What Does 2015 Hold For The Indian CMO Industry?

Life Science Leader, March 2015

The last few years have been pretty rough for the Indian biopharmaceutical CMO industry. If 2013 wasn’t enough, tougher unannounced surprise FDA inspections, warning letters, and import bans were carried on in 2014 and will continue in 2015.

Some of the biggest names in the Indian CMO industry — Ranbaxy, Wockhardt, Sun Pharmaceutical, IPCA Labs, Dr. Reddy’s, and others — have been hit with warning letters, import bans, and site shutdowns. To add to the misery, Europe has followed these steps and joined the FDA in banning manufacturing sites in India. 

If you ask the Americans, they will point out the lax nature of businesses in India, quality concerns, safety lapses, and violations such as data manipulation. While if you ask the Indians, they would call it differences in culture and disregard to business practices in India. But as an Indian working in the U.S. and having experienced some of the work culture nuances in both countries, I tend to agree with both. The argument can go on, but the fact remains that both the Indian pharmaceutical industry and the U.S. pharmaceutical industry need each other.

Forty percent of the generics and over-thecounter medications sold in the United States are imported from India. (New York Times article, February 2014). And if India plans to export drugs to the U.S., they have to follow the rules and regulations set by the FDA for everyone. From the U.S. perspective, outsourcing to emerging markets, specifically India and China, is on the rise; the U.S. already relies on these two markets for the majority of its generics, APIs, excipients, etc. Both India and China, though termed “emerging” markets, have matured enough to be major stakeholders in manufacturing and exporting of generics to the U.S. and Western markets. It is vital for the U.S. to make sure these emerging markets up their standards and get their act together to maintain market stability and keep the domestic generics pricing in check. And with rising healthcare costs, it makes correcting the above a priority for the United States. 

The overall offshoring trend hasn’t slowed down a bit; in fact, the recently concluded Nice Insight 2014-15 annual CMO-CRO survey reveals a whopping 11 percent increase in respondents that are willing to offshore to emerging markets (70 percent in 2014 to 81 percent in 2015). The biggest jump was observed among “Specialty Pharmaceuticals,” which increased from 61 percent to 83 percent in 12 months. Similar leaps were observed within Big Pharma (71 percent to 87 percent), Emerging Pharma (67 percent to 83 percent), and Biotech (70 percent to 83 percent). The smallest increase was observed among Emerging Biotech (86 percent to 89 percent), but of all the industry buyer groups, Emerging Biotech was the one willing to offshore the most to emerging markets. The small increase can also be attributed to the already high offshoring percentage in 2014. If we look at outsourcing by region, we can see that the FDA warnings and shutdown of plants in India is reflected in the industry’s outsourcing perspective toward India. The overall outsourcing to India fell from 13 percent in 2013-14 to 11 percent in 2014-15. If we further break down by industry category, we see that the pharmaceutical industry seems to have reacted more strongly than the biotechnology industry. The biggest drop, of 6 percent, was observed amongst Big Pharma (17 percent to 11 percent) and Specialty Pharma (18 percent to 12 percent) followed by a drop of 4 percent amongst Emerging Pharma (14 percent to 10 percent). Interestingly, there wasn’t any change in outsourcing to India among the Biotechnology firms; however, there was a 2 percent drop among the Emerging Biotech group (13 percent to 11 percent). 

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For years industry experts have hoped India, an emerging economy, would become a major player in the global healthcare space. It has the ingredients for success and has demonstrated it with perhaps the most phenomenal growth the industry has shown in the past decade or so. It is encouraging to know the Indian government has taken up the issue of restoring the pharmaceutical industry’s image by committing $511 million to double the number of inspectors at the central level and adding another 3,000 at the state level. The Central Drugs Standard Control Organization (CDSCO) has issued new guidelines for state regulators on how to conduct cGMP inspections (Regulatory Affairs Professional Society, August 2014). But if India plans to export pharmaceuticals to the EU and U.S., it has to stick to the guidelines set by the FDA, EMA, and other specific regulatory agencies. On the flip side, the U.S. needs to stick to the rulebook and invite Indian officials during surprise visits. Along with the warnings and sanctions, it would be beneficial if the FDA channels the appropriate resources and has cohesive open conversations with all the involved stakeholders to ensure high standards are upheld. Along with steps taken so far, both must immediately address one of the biggest concerns for both parties, cultural differences, as it seems to be creating a major hindrance. It’s going to be a long way, but hopefully with some of the steps implemented in 2014, and with continued efforts, India can regain the lost trust and confidence it enjoyed in the developed markets over the years.

Survey Methodology

The Nice Insight Pharmaceutical and Biotechnology Survey is deployed to outsourcingfacing pharmaceutical and biotechnology executives on an annual basis. The 2014-2015 report includes responses from 2,303 participants. The survey comprises 240+ questions and randomly presents ~35 questions to each respondent in order to collect baseline information with respect to customer awareness and customer perceptions of the top ~125 CMOs and ~75 CROs servicing the drug development cycle. Five levels of awareness, from “I’ve never heard of them” to “I’ve worked with them” factor into the overall customer awareness score. The customer perception score is based on six drivers in outsourcing: Quality, Innovation, Regulatory Track Record, Affordability, Productivity, and Reliability. In addition to measuring customer awareness and perception information on specifi c companies, the survey collects data on general outsourcing practices and preferences as well as barriers to strategic partnerships among buyers of outsourced services.

 

KshitiJ (TJ) Ladage

Kshitij (TJ) has been a part of Nice Insight since 2014. TJ’s role involves research design and operations, developing and maintaining syndicated studies, business intelligence data analysis, content development and article writing on the latest developments in the biopharmaceutical industry. Prior to market research, TJ spent time in academia research working on a broad range of subject matter, including pharmacoeconomics, drug delivery and genetics. TJ holds a masters of biotechnology degree from the University of Pennsylvania.