India to ride pharma outsourcing wave

According to AT Kearney, most of the outsourcing work will be in the bio-infomatics and the drug discovery space. On top of this, a lot of R&D activity is expected to be outsourced to India. ‘‘The US is experiencing a marked decline in the ability to launch block-buster drugs in the recent years. In fact, in the last few years the new launches have come down from 14 to 4,’’ said Andrea Bierce, vice-president and managing director of AT Kearney Inc.

The inability to launch block-buster drugs like Vioxin and Lipotor has put pressures on the margins. ‘‘Besides, general and administrative cost of US pharma cos are now almost 33 per cent of their overall cost. As a result India becomes an exteremely attractive destination to save cost,’’ she pointed out.

The total cost on R&D activity has also gone up from $138 million in the 1970s to close to $802 million in the 1990s. All these factors combined with the low cost-high-productivity ratio of India makes it the next most feasible destination for pharma outsourcing.

‘‘India has a definite cost advantage… there is high productivity and high value proposition. All this gives it an edge over others,’’ she added.

Due to vast talent pool, pharma will the next big area of outsourcing for India, and it may not involve pure play IT companies. In fact a lot of smaller companies in the bio and pharma space with adequate domain expertise are the right candidate for this.

Currently, Indian companies spend less than 5 per cent of their revenues in R&D while multinationals spend 17 to 18 per cent in the research. ‘‘But in spite of increased spending, drug discoveries are low. Hence, it is becoming important for global MNCs to cut their costs by outsourcing R&D to countries like India,’’ said a top Novartis official.

Some of the Indian companies like Biocon, Dr Reddy’s and Ranbaxy are spending more in R&D to feed the drug requirements of the world.

Analysts say pharma outsourcing will add a new revenue stream for those Indian companies which have tie-ups with companies abroad. ‘‘The pharma companies continued their initiatives towards establishing presence in the larger pharma markets by entering into manufacturing and supply agreements abroad which will enable the players to diversify their revenue streams,’’ says a report by rating agency ICRA.

‘‘Exports are expected to continue to play a key role in driving the growth of pharmaceutical companies,’’ it added.