Spurt in Medical Transcriptions
& Diagnostics Outsourcing
PHARMA:
The Next Big
BPO wave

BCG said in its latest report 'Harnessing the power of India' that partnerships between Indian and global pharmaceutical companies are on the rise and almost all top global firms are heading towards India with plans to set up their R&D divisions. India ranks high in the list of nations for R&D spending by MNCs and Indian bio-pharma companies have been increasingly grabbing a big share of this investment, the report said. India is no longer be considered a developing country in the pharma R&D market, as its hubs acquire equal status with their European and US-based counterparts, the report added.
A separate study conducted jointly by Booz Allen Hamilton, a global strategy consulting firm and France-based Business School Insead, said that more than three-quarters of the R&D sites to be set up over the next three years would be located in India or China. The two Asian countries are ready to overtake Western Europe as the most preferred location for foreign R&D operations of US businesses and by the end of 2007 they would account for approximately 31 per cent of global R&D staff, up from 19 per cent in 2004, the study said.
According to BCG, India's domestic pharmaceutical sector is gradually shifting its focus from the generic drugs towards innovative drug research and discoveries, thanks to recent changes in patent protection laws worldwide. This development has led to a significant increase in partnerships between domestic and MNC players of the industry, BCG added.
Initially, the MNC players were content in tapping the proven capabilities of the Indian pharma sector, such as process scale-up, they are now exploring to further expand their collaborations in India after facing declining productivity in their own internal R&D efforts, BCG said, adding that India's greatest attraction is its appeal for MNC pharma firms seeking to enhance their research activities and accelerate their clinical trials. Indian vendors demonstrate established capabilities in these areas and MNC companies could quickly tap into and reap the benefits of this experience, the report added.
In its Global Pharmaceutical Report prepared some time back, Ernst & Young, the leading global professional services firm, has identified India as an emerging hub for collaborative and outsourced R&D. Several Indian pharma companies are now holding on to their own on the world stage. India's pool of trained chemists, excellent track record of innovation and US FDA approved manufacturing facilities enable local players to offer significant benefits in the drug development process, the report said.
According to the report, many global companies are confronted by a value crisis as they try to sustain a business model based on high costs of manufacturing, R&D, marketing and sales, increasing regulatory scrutiny and reimbursement pressures.
Countries that can combine lower cost manufacturing with adequate regulatory protection of intellectual property are well positioned to attract large pharmaceutical companies, India being a prime example. Approximately 30-50 per cent cost saving opportunity is possible in India, the report added.



There is a fundamental shift in Indian companies' approach from business-driven research to an increasing focus on research-driven business, the report said. In the changing landscape Indian companies are adopting a combination of alternative business models to navigate competition and opportunity. These include a) Focusing on export led growth through subsidiaries or acquisitions in high margin regulated markets; b) Bolstering NCE research capabilities c) Partnering across the value chain with multinationals through licensing, collaborative R&D or co-marketing arrangements d) Contract research and manufacturing.
Indian generic drug makers have been particularly successful in developing non infringing processes and some are also honing their understanding of patent regulations, which is enabling them to aggressively litigate and challenge patent claims and enjoy longer exclusivity periods. Indian pharma companies have been topped in drug filings with USFDA in the last few years, ahead of European countries and China.
Proactive government policies in recent times such as stiff regulations to deal with spurious drug manufacturers, mandatory GMP compliance starting 2005 and the proposed legislation to allow concurrent phase trials and are further adding to India's shine. Institutions such as the World Trade Organization and the World Health Organization play an increasingly important role in shaping the pharmaceutical industry on a global, regional, and domestic level. The report relates the perspectives of senior policymakers in the US and India on the impact of these supra-national organizations. Convergence and partnering among various sectors medical devices, biotech, and pharma will further drive innovation, the report said.
Recent overseas acquisitions by Indian pharmaceutical companies point to the industry's sharpening focus on its core strength - manufacturing. While research-based multinationals are exiting manufacturing to focus on brand-building and research, Indian generic makers are counting on their cost advantage to venture into mature markets.
“Manufacturing comes with a lot of supply-side pressures, such as rise in raw material prices and manpower liabilities. With low-cost manpower and state-of-the-art machinery are poised to do the job,” said an industry analyst.

Acquisitions by Indian Companies
The acquisition by Nicholas Piramal India of Pfizer's manufacturing unit in Morpeth, UK, is a case in point. Nicholas' case holds true for several other Indian pharma companies, which have resorted to acquisitions to get exposure to the regulated markets. Earlier this year, Bangalore-based contract manufacturer Kemwell Pvt Ltd acquired Pfizer's facility in Sweden to augment its contract manufacturing business. Dr Reddy's Laboratories acquired Roche's active pharmaceutical ingredient unit in Mexico in 2005 hoping to boost its custom pharmaceutical services business to US $100 million by mid-2007 from $10 million in November.
Many of these deals also bring an assured supply contract to Indian players from multinationals whose units they acquire. For instance, Nicholas has an assured contract from Pfizer till 2011 to supply active pharmaceutical ingredients. While good services ensure repeat contracts, the association also gives Indian firms an edge when they pitch for fresh contracts with other large clients. On the other hand, research-oriented multinationals are getting to free up cash to deploy in areas like research and development and product marketing.
Profitability is an issue for the entire industry and multinational companies are trying to focus on their core businesses, outsourcing the rest, according to analysts. Till not too long ago, prescription drug makers had been saddled with over-capacity at their plants, as new drug approvals sharply went down. They found the answer in outsourcing manufacture of their active pharmaceutical ingredients by selling their plants and focusing on innovation.

Importance of R&D
In the absence of a product patent regime till last year, domestic pharma firms saw little reason to invest in R&D but invested heavily in getting world class manufacturing facilities equipped with international approvals from US Food and Drug Administration and UK's Medicines and Healthcare products regulatory Agency. Those investments are beginning to bear fruits now, as the world pharma manufacturing outsourcing market, estimated to reach $27 billion by 2007, opens new vistas for them.



While manufacturing is Indian pharma sector's immediate focus, realization is dawning that R&D is equally critical. So even as one segment of the Indian pharma sector rises to the outsourcing opportunity, innovation follows in tow. Taking cue from India's success in the information technology sector and buoyed by the new product patent regime, companies like Ranbaxy Laboratories, Wockhardt and Biocon are breaking fresh ground in drug research.
The product patent regime encourages Indian generic manufacturers to stress on research and development as they will be able to patent their products in the Indian market. Biocon has partnered Cuban Centre of Molecular Immunology to develop anti-cancer vaccine, whereas Glenmark Pharmaceuticals has an arrangement with US-based Forest Laboratories to develop anti-asthma drugs.
The desire to move up the value chain is strong, but drug development is fraught with risks with more researches ending in failure than success. Even in the case of success, revenues begin to flow in only after 2-3 years; profits come much later. Therefore, Indian companies entering research need to be ready for a long haul.

Japanese firms eye India
The Japanese pharmaceutical industry is eyeing India as a new hub to conduct its contract manufacturing and clinical trials India is thirsty for new Japanese investment. Ram Vilas Paswan, India's Minister for Steel, Fertilisers and Chemicals, recently led a six-day delegation tour of Japan to explore the vast potential and expertise offered by the Japanese pharmaceutical and chemical majors. He met with leading representatives of the Japan's pharma industry and visited the premises of pharma giants Eisai and Mitsbishi Corporation in order to discuss new cooperation agreements between the two countries.
Eisai Chemicals expressed its intention to set up a new manufacturing unit and R&D facility in India, at either Vishakhapatnam or Indore, Paswan told reporters in Tokyo. In addition, Paswan said Mitsubishi Chemicals had announced a Rs1665 crore (€285.1m) plan to expand the manufacturing capacity of purified teraphthalic acid (pta) - a petrochemical used in plastic products - from 470,000 tonnes to 1, 270,000 tonnes at its facility in Haldia.
Meanwhile, India has overtaken Germany and China as the pharmaceutical industry western executives most want to know about. Driven by fear over its market encroachment and ambition at its investment and efficiency potential, western companies are gathering data urgently to identify the right strategic moves.
This saw India emerge as the pharma industry's hottest research topic in 2005, according to a survey by online provider of business information for the pharma industry, Piribo. India was the most viewed subject at Piribo's online pharma industry information shop and outsourcing, particularly manufacturing and clinical trials, generated a large volume of interest.
“I am not surprised that India features so highly in the pharma exec's mind. The country's GNP is soaring and where generics was its first success in pharmaceuticals, India's top companies now rank with western pharma companies,” said Edwin Bailey, managing director of Piribo. “In addition, India is very export orientated, with a very educated workforce, many with MBAs as well as fluent English, making it an ideal place for Western pharma companies to do business,” he said.
China, India's main rival in terms of pharma industry growth, did not feature as highly in the survey, with the broad subject of Asia pacific coming in at number 10. The site hits came predominantly from the US followed by UK and, for the first time, India was the third source, pushing Germany into fourth place. This influx of interest from Indian companies further highlights their growing pharma industry presence.
Perhaps synonymous with India, generic drugs and patent expiries were the second most popular subjects viewed in 2005, clearly demonstrating the increasing interest in this area also. More than $80bn (€67bn) worth of blockbuster drugs face patent expiry by 2008 and risk losing up to 80 per cent of their market share due to generic competition.

Medical Diagnostics
Following close on the heels of pharma R&D in India is another outsourcing wave, namely high-end laboratory and diagnostic testing. Indian laboratories offer a vast range of testing facilities - more than 1,500 tests under one roof. A number of hospitals in the US and UK are outsourcing laboratory and diagnostic tests to India as it costs about 70 to 80 per cent less to conduct them in this country. At present, this is generally limited to highly-specialized tests but industry analysts say that outsourcing of laboratory testing and diagnostic services is poised to become big business in India.



According to industry estimates, the Indian diagnostics and pathology laboratory business is about $864 million and is growing at a rate of 20 per cent annually. Most of the big Indian lab companies are either in talks with or already are partnering with hospital chains overseas for long-term outsourcing contracts. Some Indian lab companies have secured contracts with a few hospitals from West Asia too.
Already hospitals from the US and UK have started short-listing diagnostic centres in India. Pathology labs are also being automated to receive the bulk of tests. While in the case of diagnostics, X-rays and other procedures are done abroad and the reports by experts are written in India and sent back. In the case of lab tests, the photomicrographs are electronically sent to India and the doctors send back the results. The big Indian diagnostic centres and labs are technologically at par with those in USA or Europe.
The Indian medical diagnostics industry has an estimated 20,000 laboratories. However, only a few select ones have any international accreditation that instills confidence about their quality among foreign hospital chains. There are liability and logistics issues which need to be settled before India can become a hub for outsourcing laboratory tests, says an industry analyst.
It is logistics-related business. In India, the sample has to move from one destination to another. To import blood samples for testing, laboratory testing companies have to acquire a licence from the drug controller general of India, in addition to approval from the director general of foreign trade. The government thus needs to bring in some guidelines and licensing regime so that the issue can be sorted out.

Medical Transcription gains popularity, again!
After a lull, the medical transcription outsourcing market, where foreign doctors farm out their prescriptions for transcription in India, is picking up again, according to a recent study by market research firm, Value Notes.



According to the report, the US$ 195 million-strong industry in India is set to get significantly bigger. The overall global medical transcription sector in the US is worth around US$12 billion. The Medical Transcription (MT) market had been estimated to be around US$30-33 billion by NASSCOM in 2005.



The NASSCOM BPO Summit 2006 also focused on how Indian players needed to explore fresh opportunities within the market and build competencies in areas such as medical transcriptions. Speakers, such as Peter Preziosi, Executive Director, American Association of Medical Transcription (AAMT), touched upon the global market for this segment and said it represented a major new BPO turf that could be tapped.
Preziosi, said that since healthcare was amongst the fastest growing sectors in the global economy, companies venturing into MT would have a bright future. “It has been predicted that the growth in health information technology will increase by 50 percent by 2012. The opportunities are immense and there is a substantial demand for trained professionals, who can cater to international requirements,” he said.