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India has rightly earned its moniker as the ‘Pharmacy of the World’ and is now moving beyond generics to become a key partner in global pharmaceutical drug formulation manufacturing. As global innovators and biotechs look for an outsourcing partner across their drug development value chain, India’s pharmaceutical industry is gradually positioning itself as a serious end-to-end player.
The global Contract Research, Development and Manufacturing Organization (CRDMO) industry is booming, valued at ~USD 250 billion and expected to grow at 13% CAGR up to CY27E – nearly double the global pharma industry’s rate, which is at 7-8%. An ageing population with complex diseases such as cancer is driving the need for breakthrough drugs across large molecule and novel modalities such as Cell & Gene therapy (CGT), oligonucleotides and peptides, which are expected to outpace small molecules – the dominant CRDMO subsector.
Anticipating this shift, global CRDMO majors including Lonza, Catalent (acquired by Novo Holdings) and Patheon (part of ThermoFisher) have been doubling down on large molecules, with USD 27 billion in recent acquisitions to build CGT capabilities.
The result? Large molecules have been outpacing small molecules over the last three years. For instance, Lonza’s Bio & CGT business demonstrated a 19% growth rate compared to 8% for others. Similarly, Catalent’s Bio business grew at 24% for Bio compared to 3% for others.
Within these macro trends, China has made itself an indispensable part of the global value chain. During CY19-23, top listed Chinese CRDMOs – WuXi AppTec, WuXi Biologics, Pharmaron and Asymchem – demonstrated 30-40% revenue and EBITDA growth, and annually invested ~30% of their revenues, translating to USD 10 billion+ in capex. However, the tide is turning against Chinese CRDMOs due to global supply chain rebalancing efforts driven by geopolitical tensions.
India’s share in the global CRDMO market is currently at 2-3% with significant runway for growth. It has leveraged years of expertise in generic API and formulations manufacturing, coupled with a large talent pool possessing strong process chemistry capabilities to gain a higher wallet share of the global small molecule CRDMO space. Small molecules still contribute ~60% to the global CRDMO industry in CY24E by value and will continue to account for 50%+ share in CY28E, despite large molecules’ contribution growing at a faster rate.
Top Indian CRDMOs are also beginning to make great strides in advanced capabilities like anti-body drug conjugates (ADCs) and Oligos / building blocks – globally a ~USD 15 billion market.
As Western and Chinese players shift focus to large molecules, India is seizing the opportunity to address this gap in the small molecule CRDMO market. Small molecule-focused integrated CRDMOs and specific dosage form-focused formulation CDMOs are demonstrating robust growth and profitability.
Indian CRDMO players are making strategic moves, either forward integrating by out-licensing or directly selling products developed in-house. Companies such as Quadria-backed Encube Ethicals and General Atlantic-backed Rubicon Research have established their own front-end in regulated markets, while certain other companies such as Tata Capital-backed Orbicular out-license their selected own-IP driven products to front-end partners. By leveraging in-house IP, companies are able to capture a larger chunk of the value chain.
The proliferation of virtual pharma companies and asset light business models are driving pharma outsourcing. For sophisticated technologies such as ADCs, over 70% of development and manufacturing is outsourced. Moreover, a large patent cliff, with USD 300 billion+ in annual revenues at risk through CY28E, is expected to accelerate Big Pharma’s R&D expenditure and outsourcing.
India, with the highest number of USFDA-approved sites outside the US, is well-positioned to take advantage of this shift towards pharma outsourcing. Over the last few years, India’s compliance track record has significantly improved despite an increase in regulatory scrutiny.
As the China+1 movement gains traction, India has an opportunity to become a major player in the small molecule pharma outsourcing industry. Although, given the size and scale in China built over the last several decades, for India to truly compete, it will need concentrated industry-government efforts. Improvements in regulatory compliance, capability advancement, on-boarding of international experts and maintaining cost advantage would be key to grow India’s share by 1.5x-2.0x in the global CDMO and CRO landscape. Industry experts also stress that government support such as infrastructure, subsidies, PLI schemes and a favourable regulatory environment are crucial to be globally competitive in the innovator CRDMO space.
India’s CRDMO potential mirrors its ITES revolution. Just as India transformed its ITES industry in the 1990s, the country’s small molecule CRDMO sector has the potential to follow suit. With the right investments and strategies, India could be the next global powerhouse in the pharma CRDMO industry.
(Excerpts from this article was first published by Moneycontrol)