Business Accent

Preclinical CROs in India: the next in thing?

Why is the preclinical CRO business a lucrative opportunity for Indian players and investors? Dr T S Kumaravel, MD, PhD, Preclinical Consultation UK and Dr S Murugan, MSc, PhD, RCC Laboratories India, outline some market realities

Dr T Kumaravel, Consultant, Preclinical Consultations, UK

Dr S S Murugan, Scientific Director, RCC Laboratories, India

The cost of drug/chemical development has increaseD dramatically during the past decade compelling pharmaceutical and chemical companies to look for new, smarter ways of conducting drug/chemical development research. Driven by mounting market pressures, companies are increasingly implementing outsourcing strategies to increase revenues through faster drug development. By decreasing their in-house facilities and staff, and outsourcing more of their R&D functions, pharma, biotechnology and agrochemical companies are reshaping the drug/chemical development services industry. This industry has evolved from providing limited clinical trial services in the 1970s, to a full-service industry that today encompasses the entire drug development process, including preclinical safety evaluations, study design, clinical trial management, data collection, biostatistical analysis, and completing product regulatory requirements.

Outsourcing is not a new concept to pharma companies; however, its use increased dramatically in the mid-1990s, and it is expected to continue to increase going forward. Preclinical outsourcing is predicted to have a Compounded Annual Growth Rate (CAGR) of more than 15 percent (Kalorama information). The financial information is summarised in table I.

Contract Research Organisations (CROs) were initially developed as outsourcing service companies that provided only clinical trial management. Today, many CROs have expanded their scope of services to provide comprehensive management of the complex drug/chemical development processes for their client companies, as well as providing access to vast areas of expertise, which may not exist in the client's internal organisation. This is particularly true for preclinical toxicology, high throughput lead molecules screening, safety pharmacology and in vitro technologies.

Of the 1100 odd CROs worldwide, the majority of them (approximately 70 percent) offer only clinical trials and the remaining 30 percent offer preclinical safety testing to various extents. Covance, PPD Inc, MPI Research, Harlan and Huntingdon Lifesciences provides the majority of the preclinical services. None of them have preclinical toxicology representation in India at this time. The business style in Indian market differs considerably from those in western countries. And to flourish in Indian market, CROs should be familiar with the Indian market and human resources.

There are certain key players in the preclinical market in India. These big players offer a stiff competition to western CROs both in terms of quality of work and price. Small to mid sized preclinical CROs in India also run their laboratories to near full capacity, suggesting the demand for preclinical testing is not fulfilled.

Growth drivers

Preclinical services are the fastest growing outsourced segment of the drug development process (Karolama information). This is associated with a constant shortage of preclinical CRO capacity worldwide. The shortage for preclinical testing is getting translated into long delays in starting the studies. Companies are being forced to reserve toxicology testing slots up to six months in advance, a long lead time for acute toxicology testing (Biopharm International, 2007). Estimates suggest that there is a gap of approximately 20-30 percent between demand and preclinical capacity, globally. This is more so for niche area like genetic toxicology and in vitro alternatives.

As with all other business sectors, CROs providing preclinical services were affected during the current economic downturn. The preclinical revenues decreased by 30-40 percent in the majority of the European and US based CROs. This decrease in revenues were due to the fact that big pharma companies were diverting their financial resources into late phase clinical trials at the expense of preclinical drug discovery (many blockbuster drugs are going out of patents in 2010-11 and pharmaceutical companies are desperate to replace them with other products). Once this haste of bringing new drug to market is over in 2010-11, there will be a rebound growth in preclinical segment. Furthermore, pharma companies have made big reduction in their preclinical workforce during this recession; with the resultant increase in outsourcing when the economy turns around.

During the next couple of years, pharma companies are planning to use CROs to fill preclinical gaps in their own organisations. Small biotech companies are currently writing their business plans with CROs in mind. Just coming out from recession, there will an emphasis on cost effectiveness. The companies will shop around for cheaper CROs in Asia that can do the work in a systematic and timely manner, without sacrificing quality of work. All these factors point to an excellent potential for preclinical CRO growth in India starting from 2010-11.

Tapping other sectors

CROs not only provide preclinical safety testing for pharmaceuticals, but also caters to chemical, agrochemical, cosmetics and food industries. The REACH legislation in the EU will force testing thousands of chemicals over the next 10-15 years, worth billions of dollars in preclinical safety business. The testing related to REACH is likely to start during 2011-12. Cosmetics and tobacco industries are being subjected to tightening regulations and will have to do safety testing, predominantly using in vitro systems. These industries are already using CROs to fulfill their preclinical safety testing. This also provides an excellent opportunity to the preclinical market, which Indian CROs have not yet explored.

Preclinical toxicology testing in India did not initially take off because India is not a member of the Organization for Economic Cooperation and Development (OECD) Good Laboratory Practices (GLP) program. It is expected that OECD will approve Indian GLP program in 2010. Once the Indian GLP programme is approved, the preclinical services in India will flourish. In the meanwhile, German and Netherlands GLP authorities have started granting GLP accreditation to Indian laboratories.

Animal welfare has been an important deterrent for placing work in India and other developing countries. Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC) has recently been accrediting laboratories in India. AAALAC endorses the use of animals to advance medicine and science when there are no non-animal alternatives, and when it is done in an ethical and humane way. It is expected that many more Indian Laboratories will be AAALAC accredited in the next two years.

Government of India has also realised the business potential of the CRO sector and is gearing up for the upsurge in CROs. Indian Government has taken several initiatives to boost CROs and pharmaceuticals in India (Report of the Task Force, Ministry of Commerce & Industry, December 12, 2008). They are looking at service tax exemption for pharmaceutical R&D, prioritising Venture Capital (VC) based funding to set up large CROs and simplifying approval procedures ie., CROs to be provided one-time clearances for export/import of materials. These initiatives will further boost Indian CRO market.

India will be a hub for contract preclinical research because of the cost advantage coupled with availability of best scientific manpower. Highly qualified and experienced Indian scientists currently working abroad are returning back to India. All these factors currently make India a lucrative opportunity for preclinical CRO business investment. The inspiration came from information technology (IT) market. It is expected that CROs will follow the footsteps of the IT sector and will be the next boom of India. Thus, CROs could be the next IT of India!

To summarise, there will be a potential growth of preclinical toxicology outsourcing after recession and most likely this will start from 2010-11 onwards. Just coming out of recession, companies will shop around for CROs in Asia that can provide quality work at a lower cost. Additionally, there will be an emphasis on shorter start times. India should take on this lucrative opportunity and be geared for it.

Dr S S Murugan, Scientific Director, RCC Laboratories India, can be contacted at siva.murugan@rccltd.in