India Wants to be Your Biotech Source

Low costs. Skilled workers. New patent protections. A ready pool of patients for clinical trials. These are the ingredients contributing to India's blossoming biotechnology industry, which grew by nearly 40% last year and is now second only to the United States in its number of FDA-approved drug manufacturing plants. India boasts more than $700 million in annual revenues from its biotechnology industry.While revenues from the United States' biotechnology industry were far more, $39.2 billion in

Dana Wilkie
Oct 24, 2004
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Low costs. Skilled workers. New patent protections. A ready pool of patients for clinical trials. These are the ingredients contributing to India's blossoming biotechnology industry, which grew by nearly 40% last year and is now second only to the United States in its number of FDA-approved drug manufacturing plants. India boasts more than $700 million in annual revenues from its biotechnology industry.

While revenues from the United States' biotechnology industry were far more, $39.2 billion in 2003, the industry's fast-paced growth in India represents "a major, long-term threat to companies in other parts of the world," says Roy Drucker, general manager of London's Technomark Consulting Services, a consultant to the biotechnology and pharmaceutical industries.

"Indian companies are on a steep learning curve," Drucker says. "Why wouldn't you go there when you can do it as well, for less money?" India, already a significant global player in the software and information...

THEN AND NOW

Three years ago, former Indian Prime Minister Atal Behari Vajpayee announced a strategy for developing the country's biotechnology industry over the coming decade, and several Indian states took up the challenge. The Karnataka government is creating a new Biotech City and an Institute of Bioinformatics and Applied Biotechnology. Nearby, the state of Tamil Nadu plans its own biotechnology research center in concert with Cornell University. In addition, a government-level Department of Biotechnology was established in India's Ministry of Science & Technology.

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Today, India has more than 200 biotech companies, 75% of which were incorporated in the last five years. In 2003, India was 11th worldwide in the number of biotech companies, according to Ernst and Young. India has some 60 FDA-approved drug manufacturing facilities, more than in any other country outside the United States, said Deshmukh. Major multinationals, such as US-based Pfizer, have established subsidiaries in India. Venture capitalists from the United States and Singapore are helping to fund start-up biotechnology companies in India. US and European companies are collaborating with Indian firms to develop new drugs and vaccines, to conduct clinical trials and toxicity studies, to perform molecular modelings and lead optimization, to provide computer services such as bioinformatics, and to develop industrial production processes for new drug ingredients.

The success of India's biotech market is evident in its growth, principally in the areas of pharmaceuticals, agriculture, and bioinformatics: In 2003–2004, India's biotechnology industry reached $705 million. ABLE's goal is for the industry to reach $5 billion in revenues in the next five years. In comparison, Australia led the Asia-Pacific region with biotech revenues of over $1 billion in 2003, and China was next with $800 million, according to Ernst and Young. India is third in the Asia-Pacific region in biotech revenues.

Charlie Bryce, vice president of the European Federation of Biotechnology, marvels that India has "made remarkable progress in a very short time." Such investment is "testimony to the confidence that investors have in the knowledge and skill base that has rapidly developed," Bryce said.

The country has a skilled work force, including low-cost, English-speaking scientists. A middle-ranking Indian scientist earns about 60% of what he or she might make in a UK biotech company, Drucker says. Some experts estimate that Indian researchers earn as little as one-third of what their US counterparts do.

"It's no secret that salary levels in India are significantly less than the US," says Imraan Munshi, a spokesman for Pfizer, which has a subsidiary in India that contracts with Indian companies for data operations, clinical research, and formulation development. "The specific differences vary by position based upon a number of factors, including experience, expertise, and internal equity."

The Times of India reported this summer that "outsourcing," an alien term for India's biotech industry just five years ago, is now valued at $120 million, and growing at a rate of 75% per year. Experts predict this business could reach $1 billion in the next five years.

DEBATING OUTSOURCING

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Does sending work to Indian companies represent a threat or lost business to companies in other parts of the world? The answer depends on who you ask. "Sure," says Daniel Keesman, co-CEO of Germany-based LION bioscience, which provides bio- and cheminformatics software. Activities outsourced to India means eliminating or not initiating employment relationships with experts in other parts of the world, he says.

Bryce disagrees: "It is more likely that India will represent a powerful and significant player in global biotechnology in its own right, and in this way, not by outsourcing, it can represent a very real threat to other national players."

India boasts relatively cheap manufacturing costs. The cost of developing and testing drugs in Indian labs can be 70% to 80% cheaper than in the United States, experts say. Moreover, Indian firms believe they can conduct clinical trials more cheaply than in other parts of the world, primarily because India's enormous population is one of the most genetically diverse on the planet. Such diversity can be critical in clinical trials, because people with different genetic make-ups may respond differently to the same drug. Eli Lilly and Company, for instance, is conducting clinical trials for nearly two dozen of its latest drugs at a facility in a New Delhi suburb.

India has "one of the largest patient bases in the world for illnesses such as cardiovascular disease, diabetes, and cancer, the focus areas of research ... for most companies in the United States and Europe," says Deshmukh. "Recruitment of patients for clinical trials is easier and faster than in the United States or Europe." That, says Munshi, can potentially lead "to faster completion of clinical projects and possible compression of the development cycle ... significantly reducing the overall cost of conducting research."

Such factors are alluring enough to convince even former rivals to team with Indian companies on biotechnology projects. Britain's GlaxoSmithKline recently announced it would work with Ranbaxy Laboratories, India's largest drug-making firm, on drug-discovery collaborations, even though GSK had sued Ranbaxy over allegedly stolen bacteria used in the production of GSK's popular antibiotic, Augmentin. "For us ... it was important that the partner had strong chemistry capability," said Rick Koenig, a GlaxoSmithKline spokesman. "Ranbaxy also fit with our broader corporate strategy of extensive global collaboration."

Eli Lilly, Novo Nordisk, Roche, Aventis of France, and German drug maker Bayer are among other multinationals turning to India for research collaborations and outsourcing. Some recent tax and regulatory laws will aid India's biotechnology industry: The country has done away with its Foreign Exchange Regulation Act, which limited the equity of foreign companies in Indian companies to 40%. The country's restrictive price controls on drugs have relaxed. And India's central government has extended a 10-year tax holiday for research and development companies on their royalty income and fees. But GSK's legal battles with Ranbaxy illustrate how India's history of weak patent protections could be a potential hurdle to the continued growth of the country's biotechnology industry.

INTELLECTUAL PROPERTY RIGHTS AND ISSUES

Most drugs are protected in western markets by patents that cover the basic molecule in a medicine and also the features of the product, such as a pill's coating. But under Indian law, drug patents are not respected if a generic company uses a different manufacturing process from the original medicine. As a result, Indian companies have made a business out of creating slightly modified versions of popular western medicines, and they have brought legal challenges on western drug patents, filing applications to sell generic versions of some of the top drugs from the United States.

In November of 2003, for example, the FDA approved a version of Pfizer's blood-pressure drug, Norvasc, made by Dr. Reddy's Laboratories, one of India's leading drug manufacturers. The company uses the same basic molecules as Norvasc, but uses a different salt in making the pill. A US federal district court found that Dr. Reddy's did not infringe on Pfizer's patents because its pill is different from Norvasc.

Under a WTO agreement, India has agreed to recognize the drug patents of other countries starting in January 2005. Says Munshi, "Much will depend on how stringently India implements intellectual property protection in line with its WTO commitments." Munshi and others note that skepticism has so far prevented many US and European companies from giving proprietary drug-discovery work to India. Even with the WTO agreement, some observers are not convinced that India will aggressively enforce intellectual property protections.

"They say they are amending their laws," says Steve Lawton, general counsel with the Biotechnology Industry Organization, the leading biotechnology trade group in the United States. "But only when they do that," adds Lawton, "will the United States go to India in a big way." Says Drucker, "To win work from the West, there is still the need to develop a track record and to satisfy clients that the vaunted change in attitude to intellectual property is real."

OTHER OBSTACLES TO SUCCESS

Biotechnology's continued success in India faces other potential obstacles. Because India's economy has been opened to limited competition only since 1991, the country's regulatory framework is still evolving. Regulations governing biotechnology in the country involve a "multiplicity of organizations and processes, and it is time consuming," says one editor at BioSpectrum, India's leading biotechnology magazine.

There are other concerns. Despite India's pool of talented chemists, some say it is hard to find skilled molecular biologists. Also, some researchers complain that until recently, it was hard to get regulatory approval for animal experiments. Further, because Indian companies do not have huge research budgets, many cannot afford modern tools such as gene sequencers.

Despite India's low costs, one company executive says that savings can be realized only when a foreign company has "an experienced team of experts to manage, educate, train, and control the people" in India. Cautions Keesman: "If you do not do this, you lose more money than you can save. Outsourcing to India ... only works if you know the local culture and know how to manage it."

Dana Wilkie dwilkie@the-scientist.com

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