On the other hand, the pressures on global pharmaceutical companies to outsource are growing for a couple of reasons. One
is an ageing population in the West straining healthcare budgets almost everywhere. Most US and European governments are thus
looking for cheaper generics and lower cost drugs. Then, with new drugs becoming more difficult to develop, pharmaceutical
companies cannot sustain large R&D spending unless new blockbusters are developed cheaper.
"CRAMS is important for the development of our business on two fronts," explains NR Munjal , Managing Director of Ind-Swift
Laboratories. "Firstly, it provides our scientists with the required skill sets to go up on the value chain. And secondly,
it allows us to finance our investment in R&D and infrastructure." In that regard, the company recently inaugurated an R&D
center employing 250 scientists and has also been investing heavily on manufacturing infrastructure. "They will be on the
look out for new CRAMS opportunities," explains Munjal. "We expect 20 percent of our revenues to come from CRAMS in the near
future. We will be opening a new plant soon which will be entirely dedicated to exports and which will have great potentiality
for contract manufacturing." Ind-Swift expects this plant to obtain USFDA approval later this year.
Partners for innovators
There has been a spate of tie-ups and acquisitions by companies in the CRAMS segment in India. Another recent example has
been Mumbai-based Nicholas Piramal's acquisition of UK's Avecia Pharmaceuticals for £9.5 million. Aglobal custom-manufacturing
player, Avecia Pharmaceuticals' focus is on providing custom chemical synthesis and manufacturing services for innovator pharmaceutical
and biotechnology companies.
"In the area of contract manufacturing services, our strategy is completely different from our Indian peers," explains Dr.
Swati A. Piramal, Director-Strategic Alliances & Communications. "We do not enter the generics market or file ANDAs nor bust
anybody's patents. Our approach is to be a partner for innovators." The manufacturing of the company takes place in three
locations: Canada, UK and India. This allows the company to manufacture across the whole value chain.
"The American dream of Sun Pharma"
Shasun's increasing focus on CRAMS should stand it in good stead. The famous Ibuprofen manufacturer has been investing in
its CRAMS business for some time and has offerings across the value chain. "Since 1999 we have shifted our focus towards contract
research and manufacturing services and customized synthesis," notes Vimal Kumar, joint managing director of Shasun Chemicals
& Drugs. "In that same year, we gave our first steps in collaborative research and development by signing a deal with Austin
Chemicals. The close relationship that we have established with this company has allowed us to establish relationships with
multinational companies like Eli Lilly."
The company has put in place a multi-product facility for manufacturing and a new R&D facility to capitalize on the CRAMS
opportunity. "We expect a 50 percent growth in the CRAMS segment revenues in 2006.
The CRAMS division should constitute about 10 percent of the overall business," says Vimal Kumar. "Our philosophy is to enter
into partnerships with companies that are looking to outsource manufacturing and R&D. We believe in partnering them rather
than competing with them."
Shasun has, in that regard, established strong relationships with several large pharmaceutical companies, such as Eli Lilly,
GlaxoSmithKline, and Reliant Pharma. These tie-ups are expected to lead to higher contracts for the CRAMS division. Shasun's
earnings are estimated to grow at 13 percent, driven by CRAMS and formulations.
"CRAMS is a long-term story," says Kumar. "Since most of the players in the segment have entered into long-term agreement
with their partners abroad, earnings volatility is likely to be less of an issue going forward."