The pharmaceutical outsourcing trend received a huge boost due to the recent economic slowdown, when companies began to seek outside assistance for various traditional in-house services in order to reduce the huge burden of drug discovery and manufacturing.
This, coupled with escalating competition in the global drug market, has driven many leading multinational drug companies to seek new strategies such as outsourcing research and production.
India and China have been reaping the benefits of such strategies, attracting companies through offering greater cost savings, better access to expertise, productivity gains, process improvements, variable costs, avoidance of capital outlays and opportunities for companies to focus on specific niches, according recent market research by Frost & Sullivan.
India and China now hold the potential to capture 35-40 per cent of the outsourced market share in the $50 bn global pharmaceutical manufacturing industry, according to the report.
In addition, Frost & Sullivan reports that the Indian and Chinese drug discovery outsourcing market is already valued at $7.3 bn and rapidly evolving, with these countries gaining an edge in the global arena by producing a continual pipeline of drugs, which are approved faster than those produced in western countries.
Furthermore, "Governments' initiatives to diversify the industry's drug discovery portfolio and develop infrastructure are expected to drive the growth rate of the drug discovery outsourcing market in India and China to reach $19. 8 billion in 2011," said Dr. Amarpreet Dhiman, EMEA Drug Discovery Technologies team leader at Frost & Sullivan.
Of late, the Governments of these countries have been working to improve regulations in drug manufacturing such as introducing mandatory good manufacturing practice (GMP) compliance and improved legislations for clinical trials in order to attract foreign outsourcing contracts and these areas are now benefiting from real growth.
However, there is still a need for further areas of compliance to also become compulsory such as good clinical practices (GCP), especially in the case of contract research organisation (CRO) operations and both countries are still lagging well behind in complying with international regulations for drug discovery.
This is scaring away many potential international outsourcing contracts from drug companies who hold fears over inadequate patent protection and ambiguities in regulatory issues and legislation of intellectual property (IP) rights.
Although the Chinese government has escalated its anti-piracy efforts, closing 691 factories producing counterfeit medicine in 2004, companies are still fearful of potentially exposing their products to piracy, especially companies in the US, which stand to lose $450 million every year due to piracy.
In a recent report by Ernst & Young, more than half of pharmaceutical executives saw counterfeiting and data security as a business risk to their company operations in China while 42 percent saw counterfeiting as a problem in India.
In addition, when asked to rank individual risks, patent protection was the most significant issue for a majority of pharmaceutical companies doing business in China and India.
More than 70 per cent of pharmaceutical executives said that threats to intellectual property pose a business risk in China, with 62 per cent considering patent protection in India an issue, the survey revealed.
Although China has strengthened its commitment to intellectual property by agreeing to adhere to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement as part of its entry into the World Trade Organization (WTO), many drug companies are still weary of how much this adherence will protect them.
In particular, a new "one drug, one patent" policy interpretation means that in China patent protection will only apply to the original use of a drug, as stated in the patent. This will be of great disadvantage to multinational companies, which increasingly seek to develop and market new uses for their existing drugs.
India also now adheres to the TRIPS agreement and has enacted the Patent Protection Act in 2005 to protect intellectual property. But at this stage, no one knows how long it will take for the benefits of the new law to take effect.
In addition, many multinational companies were not completely satisfied with the scope of the law and are continuing to work with the government to address ongoing concerns.
One major concern is the compulsory licensing provision, which allows generic production in the case of an emergency, which many manufacturers with brand products are wary of.
"The development of patentable products requires healthy investment in R&D and suitable confidentiality of results to develop a strong IP portfolio," said Dr Dhiman.
"To ensure that technological innovation is commercialised to its best potential, companies need to continuously work with domestic government officials and key opinion leaders in establishing and defining standards to comply with regulatory standards," he said.
While India and China hold vast potential for outsourcing, in order to establish long-term growth and credibility both countries need to continue to become WTO-compliant by meeting the numerous drug regulatory standards issued by the International Conference on Harmonisation guidelines and the U.S. Federal Drug Authority, the Frost and Sullivan report concluded.
A virtual brochure, which provides manufacturers and other industry participants an overview of the latest analysis of the Drug Discovery Outsourcing Market in India and China can be requested on the Frost & Sullivan >here.