The great Indian outsourcing store

Pharmaceutical companies have been outsourcing many of their processes to

multiple business partners for various reasons and have been deriving benefits. As
more pharma companies look towards outsourcing, Nandini Patwardhan tries to
ascertain whether outsourcing is the in thing for pharmacos.

As many global pharma giants turn to India for outsourcing their manufacturing,
research, clinical trials, data management, Indian goliaths are themselves exploring
outsourcing opportunities. Either as a company that outsources its activities, or as a
business partner such as a CRO, consultant or a KPO, Indian firms have made
inroads into the outsourcing industry.

The outsourcing canvas

Globally, pharmaceutical companies are facing increased pressures on profit margins,

absence of blockbuster molecules, spiralling R&D costs, pricing pressures, and
increased overheads. In such a scenario, outsourcing of business processes to third-
party providers is a viable strategic option. The prominent service providers in India
offer a gamut of services in drug discovery, clinical trials, drug development
activities, manufacturing & formulations, pre-clinical trials, bio-informatics and lab
services. "Big pharmaceutical companies such as Roche and Aventis are fulfilling
their clinical trial requirements through existing CROs. The size of the domestic
clinical trials market is estimated to be $100 million and will reach $300 million by
2010, according to CenterWatch," says Utkarsh Palnitkar, Partner & Industry Leader,
Health Sciences, Ernst & Young India.

Dr Kiran Marthak, Director of the Ahmedabad-based VeedaClinicalResearch explains,

"The CRO market can be averaged at Rs 300-400 crore, segmented broadly into
bioequivalence and clinical research in India. The extent to which outsourcing
services of Indian service providers are utilised is 55 percent for API manufacturing,
followed by 35 percent clinical research and 20 percent of basic research."

According to Citigroup's report, Indian Pharmaceuticals: Searching for relief as

headaches persist, globally around $15-20 billion worth of manufacturing activity and
$3-4 billion worth of research (informatics, chemistry services and chemical custom
synthesis) is being outsourced. Last year, Indian companies managed to bag
manufacturing contracts worth almost $75 billion.

Value addition

Intense competition among service providers for contracts

have called for value-added services.Dr Kiran Marthak,
says, "Due to the vast experience we have in Phase I
studies, we help a client design a drug development
program which will minimise costs and save development
time. For most pharma companies, speed is the key to
success especially when the drug is patented. It is said that
every day saved is valued at $1m."

One of the value-added services is site management. This

works as a link between the investigators and the CROs.
 The Site Management Organisations provide trained
physicians, clinical research personnel and coordinators to
monitor and coordinate the Phase II, III and IV clinical
trials. Further, support services such as biometrics help in
managing data. Organisations dealing in these services
provide discovery software, database software and
customised databases.

What are you outsourcing?

Sanjay Kulkarni, Managing Director of Stern Stewart & Co India, explains that
typically, activities that get outsourced can be viewed along the pharmaceutical
value chain.

According to Palnitkar, "Currently contract manufacturing is one of the most popular

outsourcing concepts in the industry. Our country has witnessed an emergence of
niche contract research companies in the last five years. There are also many
opportunities in clinical research based on the product or therapeutic segment. To
facilitate clinical trials many firms are into the business of patient recruitment and
clinical monitoring for Phase II to IV trials." Outsourcing of lab testing and
diagnostics is set to become a big business in India. There are opportunities for
clinical data management and statistical analysis of the clinical data. To facilitate the
above, specialised IT solutions are required, which has triggered the growth of
analytics industry in India. In addition, HR functions like finance are being
outsourced by pharma companies. (For more on HR Outsourcing read "Taking the
Right Pick" on page 51) "However one needs to appreciate that while HR and finance
outsourcings share many common structural and legal characteristics with other
types of business process outsourcing transactions, they are a new animal in many
critical respects" says Sanjay.

Leading service providers

Manufacturing & Formulations: Jubilant Organosys

(speciality chemicals/bulk drugs), Shasun Chemicals (Custom
Synthesis), Medreich, Elder, Divi'sLaboratories

Clinical Research: Quintiles, Syngene, Chembiotek,

Aurigene, Synchron, Reliance, Covance, Parexel

Bio-informatics and other IT services: Strand Genomics,

TCS, Satyam, Infosys, GVK Bio, Ocimum, Jubilant Biosys

Drug Discovery/Medicinal Chemistry: Aurigene, Divi's

Laboratories, Syngene, Suven Lifesciences, GVK Bio

Pre-clinicals: Vimta Labs, Lambda Therapeutic Research,

Lotus Labs

Central Lab Services: SRL Ranbaxy, Vimta Labs

Deciding to outsource

"Any function that directly affects or impacts the product strategy, sales and growth
is a core function and the remaining functions only facilitate it. Typically, the non-
core functions are IT, finance, HR and payroll. Globally, companies started with
outsourcing non-core business processes to more focussed service providers,"
informs Palnitkar.

The core functions of the big pharma are typically research, clinical development,
chemical process development and manufacturing. The core functions ensure
innovation in products in terms of new molecular entities, drug use and application,
delivery systems, which intend to target a unique disease segment.

Sanjay explains, "The outsourcing decision is contingent on the key drivers at each
stage of the chain for example access, quality, cost, and reliability." For instance,
while the availability of certified Drug Manufacturing Facilities in India is large, the
cost of this activity is also very competitive. Additionally, access to an educated
workforce at competitive costs is another big advantage.

But, these are some of the factors that are considered while deciding on outsourcing
especially when the outsourced operation is off-shored to a location such as India, or
China. "When it comes to deciding whether to outsource to a country like India,
global pharma companies analyse the number of ANDA approvals and DMF filings,
which are good indicators that India can provide quality pharmaceutical products and
research at lower costs," explains Palnitkar.

"Also the fact that India is a signatory to the TRIPs agreement and is committed to
protect the product patents encourages the big pharma or MNCs to outsource to our
country with minimal risk of intellectual property issues," he adds. In addition to
these, parameters such as Good Manufacturing Practices (GMP), amount of resources
that can be freed to focus on core-competencies, volume of operations, existence of
vendor management mechanism, technology offered to the company, quality and
increased productivity are some areas that are analysed before an outsourcing
decision is taken.

Emerging models
Outsourcing enables pharma companies to capitalise on skills and services offered by
various specialists in different business processes. at lower cost, in addition to time
saving. What is more interesting however, is the number of outsourcing models
evolving in India today. "In India, there is a noticeable trend towards local
subsidiaries of innovator MNCs scaling down their captive manufacturing capacities
and relying on domestic pharmaceutical companies to meet their requirements for
APIs and intermediates," states Palnitkar.

Another trend in outsourcing being observed in case of global generics is that of off-
shoring. Companies like Teva, Sandoz, Ivax, Pliva and Ratiopharm have either
acquired capacities or invested in setting up their own manufacturing facilities in
India. This model helps in bringing down the manufacturing cost. In fact, Sandoz,
the generics arm of Novartis, has recently set up its third plant in India.

In addition, companies offering contract-manufacturing services in India are either

entering into agreements with global generic companies for off-patent molecules or
exclusive agreements with innovator companies for supplying manufacturing services
for complex patent protected molecules. For instance, Nicholas Piramal has entered
into a joint venture with Advanced Optics for supplying ophthalmic products to the
regulated markets. "Another emerging model in the pharmaceutical outsourcing
sector is disease management. This is based on foreseeing demand and customising
treatment to enhance customer retention. A case in point is the Bangalore-based
Medybiz which essentially is a distributor, but deals in patient relationship
management (PRM)," says Palnitkar.

Long way

"This industry is constantly evolving and there is a definite movement towards an

integrated approach. Broadly, outsourcing contracts have traversed a long path from
'Catalogue Ordering' to 'Fee for Service' to 'Preferred Vendors' to 'Risk-Sharing &
Milestone based' to 'Strategic Alliance' to 'Integrated Offerings/Co-development',"
adds Marthak. Outsourcing is increasingly becoming necessary for pharma
companies. A major paradigm shift is on the anvil, as more companies are now
moving up the value chain from tactical to preferred to strategic outsourcing.

editorial@expresspharmaonline.com
Big pharma companies join outsourcing queue
PB Jayakumar / Mumbai August 17, 2009, 0:19 IST

India emerging as a big global destination for contract manufacturing, unlike R&D outsourcing

Ahmedabad-based Dishman is a specialist contract manufacturing company. So is Jubilant Organosys.

Revenues of both companies from their contract research and manufacturing services (Crams) went up by
29 per cent and 41 per cent, respectively, in the last financial year.
That hasn’t escaped the attention of even formulation manufacturers such as Dr Reddy’s Laboratories,
Aurobindo, Lupin and Wockhardt. All of them have started giving more focus to securing outsourcing
contracts from Big pharma.

There are many reasons why India is emerging as an inviting destination for outsourcing drug production. A
report by Ernst & Young and the Organisation of Pharmaceutical Producers in India said that over 80 per
cent of the 38 big and medium-sized pharma companies across the world rated India higher than China,
Eastern Europe, Puerto Rico, Singapore and Ireland.

INDIA CALLING
Reasons why India is emerging as an inviting destination
for outsourcing drug production
* Over 80 per cent of the 38 big and medium-sized
pharma companies across the world rated India higher
than China, Eastern Europe, Puerto Rico, Singapore and
Ireland.
* Offers a significant cost-quality proposition in end-to-end
research and development, with potential savings of over
60 per cent as compared to the US, coupled with a strong
supply of skilled manpower and capital efficiency
* Has close to 100 manufacturing facilities approved by
the US Food and Drug Administration (FDA), the largest
after the US
* Drug production outsourcing industry to grow over 43
per cent annually, thrice the global growth rate
* Diminishing numbers of new drugs, as against existing
drugs going off-patent, high research and development
costs, and pressure to reduce healthcare costs are forcing
Big Pharma to rope in strategic partners to contain
manufacturing and drug development expenses

E&Y estimates the Indian drug production outsourcing industry to grow over 43 per cent annually, thrice the
global growth rate. Research agency Frost & Sullivan estimated this segment for the Indian industry to reach
over $6.5 billion by 2013.

“Most of the top multinational companies prefer only 10-15 established Indian industry players for contract
manufacturing. They will soon align with the second and third tier of Indian drug companies,” said Ajit
Mahadevan, partner -health sciences practice, E&Y.
Diminishing numbers of new drugs, as against existing drugs going off-patent, high research and
development costs, and pressure to reduce healthcare costs are forcing Big Pharma to rope in strategic
partners to contain manufacturing and drug development expenses.

India offers a significant cost-quality proposition in end-to-end research and development, with potential
savings of over 60 per cent as compared to the US, coupled with a strong supply of skilled manpower and
capital efficiency. “We could see even more of global pharma companies adopting different operating
models such as captive offshoring, dedicated research and development units in partnership, fee for
services and collaboration or joint venture for future growth within India,” said Mahadevan.

India has close to 100 manufacturing facilities approved by the US Food and Drug Administration (FDA), the
largest after the US. About 40-50 new plants, in addition to the plants of major Indian pharmaceutical
companies, were commissioned in the past two-three years, conforming to the quality standards suggested
by the US FDA and the UK Medicines and Healthcare Regulatory Agency (MHRA).

With the emergence of so many players, margins have shrunk from up to 200 per cent four-five years earlier
to just about 15-20 per cent. “Still, it is highly lucrative and all players are doing reasonably well,” T S
Jaishankar, chairman, Confederation of Indian Pharmaceutical Industries, said.

So, it’s obvious why Indian drug companies have been signing outsourcing deals fairly regularly. In May, the
world’s largest drug maker, Pfizer, entered into a partnership with a relatively unknown Ahmedabad-based
injectable drug manufacturing specialist, Claris Lifesciences, to access products that are off-patent and have
lost exclusivity in the US, Canada, Australia, New Zealand and Europe.

In March, Pfizer had entered into a deal with Aurobindo to contract-manufacture 39 drugs to be sold across
Europe and the US, expanding the focus of an earlier deal. Pfizer will handle the marketing after licensing
each product from Aurobindo, which will handle all the steps to get approval to make generic versions, as
well as manufacture these.

In June, the second largest drug maker in the world, GlaxoSmithKline (GSK), entered into a similar alliance
with Dr Reddy’s Laboratories to access the current portfolio and future pipeline of more than 100 branded
pharmaceuticals in the cardiovascular area, diabetes, oncology, gastroenterology and pain management.
The products will be manufactured by Dr Reddy’s, and licenced and supplied by GSK in various countries in
Africa, the West Asia, Asia Pacific and Latin America. In certain markets, products will be co-marketed by
GSK and Dr Reddy’s.

The entry of bigger players in outsourcing is good news. “Orders from big pharma demand time-bound
delivery and have to always maintain high standards of production. It requires large skill sets, capacities and
efficient infrastructure to execute orders in time,” said R B Smarta, managing director, Interlink Marketing
Consultancy.

Amidst all this good news on contract manufacturing, what rankles is that Indian companies have failed to
make much headway in research and development outsourcing. The reasons, according to Sujay Shetty,
Associate Director of PricewaterhouseCoopers, are concerns on intellectual property protection, branded
generic market image and lack of experience in new drug development.
List of Companies Outsourcing Pharmacy
Work to India
By Lisa Mercer, eHow Contributor
updated: June 21, 2010
1. Overseas outsourcing began as a means of providing cheap labor for manufacturers.
It is now a popular business practice for a number of industries. IT departments,
credit card companies, collection agencies and call centers now outsource a
significant number of American jobs to India. Indian workers require lower salaries,
and the idea of employers providing health insurance is not widely accepted in
India. These enormous increases in profit margin have inspired pharmaceutical
companies to jump on the outsourcing bandwagon. As American pharmaceutical
companies lay off U.S. workers, research and development jobs and marketing and
sales jobs are being sent to India.
Bristol-Myers Squibb
2. In November 2008, Bristol-Myers Squibb announced a $2.5-billion budget cut, which
would involve layoffs and restructuring. Then, on Nov. 16, 2008, a newspaper
employment ad sought five new research and development department heads in
Bangalore, India. Bristol-Myers Squibb has a relationship with Biocon Limited, a
Bangalore company involved in drug metabolism research, medicinal chemistry and
pharmaceutical development.
Eli Lilly
3. An article in the Nov. 20, 2006 edition of Information Week reported that Eli Lilly
outsources some of their clinical data management to Tata Consultancy Services, a
facility near New Delhi, India. Eli Lilly's outsourcing to India began in 1993 as a joint
venture with Ranbaxy Laboratories Ltd. The venture began as a means of
manufacturing and marketing some of the Eli Lilly drugs. Eli Lilly acquired Ranbaxy in
2001.
Lilly also performs clinical trials in India. An article published in the September 2008
edition of Time.com states that the company had performed 15 clinical drug trials in
the past five years. The process is not without its controversy. Participants in the
trials are often illiterate. As such, they might not understand the legal terms in the
consent documents.
Merck
4. The pharmaceutical giant known as Merck came under fire in July 2008 when Sen.
Sherrod Brown of Ohio sent a letter to the company's president requesting detailed
information about their outsourcing to India practices. Senator Brown's letter was
prompted by an announcement made on Jan. 9, 2008 by Richard Spoor, Merck's
senior vice president of global procurement. Spoor stated that by 2010, Merck plans
to outsource about 35 percent of the company's pharmaceutical ingredients and
packaging. The senator also sent a letter to the FDA, which expressed his concern
 about how countries with weaker safety standards might produce contaminated drug
ingredients.
Pfizer
5. It sounds like an episode of "The Office," but this is reality. An article published in the
January 2008 edition of "Fast Company" describes the corporate culture of Pfizer
Pharmaceuticals. If Pfizer's Harvard-educated team members would rather not waste
time on support work, they can press a button that advises them to "click here" and
have someone else do this "annoying project" for you. The "magic button" is part of
Pfizer's Office of the Future project, otherwise known as OOF. Clicking the button is
like rubbing a magic lamp. The "genies" are two outsourcing companies in India, who
perform tasks such as document creation, spreadsheet analysis and manipulation
and research. The Indian workers earn $15 to $35 per hour.

Read more: List of Companies Outsourcing Pharmacy Work to India |

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