companies to outsource value-added research services from India, says Raj Rajagopal, chief operating officer of Mumbai-based research and technology firm KnowGenix, which conducted the study with Dublin, Ireland-based Research & Markets.

The study’s findings echo a recent report by the Chemical Pharmaceutical Generic Association, which estimated that the Indian sector is growing 20%-25% a year and now accounts for nearly double the business of Italy, its nearest rival, and approximately four times as much as both Spain, the next competitor and China, India’s closest rival in Asia. The CPA represents over 40 Italian producers of active pharmaceutical ingredients.

Low costs, but international standards

India has emerged as an attractive destination for outsourcing research services due to the low costs of its manufacturing, R&D personnel, capital and operations but with an international-standard infrastructure - a multinational company moving its R&D to India could save as much of 30%-50%, say local observers. New drug discovery accounts for 35% of the Indian sector’s activity while 65% is in clinical trials - the single largest expense for drug companies during drug development.

Looking to the future, KnowGenix’ chief operating officer Arun Jethmalani believes that establishing preferred-vendor status is a critical success factor for Indian firms and will be imperative for long-term repeat business.

“There is an increasing trend amongst Indian contract research organisations to move up the value chain by becoming preferred vendors of a few global outsourcers rather than serving as jack-of-all-trades. Preferred vendors often land up with high-margin contracts such as researching and/or developing proprietary technologies for the client,” he says.

The study also expects Indian firms to expand their geographical presence and service-offering portfolio through acquisitions, with more and more partnering strategies such as licensing arrangements and collaborative research. Increased involvement by the outsourcing partner is imperative for success in drug discovery, development and commercialisation, which requires new thinking and new processes with an innovative partner, it says.

Moreover, it sees companies moving up the pharmaceutical value chain and developing capabilities in biologics to complement existing chemistry strengths. “Biodrugs are safer and more target-specific than conventional drugs. Innovator companies suffering from low R&D productivity are increasingly looking at biopharma to generate leads for NCE research. Hence, we believe that Indian vendors with strengths in biopharma will see success,” says industry analyst Poonam Bhana.