The role of emerging economies - a case for IndiaBy Partha S. Ghosh
There is an emerging consensus worldwide that the healthcare industry has to be transformed in a way in which the "globalizing economy" could indeed make healthcare solutions accessible to all, while ensuring that the innovation spirit is retained, if not advanced, and investors find the industry attractive enough to draw quality resources.
As conflicting as these objectives might appear, they could be addressed. The new technologies that are emerging in bio/pharma space; the new "solution concepts" that are surfacing because of convergence of different technologies such as info, bio, opto and nano; and the new pathways of innovation that are becoming possible because of globalization of business systems, in fact, suggest that great possibilities lie ahead.
With strong leadership, skill sets and assets of the industry - both hard and soft - can be restructured and repurposed with a global perspective and innovative mindset to balance all of these objectives.
Need For Multiple Vector Perspective
It is no secret that pharmaceutical industry in ancient nations with large population bases such as China and India as well as several emerging countries such as Brazil and Russia could indeed play path-finding roles if the pharma/bio tech companies, multinationals and locals alike, could take a multi-vector perspective in crafting their business models and developing and executing their global strategies. Their leaderships must develop the capabilities to view each region with different lenses and then synthesize the possibilities into an integrated approach that leverages hard and soft assets in a most optimal fashion. The multiple perspective must include:
1. Fusing each regions' centuries-old wisdom on body, mind and soul management (e.g. yoga, herbal medicines, and acupuncture) with modern scientific knowledge on biological systems, both at the cell and eco levels, to create more holistic healthcare solutions.
2. Leveraging the low-cost scientific and technological talent pools of the region, including the universities and specialized research institutes, to (i) expand the scope of the ideation process for new solutions through the integration of different routes of thinking, (ii) increase the velocity of development of the new molecule/drug pipeline by enabling parallel processing of experiments in multiple locations and (iii) reduce the cost of specific tasks by leveraging cost differentials between regions.
3. Examining ways to serve the large population bases in the emerging nations with solutions customized for those environments.
A case for India: Where the Country's Policies and Prospects Fit In
Indeed, over the last three decades the Indian pharmaceutical industry has rapidly grown to serve both domestic and global markets through products and services that encompass finished drug dosages (Formulations), Active Pharmaceutical Ingredients (API), Research and Development (R&D) and related contract services. Companies such as Ranbaxy, Cipla, Dr. Reddy's and more than a dozen others have pioneered development of the industry and are now in the process of developing a global presence by essentially leveraging cost differentials in both research and manufacturing arenas. Indian labor wages are approximately 1/6th to 1/7th of North American and European salaries which translates into 35% to 40% cost savings.
In the process, India has also been the destination for a large and growing volume of outsourced production and R&D by Multinational Pharmaceutical Companies (MPCs). Key factors that make India an attractive region to outsource include its lower costs of production and R&D, the highest number of plants (75) certified by the FDA outside the US and highly-skilled professionals. The services of these Indian companies include Contract Manufacturing Organizations (CMOs), Contract Research Organizations (CROs) and other related services. The Indian pharmaceutical outsourcing market shows a healthy compound annual growth rate (CAGR) of 37.6% and is expected to increase from $929 million in 2006 to $3.33 billion by 2010.
The Indian CMO market stood at $620 million in 2006. It is expected to have a CAGR of 41.7% and reach $2.5 billion by 2010. Chemical synthesis constituted 60% of the total outsourcing market by CMOs in India, followed by formulation and packaging which constituted about 40%.
As far as India's R&D capabilities are concerned, in 2006 Indian CRO revenues were worth $265 million, with clinical trials contributing more than half of revenue. Projected figures for 2010 are $600 million, with a CAGR of 22.7%. Most of these companies are developing first-rate facilities for pre-clinical trials as well as expertise in research-biology and research-chemistry. The number of global trials conducted in India has surged from 40 in 2002 to 200 in 2005. Historically, MPCs needed to set up their captive bases in order to conduct clinical trials. Today, given the rise in the number of contract research organizations, clinical trials can be outsourced. Increased capabilities in data-management can further expedite business.
This trend in the near term is expected to further accelerate growth of pharmaceutical-related outsourced services (accounting, sales and marketing, etc.). In fact, revenues of related services is expected to grow from $44 million in 2006 to upwards of $225 million by 2010.
As a result, India's share in the global pharmaceutical outsourcing industry is expected to increase from 1.8% (2006) to 4.4% (2010). The various advantages offered by the Indian pharmaceutical outsourcing industry are attracting global investment on a scale that will spur the growth of the Indian pharmaceutical industry as a whole. Several studies suggest that drug discovery and development process when conducted in India saves companies around $1 billion per drug. Due to low production costs and availability of talent, the greater part of cost saving occurs in the research chemistry phase of the drug discovery and development process.
Next stage opportunities to be more significant
The Indian pharma industry, including both multinational and domestic companies, can recreate a healthcare solutions industry by:
Patterning India's global APIs and formulations manufacturing off of the Japanese automotive industry's network manufacturing processes. As the pharma industry's science and technologies become more complex, large pharma companies will have several outsourcing arrangements across the value chain worldwide strategically clustered around process technologies and scientific skill base of the contract manufacturers. India must adopt some of the state-of-the-art six sigma techniques, while MPCs must develop the art and science of managing such relationships beyond contracts for continuous quality and efficiency improvements. The 2006 global pharmaceutical CMO market of $35 billion is expected to reach $48 billion by 2010, in which India could well play a significant role.
Participating in Indian R&D for shortening time-to-market while significantly lowering drug development costs. Like CMO relationships, pharma companies will be well served if they could develop a network of complementary research centers; the ones who maximize each countries' relative skill bases and foster the most knowledge creation and knowledge management will emerge as leaders.
Pharma companies can start by capitalizing on near-term opportunities in research chemistry. Indian R&D vendors have proven skill sets in scale-up process optimization and manufacturing. In addition, India is already a favored destination for the outsourcing of labor- intensive activities involved in clinical data management and biometrics (e.g. data-management). MPCs have used these skills and secured high quality output in chemistry, while obtaining cost savings up to 80%.
Once MPCs are receiving short-term revenue boosts from those measures, they need to assess mid and long-term strategies. For instance, where MPCs are increasingly confident in outsourcing pre-clinical development work to India, offshoring end-to-end work is still not a practical option today, given India's limited facilities for studying non-human primates and insufficient laboratories that meet Good Laboratory Practice (GLP) standards. However, Indian capabilities in pre-clinical trials are starting to improve with the upgrading of laboratories and vivaria (the centers that manage and house research organisms and samples) and the development of expertise in conducting pharmacokinetic, drug metabolism and toxicity studies in rodents and, to a lesser extent, in canines. Also, India's vast population increase has multiplied the frequency and magnitude of patient enrollment per site and is available to patients at 60-70% of cost.
Research biology is also likely to gather momentum in the long term. India conducts activities such as chemo-informatics and gene sequencing with expertise. However, proficiency in end-to-end activities needs to be developed. This skill-gap is attributable to the industry's traditional focus on process reverse-engineering which has inhibited growth in this innovative field. To encourage the requisite skill-set, the Indian government has initiated steps to promote R&D and encourage opportunities for research biology outsourcing down the road.
Developing sophisticated research analytics and information processing techniques. After CMO and CRO, MPCs will soon turn to Knowledge Process Outsourcing (KPO). Knowledge services organizations will help large and small pharma companies continually track and process multiple sources of information so that MPCs' corporate center can swiftly improve R&D, sourcing, manufacturing, sales and marketing and services processes. If done correctly, the corporate center would be able to track, analyze and trigger initiatives all over the globe in any of these areas.
In order to develop more precise solutions and gene-based preemptive therapies, companies will need to process large-scale structured technical and business/economic information, generated internally and externally to the organization in a rapid fashion, then transform it through analytics to yield intelligent insights. Furthermore companies will need to be able to collate and share such insights in such a fashion that will help technical and non-technical leaders learn and act on the knowledge and apply it to R&D, manufacturing and marketing across all global partners so that the company's entire ecosystem could stay ahead of the curve. So when new regions emerge, companies from all regions can collaborate to rethink organizational principles, not just extend the past to the future.
In that context, a company's ability to develop and manage relationships with KPOs will become as important as they are for CMOs and CROs.
About the author: Partha S Ghosh a renowned strategist and management consultant has advisory relationships with multiple organizations worldwide is also the Chairman of Boston Analytics, a knowledge processing firm with an active practice in health care space.