The Indian Pharmaceutical CMO market has been analyzed and assessed with respect to APIs and finished dose formulations (solids, liquids and injectables). Strategic recommendations for the success of market participants have been provided.

1. Strategic Analysis of the Indian Pharmaceutical
Contract Manufacturing Market
Presenting Opportunities for Market Share Gain
Aiswariya Chidambaram
Senior Research Analyst - Healthcare

2. Areas of Contract Manufacturing
Indian Contract Manufacturing Market Value Chain

3. 25%
15%
20%
55%
15% 15%
0%
10%
20%
30%
40%
50%
60%
Discovery API
development
Dodage
development
APImanufacturing Dosage
manufacturing
Packaging
Extent of Outsourcing in Each Area of the Value Chain
ExtentofOutsourcing
Outsourced Core Functions
Outsourcing Trends
 Increase in outsourcing of core functions
 Late life-cycle outsourcing – API manufacturing represents the highest share
 Drug discovery, development activities and dosage manufacturing – potential future areas
 Increase in outsourcing of core functions
 Late life-cycle outsourcing – API manufacturing represents the highest share
 Drug discovery, development activities and dosage manufacturing – potential future areas

4. Traditional
Formulation
Cluster
Traditional
Formulation
Cluster
Emerging
Bulk Drugs
Cluster
Emerging
Bulk Drugs
Cluster
Emerging
Formulation
Cluster
Emerging
Formulation
Cluster
Traditional
Bulk Drugs
Cluster
Traditional
Bulk Drugs
Cluster
GOA
MAHARASHTRA – Mumbai, Pune
ANDHRA PRADESH - Hyderabad
GOA
MAHARASHTRA – Mumbai, Pune
ANDHRA PRADESH - Hyderabad
ANDHRA PRADESH - Visakhapatnam
ANDHRA PRADESH - Visakhapatnam
HIMACHAL PRADESH – Baddi
UTTARAKHAND - Pantnagar, Haridwar
HIMACHAL PRADESH – Baddi
UTTARAKHAND - Pantnagar, Haridwar
GUJARAT – Ahmedabad, Ankleshwar, Vapi,
Vadodara
MAHARASHTRA – Mumbai, Tarapur,
Aurangabad, Pune
ANDHRA PRADESH – Hyderabad, Medak
TAMILNADU – Chennai
PONDICHERRY
KARNATAKA – Mysore and Bangalore
GOA - Panaji
GUJARAT – Ahmedabad, Ankleshwar, Vapi,
Vadodara
MAHARASHTRA – Mumbai, Tarapur,
Aurangabad, Pune
ANDHRA PRADESH – Hyderabad, Medak
TAMILNADU – Chennai
PONDICHERRY
KARNATAKA – Mysore and Bangalore
GOA - Panaji
Contract Manufacturing Market—Key Indian Hubs

5. Contract Manufacturing Market—Benefit Analysis

6. 50
25
25
3
10
5
15
7
United States
India
Raw Materials Manpower Depreciation Other Site Exp
Percentage points comparison with U.S.
Manufacturing Cost Arbitrage, India, 2010
The
United
States
China
India –
Non-
USFDA
India –
USFDA
approved
Europe
Percentage points comparison with U.S.
Cost Comparison, India, 2010
100
95
70
66
22
7
4
United States
Germany
Italy
United Kingdom
Poland
India
China
Percentage points comparison with U.S.
Labor Cost Arbitrage, India, 2010
 Low-cost manufacturing hubs
 Cost of manufacturing 60 percent lesser than the
United States
 Labor is the main source of cost arbitrage
 Low-cost manufacturing hubs
 Cost of manufacturing 60 percent lesser than the
United States
 Labor is the main source of cost arbitrage
Contract Manufacturing Market—Cost Arbitrage

7. 5
8
10
25
27
55
119
Hungary
Israel
Taiwan
Spain
China
Italy
India
Number of U.S. FDA-approved Facilities, Global, 2010
Contract Manufacturing Market—U.S. FDA-approved Facilities
 India not only offers cost competitiveness, but
also ensures product quality
 More than 119 U.S FDA approved facilities in
2010 – ranks second after the U.S
 GMP compliant and cater to international
standards
 India not only offers cost competitiveness, but
also ensures product quality
 More than 119 U.S FDA approved facilities in
2010 – ranks second after the U.S
 GMP compliant and cater to international
standards

8. DMF Filing Trend by DMF Type, Global, 2008-2010 DMF Filing with U.S. FDA, India, 2000 - 2010
0
100
200
300
400
500
600
700
800
2008 2009 2010(As on March10,2010)
786
710
129
236
155
8578
114
11
16 20 4
No.ofDMFsfiled
Type II Type III Type IV Type V
Year
271 294 321
455
380 365
736 760
799
1131
1021 1024
37
39
40 40
37
36
10
15
20
25
30
35
40
45
0
200
400
600
800
1000
1200
2005 2006 2007 2008 2009 2010
%ofDMFsfromIndia
No.ofDMFsfiled DMF Filed, India DMF Filed, Overall % of DMF from Ind ia
• India continues to lead in the number of DMF filings with the U.S. FDA.
• Way ahead of China as well as other Western countries
• Major companies include Dr. Reddy’s Laboratories, Aurobindo Pharma, Sun Pharmaceuticals, Lupin,
Matrix Pharmaceuticals and Orchid Pharmaceuticals.
Contract Manufacturing Market—DMF Filing

9. ChinaIndia
Europe
The United States
Bulk and Sourcing
Hub
• Good cost of RM/
early stage
intermediates
• Late lifecycle APIs
Scale Manufacturing Hub
(API and formulations)
• More than 100 U.S. FDA-
approvedplants
• High-quality managerial
Quality assurance•
Strong API and
formulations
capability
Early Stage and Launch
Hub
• R&D expertise and
investments
• Technology capability
• Facilities to support
launch
• Relationships and track
record
Source: Frost & Sullivan analysis
Existing Business Model, Global, 2010
Contract Manufacturing Market—Existing Business Model
•

10. Pre-clinical
API
Pre-clinical
Formulation
Phase-I API
Phase-II a
API
Phase-II b
API
Phase III
API
Registration
Launch
Commercial
Manufacturing
Clinical Trials
Formulations
Formulations
Development
PRE-CLINICAL DEVELOPMENT CLINICAL DEVELOPMENT COMMERCIALIZATION
FULL-SCALE SUPPLIESEARLY PHASE CUSTOM SYNTHESIS AND FORMULATIONS DEVELOPMENT
DEVELOPMENT PARTNERDEVELOPMENT PARTNER LAUNCH PARTNERLAUNCH PARTNER
LIFECYCLE AND
TRANSITION
MANAGEMENT
PARTNER
LIFECYCLE AND
TRANSITION
MANAGEMENT
PARTNER
Prior 20002000-20052005-20102010-20152015 Onwards
APIs/ Bulk
Drugs
Prior 20052005-20102010-20152015-20202020 OnwardsFormulations
Existing Business Model, Global, 2010
Contract Manufacturing Market—Emerging Business Model

11. Capacity
Reputation/
Credibility
Technical
expertise
Quality
Low
Low High
Low High
2 105 6 8
2 104 6 8
2 104 6 8
Low High
2 104 6 8
High
Personal
relationship
Communication
Timely delivery/
Speed
Approved facilities/
Regulatory support
Low
Low High
Low High
2 104 6 8
2 104 6 8
2 104 6 8
Low High
2 104 6 8
High
Cost Location
Low High
2 104 6 8
Low High
2 104 6 8
Note: Above are the key competitive factors in the selection of a CMO by Pharmaceutical/Biotech companies for contract manufacturing
services. The factors are rated on a scale of 1 to 10 with 1 = Low importance and 10 = High importance based on the end-user’s input.
Note: Above are the key competitive factors in the selection of a CMO by Pharmaceutical/Biotech companies for contract manufacturing
services. The factors are rated on a scale of 1 to 10 with 1 = Low importance and 10 = High importance based on the end-user’s input.
Source: Frost & Sullivan analysis.
Key Competitive Factors in the selection of a CMO

12. Analytical:
Sample Types
Divi’s
Laboratory
Ltd.
Piramal
Healthcare Ltd.
Jubiliant
Organosys
Ltd.
Aurobindo
Pharma
Ltd.
Dr. Reddy’s
Laboratory
Ltd.
Raw Materials
API Testing
Dosage Form
Cleaning
Validation
Intermediates
Company Service Information Comparison

13. API Types Divi’s
Laboratory
Ltd.
Piramal
Healthcare Ltd.
Jubiliant
Organosys
Ltd.
Aurobindo
Pharma
Ltd.
Dr. Reddy’s
Laboratory
Ltd.
Small
Molecules
Controlled
Substances
Custom
Organic
Synthesis
API -
Intermediates
Cytotoxics
Process
Development
Company Service Information Comparison (continued)

14. Formulations
List
Divi’s
Laboratory
Ltd.
Piramal
Healthcare Ltd.
Jubiliant
Organosys
Ltd.
Aurobindo
Pharma
Ltd.
Dr. Reddy’s
Laboratory
Ltd.
Injectable
Oral
Topical
Buccal/ Sub-
lingual
Ophthalmic
Antibodies
Formulation
Company Service Information Comparison (continued)

15. Patent Expiry of Blockbuster Drugs WorldwidePatent Expiry of Blockbuster Drugs Worldwide
Interest of Big Pharma Leading to Increased Industry ConsolidationInterest of Big Pharma Leading to Increased Industry Consolidation
Expansion of Manufacturing CapacitiesExpansion of Manufacturing Capacities
New Product Launches/Novel Drug Delivery MechanismsNew Product Launches/Novel Drug Delivery Mechanisms
Increasing Adherence towards an Integrated Business ModelIncreasing Adherence towards an Integrated Business Model
Biologics ManufacturingBiologics Manufacturing
Contract Manufacturing Market – Emerging Trends

16. Enormous
Cost-
saving
Benefits
Manufacturing
costs reduced
by 40 – 60 %
Patent Cliff
Drugs
worth $150
billion
going off
patent
globally
Increasing
Regulatory
Support
Novel
technology,
new
pharmaceutical
hubs, SEZ
policy
Industry
Consolidation
Strategic
alliances
between Big
Pharma and
domestic
participants
Limited
Technical
Know-how
Lack of
expertise in
sterile
products,
technology
platforms
IPR
Protection
Breach of
proprietary
information
Drivers Restraints
Contract Manufacturing Market—Pushing and Pulling Forces

17. United States
Size: $55.78 B
Growth (2011 –
2016): 8.5%
Europe
Size:$36.44 B
Growth: 8.2%
Japan
Size:$8.00 B
Growth: 9.2%
India
Size:$10.00 B
Growth: 18.5%
China
Size:$26.45 B
Growth: 19.4%
Global Generic Pharmaceuticals Market – Patent Cliff

18. • Currently Indian generics represent
15% of the generics in the U.S.
• With drugs worth $67.50 billion losing
patent protection in the United States,
it is expected that Indian companies
will capture at least 30.0 per cent of
the replacement generic equivalents
Indian Generics Market – A Snapshot
48%52%
Domestic Sales and Export of Generics, India, 2010
 India – primarily a branded generics market with
more than 95% generic penetration
 Constitutes 20 – 22% volume share globally
 Leading exporter of generics to the tune of $11
billion
 Highly fragmented market – more than 20,000
registered units
 Big Pharma vying to gain market shares in
domestic market
 Price driven; cost pressures fuelling
consolidation

19. IndiaIndia China
Source: Frost & Sullivan analysis
Focus on:
- Late stage intermediates
- Complex synthetic APIs (Custom Synthesis)
- Dosage
 Greater number of U.S FDA plants and DMF filings
 Large English speaking population
 TRIPS compliant product patent regime
Focus on:
- Early stage intermediates
- Large volume API manufacturing
- Expertise in fermentation
 Currently lagging behind, expected to rapidly catch up
 Language barriers
 Better logistics & infrastructure
China – A Potential Competitor

20. In the last two years, the drive among multinationals to outsource manufacturing to Indian companies
has gained momentum. Although contract manufacturing companies should have been best
positioned for these contracts, the multinationals are preferring the Indian generic companies as
outsourcing partners.
The key reasons for this are:
•Generic facilities are capable of manufacturing products across various therapeutics segments,
unlike the pure play contract manufacturers that develop cost efficiencies through one or two
technologies at a time.
•Generic facilities are already running and manufacturing products for less regulated or emerging
markets.
•Generic companies are already in compliance with regulations in regulated and semi regulated
markets, something that is lacking in pure contract manufacturers.
•Frost & Sullivan, therefore, foresees that pure play contract manufacturers will continue to
face hurdles related to scale up and will not be able to effectively compete against the generic
companies for strategic tie-ups, as Big Pharma has being showing interest in strategic tie-ups
with Indian generic companies (which have their own brands in emerging markets)
Strategic Tie-ups between MNCs and Indian Companies

21. Source: Assocham, Frost & Sullivan analysis
Contract Research and Manufacturing Services Deals

22. Source: Assocham, Frost & Sullivan analysis
Contract Research and Manufacturing Services Deals (continued)

23. Source: Assocham, Frost & Sullivan analysis
Contract Research and Manufacturing Services Deals (continued)

24. Strategic Deals between MNCs and Indian Companies

25. Strategic Deals between MNCs and Indian Companies (continued)

26. 80%
20%
APIs and Intermediates Formulations
64%
36%
APIs and Intermediates Formulations
Percent Revenue Split, India, 2010Percent Volume Split, India, 2010
• Outsourcing of APIs for generic drugs is expected to remain high in the future.
• Contract Manufacturing of APIs and intermediates for NCE has started gaining momentum.
• Contract manufacturing of NCE formulations is expected to begin during the forecast period.
Indian Contract Manufacturing Market Overview (continued)

27.  Active pharmaceutical ingredients (APIs) or bulk drugs are defined as the active part of a drug, which is responsible
for its medicinal property.
 Asia Pacific, particularly India, is a favored market for API outsourcing, due to low cost benefits, complex synthetic
abilities, and GMP compliance.
 Every company currently involved in the contract manufacturing segment, also has some presence in the API
segment due to the amount of manufacturing outsourced to this segment.
 In terms of volume, 80-85 percent of the entire outsourcing in contract manufacturing takes place in the areas of
APIs and intermediates.
 Contract manufacturing for API, which is outsourced to India, is mainly for generic formulations.
 However, as the Indian contract manufacturing segment market matures, contract manufacturing for New Chemical
Entities (NCEs) will be outsourced to India.
 Indian contract manufacturing organizations are already being used by many MNCs as suppliers of advanced
intermediates.
 China is a major competitor in the Asian market. However, is still a supplier of low-cost off-patent molecules and
low-end intermediates.
 However, the threat from the Chinese suppliers for these products and higher-end ones is only bound to increase as
the Indian contract manufacturing segment market matures.
 The trend is shifting toward outsourcing the manufacturing of advanced APIs, such as biotech-based APIs,
biopharmaceuticals and advanced bulk drugs required for the production of dosage forms of new chemical entities
in high-end therapy areas, such as oncology.
Source: Frost & Sullivan analysis
APIs and Intermediates—Overview

28. • Early market growth stage
• Limited shelf-life and storage
issues
• Require high investments and
specialised technical know-how
• Increasing focus on biologics
• Expected to witness fastest growth
(29.5%, 2011 – 2017)
• More than 70% of
Indian CMOs have
expertise
• Patient compliance
and prevalence of
self-prescription.
• Low
manufacturing
costs and lower
degree of technical
change
• Expected to remain
the key segment
(25.4%, 2011 – 2017)
• Low-value business
• Majority pediatric and
baby-boomer end-
users
• High transportation
and wastage costs
• Likely to present
relatively lesser
growth prospects
(12.5%, 2011 – 2017)
Formulations —Overview

29. -
range of services control the
market
-Number of CMO’s - high
-Suppliers can forward integrate
-Volume benefits are available
- Moving up the value chain
Becoming more specialized and niche
Power of Suppliers
-End users have bargaining power
-Buyer concentration vs. industry is high
- Buyers in need due to generic penetration
and pressure on margins
Power of Buyers
-Low entry barriers in case of toll
- Government policies are supportive
- Economies of scale & scope exits
- IPR strengthening
- Technology and regulatory
strength
Threat of New Entrants
-Easy access to cheap technology
- Virtual pharma model
- Wider product range and
Threat of Substitutes
- Consolidation likely to increase
Low Impact
Medium Impact
Industry Rivalry
Traditional
Emerging
- Top participants, control the
- High toll manufacturing CMOs
- Suppliers can forward integrate
- Volume benefits are available
-
-
Power of Suppliers
- End users have bargaining power
- Buyer concentration versus industry is high
-
Power of Buyers
- Low entry barriers
Supportive Government policies-
Economies of scale and scope
-
Threat of New Entrants
- Easy access to low – cost
technology and skilled labor
-
-
Threat of Substitutes
-
Low Impact
Medium Impact
Industry Rivalry
Traditional
Emerging
-
market concentration
market
services
Contract Manufacturing Market: Porter’s Five Forces Model for Non-sterile Formulation, India, 2010
Non-sterile Formulation—Porter’s Five Forces Model

30. Contract Manufacturing Market: Porter’s Five Forces Model for Sterile Formulation, India, 2010
Power of Suppliers
- Number of suppliers is high
- Raw material cost is low
- Difficulty to forward integrate
- High competition exists
Threat of New Entrants
- High entry barriers
- Stringent and time-consuming
regulatory processes
- Rising attractiveness in terms of
market size and profitability
Threat of Substitutes
- Access to technology
- High capital investment
- Complex manufacturing process
- Availability of limited capacity
Power of Buyers
- Less bargaining power
- Average buyer concentration vs. industry
- Buyers in need due to new sterile product
approvals
- Expanding role of generic pharmaceuticals
Industry Rivalry
- Very few reliable companies
- Low competition
- Outsourcing trend is accelerating
- Competition is on the basis of
technology, quality and capacity
-
Low Impact
Medium Impact
Traditional
Emerging
Sterile Formulation—Porter’s Five Forces Model

31. Source: Frost & Sullivan analysis
Emerging Opportunity Areas

32.  Innovation
 Funding
 Expertise
 Regulatory
compliance
“Any sufficiently advanced technology is indistinguishable from magic”
– Arthur C. Clarke
Technology – The Powerful Tool
 Larger companies - complex technologies such as combination drugs and controlled releases.
 Foray into therapeutic segments, which have difficult manufacturing processes and less competition.
 Focus on cost, quality of manufacturing and complex chemistry skills.
 Commoditized generic market - focus on complex technologies and can command premium pricing.
Indian Companies Focussed on Complex Technologies

33. Therapeutics
Development of RNA-i based therapeutics
Development of anti-sense based therapeutics
Recombinant protein therapeutics
Monoclonal antibodies
Government
Regulatory bodies like EMEA to drive new
product and technology introduction
Increase in approval rates of new
biopharmaceuticals and biosimilars.
Globalization
Consolidations, mergers, acquisitions
Opening and expansion of Asian markets
Global capital markets
 CMOs moving up the value chain
– consolidating horizontal spread,
expanding vertical spread
 “A-one-stop-shop” offered by
CMOs, promoting a complete
portfolio of products and
comprehensive range of services.
 Shift from a purely transactional
relationship to a risk-sharing model
aligned with customer priorities
 Large CMOs moving into niche
areas of manufacturing.
 Development of virtual pharma
 Transition from “small molecule
blockbuster” model to
biopharmaceutical model
“ The best way to predict the future is to create it” – Peter Drucker
What Can be Expected in the Future?
Customer-centric range of
services
Staying ahead of industry
curve by building brand
preference
Strengthened relationship
for longevity

34. Reacting to
Change
Anticipating
Change
Leading
the
Change
• Develop drugs for key indications.
• Customize according to customer needs and
preferences.
• Comply with new government policies.
• Analyze prospects for market globalization.
• Research customer needs, preferences and
expectations.
• Monitor new technological developments to
predict future.
• Foresee capacity requirements.
• Pioneer new and better technologies.
• Introduce innovative products, that open new
market opportunities and spur creation of whole
new industries.
• Seek to set industry standards.
• React and respond as needed.
• Defend and protect company’s
position in the market.
• Plan ahead for future changes.
• Invest in R&D.
• Instill competitive capabilities.
• Improve product line.
• Strengthen distribution.
• Seize the offensive.
• Be the agent of industry
change.
• Influence rules of the game.
• Force rivals to follow.
Strategic
Posture Actions Strategy
“ Change is the law of life. And those who look only to the past or present are certain to miss the future.” – John F.
Kennedy
Source: Frost and Sullivan
Facing the Change – Strategic Recommendations

35. • Outsourcing of non-core activities such as manufacturing of intermediates and APIs to low-cost
destinations such as India is gaining momentum for pharma MNCs as they focus on their core R&D and
brand building business.
• Indian companies have strengthened their presence in the market and developing technical expertise in
niche segment (sterile drugs, cytotoxics, lyophilization, etc.) that offer higher margins and higher entry
barriers. Acquisition of foreign facilities would accelerate growth and foster better relationships with
innovator companies, though generating adequate return from such investments can be difficult.
• In the long run, companies, which provide integrated drug development, research, clinical trial and
manufacturing outsourcing services, will prove to be one stop shops catering to all the needs of the
innovator companies resulting in long-term partnerships and better customer franchise.
• The domestic market offers significant opportunities for CRAMS providers, as increasingly larger
domestic companies are outsourcing manufacturing and packaging services to these participants in
order to focus on marketing and sales, and new drug development. Their ability to offer value-added
services such as drug delivery systems, combination drugs further leverages their value proposition.
• Overall, the outlook for Indian CRAMS appears to be healthy, supported by increasing outsourcing of
manufacturing and high-end research activities.
Conclusion

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Email: AiswariyaC@frost.com
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AISWARIYA CHIDAMBARAM
Senior Research Analyst - Healthcare
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