position paper pharma-biotech research paper.pdfposition paper pharma-biotech research: may 2007. 2...

May 2007

Transaction Advisory Services

GLOBAL HEALTH SCIENCES

Position Paper

Pharma-Biotech Research: May 2007

2

DisclaimerE&Y has taken due care and caution in preparation of this document. The document is a compilation of public domain data available on the sectoral opportunity. The

information is based on recent secondary sector research, which is non-exhaustive.

No responsibility is assumed for authenticity of the information available with referenced sources and is believed to be reliable. E&Y does not guarantee the accuracy,

adequacy or completeness of any information contained in this document and is not responsible for any errors or omissions, or for the results obtained from the use of

such information.

E&Y has not considered the investment objectives, financial situation and particular needs of any party who reads or uses this document. E&Y encourages all

prospective investors to conduct their own investigations and analysis and check the accuracy, reliability and completeness of the information in this paper and obtain

independent advice from appropriate sources.

Neither E&Y, nor their partners, or employees accept any liability for any direct, consequential or perceived loss arising from the use of this document or its contents.

3

Contents

18Emphasis on Cost Containment

18Decline in R&D productivity

25Outlicensing and alliances

24New Skill Sets

23Outsourcing Contract Research Services

22Opportunity Gaps

20Favorable IP climate

20Relevant Capacity

19Low cost of operations

19India’s Attractiveness

18The Growth of Biotech

17Genericization

17Global Demand

17Drivers of the Research Opportunity

15Zooming in on Research

14Mergers & Acquisitions

12Strategic Partnerships

10Outsourcing and Offshoring

10India-Trends in Pharmaceutical R&D

7Introduction

4

Contents27Newer Technologies

28Summing up the Opportunity Gaps

29Vaccines: The Indian Opportunity

53Available Skill Sets in India

49Risk and Mitigation

48Operating Models

47The India Advantage

46Clinical Research in India

51Offshoring Process Chemistry to India

45Offshoring Clinical Research to India

41Through the Crystal Ball

40Summing up the Initiatives

39Research Funding

37Policy and Regulation Reforms

36Patent Reforms

34Infrastructure

34Manpower

34Capacity Building

34Initiatives

5

78Key Abbreviations

54Key Players in India

55SWOT of Outsourcing Process Chemistry to India

76Potential Risks & Mitigation Plan

75Operating Models in India

74Cost Advantage Per FTE

73Key advantages offered by India

71Offshoring Data Management and Statistical Analysis to India

69Potential Risks & Mitigation plan

68Level of Offshoring

66Key Advantages Offered By India

62Risks & Mitigation Plan

61Operating Models

59Key Players

58Key Advantages Offered By India

67Operating Models to leverage Indian Capabilities

64Offshoring Formulations Research to India

56Offshoring Medicinal Chemistry to India

Contents

6

33Indian Biotech Companies Launch Novel Vaccines

77Accenture Provides Clinical Trial Data Management Support To Wyeth

77GSK And Tata Consulting Services Enter Into An Outsourcing Deal For Drug Development Support

70AstraZeneca Leverages Indian Formulations Research Expertise

63Merck-Advinus

53Matrix Laboratories

50GlaxoSimthKline Plc

41Learning's From Japan, Moving Up The Research Value Chain

39Learning’s from global biotech

38DCGI to weed out clinical trial delays

35India Seeds Clinical Research Centers

34Government to introduce 4 more NIPERs

16Dabur launches first Nano Oncology Drug in India

14French Company acquires stake in Shantha Biotechnics

13BMS Partners with Syngene

12Panacea In Licenses Technology

11AMRI extends its R&D Center at Hyderabad, India

List of Case Studies

7

IntroductionWhile the Pharma-Biotech R&D opportunity in India is a known story, an often asked question is ‘how long and how much?’ i.e. whether the growth and

the projected rates are sustainable and will the growth continue, or has the time of the skeptics arrived? This position paper intends to touch upon this

question and provide an answer in two parts, A & B. Part A deals with the overall R&D scenario for India while Part B takes a detailed view of select

offshoring options as far as India is concerned.

Our Methodology for Part A

Part A begins by setting up a baseline; it takes a look at the current state of pharmaceutical research in India. In the next chapter the focus is on

understanding what have been the drivers for this growth and how strong and relevant are these drivers today. This analysis of the drivers helps in

appreciating the reality of the future demand that may exist for the products and services that India pharmaceutical R&D has to offer.

In the next section, the report explores the difference between the baseline (set in chapter 1) with what the demand that the current drivers would create

in the future (chapter 2).Once this difference (referred to as opportunity gap) has been established, chapter 4 impresses upon the initiatives which India

has to take to ensure that she is able to catch up with the opportunity on offer. Part A concludes with a view on where the Indian Pharmaceutical R&D

sector can reach if India is able to make the right interventions at the right time.

DRIVERS

A look at what has driven, both globally and locally, the growth of

Pharma-Biotech R&D in India.

DRIVERS

A look at what has driven, both globally and locally, the growth of

Pharma-Biotech R&D in India.

OPPORTUNITY

How much of the global pie is

India being able to capture

OPPORTUNITY

How much of the global pie is

India being able to capture

INITIATIVES

What are the things India is

doing and must do to cash in on the opportunity?

INITIATIVES

What are the things India is

doing and must do to cash in on the opportunity?

Chapter 1 Chapter 2 Chapter 3 Chapter 4

CRYSTAL BALL

How far we can go?

CRYSTAL BALL

How far we can go?

Chapter 5

SETTING THE BASELINE

A current state evaluation of

Pharma-Biotech R&D in India,

across some key trends

SETTING THE BASELINE

A current state evaluation of

Pharma-Biotech R&D in India,

across some key trends

8

Introduction

Our Methodology for Part B

Now that India’s significant role in the global pharma-biotech R&D field has been established, it would serve well to provide some examples of

established and emerging activities that are looked at by global companies for offshoring. With this intended purpose Part B focuses on select offshoring

activities:

§ Clinical Research

§ Process Chemistry

§ Medicinal Chemistry

§ Formulation R&D

§ Data Management & Statistical Analysis

Each of the above is then analyzed on the broad parameters like:

§ Current state in India

§ India’s Advantage

§ Operational Models prevalent in India

The discussions in both parts A & B have been grouped with select case-studies throughout to support the inferences and suppositions.

10

The Indian contract research outsourcing industry recorded a growth of 45% to reach $ 175 mn in 2006 (Biospectrum), establishing the country’s status

of a preferred service provider. A simultaneous trend of strategic alliances within the drug discovery and development arena is also gaining momentum,

an indicator of the move toward a preferred partner position. A third major trend that is emerging is the increased levels of investment in R&D

capabilities and infrastructure by the industry and government alike.

These trends are present at varying levels of activity; However, their presence reflects the gradual evolution of India’s pharma-biotech R&D model from

service based to partnership led.

This section considers the key characteristics of these trends, setting a backdrop against which an analysis of future opportunities for India within the

global pharma-biotech R&D space can be conducted.

Outsourcing & Offshoring

Outsourcing R&D to India is increasingly being looked at as integral to the strategic decisions of innovators, indicating the sector’s shift from a cost-

driven, low-value service, to a research-driven, high value activity. In addition to conventional clinical research, the segment has expanded to include

contract research for preclinical drug discovery.

Services are limited to chemistry based lead identification/optimization, preclinical and clinical research stages. However, there are a handful of

companies that provide biological based services for target validation; notable examples are Avesthagen, Ocimum Biosolutions & TCG Lifesciences.

Though still at an initial stage, these services are beginning to gain momentum. Bioinformatics companies that offer research enabling software

technologies are also re-emerging as a valuable sector.

India – Trends in Pharma-Biotech R&D

11

Case Study: AMRI Extends Its R&D Center At Hyderabad, India

Albany Molecular Research, Inc. , a global drug discovery company that provides chemistry services to pharmaceutical and biotechnology companies,

has announced the construction of a new 50,000 sq. ft. research and development centre at the Shapoorji Pallonji Biotech Park in Hyderabad, India.

Slated to be completed in the later part of 2007, the new R&D center will conduct contract projects in early stage drug discovery research, including

custom chemical synthesis and medicinal chemistry. In addition, the new facility will house a scale-up laboratory, which will be used to develop

efficient methods for producing larger quantities of active pharmaceutical ingredients and intermediates. When fully staffed, the new facility will add

over 100 employees to the company's existing Hyderabad operations, which currently have 19 employees in the nearby ICICI Knowledge Park. The

current facility can accommodate up to 40 employees and is expected to reach full capacity in the coming months.

There is an increasing trend of Indian CROs becoming preferred vendors for a

few global outsourcers in the early drug discovery phase, rather than providing

services across the value chain. Preferred vendors often land up with high

margin contracts, such as researching and/or developing proprietary

technologies for the client.

Going a step further, international companies are increasingly looking at India

as a favourable option for setting up research and development units, as well

as global clinical trial centres, a trend that is set to gain momentum. In fact,

global R&D companies like US based AMRI and Nektar, & Germany based

Taros have already set up centers in different parts of India.

Mapping the Informatics NeedsNew drug target identification at National Institute of Health, University of Mexico, National Institute for Cellular Biology, Dublin, National Research Council, Sequencing Centre at Halifax, David Eisenberg’s research lab at DOE Institute for Genomics and Proteomics, UCLA now have a strong connection with India. Indigenous tools developed by pure-play bioinformatics companies are playing an ever-increasing role across various components of the drug discovery value chain. Displaying their tech prowess are companies such as Strand Life Sciences, Ocimum Biosolutions, Molecular Connections, Mascon Life Sciences and Helix, which have developed bioinformatics tools for use in the drug discovery segment.The Financial Press –April 16, 2007


12

Select Out-licensing deals by Indian companies

NA2007$ 26.7 mnIP data on PerindoprilLaboratories Servier

NA2007$ 10.5 mnAnti-infective (NDDS)Cornerstone biopharmLupin

Phase II2006$ 247 mnGRC 8200Merck

Phase II2005$ 53 mnGRC 3886 (Asthma/COPD)Tejin (for Japan)

Phase I2004$190mnOglemilast (Asthma/COPD)Forest (for N. America)

Glenmark

Development stage2001$ 3 mnAge Breaker (diabetic)NovartisTorrent

NA1999$ 65 mnCipro XR (NDDS)BayerRanbaxy

Development PhaseYearDeal

valueMolecule/TechnologyPartnerIndian firm

Strategic Partnerships

An emerging trend is the symbiotic collaboration between international and Indian companies in pharma-biotech research & development capabilities. A step further to cost-based outsourcing, these partnerships reflect increased interest and confidence in India’s research competencies and infrastructure.

The nature of in-licensing deals in India is evolving from being marketing oriented to research driven. Furthermore, early-stage products are increasingly gaining a share of the investment pie, primarily due to their lower valuations.

Outlicensing is also on the rise, driven by small companies with promising candidates or technologies lacking financial muscle to take them through the investment- heavy clinical development and marketing phases.

Case Study: Panacea In Licenses Technology

Cambridge Biostability, the UK's pioneering developer of temperature-stable liquid vaccines, has signed a long-term licensing agreement with Panacea Biotec, a leading vaccine producer in India. Under the agreement, Panacea Biotec is to in-license CBL's stable liquid technology to develop, produce and market a stable liquid version of pentavalent and other combination vaccines for the treatment of diptheria, tetanus, pertussis (whooping cough), hepatitis B and haemophilus influenza B. This product will be unique as it will not require storage under refrigeration or reconstitution before use.

*Company Websites; E&Y Research


13

Select Strategic Alliances by Indian Companies

Ranbaxy will advance leads beyond candidate selection to completion of clinical proof of concept. GSK, thereafter, will conduct further clinical development for each program and take resulting products through the regulatory approval process to final commercialization.

GlaxosmithklineRanbaxy

JV will establish a dedicated resource capability to offer phase I-IV clinical development programmes in India

INC Research GVK Biosciences

The collaboration centres on the drug `BST-InPod', which is being developed to alleviate chronic heel pain

BioSyntech IncNicholas Piramal

Discovery and clinical development collaboration in metabolic disordersMerck & Co.Advinus Therapeutics

DescriptionPartner 2Partner 1

Case Study: BMS Partners With Syngene

Syngene, Biocon's subsidiary company, has entered into a research partnership with Bristol-Myers Squibb. Biocon's Syngene will provide research

and development (R&D) services for discovery and early drug development. Bristol-Myers Squibb will significantly increase the scope of its existing

relationship with Biocon's Syngene to further develop integrated capabilities in India in medicinal chemistry, biology, drug metabolism, and

pharmaceutical development. Under the terms of the agreement, Syngene will partner with Bristol-Myers Squibb through a dedicated research facility

at Biocon Park in Bangalore, which was opened on March 21, 2007.

Collaborative alliances, in which both the stakeholders pursue a high-risk, high-reward strategy, are increasingly appearing on the alliance landscape.

These alliances involve joint research agreements and co-development arrangements between companies.

An increasing number of companies from regions with a mature pharma-biotech industry, other than the US, are eyeing India as a potential destination

for forging strategic alliances in life sciences. As a powerhouse of biopharmaceutical technologies and products, the interest shown by these companies

in India is evidence of the country’s growing significance in the global life sciences space.



14

Mergers & Acquisitions

Mirroring the trend on the global pharma front, India saw a flurry of mergers and acquisitions in 2006 and early 2007. Pharma, healthcare and biotech

M&A deals accounted for 12.4% of total M&A deals in India in 2006, second only to the IT/ITeS sector, of which 18% were related to synergies in

research and development. Of these, seven were outbound cross border deals.

Select M&A deals by Indian Companies

Stem cell researchNASaneron CCELL Therapeutics Inc

Lifecell (Associate of Shasun Chemicals &

Drugs)

60% stake; products for infectious diseasesNAShantha BiotechnicsMerieux Alliance (France)

Drug discovery & researchUSD 3 MnBexel Pharmaceuticals (US)Orchid Chemicals & Pharmaceuticals

30% stakeNAIndigene PharmaceuticalsTATA Group

14% stake; clinical development of pipelineUSD 2.7 MnLipoxen PLC (UK)Serum Institute of India Ltd.

DescriptionDeal ValueAcquired CompanyAcquirer

Case Study: French Company Acquires Stake In Shantha Biotechnics

Merieux Alliance, a French company has strengthened its presence in Asia by acquiring a 60 percent stake in Hyderabad-based Shantha

Biotechnics. Merieux's partnership with Shantha Biotechnics corresponds to its aims in developing a global approach in the worldwide fight against

infectious diseases. This move has enabled its involvement in all linking areas of the healthcare chain: prevention, diagnostics, prognosis, new

therapies and clinical monitoring. The partnership further provides the group with new possibilities with regard to preventive medicine, an area in

which Merieux Alliance's companies Silliker, bioMerieux, Transgene and Advanced BioSciences Laboratories are already involved.



15

Zooming in on Research

Manpower and capital investment are the basic ingredients of research. Consequently, the industry has been pumping in funds and building

technological capabilities. Though still not at par with the developed economies, efforts are continuously being made in this direction.

Increase in R&D Expense

With the implementation of the product patent regime in 2005, Indian companies recognized that innovation is the key to growth. Consequently, a shift in

focus to drug discovery research from process re-engineering has, for some time now, been an emerging trend in the industry. Business models are

evolving from low cost generics to emphasis on non-infringement processes, NDDS, NCEs and the CRAMS; this calls for higher allocations for R&D

expenditures, especially by the top companies. Infrastructure & R&D spend together has risen to $360 Mn in 2006, accounting for about 25% of total

turnover. R&D expense has increased from the 2-3% of sales turnover, to 5-7% currently, and this upward trend is set to continue.

*Biospectrum


Indian Pharmaceutical R&D Spend

27 31 33 39 47 5671 82

117

150

234

0

50

100

150

200

250

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Inve

stm

ent i

n U

SD m

n

R&D Funding

Alternate ways of funding by Pharma Companies

In September 2005, Hyderabad-based Rs 2,346-crore Dr. Reddy’s set up

Perlecan Pharma to take some of its experimental drugs into human trials.

Perlecan got funding from two private equity companies ICICI Venture and

Citigroup Venture Capital. Dr. Reddy’s has a minority stake in the company.

As of July 2006, Chennai-based Rs 952-crore Orchid Chemicals and

Pharmaceuticals bought out its US partner in a California discovery lab, and

consolidated all its original research and development into a separate

subsidiary called Orchid Research. It may eventually approach financial

investors for funding this R&D company.

16

Research Capabilities

The pipeline of Indian biotech companies consists mostly of vaccines and recombinant therapeutics such as insulin and erythropoietin. Monoclonal

antibodies are figuring on several companies’ research focus maps and pipelines. The newer gene therapy and nucleic acid therapeutics, which are still

to attain the commercialization dream even in the developed regions, do not find a firm foothold in the Indian industry. As far as the traditional small

molecules are concerned, there is a greater thrust towards NDDS products. Within therapeutic area the generic companies are looking at oncology and

ophthalmology. Dosage forms like injectables, which are more complex and hence more rewarding ,are also being focused upon. Majority of the

academia and research in India is limited to exploratory research in the traditional areas of molecular biology, biochemistry and microbiology. However,

there are a few institutes involved in latest research areas; the reason for this low number is primarily due to lack of an entrepreneurial mindset of Indian

scientists and adequate funding. Additionally, interaction between the industry and academia is a very nascent stage, at best, thereby preventing an application oriented approach to research.

Case Study: Dabur Launches First Nano Oncology Drug In India

Dabur Pharma Ltd launched `Nanoxel', a novel drug delivery system for the widely used anti-cancer drug paclitaxel, claiming it as India's first

indigenously developed nanotechnology based chemotherapy agent. It is termed as the first nanoparticle drug delivery system outside the United

States. Billed as the first cremophor free paclitaxel eliminating the need of premedication, the new drug is claimed to have made better response during

the clinical trials held in 14 centres across the country. The company, which began the research on it in 1997, has developed and manufactured the

drug at its own facility, along with marketing.

India – Trends in Pharma-Biotech R&DNeed to Deepen Early Stage VC Financing

Early stage funding in biotechnology in India is at best in the emerging stage. The last three years witnessed just a handful of medium-sized deals in the

biotech sector. In 2004, Sterling Biotech received $9 million from CitiGroup, Bharat Biotech was injected with $6 million by IFC and last year Celestial

Biologics was boosted by a $0.5 million fund from Gujarat Venture Fund (GVFL). In August 2006, biotech firm Avestha Gengraine raised Euro 20 million

from European banks to fund its expansion plans and product pipeline. A battery of investment bankers, are also doing biotech rounds. Together they

are expected to bring in a corpus of Rs 1,600 crore in 2007 into the biotech sector, though the focus of these funds would remain to be medium sized

companies.

17

Drivers of the Research Opportunity

The previous section provided a flavour of the current trends in Indian biopharma

research. To fully appreciate the implications of these trends for future

opportunities, it is essential to understand the underlying drivers, which are

discussed in this section.

The drivers can simply be looked at as a convergence of two forces; the market

dynamics of the pharma-biotech industry in the developed economies, which

creates a demand for services, and the innate traits of India, which make it an

ideal destination to fill in the blanks.

Global Demand

Biopharma innovator companies are facing a commercial crisis; dwindling product

pipelines, genericization threat due to impending patent expirations, escalating

R&D costs and time to market are increasingly forcing them to explore alternative

mechanisms of growth.

Genericization

Generics increase the affordability of drugs. However, the demand for generic

products puts tremendous pressure on innovator companies. When a drug goes

off-patent, an innovator holds on to around 50-60% of its value market share in the

first year. As generic competition increases, this is further reduced to ~40% of the

market share and can go down to 20% in some cases. In case of a blockbuster

molecule, the intense competition level compels the innovator to exit the market

within 3-4 years of operations. (Crisinfac & Datamonitor)

Alternate Business Models

High R&D Costs

Long Gestation

Dry Pipeline

Pricing Pressure

Outsourcing Partnership

New Research Area

Average Generic Share of Value

*Datamonitor

0

15

30

45

60

75

0 2 4 6 8 10 12

Quaters from generic entry

Valu

e M

arke

t sha

re

18

Decline in R&D Productivity

The waning product pipelines of innovator companies are reflected in

the significant drop in NME approval over the years. This is despite the

five-fold increase in R&D spending. Pressure to accelerate drug

discovery has forced big pharma and established biotech companies to

look at alternative avenues of alliances and acquisitions.

Emphasis on Cost Containment

Over US$ 40 billion is spent annually on drug discovery and

development. These funds are spent on a complex process that can

span as many as 15 years and costs US$ 1Bn for a single drug. Big

pharma has responded to this by evolving their business models to one

of outsourcing activities across discovery and development process.

The Growth of Biotech

Biotech and biotech based drugs are increasingly finding application

within the therapeutic space. The trend in US FDA approvals of biotech

based products indicate a more promising pipeline.

New Biotech drug and vaccine approvals

Falling R&D Productivity

*Datamonitor

*Bio

3637

40

38

3435363738394041

2002 2003 2004 2005Year

Num

ber o

f App

rova

ls

0

10

20

30

40

50

60

19901991

1992*1993

19941995

1996

19971998

19992000

20012002

2003200

42005

NM

Esap

prov

ed

051015202530354045

R&

D s

pend

** ($

bn)

NMEsapproved

R&D spend**

0

10

20

30

40

50

60

19901991

1992*1993

19941995

1996

19971998

19992000

20012002

2003200

42005

NM

Esap

prov

ed

051015202530354045

R&

D s

pend

** ($

bn)

NMEsapproved

R&D spend**


19

India’s Attractiveness

Infrastructure and skilled labor, cornerstones of any venture, are available in

India at significantly lower rates. This, coupled with favorable patent, regulatory

policies, have served to catapult the Indian biopharmaceutical sector onto the

global radar. This comes at an opportune time, with global counterparts

scouting for strategies to maintain costs, simultaneously retaining quality.

Low Cost of Operations in India

R&D costs in India are significantly lower than those in the developed world.

Outsourcing part of a drug discovery chain to an Indian company can save up to

$200 million on development costs.

The low cost of operations is attributed to availability of skilled manpower and

infrastructure at comparatively lower rates. As per industry sources, a trained

Indian chemist, earns around 7% of his/her European or U.S. counterpart.

Additionally, the cost of clinical trials is 50 percent lower in Phase-I, 60 percent

lower in Phase-II in India. when compared to the global clinical trials market.

Also, the time taken to conduct a clinical trial is considerably lesser in India due

to the availability of a large patient pool and faster enrollment rates.

Comparative Wages of Chemists

5

7

13

70

95

100

0 20 40 60 80 100 120

China

India

Hungary

Italy

Germany

US

(Units)

*ENAM Research, CrisInfac

Registration$20mPhase III

$135-270m

Phase II$50-150m

Phase I$60-120m

Preclinical$80-120m

Discovery$190-240m

Total$535-920m

Drug discovery costs could be an area to target as it

is estimated to represent around 25-35% of R&D

costs

Note: averaged across disease areas and pharmaceutical companies*Datamonitor

Drivers of the Research OpportunityAverage Cost of Drug Discovery & Development

20

Relevant Capacity

With the distinction of being the world’s fourth largest reservoir of scientific manpower, as well as home to a legacy in higher education in the sciences, it comes as no surprise that industries are coming to India to fuel their growth. There are 40 national research laboratories in the country, employing 15,000 scientists; there are more than 300 college level educational and training institutes offering degrees and diplomas in the biological sciences and bioinformatics, producing near 5 lakh students annually.

Established names in life science education and research include the Indian Institute of Science, Tata Institute of Fundamental Research, National Center for Biological Sciences, the Centre for Cellular & Molecular Biology, to name a few. The Indian Institutes of Technology are recognized the world over for their strong educational system.

The reverse engineering pharmaceutical industry of yesteryears has created an abundant availability of highly skilled chemists in the country. The large proportion of English speaking manpower is also a big advantage for India. The springing up of pharma and biotech parks across the country is another trend that is gaining traction. This will be discussed in detail in Chapter 4.

Favourable IP Climate

Adherence to the TRIPS agreement with regard to the Patent Protection Act implemented in 2005 has been key to the renewed interest of international players in India. Though this move has increased the confidence of innovator companies in India, and spawned the steady inflow of investment and collaborations, there are still some grey areas related to data exclusivity, patentability rules and compulsory licensing. National Chemical

Laboratory

Central Drug Research Institute

Centre for DNA Fingerprinting & Diagnostics

Centre for Cellular & Molecular Biology

International Centre for Genetic Engineering and Biotechnology

Institute of Genomics & Integrative Biology

National Institute of Immunology

National Institute of Pharmaceutical Education & Research

Jawaharlal Nehru Institute for Advanced Scientific Research

National Institute of Mental Health & Neurosciences

National Center for Biological Sciences

Institution Name

Chemistry, Chem Engg & Industrial Research

Drug Discovery & Regulatory studies

Computational Biology and Bioinformatics

Bioinformatic & Genetics

Molecular Biology & Biotechnology

Genomics, Genome Informatics and Proteomics

Immunology

Medicinal Chemistry, Pharmacology

Molecular and Chemical Biology & Genetics

Human genetics, Clinical Psychology & Neurology

Biochemistry, Bioinformatics & Genetics

Area Of Focus


21

Has India captured enough? Is there room for more?

Trends in Indian Biopharma R&DContract & clinical research outsourcing

Strategic partnerships

Research focus

Global Demand• Genericization

• Decreased R&D productivity• Emphasis on cost containment

India’s Attractiveness• Improved IP Regime• Low cost operations

• Availability of infrastructure & skilled manpower

Summarizing Chapters 1 and 2

Chapter 1 highlighted the current trends in the pharma-biotech R&D sector, capturing the heightened activity on the service and partnership front, and

simultaneous foray into research with a competitive advantage. The rationale behind these trends was then touched upon in the following chapter.

Hence, the first two chapters served to set the stage for an analysis of future opportunities and the initiatives that need to be taken in order to capitalize

on the potential for growth. The following chapters try to answer these very questions,


22

Further we comment on what needs to be done for India to close the gap and make the best out of the available opportunity. This is mentioned as the

growth prescription for each of the discussed opportunities.

Keeping in line with the trends described in chapter 1,the opportunities have been identified under the following heads:

– Outsourcing Services

§ Percentage of the total global market

§ Portion of the services being offered in the development value chain

– Product Licensing Deals

– New Technology Areas

Global Position

Indian Position

Opportunity Gap

In this section, we look at the opportunities that exist for Indian biotech and pharma research.

The opportunity is measured both qualitatively and quantitatively to evaluate the gap that exists between the overall global market and the current Indian

contribution

Opportunity Gaps

23

USD 175 mnTotal

Estimated Market Size (2006)Services

USD 100 mnClinical Services

USD 75 mnPre-clinical Services

43%

55%

30 %

CAGR

USD 750 mnAverage

Estd. Market Size 2010

Services

USD 1000 mnOptimistic Estimate

USD 500 mnConservative Estimate

Opportunity Gap

The Indian contribution is less than 5 percent of the overall global contract research market .Hence even if we consider the optimistic projections there

is a huge opportunity gap that remains to be fulfilled.

The Growth Prescription

The two most important steps required to penetrate this market further would be as follows:

§ Government enhances the enabling environment by making the Patent and the Regulatory system more effective. This will further build the

confidence of the US and European MPCs.

§ Indian CRO’s work harder to earn the most preferred vendor status, to ensure more business from existing clients. This follows from the time-

tested maxim of the low cost of retaining a satisfied customer. Also, given the economies of scale, bigger volumes will keep the cost of

operations low, maintaining India’s cost advantage.

Outsourcing Contract Research Services

This is the most often talked about commercial opportunity for research in

India. If we look at the current market size, the best estimates present the

following picture:

Future Projections

There are various projections doing the market rounds about the future value

of the contract research industry in India. The adjacent table shows the

growth estimates in three different scenarios:

*Assocham

*Research & Markets, Assocham, E&Y Analysis

Opportunity Gaps

24

New Skill Sets

Within the penetrated area, India has

limited accomplishments in biology

skills

If we map the Indian skill sets across

the value chain and classify the

areas, the following picture would

emerge.

The unmarked areas are current gaps

but provide future opportunities to

grow .Hence, very clearly biology

research is a potential growth area.


To penetrate the global contract

research market, India needs to

concentrate more on the discovery

services. Within discovery services,

the biology research skills are the

weak-link and present a strong

opportunity.

Opportunity Gaps

Specialized SegmentsAreas

Dis

cove

ry R

esea

rch

Dev

elop

men

t Res

earc

h

Target Identification

TargetValidation

Compound Generation

Scanning

Lead Optimization

Preclinical Development

Clinical Development

Gene SequencingBioinformaticsChemoinformaticsProteomicsGenetics

BioimagingGenetically Modified MiceDisease ModelProtein

BiochemistryFunctional Genomics

Analytical Chemistry

Structural ChemistryDrug DesignSynthesisAnalogue

Prepration

Assay DevelopmentHTSCompound

Synthesis

Cell-based model for efficacy

Medicinal ChemistrySARAssay

Execution

Animal ModelsToxicology PKDMPharmacology

Regulatory Consulting

Data Management

Trial Management

*Offshoring in the Pharmaceutical Industry: Mridula Pore, Yu Pu, Charles Cooney, Massachussets Institute of Technology

Strong

Weak

25

0

50

100

150

200

250

300

350

400

450

2002 2003 2004 2005f 2006f 2007f 2008f 2009f 2010f

Year

Tota

l eth

ical

sal

es o

f the

top

20

phar

ma

com

pani

es ($

bill

ion)

Sales from licensedproducts

Sales from otherproducts

Out-Licensing and Alliances

As already noted in the global drivers section, steep decline in

innovation levels, combined with the threat from generics and drug

recalls is causing concern to several pharmaceutical companies.

As a result, pharmaceutical companies are now developing

strategic alliances and licensing deals to improve weakening drug

pipelines and achieve sustainable revenue growth. In fact, as on

date, almost 20 percent of the annual sales of the top 20 pharma

are from licensed products.

Further, if we look closely at the trend, late-stage products are the

most popular development stage for the big pharma to in-license.

In fact ,as evident from the following graphic, the maximum

number of inlicensing deals of the big pharma happen in the late

stage of development. The high probability of success in the later

stage is the primary reason for this trend.

*Datamonitor

In Licensing deals across the value chain

Opportunity Gaps

05

1015202530354045

Discovery Preclinical Early-stage

clinical

Late-stageclinical

Num

ber o

f pro

duct

lice

nsin

g de

als

*Datamonitor

Percentage of Licensed Compounds

26

Drug Development Pipeline

0310Lupin

0212Nicholas Piramal

0121Zydus Cadilla

0114Wockhardt

0203Glenmark

0324Dr Reddys

0203Ranbaxy

Phase IIIPhase IIPhase IDiscovery Phase


To be able to capture a bigger portion of the out-licensing opportunity, the Indian pharma-biotech companies would have to invest in their product

pipelines to develop more late stage products into their portfolio.

The Indian Trends and Ensuing Opportunity Gap

A trend observed in Indian pharma-biotech is a steady rise in the number of licensing deals, but all of them have occurred in the early phases of

development . The primary reason for the same is the long gestation period and the heavy investment that the companies have to make during drug

development. The companies prefer to be risk averse and thus out-license at the first feasible opportunity.

As the innovator companies have a clear preference for late stage products, the number of licensing deals in case of India is much smaller as

compared to the number of similar deals that are happening in US or Europe.

A look at the current pipelines of top Indian bio-pharma companies confirms the fact that there are no late stage products.

*E&Y Analysis

Opportunity Gaps

27


With an eye on the future, more investment is required for the emerging therapies/technologies of Stem Cell Research and Nanotechnology. Also the

technical capabilities for handling the enabling technologies like functional genomics and High Throughput screening need to be developed. This is to

ensure that India does not lose upon the commercial opportunity that is already knocking at the doors, given the global trends.

Newer Technologies

In today’s era of continuously evolving technologies, traditional expertise in process chemistry and related technologies has proven to be double-edged

sword for India. While the country still boasts of some of the best scientific minds and institutions in the world, it has not yet been able to make the

transition from a pure conventional chemistry based industry to one that provides advanced capabilities in modern chemistry and biology.

Though expertise in the established areas of molecular biology, biochemistry, medicinal chemistry and pharmacology exists, the industry is still slow in

embracing more sophisticated technologies of targeted medicine, nucleic acid technologies, to name a few.

In the following graphic, the currently prevalent technology platforms and the enabling technologies have been listed and the Indian competence levels in

each have been indicated.

Nanotechnology

Stem Cell Research

Nucleic Acids

DNA Vaccines

Monoclonal antibody

Recombinant human proteinsTraditional Contemporary

Drug Classes/ Therapies

Commonly Used Technology Less commonly used technology

Opportunity Gaps

28

Opportunity Gaps

Indian companies would have to invest in their product pipelines to build more late stage

products into their portfolio.

The number of the alliance/licensing

deals is much smaller as compared to

their western counterparts

Build competence in the Technology areas of Nanotechnology and Stem Cell Research;

Also the technical capabilities for handling the enabling technologies of functional genomics and

high throughput screening need to be developed.

The research in contemporary technology

platforms is at a nascent stage in India.

Enhance skill sets and infrastructure for Basic and Biology ResearchIndia does not offer the majority of

discovery research services in Biology

Research.

Better the Patent and the Regulatory system in the country.

CRO’s work harder to earn the most preferred vendor status with their customer MPCs

India currently occupies less than 5% of

the global contract research market.

Growth PrescriptionOpportunity Gap

Summing up the opportunity gaps

Finally to sum up the overall discussion on opportunities and the relevant growth prescription, the following picture would emerge:

The next section of the report would talk about a product opportunity that India is already looking set to capture that of the vaccine market.

After describing the Indian opportunity in vaccines the report would focus on the right-most column of the above table i.e. the growth prescription. The

subsequent section would dwell on the interventions that need to be made at different points in the industry to ensure that the opportunity described is

actually capitalized on.

29

The Global Market Shift

Pharmaceutical companies world over face diminishing prospects because of declining research and development productivity, increased regulatory

scrutiny, generics competition for off-patent products, and greater pressures on pricing. The vaccine sector, by contrast, represents an increasingly

attractive market characterized by strong growth prospects, increased R&D activity, and higher valuations from the capital markets.

For many years, the vaccine sector was characterized by government price controls, a mature product group based on a limited set of technologies, and

sub-scale participants that included operations run or controlled by the state. These characteristics constrained the level of investment and the resulting

pace of technological innovation. But in recent years, the outlook has brightened for several reasons.

1.It is now possible to create “blockbuster” revenue streams. As new vaccines have been introduced to replace older technologies and address new

disease areas, the pricing environment has also improved.

2. Vaccine prospects have also improved because of industry

consolidation, which has winnowed more than 25 sub-scale

players into five major manufacturers: GlaxoSmithKline (GSK),

Merck, Sanofi Pasteur, Chiron, and Wyeth. These firms have the

capabilities and appropriate scale to achieve attractive returns

within vaccines. Profit margins for the vaccine units of these

companies are comparable with levels experienced in their core

pharmaceutical businesses.

3. Besides these pricing and scale issues, the public sector is taking substantive steps to spur development of new vaccines and creation of capacity

for existing vaccines. In high-income countries, bioterrorism and pandemic flu initiatives are employing a range of “push” and “pull” mechanisms,

from long-term purchasing contracts to increased funding for discovery, that are fueling private sector investment. In poorer nations, public sector

support is helping to create a viable market.

Vaccines: The Indian Opportunity

50% JV to market Hexavac , HBvaxPRO , HibCombination Vaccine ( Procomvax ). The JV sales were USD 865.1 million so far.

Pasteur MerieuxConnaught (Sanofi Pasteur, SA)

Merck

Acquisition for USD 874 million to strengthen their position in the global flu vaccine market.ID Biomedical

Acquisition for USD 150 million to develop innovative vaccine adjuvantCorixa Corporation

GlaxoSmithKline

Acquisition 2003, commenced the sales of FLUVIRIN, a travel influenza vaccine.

PowderJectPharmaceuticals

Acquisition 1992SclavoChiron Corporation

Acquisition of company and the brand Vivotif , an OPV. Aims to develop a travel vaccine franchise.

Berna Products Corp.

Acambis , UK

Nature of collaborationCollaborating PartnersCompany

Consolidation of Vaccine Industry - Major Collaborations

50% JV to market Hexavac , HBvaxPRO , HibCombination Vaccine ( Procomvax ). The JV sales were USD 865.1 million so far.

Pasteur MerieuxConnaught (Sanofi Pasteur, SA)

Merck

Acquisition for USD 874 million to strengthen their position in the global flu vaccine market.ID Biomedical

Acquisition for USD 150 million to develop innovative vaccine adjuvantCorixa Corporation

GlaxoSmithKline

Acquisition 2003, commenced the sales of FLUVIRIN, a travel influenza vaccine.

PowderJectPharmaceuticals

Acquisition 1992SclavoChiron Corporation

Acquisition of company and the brand Vivotif , an OPV. Aims to develop a travel vaccine franchise.

Berna Products Corp.

Acambis , UK

Nature of collaborationCollaborating PartnersCompany

Consolidation of Vaccine Industry- Major Collaborations

30

The Global ForecastThe global vaccine market is expected to top $10 billion in 2007 and $23.8 billion by 2012. Pediatric vaccines have historically dominated this field, but

adult vaccines will see a big spike due to increased uptake of influenza and hepatitis vaccines.

• Combined global adult and pediatric vaccine markets will total $15 billion by 2012.

• Adult vaccines will rise from $3.7 billion (their total worth in 2005) to $7.5 billion in 2012.

• The fastest growing segment in the adult vaccines area is influenza vaccines.

• Hepatitis vaccines, with a projected growth rate of 8-9 percent, are the second fastest growing.

• Flu vaccines, which are forecasted to grow by 13.2 percent, will top $4 billion by 2012. The leading flu-vaccine manufacturers include Sanofi and Novartis.

• Hepatitis vaccines are projected to reach $1.5 billion by 2012. The top-selling hepatitis B vaccine currently is GSK's Engerix-B.

Cancer vaccines will also become a major player in the vaccine market, rising from its current level of $135 million to more than $8 billion by 2012.

• Merck's cervical-cancer vaccine Gardasil

• GlaxoSmithKline's Cervarix

• Intracel's colon cancer vaccine market OncoVAX

• Prostate cancer Cell Genesys' Gvax and Dendreon's Provenge

• Merck KGaA's lung-cancer vaccine Stimuvax

Change in Market Share: 2007-2010

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

M

edIm

mune

B

axter

Inter

natio

nal

S

olvay

V

axGen

C

ruce

ll

N

ovarti

s

W

yeth

M

erck &

Co

S

anofi

-Ave

ntis

G

laxoSmith

Kline

Mar

ket S

hare

Vaccines: The Indian Opportunity

31

Market Dynamics of Indian Vaccine Market

Market Dynamics

The market is experiencing strong growth given India’s ability to produce

large volumes of traditional vaccines at low costs. Several vaccines are

being procured from India in large volumes by multilateral organisations

such as GAVI, UNICEF, PAHO etc.

Domestics companies have developed strong capabilities in vaccine

development and manufacturing. Vaccines comprise a key segment of the

biopharmaceutical sector in India, accounting for almost 47%, in 2004-05.

The Indian vaccine industry grew from an estimated USD 294.3 million in

2003-04 to USD 379.3 million in 2004-05, representing a growth of 28.88%.

29.72811625Total industry Size

47.6713792Diagnostics

25.98182144Others

20.4811394Therapeutic

28.88379294Vaccine

Growth(percent)2004-05

Sales (USD

Million)2004-05

Sales (USD

Million)2003-04

Segment

Bio-Pharmaceutical Market of India

There are about 24 vaccines available in India, with paediatric vaccines such as DTP, MCV, polio, MMR etc forming the major part of the market. The

country is self sufficient in terms of these traditional vaccines as there are several domestic companies and international players manufacturing and

marketing vaccines at affordable prices in India. Early movers in the vaccines business are Serum Institute of India, Biological E, Panacea Biotec,

Bharat Biotech and Shantha Biotec. Even multinational companies such as GSK and Sanofi Aventis, are manufacturing and supplying vaccines from

India.

The Indian vaccine manufacturers have a strong focus on exports due to enhanced capacities. The total vaccine exports in 2004-05 stood at USD 67.68

million. The primary markets for Indian vaccines are developing economies such as Argentina, Turkey, Russia, Nigeria etc.

Indian Vaccine Industry

Source: Biospectrum- Able Annual Survey 2005

Even though the vaccine market is growing significantly in terms of volume, in terms of value the growth is much slower primarily due to rapidly falling prices. Thus, the Indian companies are focusing more on producing traditional vaccines such

as oral polio vaccines, DTP etc, as lower production costs on these give them a higher profit margin.

32

Market Dynamics of Indian Vaccine Market

Presently, India is one of the largest producers of

traditional vaccines in the world comprising mainly

of pediatric vaccines such as anti rabies vaccine,

oral polio vaccine, hepatitis B vaccine and Hib,

accounting for approximately 30% of the total

vaccine market in 2005.

Indian Vaccine Industry

Indian vaccine companies are expected to emerge as leading players in the global market as they are experiencing rapid growth. Further, a large

number of companies are receiving approval from UN thus enabling them to supply larger quantities.

Several New Vaccines in Pipeline

Various R&D institutes in the country have been doing research on vaccines for

cholera, tuberculosis, rabies, HIV, malaria and Japanese Encephalitis, among

others. Scientists at the Indian Institute of Science (IISc), Bangalore along with

Indian Immunologicals Ltd, have developed the world's first combination Rabies

vaccine for control of rabies in dogs. The vaccine was found to confer 100 per cent

protection in experimental animals. Scientists at the National Institute of

Immunology (NII), New Delhi have developed a vaccine based on the Indian strain

of Japanese Encephalitis Virus (JEV) and the technology has been transferred to

Panacea Biotec for further testing and commercialisation.

A prototype candidate vaccine for the HIV-I Subtype 'C' has been developed

based on plasmid DNA and MVA (Modified Vaccine Ankara) approaches at the All

India Institute of Medical Sciences (AIIMS), New Delhi. The prototype vaccine is

now ready for preclinical toxicological studies.

Select Indian Collaborations

Marketing of Vaxigrip, a global preventive vaccine against Influenza

Sanofi PasteurRanbaxy

In-licensing of CBL’s stable, liquid vaccine technology

Cambridge Biostability (UK)

To provide breakthrough combination vaccines to the Indian market

Chiron Vaccines (USA)Panacea

Biotec

Manufacturing & marketing agreement for Acambis’investigational vaccine against Japanese Encephalitis

Acambis plc (UK)

Bharat Biotech International Limited

DescriptionAlliance Partner

Indian Company

Bharat Biotech, Shantha Biotech, Biological Evans, Serum Institute of India, Panacea Biotech


Panacea Biotech, BIBCOL

Institute of India, Cadila Pharma

Key Players

5-10

70-80

700-800

10

Production(Million Doses, 2005)

10

22

35

49

Sales (USD Million, 2005)

Hib vaccine

Hepatitis B vaccine

Oral Polio Vaccine

Anti Rabies Vaccine

Segment



Panacea Biotech, BIBCOL

Aventis Pharma, Indian Immunological Ltd., Serum

Institute of India, Cadila Pharma

Key Players

5-10

70-80

700-800

10

Production(Million Doses, 2005)

10

22

35

49

Sales (USD Million, 2005)

Hib vaccine

Hepatitis B vaccine

Oral Polio Vaccine

Anti Rabies Vaccine

Segment

33

Indian Vaccine IndustryEmerging Trends

§ Recognizing the emerging opportunity, a number of domestic companies are developing combination vaccines. Serum Institute, among others, has

announced an indigenous DTP and Hepatitis B combination vaccine, Q-Vac.

§ Various public institutes in the country have been conducting R&D on vaccines for cholera, tuberculosis, rabies, HIV, malaria and Japanese

Encephalitis, etc.

§ Companies are also ploughing back close to 7 to 15 percent of revenues in R&D. For instance Bharat Serums and Vaccine Limited and Serum

Institute of India have invested 7-8 percent of their revenues into R&D.

§ Companies are investing in new manufacturing facilities in order to increase manufacturing capacity and increase the variety of vaccines

manufactured. For instance in 2004, Biological E obtained 50 acres of land in the SP Biotech Park, in Hyderabad to set up a manufacturing facility to

undertake new generation vaccines such as Hepatitis B besides combination vaccines for paediatric doses. This new facility will also support R&D

activities of the company. Multinational GSK Biologicals has also set up an new manufacturing facility at Nasik for production of vaccines.

§ An interesting trend in the Indian vaccine market is that animal healthcare companies are expanding their manufacturing expertise to human

healthcare in a big way. For instance, Indian Immunologicals, a leading animal healthcare company and one of the largest manufacturers of foot and

mouth disease vaccine in the world, has filed seven international patents on novel combination DNA rabies vaccine.

§ Another emerging trend is the repackaging of bulk vaccine drugs. For instance, Panacea Biotec, repackages its OPV from imported bulk OPV

obtained from Biopharma (Bandung, Indonesia) and Chiron (Siena, Italy). Due to this capability, the company is a WHO pre-qualified supplier of

OPV for UNICEF.

Case Study: Indian Biotech Companies Launch Novel Vaccines

Shantha Biotechnics Ltd., launched India’s first indigenously developed 4-in-1 (tetravalent) combination vaccine in 2005. The new vaccine protects

children against four life-threatening infections, namely, diphtheria, tetanus, pertussis and Hepatitis-B. Serum Institute recently launched a unique

Rabies vaccine, Rabivax, claimed to be the only indigenously developed Human Daploid Cell (HDC) rabies vaccine in India.

34

The section talks about the initiatives that are underway and what necessarily needs to be taken to turn the global R&D opportunity into a reality.

Capacity Building As we talk about the big growth numbers, the possibility of achieving those arises only if a corresponding increase in capacity is also done. While the resources may have been adequate and relevant till now, the future would need some serious capacity building. The initiative would have to be across both manpower and infrastructure.

ManpowerThe biopharmaceutical industry is inherently highly technical and knowledge based. Consequently, one of the mainstays of its success is the availability of manpower with the specialized skills, coupled with enough mechanisms in place to ensure its continuous and uniform supply.

Despite the current base, there are gaps in the percentage of employable manpower being churned out of academia, when compared to that required for the industry to keep pace with its rapid growth. As per Biospectrum, 60% of students from the top institutions prefer to pursue careers in developed economies. This trend has adverse implications on the quantity and quality of manpower available for the Indian industry. Additionally, the skill sets created by Indian universities and research programs is not always in sync with those required by the industry.

Need for greater Industry Academia CollaborationRecognition of manpower’s increasing importance for this sector by the government, academia and industry alike, will hopefully pave the way for buildingthe requisite capabilities. The industry-academia collaboration is a key requisite for this trend to happen.

InfrastructureAnother pillar for the sustainability of pharma/biotech is the availability of relevant infrastructure, such as well-maintained research labs, machinery and equipment. Cognizant of the industry’s potential, industry and government alike are investing huge sums in building the required capacity.

Initiatives

Case Study: Government To Introduce four More NIPERS

The National Institute of Pharmaceutical Education & Research, India, was established by the Government of India to cater to the long-standing demand for setting up a dedicated nodal for quality higher education and advanced research in the pharmaceutical sciences. The benefits derived out of these institutes has prompted the government to set up four new NIPERs at Kolkata, Ahmedabad, Hyderabad and Hajipur (Bihar) in 2007.

35

InitiativesAlignment with global requirementsAs one talks about the global opportunity, it is essential that the resource too is of global quality. This would require alignment of faculty and curriculum with the global standards. As a way out, the industry has been responding by recruiting western trained scientists of Indian origin to fill the gap; however, this is a short-term strategy and might not prove sustainable.

Developing ClustersBuilt on the lines of biotech clusters in developed economies, Indian biotech and pharma parks provide a one-stop solution for R&D, as companies, universities and R&D institutes are all located in one place. These spaces also offer incubation facilities, tax holidays, incentive packages and funding prospects. Consequently, they serve an ideal mechanism for fostering an environment of innovation.

As on October 2006, there were around 32 pharma and biotech SEZs which received in-principal/ formal approval. Out of these, 20 are dedicated to the pharmaceutical industry while 12 are dedicated for biotechnology. Further, several units would also be part of multi-product SEZs. However, a majority of these SEZs focus on manufacturing activities, and only a few are dedicated for R&D.

While the government has a key role to play in this aspect in the form of encouraging foreign direct investment, reduced tax incentives, establishing pharma & biotech R&D parks and special economic zones, the industry simultaneously needs to maintain the pace by scouting for investment collaborations and constantly adopting advanced research techniques.

Developing Institutions and Training CentersInfrastructure would also be a primary need when it comes to capacity building of the human resources. While we talk about scaling up the numbers of trained manpower in the country, there would be a need to build institutions and training centers for coaching these resources.

Case Study: India Seeds Clinical Research Centers

In a move to cash in on the pharmaceutical industry’s increasing interest and need to conduct clinical research in India, the country’s Department of Biotechnology (DBT) in New Delhi has announced the establishment of clinical research training centers across the country.

There would be an initial funding of USD 1 million for the centers and they would train clinical researchers, help set up functional ethics committees across the country, iron out customs issues, conduct research, and act as a single point of contact for all clinical research purposes. Public and private sectors have been invited to set up these centers, which would have uniform curriculum so that quality professionals enter the industry.

36

Patent Reform

The New Patent Law and Initiatives

In 2005, a new Patent Law was introduced to protect innovator companies which marked the transition of India from a process to a product patent

regime. To further facilitate the protection of Intellectual Property new rules simplifying patent filing, examination, search and grant procedures, and

establishing time limits for pre-grant and post-grant opposition procedures have come into force. Under the rules, patent applications must be published

within 18 months or earlier if this is requested; patent applications must be referred to a patent examiner within one month of the receipt of an application

for examination, and a first examination report should be provided within six months. Finally, patent applications can now be submitted in any one of these four locations: Kolkata, Delhi, Mumbai and Chennai.

Further Clarity on IP

To enhance the research confidence the following points need further clarity:

The first issue is the question of limiting the grant of patent for pharmaceutical substance to new chemical entity or to extend it to a new medical entity

involving one or more inventive steps. Currently, the Indian law does not allow second use and method of use patents. It is this very clause that has been

challenged by Swiss drug major Novartis AG in the Chennai High Court. The second issue is that of patentability of micro-organisms. Do they fall under

the category of discovery or invention? If they are considered inventions, do these materials fully satisfy the important patentability criteria of novelty, as they are already available in nature?

A committee to tackle both of the above was formed under R A Mashelkar, but after disputes on the committee’s report, the clarity on India’s stand on both of the issues is unknown.

The resource bottleneck persists

A substantial backlog is developing, as 25,000 applications from the pharmaceutical sector are now said to be pending. Overall, the Indian patent office

expects the total number of patent applications in the country to rise by over 20% during fiscal year 2006/07, increasing the number to 30,000 applications.

Initiatives

37

Policy and Regulation Reforms

CDA- India’s New Drug Regulator

As per the recommendations of the Mashelkar Committee in 2004, the existing infrastructure at the centre and state level was not adequate to perform

the assigned functions of drug administration efficiently and speedily. A strong, well equipped, empowered, independent and professionally managed

body, which could be given the status of Central Drug Administration (CDA) reporting directly to Ministry of Health, would be the most appropriate

solution to the overcome the above-mentioned problem. The Central Cabinet has approved the same in Jan-07. The move is expected to facilitate

upgradation of national drugs regulator, uniformity of licensing and enforcement and improvement in drug regulations. The proposed organizational

structure of the CDA is analogous to US FDA. The efficiency and efficacy of drug administration is expected to be much higher post this transition. This

should augur well for getting approvals for protocols and permissions for conducting clinical trials.

Concomitant Clinical Trials

In 2005, the Schedule Y of the Drugs and Cosmetics Act was amended. Earlier, foreign drugs trials could be conducted only at one phase below the

highest phase of testing abroad. Now, parallel global clinical trials are possible in India. Permission is granted for concomitant phase 2 and phase 3

trials.

Clinical Trial Guidelines

The Drug Controller General of India (DCGI) has finalized and notified the requirements to be followed for submission of applications for global clinical

trials, with effect from Dec-06.

As per the requirements for filing applications for global clinical trial (even for submission of data to countries other than India), the applicant has to give

details such as the applicant’s name, authorization letter from the sponsor, name of the drug, regulatory status of the drug in other countries including

names of the countries where the drug is approved along with international package insert or where IND application is filed.

Initiatives

38

Future Agenda

The Institutional Ethics Committee and its Role

The IEC’s responsibility is to scrutinize and approve the clinical trial before the study begins and also to conduct periodic reviews of the progress of the trial. A survey by Indian Council of Medical Research (ICMR) shows that most research institutions in India, either do not have an IEC or their is inadequate representation in it by persons other than those of the medical fraternity. However, things are changing for the better. The ICMR has a Central Ethics Committee on Human Research (CECHR). This committee audits the functioning of these IECs. The DCGI’s office, in collaboration with WHO, ICMR and many committed research professionals, has been conducting training programs for members of the Ethics Committees across the country.

GCP and GLP Training

Each year the number of GCP trained personnel is steadily increasing in India. Sponsors, Contract Research Organizations (CROs) and Site Management Organizations (SMOs) are making efforts to train more and more numbers of investigators on the principles and practice of GCP.

Effective Monitoring of Clinical Trials

The DCGI is already training a group of people to act as clinical trial monitors. Whenever permission for a clinical trial is granted by the DCGI’s office, these study monitors will oversee them. Proposals for a central clinical trials registry in India are also being considered. At present monitoring of clinical trials is done by the representatives of the sponsors or the CROs.

Case Study: DCGI To Weed Out Clinical Trial Delays

The Drug Controller General of India (DCGI) has proposed speeding the approval of clinical trials conducted by international companies operating in the

country. The DCGI's office is exploring mechanisms that will ensure the safety of patients while streamlining the procedures followed by CROs and

others involved in research efforts. One official said the DCGI has asked for inputs for improvements from institutional ethics committees, investigators,

trial sponsors and others throughout the pharmaceutical and healthcare industries. Its aim is to reduce the time required for approvals from current six

months to desired one month.

Initiatives

39

Research Funding

Corporate Funding for R&D has increasedMajor Indian companies such as Ranbaxy, Dr Reddy’s Laboratories, Nicholas Piramal, Cipla, Lupin and Wockhardt are increasingly focusing on research and development (R&D). Currently the R&D expenditure of the top companies is around 5-7% of the total global revenue. Though on the whole this is a positive indicator, one needs to remember that the majority of this expense goes towards the generics programme and not to the new drug research. This is reflected in the not so strong pipelines of any of the big Indian pharmaceutical companies.

Government Funding is increasingAs per the 2007-08 budget for India, $600 million have been allocated for Department of Science and Technology (DST) and Department of Biotechnology (DBT) combined. This is almost 1 percent of the overall GDP of the country. Though this is a 16% hike from last year's budget this figure can definitely be higher ,given the fact that US today spends around 2.5 percent of its GDP on R&D.

Funding from Financial Institutions is limited to established venturesBanks and financial institutions are another source of funds to promote R&D activity. However, the industry is of the opinion that these funds are primarily for established business, as they would be able to pay the interest and collateral security demanded for funds. Venture capital funding in this industry is severely limited. There are not more than a dozen prominent venture capital funds such as ICICI, Morgan Stanley, Reliance etc. Venture capitalists refrain from funding drug discovery. They would rather focus on funding commercialization of techniques already developed. However, the opportunity and high return on drug discovery is expected to increase the venture capital funding in the future.

Case Study: Learnings From Global Biotech

Despite more advanced biomedical research base in the 1960's, major developments have occurred in the US because of strong and persistent government funding, favourable policies, availability of venture capital and an entrepreneurial workforce. The US Government established the National Institute of Health (NIH) as the primary funding agency and on an operational premise, it is decentralised and enabling. Approximately 52 percent of US R&D expenditure is borne by the government, which contributes a further 25-75 percent of the cost of a grant as an 'overhead'. In addition, the government also permits local units like universities and institutes to develop independently. The United States maintains the oldest and most dominant position worldwide in venture capital.

Initiatives

40

Initiatives

Better and stronger drug development pipelines of home grown pharmaceutical companies.

Seed funding would foster a culture of innovation.

Pharmaceutical companies to focus larger percentage of R&D budget towards NCE development.

Early Stage VC funding not happening for biotechnology firms

Corporate R&D funding has increased

Government funding towards research has increased.

Research Funding

All research organizations need an Institutional Ethics Committee (IEC)

Process of effective monitoring of clinical trials to be strengthened

Clarity on second use and method of treatment patents, patentability of micro-organisms needs to be brought about

Easing of the backlog at the Indian Patent Office needs to be done

More investment is required in training infrastructure.

Greater interaction between industry and academia

Alignment with global standards.

Initiatives to be taken

A more efficient Drug Administration body is being formed .

Global clinical trial guidelines have been finalized by the DCGI.

India has entered the product patent regime in 2005

New rules simplifying patent filing, examination, search and grant procedures, and establishing time limits for pre-grant and post-grant opposition procedures have come into force

Clusters are promoting industry interaction and incubation.

Government and industry have initiated capacity building activities

Initiatives underway

Enhanced efficiency of drug administration in India especially in the conduct of clinical trials

Policy and Regulation Reforms

Enhance innovator’s confidence towards doing pharmaceutical research in India.

Faster Patent granting process

Patent Reforms

Complement/support the manpower capacity building.

Capacity Building: Infrastructure

Quality manpower with improved research capability to take on the global opportunity.

Capacity Building: Manpower

Key desired impactFocus Area

Summing up the initiativesFinally to sum up the overall discussion on opportunities and the relevant growth prescription, the following picture would emerge:

So what are the possibilities for India if the growth prescription is followed by all stakeholders? The last section of the report talks about what one can

expect from the pharma-biotech research in India in years to come.

41

Through the Crystal BallAs India’s biopharmaceutical story unfolds, one becomes increasingly aware of the country’s role in its own growth trajectory. With the product patent

regime looming on the horizon, pharmaceutical stalwarts wasted no time in ramping up their research efforts to churn out innovative and profitable new

chemical entities, and build presence in regulated markets. Not to be left behind, smaller players moved toward a service model grabbing a pie of the

investments made in late-stage clinical R&D, thereby spurring the growth of the clinical research outsourcing sector, which has come into its own

today.

However, things did not end here. Realizing early on that research and innovation is a technically proficient game requiring specialized skills sets,

established companies and small start ups alike began eyeing the high value drug discovery phase as a potential revenue earner; a lot of companies

perceive this opportunity as a means to the end of building their own research capabilities.

Goaded on by the inherent entrepreneurial spirit, large and mid-sized pharma and biotech companies have now begun thronging the international

space, collaborating and acquiring complementing businesses.

The method in the madness is clear; make hay while the sun shines, but also build your own outhouse for the rainy days.

Case Study: Learnings From Japan, Moving Up The Research Value Chain

The above events are not very different from what took place with the consumer electronics industry in Japan in the 50s and 60s. Armed with low cost,

skilled, disciplined and dedicated labor, the country was perceived as the ideal port for manufacturing consumer electronics, which had a tremendous

demand in the developed regions. Backed by local industry friendly import regulations and increased confidence from the developed economies,

Japan spurred the growth of the international consumer electronics market, simultaneously leveraging their skills sets to create new technological

innovations. Thus, as they gained the necessary expertise, they made the shift from knowledge dependence to knowledge creation. Today, Japanese

companies such as Sony are household names across the globe. Known for novel and consumer friendly products, they have become a force to

reckon with world over.

42

Contract services across the value chain

Strategic & collaborative alliances (domestic and international) across the value chain

Research driven vertically integrated industry with significant global presence

Threat from generics

Decrease in R&D productivity

Emphasis on cost containment

Favourable economics of manpower and infrastructure in India

Relevant capacity building in India

Improvement in IPR protection in India

Increased emphasis on biotech investments by Indian Government

Research oriented focus

Regulatory/IP at par with developed countries

Strong research capabilities

Best of class manpower & infrastructure

Global presence

Cost Based Approach

Partnership Approach

Innovation Driven

Through the Crystal BallA marked similarity between the Indian

biopharmaceutical R&D story and the Japanese

consumer electronics saga is the ingenuity and

agility displayed in the face of adverse events.

Though it did not take a war to give birth to R&D in

India, the industry was faced with near

obsolescence of business models due to the

adverse process patent regime.

Leveraging the low cost and skilled manpower

traits of the country, India is rapidly making the

transition from cost-based, low value service

provider, to proficient medium-value collaborative

partner.

One may then ask, what next? Drawing on past

and current trends, and looking at the future

potential of the industry, one can say with relative

ease that the country is heading towards

innovation as a core competence. The soil is

fertile and the sun is at the right angle. Now all the

country needs to do is to do away with the weeds

and plough in the right direction.

44

Introduction

Clinical Research

Process Chemistry

Medicinal Chemistry

Data management and statistical analysis

Formulations Research

Focus Areas

Part A of the report presented an analysis of the opportunities available for the Indian pharma-biotech R&D sector against the backdrop of current

trends in India, and its underlying drivers. Ensuing this is a section on suggested initiatives across certain critical success factors, that need to be taken

by key stakeholders in order to sustain the current rapid pace of growth. Finally, the report ends with a view on where India can reach on its current

growth trajectory.

Now that India’s significant role in the global pharma-biotech R&D field has been established, it would serve well to provide some examples of

established and emerging activities that are looked at by global companies for offshoring. The broad parameters across which the focus areas are

analyzed include:

§ Current state in India

§ India’s Advantage

§ Operational Models prevalent in India

45

Offshoring Clinical Research to India

46

Clinical Research in India§ Due to the growing demand for clinical trials, the Indian clinical research market is currently pegged at USD 600 million and is poised to grow to a

USD 1 billion industry by the year 2010. Since its introduction of patent protection laws in 2005, the industry has been growing three digits.

§ A huge patient population, genetically distinct groups, specialty hospitals with state-of-the-art facilities, nearly 700,000 hospital beds and 221 medical

colleges, skilled English speaking investigators are India's trump cards.

§ The cost of conducting phase I trials in India is 50% lower than the $20mn required

in the US and 60% lower than the $50mn required for the phase II study.

§ To make India a preferred destination for drug testing, clinical trials were exempt

from service tax in 2006-07 budget. This exemption would attract more clinical trial

outsourcing as the pharmaceutical sponsors will heavily benefit on their cash

outflows on account of their expenses on CRO fees and other variable pass through

expenses.

§ In the 1990s, only Eli Lilly, Pfizer and Quintiles were present in India, however, since then there has been an increase in investment, subsequently

nearly 100 players have entered the market. They are involved in several outsourcing activities related to clinical research in India. A barrage of both

Indian and international pharma firms and clinical research organisations such as Novartis, Ranbaxy, Merck and Astra Zeneca, have stepped up this

investment and have also begun entering the market, realising the potential of this untapped region. A majority of these companies are starting by

offering bioequivalence services, then gradually expanding into clinical research using their existing talent pool.

Availability of Subjects,

Investigators and Sites

Recruitment of Subjects &

Quantitative Benefits

SupportInfrastructure

Compliance to Norms and Global

Acceptance of Data

Regulatory Policy &

Framework Factors impacting clinical trials in

India

47

Availability of subjects

Availability of Trained manpower

Speed of Recruitment

Cost Advantage

Availability of Sites

The India Advantage

The prevalence of diseases of both, the tropical and the industrialized world, and the availability of treatment naïve patients allows for quick recruitment.

By 2010, an estimated 2500-3000 GCP trained investigators are likely to be available in India.

Opportunity for cost optimization through lower patient recruitment costs, lower investigator costs and the ability to implement complex protocols.

Patients can be recruited 3-4 times faster for trials than in the traditional geographies in the West.

India has robust IT infrastructure and resources coupled with well integrated Central Reference Labs, Medical Facilities etc.

The rationale for conducting clinical trials in India depends on certain key drivers which impact the attractiveness of India as a country for conducting clinical trials. Each of the above factors has a bearing on the offshoring decision.

48

Key Points of Consideration

Company contracts out a study to a CRO which conducts the study in all the locations including India.

Company contracts out one study to multiple CROs, each in a different location.

Company gets the Indian portion of the multi-centric study done by its Local Affiliate with complete in-house capabilities

The Regional Affiliate contracts out the Indian portion of the multi-centric study to a CRO (Indian or Global).

The following table outlines the various operating models that are followed by the global innovator pharmaceutical companies

Description

Regional contracting-out

Captive clinical trials organization

Multiple vendors multiple location

Single vendor multiple location

Operating Models

§This model is used primarily for strategic needs and not with a cost-saving motive.

§This operating model would require more management band-width at a global level

§A Multinational CRO may or may not pass-on the cost benefits arising out of conducting trials on subjects from relatively inexpensive locations such as India and China.

§This model is employed by companies which have considerable experience in contracting out to CROs and have developed multi-vendor management capability

§The cost benefits arising out of multi-vendor contracting out strategy must be able to outweigh the expenses arising out of excess management band-width necessary for this model

§Only if the companies have adequate capability to conduct a particular trial in-house or with minimum contracting out; the captive clinical trials organization model can contribute towards improving the spending efficiency of the clinical trials.

§The captive clinical trials organization model can allow for delegation of more management responsibility to the local affiliate.

§Similar to the captive clinical trials organization model the regional contracting out model can contribute towards improving the spending efficiency of the clinical trial process.

§The regional contracting out operating model can allow for delegation of more management responsibility to the regional affiliate.

49

Risk and Mitigation PlanExternal perceptive risks, of offshoring clinical trials, mainly concern the regulatory environment of a country. These are provided below with their

mitigation plans:

§ Human Subject Protection: The concerns are regarding the effective functioning of the Ethics Committee, whether the practices in the

country are International Conference on Harmonisation (ICH) / WHO Good Clinical Practice standards (ICH-GCP) compliant, and the absence of

regulatory safeguards for volunteers. The government has taken several initiatives to make the regulatory environment more efficient.

§ Clinical Trial Approval Norms and Processes: The Drugs Controller General of India (DCGI) in consultation with the ethics

committee and a panel of specialists grants approval for clinical trials in India. Several initiatives by the Government have sought to simplify the

regulatory mechanism and to bring the approval timelines at par with most of the developed countries.

§ Foreign Corrupt Practices Act: The Foreign Corrupt Practices Act imposes criminal penalties on American enterprises that bribe officials

of foreign Governments. After the OECD anti-bribery convention, similar laws are being enacted by various countries. This comprises a regulatory

risk for companies which can be managed in the following fashion: while conducting clinical trials in a Government hospital, typically a tripartite

agreement is entered into by the sponsor/CRO, the hospital and the investigator. The reimbursement made, is treated as a research grant by the

Government Hospital.

Companies would have to ensure that the contracts are secure with reimbursement formulae for investigators which also cover specific cases

such as drop out patients and also ensure that there are no specific incentives favoring positive outcome of the trials. In addition companies can

develop standard operating procedures for CRO specifying a ceiling on the value of any gifts etc the CRO or any company employee may give to

the stakeholders such as the investigators, the hospital etc.

50

§ Operating Model: Started by offshoring data-management services, followed by Phase II / III trials to CROs and currently building in-house capabilities in India.

§ Nature of Trials: Phase II and Phase III trials for India and also global trials.

§ Key indications: Cancer, malaria, tuberculosis, central nervous systems, anti-infectives, diabetes and metabolic disorders.

Key Observations

Case Study: GlaxoSmithKline Plc

§ Contain costs and optimize clinical research spending of its global clinical research budget or increase in the productivity of current spending to pay for more and larger trials.

§ The availability of patient-pool and scientific resources Key Drivers

§ GSK’s Indian clinical operations started modestly with the setting up of the Clinical Data Management Centre India (CDMCI) at Bangalore in 1996.

§ GSK Plc has identified India as a hub for clinical trials. After the recent tie-up with Indian cancer institutions it is in the process of identifying institutes for similar long-term collaborations.

§ The cancer trials are expected to commence soon with one of the molecules, Lapatinib, being developed as a dual action treatment for breast cancer.

Overview of Clinical Trials Operations in India

Case Study

51

Offshoring Process Chemistry to India

52

An innovator company will offshore process chemistry to India in the following areas :

§ Process re-engineering for its mature/ off patent molecules and intermediates with the objective of process optimization

§ Custom synthesis and process development for its new molecules which are currently under development

Rationale for Innovator

Re-engineered processes help the innovator in reducing the cost of manufacturing and bringing down the number of steps, resulting in greater cost

competitiveness in global markets.

Overall benefits of offshoring process chemistry to India may be summed up as:

§ increasing process efficiency, yield

§ reducing the number of synthetic steps

§ working with complex molecules, tough chemistries, and multi-step syntheses

§ reducing costs

Introduction

53

Case Study: Matrix Laboratories

Matrix Labs has developed a non patent infringing process to produce an API – Citalopram. Until this development by Matrix, Citalopram was solely

developed by a Danish company – Lundbeck. Matrix filed for a successful process patent in Europe, and has been receiving orders from generic

companies for this bulk drug .

New Process Development

Most of the leading Indian companies today have built expertise in developing innovative development processes, which can reduce the number of

steps originally required and also reduce the cost of development, time of manufacturing etc.

Process Improvements and Synthesis of Complex Molecules

India’s R&D forte has been in synthetic organic chemistry and process development. The focus has been to develop cost effective and environment

friendly technologies for high value Active Pharmaceutical Ingredients/ intermediates involving complex chemistry. Several Indian manufacturers also

have the capability to synthesize complex molecules and improve on the manufacturing process. Indian companies are now utilising their re-engineering

molecules outsourced to them by MNCs. Using their expertise at process re-engineering, Indian companies have been able to increase yields by as

much as 65-70% incase of some retroviral drugs.

Non Infringing Process Development

Leveraging their process chemistry skill sets, Indian companies have been able to develop non infringing processes for US and European countries.

Several Indian companies are now focusing developing non-infringing processes.

Available Skill Sets in India

54

Pfizer, GSK, Novo Nordisk

Custom synthesis

Process chemistry & manufacturing

Analytical services

Dr. Reddy’s Laboratories

GSK, Pfizer, IvaxSynthetic chemistry, chiral separations, stereselective synthesis and polymorphism studies

Matrix Laboratories

Eli Lilly, Aventis, GSK, Boots, Novartis, PfizerProcess development, contract research, custom synthesis

Shasun Chemicals & Drugs Limited

Major presence in the US & Europe

Caters to al leading MNCs such as Merck, Abbott GSK

Contract research, custom synthesis, building blocks for peptides, building blocks for Nucleotides, Carotenoids, Chiral ligands etc.

Divi’s Laboratories

Searle, Pfizer, Davos (USA), Cytomed, Leukocyte, National Cancer Institute, oxford Symmetry, Cipla & Cadila

Custom synthesis

Process chemistry & manufacturing

Analytical services

Combi-chem & medicinal chemistry

AVRA Laboratories

Key ClientsServices OfferedDomestic Company

Key Players in IndiaThe players offering custom services are usually those who have initially being manufacturing APIs. The common skill sets required for process

chemistry services have helped them to diversify into this related service area.

55

SWOT of Outsourcing Process Chemistry to India

Strengths / Drivers§ Low labour & overhead costs

§ Strong process chemistry research & optimization skills

§ Sound analytical chemistry & quality assurance setups

§ Abundant trained chemistry manpower and educational infrastructure

Weaknesses / Restrainers§ Supplier compliance & quality

issues

§ Lower emphasis on material costs for patented products

Opportunities§ Increase in R&D outsourcing from

regulated markets

Threats§ China, traditionally weak in process

chemistry skills, beginning to ramp up

There are two operating models followed by major innovator companies, one involves outsourcing the work to domestic formulation & bulk drug

companies with a process R&D arm and the other involves independent service providers specializing in contract chemistry research; this gave birth to

the custom pharmaceutical services industry in India.

56

Offshoring Medicinal Chemistry to India

57

IntroductionGlobal innovator companies have tread very cautiously in the area of drug discovery research in India in the past because of the high IP risk perceived.

In spite of India signing the TRIPS agreement in 1995, very few global pharma companies were willing to risk their IP in India because of lack of

regulatory protection before 2005 and India’s traditional reputation for reverse engineering. However, with Indian companies investing more in innovative

R&D and showing greater respect for IP in the run up to 2005, when India switched over to product patents, India’s overall perception has improved to a

degree among global innovators. As a result, some global pharma companies have re-visited their India strategy in recent years by either collaborating

with research based Indian pharma companies on NCE research or have contracted with discovery service providers for a part of their discovery

chemistry.

Rationale For the Innovators

Rising cost & low output of R&D

While global innovator companies have increased their R&D spend, it has not necessarily resulted in more number of new drug approvals. R&D

productivity of global innovator companies is suffering, which is reflected in the weak pipelines.

R&D offshoring now taking over from just outsourcing because of migration of talent to low-cost innovation destinations

offshoring to developing countries has become imperative because of the low cost R&D talent base and also large number of returning non-resident

scientists

.

58

Key Advantages Offered By India

Evolving Skill Sets in Chemistry

§ Over the last decade, the focus of Indian companies has been gradually moving from process to medicinal chemistry for new drug discovery

research. Research based Indian pharmaceutical companies have invested significantly in creating research facilities of international standards to

undertake drug discovery and this has resulted in the availability of well trained and highly skilled chemists and pharmacologists. Together with

scientists in ADME, drug safety evaluation and pharmaceutics, this allows drug discovery chemistry to be carried out in India on a reasonably large

scale.

Introduction of Product Patents and Growing Respect for IP

§ India’s transition from a process to product patent regime in 2005 has helped in lowering the perception of IP risk in India among global

innovator companies.

Adequate Infrastructure for Drug Discovery

§ The emergence of several discovery service providers and the creation of specialised infrastructure in the form of Biotechnology /Knowledge Parks

,through public-private ventures across the country, has created adequate infrastructure for drug discovery R&D in India.

§ Furthermore, several Government laboratories under the CSIR (Council for Scientific and Industrial Research), ICMR (Indian Council of Medical

Research), etc. have emerged as “Centres of Excellence” for pharmaceutical discovery R&D. The availability of adequate research infrastructure in

the country has encouraged several global innovator companies to offshore drug discovery research to India.

R&D Cost Competitiveness

§ Availability of cost-competitive chemistry capabilities in India is being cited by many as the single most important factor in favour of offshoring drug

discovery to India.

59

Leading Discovery Service Providers

Medicinal chemistry services, custom synthesis and drug discovery services, affiliate Clinigene

Syngene

• Strengths in chemistry-driven drug discovery activities such as organic synthesis, medicinal chemistry and process chemistry

• USD 60,000 per chemist in India as compared to USD 250,000-300,000 per year in the US

• Global innovator companies have gradually become willing to share sensitive data with Indian service providers

CRAM, medicinal chemistry services, custom synthesis and clinical trials ( ACT and Sipra), drug discovery services

Suven Life Sciences

Medicinal chemistry services, scale up servicesSai Life Sciences

Bioinformatics, clinical trials, CRAM, medicinal chemistry services, custom synthesis and drug discovery services

Jubilant Organosys

Medicinal chemistry services, Bioinformatics, clinical trials, custom synthesis and drug discovery services

GVK Biosciences

Medicinal chemistry services, custom synthesis and formulations, Preclinical pharmabiology, BA/BE, CRAMs

BioArc Research Solutions

Lead generation and optimization and early computational chemistry aided ligand design, mining and screening of novel chemical entities, thus providing direction for lead Discovery and medicinal chemistry

Aurigene Discovery Services

Own drug discovery services, medicinal chemistry services, toxicology studies

Advinus Therapeutic

Areas of ResearchKey PlayersOverview

The table below analyzes the activity profile of select leading local service providers medicinal chemistry and leading public R&D laboratories. It provides

details in terms of services provided by them in contract chemistry.

Key Players

60

Public R&D Laboratories

Areas of ResearchKey PlayersCharacteristics/Services Provided

Offers courses in Combinatorial Organic Synthesis,

Organic and Peptide Chemistry, Clinical Pharmacology

and many others.

Central Drug Research Institute (CDRI),

Lucknow

• 143 nationally recognised in-house R&D

units in industry

• 6 National laboratories & 50 Universities

dedicated to medical research

• Strong focus on Discovery chemistry

Offers postgraduate courses and PhDs in Medicinal

Chemistry

National Institute of Pharmaceutical

Education & Research (NIPER) , Mohali

NCL has an Organic Chemistry Department that is

engaged in multifaceted activities ranging from process

chemistry, custom synthesis, synthesis of new chemical

entities with clinical potentials and small library

synthesis for combinatorial chemistry.

National Chemical Laboratory (NCL),

Pune

Involved in new molecule / product development

including molecular modeling for rational design;

combinatorial synthesis for lead optimization, and

catalyst development / screening.

Indian Institute of Chemical Technology

(IICT), Hyderabad

Key Players

61

§ Targeted and custom design of combinatorial libraries

§ Typical areas in discovery chemistry where alliances and outsourcing are occurring:

§ Scaffolds, synthons and reagents used as building blocks for new molecules

§ Lead optimization

§ Structural activity relationship (SAR) modifications

Operating Models A number of global innovators such as GSK, AstraZeneca, Novartis, Eli Lilly, Wyeth and Altana are undertaking a part of their discovery research

activity in India. They have adopted varied models for offshoring their R&D.

Offshore Discovery CentreAltana Pharma

Contract Discovery Model, In-licensing ModelNovartis

Contract Discovery ModelEli Lilly, Wyeth

Collaborative ModelGSK

Offshore Discovery Centre with limited outsourcingAstraZeneca

Model for offshoring discovery chemistry to IndiaGlobal Innovator Company

LowHigh High Ease of new alliances

ModerateLowHighOverheads

ModerateModerateHighScalability of model

HighModerateHighAbility to attract the best R&D talent

ModerateLowHighScale of Investment

ModerateLowHigh Degree of management control

ModerateModerateLowIP Risk

Joint-VentureContractual Alliance

CaptiveOffshore Center

ParameterSuitability of offshoring Models for Medicinal Chemistry

The operating models differ on various parameters. Based on its strategic priorities a company may choose one or

a hybrid of one or more models to operate in India.

62

Risks & Mitigation Plan

Data Confidentiality (Employees/ Partners/Vendors)

Data Confidentiality has been a cause of concern for some global innovator companies offshoring IP sensitive work to India. This risk is related to both

data shared with partners/vendors and the inadvertent transfer of knowledge that may happen through employees/FTEs working on discovery projects.

An Innovator’s typical concern arising from partnering or contracting , can be effectively and sufficiently addressed through clear legal agreement and

negotiation and should not be a barrier to working with Indian companies. The Indian Contract Act 1872, provides enough protection for the parties

involved in the contract. The other Acts also support data confidentiality The Indian companies have been maintaining confidentiality in line with their

terms of agreement with their allies. Some of the steps that may assist in mitigating the risk involved, include:

§Establishment of a comprehensive confidentiality/non-disclosure agreement (CDA), that not only covers the IP of both the parties but also

extends for a length of time sufficient to cover the sensitive nature of the information being disclosed.

§Utilization of the contractual agreements (feasibility agreement, development or supply agreement) to establish who owns the IP.

§Addressing the “competitive product” concern in terms of negotiating for exclusivity, be it for a particular therapeutic class, technology,

certain regions or countries, etc.

§Finally, assessing the potential “conflict of interest” risks that may arise in each project, and structure CDAs and other agreements to

address the specific risks.

63

Case Study

Case Study: Merck-Advinus

§ Merck will access drug discovery and development capabilities at low cost – this will serve as a pipeline enhancement

strategy

§ Advinus will gain access to cutting edge technologies from Merck and leverage its India-based drug discovery and

development capabilities

Critical Drivers

§ Merck and Advinus Therapeutics of India have formed a drug discovery and clinical development alliance in 2006.

§ Collaboration to focus on metabolic disorders

§ Both to develop clinically validated drug candidates for metabolic disorders, with Merck retaining the right to advance the

most promising candidates into late phase development

§ The collaboration will begin with two programs, and could expand to include others over time

§ Merck’s first research based collaboration in India

Highlights of the Deal

64

Offshoring Formulations Research to India

65

IntroductionOffshoring of formulation research would include analytical chemistry, development manufacture, process chemistry, process engineering, project

management, business development and Good Manufacturing Practice Quality Assurance.

Rationale

For the innovators

As the research pipeline of innovator companies comes under critical scrutiny following a succession of failures in late-stage development, they need to

invest heavily in new R&D resources, partnerships and acquisitions.

A stronger flow of new compounds increases the need for PR&D specialists, who provide a bridge between drug discovery and manufacturing by

designing the routes and processes leading to bulk production of an active pharmaceutical ingredient.

At the same time, companies have been making deep cuts to boost productivity and cost efficiency in its supply chain. Consequently, in line with most

off shoring decisions, formulations research and development too is targeted at cost containment.

For the Indian companies

The opportunity to work on an innovator formulation provides a challenge for the skilled and dedicated Indian chemists who have already proven

themselves in the generic area .

Also the interactions with innovator companies during research is an ideal method of competence building.

66

Key Advantages Offered By India

Availability of Skill Sets

§ The existing talent pool is largely dominated by scientists who have rich exposure in working on downstream drug development (stability studies,

formulation optimization, delivery technologies etc.), and have vast exposure in terms of working on global projects.

§ A large number of people graduate with subjects such as chemistry, pharmacy, microbiology and pharmacology, every year. The industry-academia

linkages have been able to foster technical skill sets providing the students with hands on practical experience besides class room training.

§ Further Indian companies have attracted skilled and qualified scientists from across the shores by providing world class infrastructure facilities,

technology platforms and also the opportunity of working for Innovator pharma companies.

§ Companies are harnessing the knowledge resources available in the country in terms of collaborating with the academia and utilizing the latest

technologies formulation research. These alliances have led to the development of systems that integrate personnel, capacities and capabilities within

formulation research.

New Drug Delivery Systems: Emerging capabilities

§ Applying innovative reformulation and Novel drug delivery systems (NDDS) is being increasingly embraced by Indian pharmaceutical companies

towards sustaining their market share and optimizing the return on their investment.

§ Several Indian companies, service providers and Public research laboratories have been pursuing dedicated programs towards developing novel

delivery technologies across diverse therapeutic segments.

Low additional capital investment to create research infrastructure

This is obvious given the traditional research strength of India.

67

§ Innovator pharmaceutical companies have been leveraging the formulation research capabilities residing in the country to their benefit. They have

been following an optimal mix of operational models (hybrid) to suit their individual requirements.

§ Several global innovator firms and service providers are evaluating setting up their R&D facilities in India to address the growing needs of the

innovator pharmaceutical companies. For instance, RCC Ltd. a Switzerland based service provider, is setting up its R&D facility in India, wherein, an

in-house team would be conducting solubility and analytical studies for both Indian and European clients.

Operating Models to leverage Indian Capabilities

Operational Models of Innovator Pharmaceutical Companies in Formulation Analysis

CONTRACTUAL ALLIANCES

CAPTIVE

§ Maximum Control§ Process consistency§ Protection of

intellectual property§ Creation of trained

resource pool

PROS CONS Illustrations

§ Higher capital outlays§ Increased start-up time

§ SPI Pharma§ Noveon

§ Lower business risk & investment§ Accelerated time to

market§ Higher cost savings

§ Greater management &contractual complexities§ Effort to transfer skills to

partner

§ Pfizer§ Novartis

68

Availability of Resource Pool

§ Niche service providers: Rubicon

§ Large Indian pharma: Ranbaxy, Lupin, Wockhart etc.

§ R&D organizations: IICT, NIPER

Degree of offshoring High

Reverse Brain Drain: NRI Scientists Returning Home

§ In-licensing Model -Ranbaxy-Bayer and Lupin-Cornerstone

§ Of late innovator pharma setting up their bases in India – e.g. Nektar Therapeutics

§ Existence of technology in-licensing opportunity.

§ Established novel combination dosage forms.

§ Relaxed import registration norms for chemicals and intermediates for formulation research. § Team integration issues for

Actual Projects in Japan/US and India.

§ Established awareness and exposure to cGMP guidelines and USFDA norms.

§ Relatively low cost of construction – Pilot plant

Other Significant Considerations

Innovator Pharma Operations

Moderate High

§ Niche service providers: Advinus Therapeutics, Strides Arcolab, Rubicon, etc

§ R&D organizations: PERD Centre, NIPER

§ Service providers: Rubicon, Medreich Sterilab, etc

§ Large Indian Pharma: Shasun, Jubilant Organosys

§ R&D organizations: PERD Centre

§ Contract based alliances - Pfizer and Novartis outsource stability and analytical studies to Indian vendors

§ Recent establishment of captive centres -SPI Pharma setting up R&D facility in India

§ Service providers such as Rubicon, Strides Arcolabs, etc work with the likes of Pfizer, for manufacturing of clinical supplies.

Level of OffshoringIn line with an innovator’s key considerations and the critical parameters that have a bearing on the offshoring decision, the level of off-shorability of

specific activities within formulation research could be summarized , as below:

Manufacturing of Clinical Supplies

Formulation AnalysisBasic Formulation Research(New Drug Delivery Systems)

Stability Studies

Analytical Studies

Novel Dosage form for pre-

launch products

Reformulation of existing post-

launch products

Activities

Capabilities

69

Typical concerns arising from offshoring, can be effectively and sufficiently addressed through clear legal agreements and should not be a barrier to

working in India. Success can be enhanced by creating a development environment where information flow and informed decisions are timely and there

is understanding of which operational model best supports the needs and styles of the innovator’s activities in India.

Some of the steps that may assist in mitigating the risk involved, include:

§ Establishment of a comprehensive confidentiality/non-disclosure agreement (CDA) with suppliers and employees, that not only covers the IP of

the innovator but also extends for a length of time sufficient to cover the sensitive nature of the information being disclosed.

§ Utilization of the contractual agreements (NDDS technology) to establish who owns the IP.

§ Addressing the “competitive product” concern in terms of negotiating for exclusivity with service providers, be it for a particular therapeutic class,

technology, certain regions or countries, etc.

§ Finally, assessing the potential “conflict of interest” risks that may arise in each project, and structure CDAs and other agreements to address

the specific risks.

Potential Risks & Mitigation Plan

70

Case Study

Case Study: AstraZeneca Leverages Indian Formulations Research Expertise

AstraZeneca is leveraging the formulations research expertise accumulated in India's generics industry and universities by opening a $15m (€11.3m)

process research and development (PR&D) laboratory next to its existing research centre for tuberculosis in Bangalore.

The newly inaugurated 8,000sq m facility on AstraZeneca's Hebbal campus can accommodate up to 75 process scientists as well as supporting office

and engineering staff. The Bangalore laboratory will both consolidate the existing drug discovery program for tuberculosis at the site and bolster the UK

company's global PR&D network. This consists of one facility apiece in the UK and Sweden, plus a pending UK PR&D laboratory at AstraZeneca's

Macclesfield site that is expected to start operating by mid-2009.

The company planned to recruit additional scientists from the organic, analytical and process engineering disciplines from universities directly or with

varying levels of local/overseas industrial experience.

However, AstraZeneca has played down the cost advantages of siting PR&D in Bangalore. As per them the company had set up its R&D infrastructure

on the basis of centers of excellence,

According to AstraZeneca, the co-location of Discovery and PR&D at Bangalore will help the company to maximize scientific interactions and enable

shared use of the PR&D infrastructure.

71

Offshoring Data Management and Statistical Analysis to India

72

Introduction

Rationale

For The Innovators

Drug development trials are resource-intensive and require precise documentation to track all research processes. All changes and modifications have

to be carefully documented for safety and compliance reasons. Consequently, pharmaceutical companies are demanding maximum quality, reliability

and visibility into how day-to-day activities are tracked. Clinicians who are responsible for researching new drugs are concerned with the integrity and

security of data. Confidentiality is paramount and a watertight security policy needs to be enforced.

Having an appropriate IT architecture in place to help handle these pressures is more important than ever. Companies cannot afford for IT to be the

weak link. One of the solutions is outsourcing. To date, pharmaceutical companies have been hesitant to outsource because of concerns about

intellectual property protection, regulatory compliance and business continuity. However, the benefits that can be realized through outsourcing can no

longer be ignored, and a growing number of pharmaceutical companies are now evaluating the steps that need to be taken when selecting a supplier.

For the Indian Companies

§ Given the huge size of the market of global clinical trials, this is a ready made commercial opportunity for India.

§ India has a unique advantage in this field, being a country with prowess in both Clinical Trials and the IT sector.

73

A few players such as Quintiles and Pfizer provide/

use undertaking EDC trials etc.

Both capital and operational costs of a DMSA set-

up in India are low.

India has a strong legal framework that supports

innovator companies. However, it faces challenges

in implementation

Indian Government has taken several initiatives to

support the knowledge industries

Through IT Parks and Government reforms the

infrastructure support in the Country has improved

significantly

The cost per employee in India is 1/5th the similar

cost in US

India has an edge over other emerging locations in

terms of productivity & quality

Observations

Moderate(Improving)

“Do companies in India provide/ use next level of

technology for in data management.”8)

High“The cost of a DMSA set-up in India”7)

6)

5)

3)

2)

1)

S. No.

Moderate(Improving)

“India has a regulatory framework which protects

the interest of innovator companies”

Moderate(Improving)

“Government of India’s support to IT and pharma

industry”

Moderate(Improving)

“Availability of World-class infrastructure to build

and scale up its own offshore development centre”

High“India has a cost advantage per FTE over other

countries.”

High“Availability of trained manpower with IT skills in

India”

India’s RatingKey Hypotheses

Key Advantages Offered by India

74

Source: Industry Sources, Merill Lynch 2003, Nasscom Strategic Review 2003 (from www.bpoindia.org)

20%11,85458,598TOTAL EXPENSES

50%

33%

155%

12%

14%

India as a Percentage of

US Costs

1,5003,000Depreciation

8472,600Property Rentals

2,3281,500Telecom

1,0008,571General & Administration Expenses

6,17942, 927Personnel

India(USD Mn)

United States(USD Mn)

Cost Components per FTE

India is fast emerging as a destination of first choice for a majority of the work

outsourced across the globe. India’s value proposition based on its low cost-high quality, scalability model gives it an edge over other emerging offshoring locations.

Outsourcing to India has helped companies reduce their costs significantly. Companies

are able to increase their margins due to reduced investments in physical

infrastructures, telecom and equipment. Wage arbitrage has further escalated the cost savings.

Following table gives a comparison of the cost advantages offered by India in

comparison to United States. Excluding telecom expenses, all other operating expenses in India are far less than those in the United States.

Cost Advantage Per FTE

The cost per FTE in India is 1/5th the cost of FTE in US.

COST ADVANTAGE

QU

ALI

TY

LOW COST HIGH COST

LOW

Q

UA

LITY

HIG

H

QU

ALI

TY MO

DER

ATE Q

UA

LITYMODERATE COST

INDIA

ISRAEL

IRELANDCANADA

SOUTH AFRICA

PHILIPPINES

Source: Evalueserve, NASSCOM (Compiled for The Earth Institute at Columbia University)

US

Japan

Source: E&Y Research

http://www.bpoindia.org)

75

In-house Operations

Outsourcing Database

Designing and IT Services

Hybrid Models(Outsourcing + Offshoring)

Operating Models in India

Successful Ventures

Key Advantages

Key Constraints

• High data security

• Optimal integration with developmental research

• High operational efficiencies (reduced cycle times etc)

• Easy implementation

• High operational efficiencies (reduced)

• Optimal integration with developmental research

• Difficulties in integrating operations.

• Difficulty in implementation

• Relatively low data security

• Less integration with developmental research

• Relatively lower operational efficiency.

• Long gestation period.

• High data security

• Easy implementation

• Companies cannot leverage the optimal Indian advantage.

The two prominent models followed by innovator companies include: 1) complete offshoring to a vendor 2) multiple centres for data management based on therapeutic focus.

76

Potential Risks & Mitigation Plan

The innovator company would follow

a phased approach to develop its

India Centre. This would enable the

company to gradually understand the

market dynamics. Further, a focused

search of employees would enable

the company to select better staff.

Moderate(companies interests can be protected under The

Contract Act)

Employee Confidentiality

HighData Exclusivity

Fair(Though backlog of cases makes the process long

drawn)

Fair Judiciary

LowComprehensive framework

Data Protection

LowDesigns

Low(However, the pre-patent protection laws are not

strong)

Patent

No specific regulation, covered under IT Act & Confidentiality Act

Privacy

LowDigital Signatures

LowHacking

Data Protection and Privacy

LowCopyrights

LowTrademarks

Intellectual Property Rights Protection Risks

77

Case Studies

Case Study: Accenture Provides Clinical Trial Data Management Support To Wyeth

Accenture is working for Wyeth in clinical trial data management with approx. 400 people working, having 2 offices and plans to open 3rd one. Wyeth is

expected to cut costs by 35% to 50% by having clinical data management done in India using Wyeth's technology through a partnership with Accenture.

The Company is considering onshore outsourcing of human-resource functions and offshore outsourcing of development.

Accenture establish a first-of-its-kind business process outsourcing arrangement in the Life Sciences industry. Under the agreement, Accenture is

redesigning and implementing a host of new clinical data management practices for Wyeth from protocol design to patient recruitment to site monitoring.

In addition, Accenture has taken over the management of Wyeth's 175 clinical data management employees and operations. Guided by its global

delivery approach, the Strategic Delivery Model, Accenture is complementing that workforce with an additional 400 skilled resources from the Accenture

Global Delivery Centers. A strong governance structure guides the multi-disciplinary workforces from Wyeth and Accenture to work and communicate

together to help drive predictability, efficiencies and higher value, as well as higher levels

Case Study: GSK And Tata Consulting Services Enter Into An Outsourcing Deal For Drug Development Support

GlaxoSmithKline (GSK) has signed an outsourcing deal with India's Tata Consulting Services to establish a drug development support facility in

Mumbai. A company statement said that under the terms of the deal, TCS will support GSK's global clinical research and development programme by

providing outsourced data management and medical trial reporting services. The arrangement will create nearly 100 new jobs on an existing site and

reports say that the deal is understood to be worth more than £ 10 million. GSK already has sizeable research operations in Mumbai and Bangalore and

employs 2,400 people in India, where it controls 5.9 per cent of the pharmaceuticals market.

78

GSK – GlaxoSmithKline

GLP - Good Laboratory Practices

GCP - Good Clinical Practices

GCLP - Good Clinical Laboratory Practices

GAVI – Global Alliance for Vaccines & Immunization

FTE - Full Time Equivalent

DTV – Diphteria Tetanus Vaccines & Immunization

DST - Department of Science & Technology

DNA - De-oxy Ribonucliec Acid

DMSA - Data Management & Statistical Analysis

DCGI - Drugs Controller General of India

DBT – Department of Biotechnology

CRO - Contract Research Organization / Contract Research Outsourcing / Clinical Research Organization / Clinical Research Outsourcing

CRAMS - Contract Research and Manufacturing Services

COPD - Chronic Pulmonary Obstructive Disease

CECHR - Central Ethics Committee on Human Research

CDMCI - Clinical Data Management Centre India

CDA - Central Drug Administration

BMS - Bristol-Myers-Squibb

AMRI – Albany Molecular Research, Inc

Key Abbreviations

79

SMOs - Site Management Organizations

SEZ – Special Economic Zone

Schedule Y of Drugs & Cosmetics Act - Contains the regulations regarding Clinical Trials in India

R&D - Research & Development

PR&D - Process Research & Development

OPV – Oral Polio Vaccine

NME - New Molecular Entity

NIH - National Institute of Health

NDDS - Novel Drug Delivery System

NCEs - New Chemical Entities

MPC - Multinational Pharmaceutical Company

MMR – Mumps, Measles & Rubella

M&A – Mergers & Acquisitions

JV - Joint Venture

IT/ITeS - Information Technology / Information Technology-enabling Services

IP – Intellectual Property

IND - Investigational New Drug

IEC - Institutional Ethics Committee

ICMR - Indian Council of Medical Research

ICH - International Conference of Harmonization

Key Abbreviations

80

WHO - World Health Organization

US FDA - United States Food & Drug Authority

TRIPS - Trade Related Intellectual Property Rights

TCS - Tata Consultancy Services

TCG Life Sciences - The Chatterjee Group Life Sciences

TATA Group - Leading Industrial group of India

Key Abbreviations

81

Utkarsh PalnitkarPartner and Leader � Business Advisory ServicesLeader � Health Sciences Industry, IndiaErnst & YoungUtkarsh. [email protected]+91 9849040841

For Further Information, please contact:

Amit MisraSenior AssociateErnst & Young

Uma MakhijaSenior AssociateErnst & Young

Kirti AnupveerConsultantErnst & Young

Sidharth MadhavConsultantErnst & Young

Team MembersVishal GoelVice PresidentErnst & [email protected]+91 9849040845

Karun RishiUSA-India Chamber of [email protected]+001 781 586-1212

mailto:[email protected]



82

© 2007 Ernst & Young and USA – India Chamber of Commerce All Rights Reserved. Ernst & Young and USA – India Chamber of Commerce are registered trademarks.

www.ey.com/ India www.usaindiachamber.org

http://www.ey.com/

http://www.usaindiachamber.org

position paper pharma-biotech research paper.pdfposition paper pharma-biotech research: may 2007. 2...

Documents