Competitive landscape of the Indian CMO industry

Competitive landscape of the Indian CMO industry

Although custom manufacturing landscape has become hyper competitive around the world, Indian contract manufacturing organizations (CMOs) have started to expand their presence in Western countries. Now-a-days, the selection of a supplier is no longer driven by pricing, but rather by the total service offering. Custom service providers from India are demonstrating their manufacturing efficiency and technical sophistication to attract more customers. Moreover, cost along with strong quality, safety, environmental aspects, and supply-chain programs are the key attributes for success of any CMOs in India.

The following table shows the FY 2010 revenues of the leading 10 CMOs in India.

Table 3: Leading 10 CMOs/CRAMS players in India, FY 2010
Company	Sales FY 2010 ($m)
Jubilant Organosys (CRAMS)	450
Dr. Reddy's (Pharmaceutical Services and Active Ingredients – PSAI)	431
Divis Laboratories	196
Dishman	193
Piramal Healthcare – Pharma Solutions Division (Custom Manufacturing)	187
Hikal	113
Shasun	112
Biocon (Custom research)	59
Suven Lifesciences	20
Aurobindo (AuroSource)	NA
Leading 10 players	1,761
Note: In some cases, we have considered the total CRAMS business, as the companies did not disclose the breakdown of their contract manufacturing business.All numbers were converted into $m considering an average exchange rate for the fiscal year (i.e. in FY 2009, INR1 = $0.0218; in FY 2010, INR1 = $0.0211). FY = Fiscal Year (April 01 to March 31). NA = Not available.

Source: Business Insights

The global pharmaceutical industry will continue to reduce manufacturing costs to protect margins and develop innovative products faster and at a lower cost. This has led to changing mindsets towards R&D and manufacturing outsourcing, which augurs well for the CRAMS players in India. Furthermore, India's advantage in contract manufacturing and research make it an attractive destination for mass production of drugs and clinical research. Jubilant Organosys is one of the leading CRAMS players in India which recorded FY 2010 sales of $450m at a y-o-y growth of 8.7%. Dr. Reddy's Laboratories (PSAI), Divis Laboratories, Dishman, and Piramal Healthcare (Pharma Solutions Division) remained the other major CMOs in India with FY 2010 sales of $431m, $196m, $193, and $187m respectively.

Drivers and resistors of Indian CMOs

Indian CRAMS players have a proven expertise and technical capabilities in the entire value chain of pharma life-cycle and have also established itselves as the preferred partner of global pharma innovators for collaborative research and contract manufacturing in the world. In addition, Business Insights' research also indicates that Indian CRAMS industry would get larger share of outsourced activities such as contract research outsourcing (CRO) and CMO in the coming years. Companies such as Jubilant Organosys, Biocon, Divis, Dishman and Piramal, who have already strengthened their positions in both CMO and CRO sector would largely benefit from the increasing CRAMS opportunity in India. Moreover, the introduction of new patent regime in India since January 2005 also boosted the confidence of multinational pharmaceutical players who look to outsource the manufacture of their branded drugs.

Moreover, the globalization trend in R&D and manufacturing is expected to continue to accelerate as major pharmaceutical players have started to conduct more clinical trials, and source more of their requirements from raw material suppliers in Asia, Eastern Europe and Latin America. The quest for lower drug development costs, larger pools of subjects for clinical trials, and the desire to capitalize new market opportunities created by the expanding wealth of the major Asian and South American economies will become the key catalysts of growth in near to medium-term.

Cost is no longer the single competitive advantage for any CMOs in India. To become a successful CMO, cost along with quality, environmental safety, efficient sourcing and optimization of supply chain programs must be evident. Although labor costs in India continue to be lower than those of the Western suppliers, but more recently, this gap is closing due to shifting demand, spread of relative wealth, and competition for raw materials.

Pharmaceutical outsourcing in India has become fragmented as a large number of new players have entered the market in recent years. Moreover, the competition is based on a number of factors such as delivery timeline, intellectual property protection, quality, pricing and the depth of relationship with the innovator company. Additionally, large innovators and generic companies setting up Indian operations will also reduce the outsourcing opportunities for many CMOs in India.