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Introduction

Pharmaceutical industry is constantly undergoing a change. In the past


pharmaceuticals had a different strategy, companies use to build all the products
internally and confine access to information or resources to third parties. The
past situation is changing; in-house resources are getting exhausted with a very
thin product pipeline and in addition many drugs are going off patent by 2008
hampering company sales and competitiveness. It takes $800 million and 20
years for a new drug/device to enter the market. Patient recruitment and medical
personnel account for nearly 70 per cent of the clinical costs that are required to
bring a drug to market. Threat from generics, low productivity of R&D process,
higher costs for product approval and parallel imports are the major market
feature for decreasing pharmaceutical profits. Global outsourced R&D
expenditure is increasing every year leading to rise in business prospects for
Contract Research and Manufacturing services (CRAMS).

The total pharmaceutical and biotech outsourced market is currently pegged at


$33 billion and is expected to reach to $48 billion whereas R&D outsourcing
expenditure is around 50% of the total market as stated below.

Table 1: Global R&D Outsourced Market (Source: Frost & Sullivan, e stands for
Frost & Sullivan estimates)

US$ Billion

2001

2002 2003 2004


2005(e)

2006(e)

2007(e)
Global R&D Outsourcing Market 11.4

12.7

14.1

16.3

18.7

21.7

24.9

Outsourcing
Outsourcing - the current mantra of pharmaceutical industry - is being used more
strategically as an ongoing part of a company's overall business strategy.
Outsourced activities can be in various fields right from the drug discovery till
manufacturing of the products. Pharmaceutical firms have long outsourced
functions such as manufacturing, packaging, clinical trials and sales force
mobilization.

The U.S. market for outsourced pharmaceutical manufacturing is growing at the


rate of 10 to 12% annually. Pharmaceutical companies will continue to fuel much
of this growth as they outsource an increasing number of products and services.
Biotechnology companies, which have almost doubled in number during the past
five years, also contribute to this trend as they seek ways of bringing their
products to market without making capital investments in their own
manufacturing facilities.

Why outsource?
Pharma alliance or partnership holds cost benefit advantage by reducing huge
amounts of capital outlay for producing latest technology in-house. Outsourcing
allows pharma companies to ramp up the R&D operations at a fast pace with
minimal capital outlay. Benefits of Outsourcing are:

- Outsourcing reduce the overall costs by 30% to 35%

- Faster and cheaper to have discovery work outsourced, reduces drug


development cost

- Reduces problems faced during the regulatory processes around the world

- Improve manufacturing efficiencies

- Reduce excess production capacity by divesting facilities

- Minimize investments in capital-intensive facilities

- Improve net earnings and cash flow;

- Divert resources to focus on other competencies like marketing

Outsourcing can allow pharma companies to establish consistency and efficiency


across sprawling international networks of commercial, supply chain and

manufacturing organizations. Outsourcing if managed and executed strategically


has every potential to add value to the shareholder value and keep the investor
community happy.

Why outsource work into India?


India today has the largest number of US Food & Drug Administration (FDA)
approved drug manufacturing facilities outside the US. The Indian patent act
amended on March 2005 opens a new avenue for India into the global
pharmaceutical market. Pharma multinationals have maintained a low-key
presence in Indian market due to absence of product patents and rigid price
controls. Indian pharmaceutical industry did not receive significant foreign direct
investment (FDI) but introduction of product patents will see multinationals
strengthening their presence in the country. India holds multiple advantages over
other countries for increasing outsourced work:

- Presence of over 10,000 pharmaceutical companies and one fourth of it can


provide contract manufacturing facilities to foreign pharmaceutical companies

- Presence of around 25 Contract Research service (CRO) providers with excellent


infrastructure and well trained and experienced staff to conduct clinical
development activities

- Indias well known software skills and English speaking scientist for
bioinformatics

The second largest population in the world, a growing economy and rising
income levels makes Indian market difficult to ignore.

Conclusion
Its a great challenge to successfully manage the outsourcing relationship and
generate value.
To maintain continuous growth in outsourced work from pharmaceutical
companies, outsourcing partners need to confidentially retain the proprietary
knowledge and meet the regulatory compliance. Outsourcing solves the
problems for the pharma companies and allows them to exploit the potential of
new drug discovery technologies. Its not a far fetched dream when the
pharmaceutical companies and outsource partners work in symbiotic relationship

where pharma companies provide their core competencies in marketing and


commercialization and outsource partners supply new innovative products.

The market has witnessed several major trends that have governed the evolution
of contract manufacturing over the past few years. One of the most significant
changes in the outsourcing space is the emergence of strategic contract
manufacturing. The conventional model of contract manufacturing involved a
vendor-customer equation. However, phasing out that traditional concept,
contract manufacturers nowadays believe in entering in strategic alliances with
CMO partners with the objective of cutting down production cost and enhancing
product pipelines.
The contract manufacturing market, broadly categorized into API manufacturing
and FDF manufacturing, has witnessed significant growth in the past several
years driven by factors such as cost efficiency, technical expertise, and increased
time efficiency. The current marketplace is inundated with numerous established
as well as emerging CMOs, with a diverse array of service offerings and scale of
operation. Despite being faced with challenges such as heavy competition and
lack of funding, contract manufacturing in itself characterizes a huge opportunity
for the pharmaceutical sector. Inevitably, substantial growth prospects lie ahead
for pharmaceutical contract manufacturers; CMOs who will be able to provide
certain differentiating elements targeting diverse customer groups stand to
benefit the most in this competitive landscape.
SCOPE OF THE REPORT
The Contract Manufacturing in Pharmaceutical Industry, 2015 - 2025 report
provides an extensive study of the rapidly growing pharmaceutical contract
manufacturing market. With pharmaceutical and biotechnology industry striving
to minimize costs and maximize profits, outsourcing has emerged as an ever
increasing trend. The study presents an in-depth analysis of a diverse set of
CMOs on some of the key parameters such as type of business operation, scale
of operation, packaging form, geographical location and range of services. In
addition, it captures some of the key growth areas which will likely present
tremendous opportunities for CMOs and ensure an accelerated pace of growth.
Some of the potential growth areas include biopharmaceutical and high potency
manufacturing. Specifically, in these markets, complex manufacturing
requirements and capital intensive nature of the business make outsourcing an
attractive option.
The report assesses some of the key drivers that have governed the evolution of
contract manufacturing market over the past several years along with an
elaborate discussion on the future trends that will shape the market in the
coming years. One of the focus areas of this study is to estimate size of the
future opportunity in the pharmaceutical contract manufacturing market over the

next decade, segmented on the basis of business operations and key regions.
In addition to some of the well-known benefits and a promising outlook, the
study also highlights considerable challenges currently prevalent in the market.
Examples include quality concerns, cultural differences and lack of transparency
in the manufacturing process. Nevertheless, these challenges are paving the way
for new strategies and technological improvements, which will indeed be
advantageous in the long run.
The base year for the report is 2014; the report provides market forecasts for the
period 2015 - 2025. The research, analysis and insights presented in this report
is backed by a deep understanding of key insights gathered both from secondary
and primary research.
EXAMPLE HIGHLIGHTS
1. North America and Europe are the predominant regions where majority of the
production facilities of CMOs are located. Out of 509CMOs we studied, 189 have
presence in multiple locations in the US. In Europe,the other major hub for CMOs,
Germany, Italy and the UK have presence of 58, 37 and 32 CMOs respectively.
Companies have also gradually moved their focus to developing countries in
order to take advantage of the relatively lower costs.
2. The market is well distributed between API manufacturers and FDF
manufacturers. Within FDF contract manufacturing, solid dose compounds
currently dominate the market. However, future growth is likely to be driven by
injectables dose manufacturing primarily due to increased focus on complex
disease areas and the growing trend of self-administration.
3. In terms of analysis by scale of operation, majority of the CMOs have the
capability to operate on clinical as well as commercial scale. Out of 394 CMOs
evaluated for this exercise, 340 CMOs have the provision for both clinical and
commercial stage manufacturing.
4. High potency and biopharmaceuticals manufacturing represent a major growth
opportunity for CMOs. Owing to the capital intensive nature of the business and
complex manufacturing requirements, CMOs have become the preferred
manufacturing partners for majority of the pharmaceutical clients.
5. The intense competition in the marketplace is driving CMOs to explore
innovation aspects such as eClinical systems, cloud based computing and risk
monitoring tools to create differentiation. Specifically, for biopharmaceuticals
manufacturing, CMOs have started utilizing novel bio-processing services and
technologies such as single use bioreactors.
6. With respect to the market size, we have estimated the API and FDF contract
manufacturing to be worth USD 35 Billion currently. Driven by the increasing
trend of outsourcing, we expect the market to grow at an annualized rate of
8.3%.
RESEARCH METHODOLOGY
Most of the data presented in this report has been gathered by secondary
research. We have also conducted interviews with experts in the area (academia,

industry, medical practice and other associations) to solicit their opinions on


emerging trends in the market. This is primarily useful for us to draw out our own
opinion on how the market will shape up across different regions and drug
segments. Where possible, the available data has been checked for accuracy
from multiple sources of information.
The secondary sources of information include
- Annual reports
- Investor presentations
- SEC filings
- Industry databases
- News releases from company websites
- Government policy documents
- Other analysts opinion reports
While the focus has been on forecasting the market over the coming nine years,
the report also provides our independent view on various technological and noncommercial trends emerging in the industry. This opinion is solely based on our
knowledge, research and understanding of the relevant market gathered from
various secondary and primary sources of information