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ontract Research and Manufacturing Service (CRAMS) in pharma and biotech industries has been one growing steadily in India. CRAMS market is dominated by contract

manufacturing which includes manufacturing of intermediates for new chemical entities or for API and contract research consists of drug discovery, preclinical and clinical research.

The global pharmaceutical industry is at the cross roads. With drugs worth USD 90 Billion expected to go off patent during 2011-15 and with increasing research and discovery costs, it is hard for the companies to maintain their bottom line and remain unaffected. This has led to outsourcing some of their research and manufactur-ing activities and saving cost in the process, leading to growth of CRAMS in India, which has come as boon to the mid-size pharma companies CMOs and CROs in India.

Global CRAMS market is around USD 60-70 Billion (estimated to reach USD 90 Billion by 2015) of which contract manufacturing constitutes around 65% and contract research about 35%. Indian CRAMS business is around USD 3.8 Billion (estimated to reach USD 8 Billion by 2015). Global CRAMS market has grown (2005 – 2010) at the rate of 16% CAGR, while Indian CRAMS market has grown at 45% CAGR during same period.

The leading CRAMS players are closely looking at full-service providers operating on a global scale. They act as 'one-stop shop' for all services, from preclinical through contract manufacturing and marketing.

Global companies – reasons of outsourcing/segments/geographic preferences

Several reasons like patent expiries, failing of R&D produc-tivity, focus on generics/branded generics and cost pressures are responsible for forcing pharma companies to outsource their activities.

Initially, non-core activities like manufacturing of Active Pharma Ingredients (API), dosage development and packaging were mainly considered for outsourcing.

Outsourcing activities in chemistry can be categorized as:Chemical synthesis of milligram scale for screening of •SAR support. Process research activities like modification of the•synthetic route, or reagents, process, catalysts by adopting Safety, Health and Environment (SHE) compliant and non-infringing process, for quick supply of few kilos of product for toxicity studies and Phase I clinical trials.Custom synthesis for a small quantities of advanced in-•termediates. Contract manufacturing activities either with or without •technology transfer; starting with process development/optimization and approval of lab sample, followed by commercial validation, regulatoryfiling and approvaland long term commercial supply.

Drug manufacturing companies in India are aligned with their supply chain, assurance of supply, project management, technical skills, capacity, quality, update on project status to meet demand and needs of the global pharma companies.

CRAMS in IndiaSavithri ShivakumarAssociate Vice President

GVK Biosciences Private Limited

Hyderabad

6 March 2012

However, Indian pharma companies should focus on providing innovative, state-of-the-art process and production technologies to support the rapid technical transfer of products from R&D to commercial manu-facturing.

Outsourcing production to emerging global markets like Japan, China, India, Russia, Latin America namely Brazil are increasingly popular in the biotech-nology and pharmaceutical industries. Asia Pacificregion -India and China play a major role in the future development of global pharmaceutical contract man-ufacturing. The industry is now looking at mergers and acquisitions, to bring down costs and get drugs to market.

Pharma companies have dedicated outsourcing managers to manage the relationship with CMO. Therefore outsourcing model includes partnership, collaboration, alliance or integrated type to improve operationflexibility,accesstolatesttechnologiesandtalents around the world.

India AdvantageIndia has a high number of US FDA approved plants, skilled manpower, cost advantages, great talent pool, whichenables India tocapturea significantportionof current ~$60 billion global pharma outsourcing market. Jubilant, Biocon, Shasun, Strides Arcolab, Cadila,DishmanPharmaandDivisLabshaveprofitedby establishing global deals.

India has the advantage of offering low operating and capital cost which is 40% less to that of the western CROs, proven expertise in chemistry and process development skills and english speaking talent pool, US FDA plant and cost arbitrage. India CMO working closely with pharma companies should ensure to new technology to servewithmaximum efficiencywithminimal risk. Apart from this, India has to focus and develop strategic CMO alliance to increase product revenue and entry into emerging markets. Pharma companies requirements such as synthetic chemistry

and process innovations capabilities, respectful towards IP, compliance with QA and SHE require-ments, strong project management and communica-tion along with lowest possible cost are met by Indian CMOs.

India should henceforth be ready to meet the overall commercial aspect of the CRAMS outsourcing market potential.

Integrated research from mg to tonne scaleCRAMS is the key future business model engaging in both contract research and manufacturing. This will enable to synthesize molecule from the milligram

to the multi-hundred-tonne scale. Effective technology transfer is a key component in the success of a contract manufacturing project. India should focus on technologi-cal transfer skills which are majorly affecting the scale up activities and henceforth the timeline of the completion of the task for the sponsor. Major players like AstraZeneca, Roche, Pfizer and

Schering have undertaken outsourcing their manu-facturingtoenhanceprofitabilitybutfocusinternallyon core competencies.

Indian companies have also acquired overseas assets to enhance their scope of their value added services by adding new technologies such as lyophilisation, sterile drugs and cytotoxics.

Key drivers for contract manufacturing in phar-maceuticals and biopharmaceuticals:

Key factors driving for pharma companies to outsource manufacturing segment are:

Demand for new drugs & Patent Cliff• Drugs worth US$ 97 billion expected to go off patent from 2011-15. New approvals not enough to justify loss of existing block-buster going off patent.

Increasing need for R&D productivity and •efficiency

Declining trend in sales generated by new approvals. Increase R&D cost per NCE. Side effects of new drugs reduces research productivity.

CRAMS in India

India has a high number of US FDA approved plants, skilled manpower, cost advantages, great talent pool which enables India to capture a significant portion of current ~$60 billion global pharma outsourcing market.

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Cost pressure• Margin shrink due to increased spending in R& D. Increaseinrawmaterialandwageinflation.

Focus on generics• Increased demand of Generics competition. Foray into branded generics segment of emerging markets.

Lack of internal manufacturing capabilities.•

Besides costs, market protection is an additional driver in contract manufacturing. Countries are putting up their fences to support their national economy by increasing import taxes or creating regulatory hurdles for imported products. Hence, products need to be manufactured locally leads to complex supply networks and higher cost.

ChallengesIndia is facing increasing competition from other geographies like China, Russia, Brazil and Taiwan. There is global consolidation due to major M&A like Pfizer-Wyeth, Merck-Schering-Plough, Sanofi-Genzyme, Bayer AG-Schering AG, Roche-Genetech, Teva-Barr, Teva-Ratiopharm, resulting in excess capacity with the big pharma, capital intensive approach. Big pharma MNCs are setting up their facilities in India. Though, India has enforced patent laws, there is still lingering discomfort among few companies, particularly small biotech’s, with working in India. Relative to western countries, there is still a lot of governmental control via license that leads to additional timelines, relative to those countries. SHE is an essential part of CMOs, even though it has relatively emerged; still needs much greater and strict adherence.

Future needsGlobalisation of standards and skills development and transfer will lead to greateracceptanceofIndiaandChinaasthefirstchoiceoptions for outsourcing contract manufacturing. Even though, India has excess capacity, talented pool of scientist, technology transfer skills, and regulatory compliance facility, India must ensure that it can deliver consistent high quality to capitalise on this potential. In spite of higher FDA approved facilities in India, many CMOs are still failing to demonstrate the levels of regulatory compliance adhering to entire facility operations involved in manufacturing/testing of drug product expected by sponsors.

CMOs must closely work with pharma companies on a long term basis with mutual trust and openness so that they complement each other rather than focus on short term to develop true strategic partnerships. Openness and trust on both CMOs and pharma companies and an honest willingness to cooperate is the key to overcome cost pressure, increasing GMP and quality standards. It is very essential to manage life cycle projects in this present scenario. CMO business model is presently not designed to absorb high levels of risk. Therefore it is critical for the companies to implement a wide array of risk-mitiga-tion tactics.

Business models of collaborationPharma companies outsource their discovery work basedonfourdefinedmodels:

Payment/royalty-milestone.•Co-development model.•In-license where overseas company in-license •the compound from Indian company.Out license wherein global companies out-license •research programs to an Indian company with a buybackatadefinedstagesofprogram.

For example, Merck established discovery sourcing with Advinus Therapeutics for metabolic disorders, Nicholas Piramal for oncology drugs and Orchid Pharma in antibacterial compounds. Eli Lily set up their relationship with Nicholas Piramal, Suven, Zydus Cadila and Jubiliant as a collaborative approach

across several therapeutic areas. AstraZeneca initiated their research collaboration with Jubilant in the area of neurological and psychiatric diseases.

In many cases, Indian CROs established Built-Op-erate-Transfer model (e.g., Syngene with BMS) and Built-Operate model (e.g., GVKBIO with Wyeth/Pfizer).

Indian CRO like Biocon and GVK BIO working with global Pharma companies provides integrated services from discovery to development stage. Biocon

CRAMS in India

Demand for CRAMS in the areas of discovery pipeline for Biologics, Cytotoxic compounds for oncology, preclinical studies, clinical studies and biocatalysts to make optically pure and stereo specific processes is showing the bright prospect.

8 March 2012

partnered with Bristol Myers Squibb, Mylan (for biosimilars in oncology), Amylin (for novel peptides for diabetes treatment) and with Vaccinex (for mABs and oncology products) and GVK Bio sciences partnered with Wyeth for their chemistry services.

Future trends in global pharma companies The global pharmaceutical industry has been witnessing unprecedented waves of dramatic change. Most significant have been the increasedcompetition in generic markets, declining R&D pro-ductivity, shrinking average patent life and mounting government pressure to reduce drug prices. Alliance/JVs for leveraging mutual strengths and ensuring long term sustenance are looked as possible way forward.

The pharmaceutical industry operates on closed model, developing and patenting new drugs, while retaining IP exclusivity. There is a need of open innovation which means sourcing ideas from internal and external sources, sharing IP. This will however have an impact on the cost and risk of drug development. Hence, companies are focusing on strategic alliances and partnerships with other companies and CROs to enhance product pipelines. Pharmaceutical and biopharmaceutical companies are joining in partnerships by licensing products to maintain revenue.

Demand for CRAMS in the areas of discovery pipeline for Biologics, Cytotoxic compounds for oncology, preclinical studies, clinical studies and biocatalysts to makeopticallypureandstereospecificprocesses isshowing the bright prospect.

Global pharma companies are putting increasing effort on the development of innovative biologic products by allocating R&D funds to strengthen the pipeline as well as in-licensing early stage novel biologic drugs from biopharma companies around the world. They are shifting their focus from small molecule drugs to macro-compounds. Therefore there is raising need of outsourcing R&D and manu-facturing needs for biopharmaceutical products such as bio-similars, vaccines etc. Indian CRAMS should focustoestablishthetechnologicalandspecificskillrequirements for manufacturing of biologics quickly to meet their outsourcing demands.

Pharmaceutical outsourcing has now moved up the value chain from non-core functions to even core functions.

CRAMS players would like to position themselves as a one stop, full service provider. In this, they position as a Solution CRO as well as Process CRO. The work maybewell-defined and easily repeated,making itamenable to a Process CRO, or it may be hypothesis driven, requiring experimentation and suited for a Solution CRO. However, pharma companies are showing interest in this integrated approach instead of multiple CRO organisations for each of their outsourcing needs. A Solution CRO must be used in the candidate nomination and early development timeframe to develop the methods and processes that will become routine. At that point, it is logical that a Process CRO is used to manufacture API and drug product and perform the non-clinical and early clinical evaluation. By this one stop full service provider model, the operational teams will benefit

from understanding the different types of business models that will facilitate these interactions.

Companies which provide integrated drug development, research, clinical trial and manufac-turing outsourcing services will prove to be 'one- stop shop' for all the needs for innovator pharma companies. Indian companies needs to build entrenched relationship with Innovator companies over a period of time gradually move on to high end value add services. In the present scenario, contract research organizations are looking for co-development opportunities rather than simple outsourcing agreements. Government initiatives are providing generous support for CRAMS activities in India. CMO and pharmaceutical companies should look into more strategic partnerships to gain a competitive edge in the global business environment.

Finally, in conclusion, companies which prove to be 'one-stop shop' by offering integrated services like drug development, research, clinical trials and manu-facturing will be sought after for strategic partner-ships by major MNCs.

CRAMS in India

Companies which provide integrated drug development, research, clinical trial and manufacturing outsourcing

services will prove to be one stop shop for all the needs for innovator

pharma companies.