CRO: India Rides the Wave
Date: Thursday , January 30, 2003
BACK IN 1985, NOT MANY WOULD HAVE HEARD about contract research organizations (CROs). Thanks to the enterprise of Dr. Anand Kumar, then conducting research in the United States, the uncharted domain has become a nearly booming business in India.
A visionary Kumar succeeded in convincing Swedish drug major ABAstra, later merged with UK-based Zeneca to form AstraZeneca, to set up its Research and Development operations in India. Kumar firmly believed that India could help in cutting down the time and money spent on research and product development. And, ABAstra found good reason to outsource drug discovery or pre-clinical research and the move virtually ignited a CRO boom in India.
According to Frost & Sullivan, the CRO market will grow from the present $9.8 billion to $16.3 billion in 2005, by which time global biopharmaceutical R&D spending will top $50 billion. Over 40 percent of this may well be committed to outsourcing, according to other estimates.
Typically, a CRO executes specific research projects where sophisticated capabilities are present both in personnel and in technologies, under tight confidentiality agreements and predetermined timelines. CROs provide access to technologies and expertise, thus cutting costs and time in accomplishing the objectives of the research project.
Currently, India has about 20 CROs that are either riding the boom or striving to do so. In Bangalore alone, there are more than 10 CROs. Prominent among them are Syngene International, Lotus Labs, Strand Genomics, Genotypic Technologies Avesthagen and Bioorganic and Applied Materials.
In 2001, Syngene, a subsidiary of privately-held Biocon Group, earned $2.7 million in the first six months. Now, it has almost come to be recognized as a well-established company in complex areas of research in molecular biology, synthetic chemistry and informatics.
For Synchrone Research, an Ahmedabad-based CRO firm, the breakthrough came in 2001 when it won a multi-million dollar contract for monitoring drug discovery trials of Covance Inc., one of the largest drug development services companies, with revenues of $800 million in 2001.
Synchrone was a none-too-impressive start-up CRO once. Part of the reason for its lack of charm originally was due to lack of any VC interest in their business model. Even in 1998, Dr. Shivprakash, its founder, had a mere one-bedroom apartment in Ahmedabad with the kitchen doubling up for that most critical requirement-a laboratory.
“It was tough to convince Covance. Of course, we played on cost factor to get the contract. And, eventually, the quality that we turned out was on par with their standards,” says Dr. Shivprakash. Synchrone’s superlative performance has now made it a partner with Covance in monitoring various trials in India.
Lotus Labs, a Bangalore-based CRO that started in 2000, has also traveled the same path. V.V. Raghavan, managing director of Lotus Labs, says, “Venture capitalists would frown whenever I sought their funds. No VC understood what bioequivalence studies were, which are mandatory in developed countries. Indian pharma firms trying to enter these markets have to conduct them before they approach the regulators.” In its first year, the company conducted four studies and earned $450,000 from major pharmaceutical firms in the U.S.
There are two types of CROs in India: some managing pre-clinical trials with new drugs and others conducting bioequivalence studies. The Indian market for bioequivalence studies is estimated at around $20 million, which is expected to grow three-fold by 2005.
“In India, the drug discovery research can be done at one-fifth of the cost. This is where Indian CROs have the potential of becoming key players in this segment,” says Goutam Das, COO of Syngene.
The average cost of drug discovery for a pharmaceutical company amounts to $500 million with various interim costs. Pre-clinical research can be outsourced to cut costs and India can tap this opportunity with its scientific expertise and research labs.
Significantly, India appears to have a distinct advantage in the CRO domain as, unlike in most merely cost-effective Information Technology-related works, the CRO projects are planned, tried and tested practically within India before they are transferred to the overseas client for application.
Besides pre-clinical trials, there is also another opportunity for Indian CROs. And that's clinical trials, which the major pharma companies want to outsource.
There are three distinct phases in clinical trials. In Phase I, a trial is conducted on a small group of normal people to evaluate the safety of the drug while, in Phase II, the drug is administered to 100 to 300 people who suffer from a particular illness or disease. The second phase could typically last two years. Phase III, the final stage of the trial process, involves a larger group of patients at multi-centric locations and the results of the second phase are validated against a population base of over 10,000.
In each of these trials, Indian CROs can offer pre-clinical research. According to the Drug Controller General of India (DCGI), in 2000, there were about five applications for clinical trials from multinational pharma firms, while there are 80 now. There are two major reasons for this growth. First, India has an excellent physician population with international exposure as well as work experience in government and private hospitals and healthcare centers. Second, there are a large number of patients ready for clinical trial enrollment.
Quintiles Transnational Corp., the world's leading healthcare organization, opened its first office in India in 1997 and has since been building the infrastructure and knowledge base. In less than three years, its subsidiary, Quintiles Spectral (India) Ltd, grew to a 60-member company in three locations: Ahmedabad, Bangalore and Mumbai.
Currently Quintiles is conducting pre-clinical research for pharmaceutical companies on more than 70 sites, says Ferzaan Engineer, managing director, Quintiles Spectral. The strategy of Quintiles, which earns $1.6 billion revenue globally, is simple: build a knowledge base and infrastructure that are required for India’s pharmaceutical companies with strong research credentials and grow financially.
Interestingly, the outsourcing customers, particularly MNCs, are very sensitive to criticism that they are exploiting developing world labor. Hypothetically, most MNCs feel that they cannot do anything if their formula is copied by companies. But with Intellectual Property Rights (IPR) in place, such problems could be avoided. Right now, Indian IP law doesn’t protect products relating to medicines, foods and chemicals.
Therefore, the huge challenge that Indian CROs now face is the regulatory system that approves various licenses for clinical research. “The hallmark of success of CROs as business entities rests on three criteria: ethical standards of operation, quality of services and products and timeliness in providing services,” Kumar feels. The day may not be too far when CROs become a major money-spinner for India.