Export-driven leaders

Motivated by leading companies in terms of value and volume, a group of export-driven companies is pursuing a very aggressive development scheme that was rendered compulsory during the 2005 legal changes. These players looked outside India for growth indicators and started hitting big when health budgets turned into globally depressing matters. Low-cost Indian generics penetrated the US and European markets and established a presence that continues to grow. Meanwhile, these leaders were reinforcing their backward integration to benefit from one of the Indian pharmaceutical industry's strengths: active pharmaceutical ingredient (API) production. Most of these companies secured supply sources that were, at the time, providing extra lines of revenue because Indian materials were making their way into North American and European storage rooms. To further ensure efficient and long-lasting penetration of the western markets, Indian companies established offices and purchased a number of local players to benefit from approved abbreviated new drug applcations (ANDAs), drug master files, sales networks, local brand names, and experience. This model was replicated by most of the largest Indian players, who have been very busy acquiring European and North American small to mid-sized companies during the past decade.

The clear challenge for this category of players is to sustain growth and investors' confidence. As a result, export-driven leaders have been busy reinventing themselves, developing services alongside their product sales in an effort to explore innovative routes.

This group of players comprises relatively large companies by Indian standards that have been trying to emulate the model of the export-driven leaders. With the onset of globalization, many have felt the sting of competition, as most of their local clients in the formulation field targeted the same unpatented molecules and drove down production material prices. In turn, API producers ended up churning out the same active ingredients, and many ultimately decided to pursue export sales and develop their own finished dosage forms. But the jump hasn't been so easy, and with price erosion, some are finding themselves stuck between a rock and a hard place.

Internal competition—not to mention competition from China—has been unforgiving. API producers have had to expand services, focus more on customer relationships, and increase their scope of production to strengthen their profiles and come out of this transitional period on top.

Contract organizations

The advent and fast development of contract research and contract manufacturing organizations (CROs, CMOs) are direct results of India's changing pharmaceutical environment. Drawing on the industry's know-how in fine chemistry, low production costs (as much as 70% cheaper than in some other countries), and scientific talent, these organizations have developed rather quickly during the past decade. Today, they represent potential growth for India's industry and provide much-needed services to the global pharmaceutical sector.

From pure CROs to the full-fledged hybrids, the opportunities in this sector are wide and can be tailored to suit any need the industry might have. At a time when blockbusters are facing uncertainty, and when Big Pharma is in search of across-the-board cost-cutting opportunities, India is coming into play. Approximately 70% of the cost of getting a drug on the market is incurred during development—any attempt to trim down this phase while ensuring a fast, reliable, and controlled-drug development would certainly be welcomed worldwide. And the market answers rather well to this exciting new array of pharmaceutical services: research and development outsourcing, and contract manufacturing and services are estimated to be worth $32 billion globally, and are expected to grow to a whopping $64 billion by 2010, according to a 2006 Frost & Sullivan report. India alone is set to draw $2.5 billion out of these outsourcing activities by 2010. The country's talents in reverse engineering and clinical trials, along with its lower filing costs, intellecutal property rights, duties, and English-friendly environment are all compelling elements. They allow India to redeploy its efforts and become the outsourcing destination of choice. Only China can expect to rival it on the cost front, but despite India's rising prices, notably on the human resources side, China cannot match India's integrated package.