Experts see boom in pharma outsourcing due to eco crisis

A little under 10% of the Indian pharma industry thrives on outsourcing. But experts believe this segment is in for some robust growth, thanks to the global economic slowdown. Now, global companies are eyeing India as a destination for outsourcing of manufacturing and research and development.

Here is a verbatim transcript of Vivin Mathew and Sriram Iyer’s comments on CNBC-TV18. Also watch the accompanying video.

The global financial crisis is proving to be a growth pill of sorts for the Indian pharma outsourcing sector. Companies like Merck of the US and Pfizer have already announced increased outsourcing of manufacturing and research and development activities to cut costs. After all, wages in India work out to around a fifth of wages in the west and there is no scarcity of patients for clinical trials.

Kewal Handa, MD, Pfizer said, “I think this should expedite the plans there to outsource more of research here. There is a lot of pressure on cost. Where do you get the advantage of doing research, in countries like India, China or Brazil, both in terms of research and manufacturing the products?”

India is the world's fifth largest active pharmaceutical ingredients manufacturing base.

A report shows India exported USD 1.7 billion worth of such products in 2007 and this is seen growing at 19% to USD 2.8 billion by 2010. India already has over US FDA-approved 100 plants -- the highest in any country outside the US.

Diana Anderson, President & CEO, D Anderson & Co said, “In 2008, US has outsourced more than 40% of its clinical trials and that is expected to increase to 65% by 2011.'

But the going could get tough. Experts say domestic drug companies have to expand capacity to make the most of this outsourcing wave. And a shortage of cheap credit may hurt these projects.

Sujay Shetty, PwC said, “The current crisis has made many PE firms and external investors very careful in investing. That is taking time for smaller firms to raise money. That could have some effect on capacity building and productivity.”

The global financial crisis is acting as a double-edged sword, as far as the pharma-outsourcing to India is concerned. While international drug-makers turn to India for cheaper resources for manufacturing and research, Indian companies have their work cut out for them, in terms of expanding capacities to grab these opportunities. Funds for clinical research and development are still harder to come by, as drug discovery is fraught with risks and failures. So there is a fear that the outsourcing wave may bypass India, for countries like Singapore and China.