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India has evolved from a low-cost region to an area with extensive technical capability and high quality standards.
The turning point for India as a centre for outsourcing came in 2005 with the Patents (Amendment) Act, which brought India into compliance with the WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). With this new legislation in place, Western pharmaceutical companies were assured that patents on their innovative products would be recognised, and this fully opened up the capabilities and capacities of the region for outsourced pharmaceutical services.
The following 5 years have seen India evolve from being perceived as predominantly a low cost region to becoming an area with extensive technical capability and high standards of quality and compliance. Overall, the sector in India has gone from strength to strength and it is now the country with the highest number of FDA approved facilities outside of the USA.
The breadth of outsourced services offered in India has increased dramatically, from its origins in raw materials there are now CROs supporting drug discovery, and CMOs scaling up processes and producing materials for clinical trials and intermediates for launched products. More recently, large pharmaceutical companies have also begun fully outsourcing API and formulated products for their commercial needs. This expansion of services has been aided by the general economic growth of India, enabled by its welleducated and highly motivated workforce and with English as the business language.
Moving forward we expect the wider pharmaceutical market to continue to be faced with pricing pressures, the need for enhanced innovation and also adapting to the requirements of the emerging markets. These factors will require relationships to develop and business models to shift from being transactional and more toward strategic partnerships. Global pharmaceutical companies will identify outsourcing partners that provide integrated supply solutions across the pharmaceutical development cycle and also the value chain. These developing strategic partnerships will also force the Indian based CMOs and CROs to develop their their EH&S and cGMP credentials to ensure sustainably, and it will be those companies with the highest standards in these areas that will succeed.
The rapid growth in the number of CMOs and CROs seen over the last 10 years is, however, unlikely to be sustained in the future. Pharmaceutical companies are already rationalising their supply bases and reducing the number of companies they partner with. This trend will continue and make market entry all the more difficult as the sector in India matures.
It is highly likely with the developing infrastructure that India will also see further expansion as a centre for discovery services to include clinical trials. This could ultimately lead to the development of India as a region for pharmaceutical innovation. These trends would also be supported with its increasing relevance as an emerging market.
There are a number of reasons why it is desirable to have a global presence. One of the main drivers is recognition that in order to become a strategic outsourcing partner a company must have capabilities fully aligned with customers' needs.
Although Dr Reddy's origins are in India, it was recognised that there were R&D, technical and engineering capabilities that could be best accessed by expanding the global reach of the company. Furthermore by having a significant presence in Europe and North America we can be closer to our customers, both for daytoday communications, but also should there be a specific need for our customers to have outsourced manufacturing capacity available locally.
Ultimately it is all to do with customer alignment and ambition. Niche players can probably operate effectively being exclusively based in India; however, for providers to global organisations with complex needs, this type of relationship does not lend itself well to a very regionalised business and I believe a global presence is necessary to effectively meet global customer requirements.
With some companies there have been residual doubts about IP protection, Dr. Reddy's has moved to address this through several initiatives, including ISO-27001 registration, which manages information security. This assures customers that we have the right internal systems and protocols in place to protect their information.
In general we no longer consider there to be huge disparities in the geographic-based challenges to outsource partners working for Western and Japanese pharmaceuticals companies. The issues we face today will in large part be identical to those of a service provider historically based in Europe or the US.
So some of our main challenges today result from our customers' own restructuring activities and lower overall levels of demand coupled with their low internal asset utilisation. This is frequently driving short-term make-versus-buy decisions, which can present interesting economic challenges to the contract services provider.
We do consider these challenges will be relatively short-lived as the larger pharmaceutical companies continue to rationalise and streamline their internal manufacturing capability. It will then be a case of drawing distinction in terms of service, technical capability and breadth of offering, with only the most capable companies emerging as the strategic partners to the innovative pharmaceutical industry.
Marcel Velterop, Vice President at Dr Reddy's Custom Pharmaceutical Services.