India's pharma CMO sector a hotbed for private investors

India's pharma CMO sector a hotbed for private investors

Major investments by global private equity giants such as Advent, Carlyle and KKR in India's contract manufacturing organization sector, amid the pandemic, reflect solid prospects for growth in the country's complex generics and bulk drug manufacturers.

In July this year, the US-based Advent International agreed to acquire a controlling stake in RA Chem Pharma from its parent Micro Labs for an undisclosed sum, while another US-based giant KKR agreed to acquire a 54% stake in JB Chemicals & Pharmaceuticals for $611 million.

The Indian CMO market was valued at $9.04 billion in 2019, and is expected to reach $23.72 billion by 2025, registering a robust CAGR of 17.6%, during the period 2020-2025.

The month before that, US private equity major Carlyle acquired a 20% stake in Piramal Pharma for $490 million. And earlier this year, True North invested $100 million to acquire a 2.44% stake in Biocon Biologics.

Driven by favourable government policies, a thriving generic drugs market and a high demand outlook on the horizon driven by the Coronavirus pandemic, India's contract manufacturing organisation (CMO) and pharma markets have swiftly emerged as a rare green shoot of growth amid economic gloom around the world, attracting strong investments from global private equity companies this year.

Driven by robust growth

Prime Minister Narendra Modi interacting with the members of the pharmaceutical sector. India's pharma markets have swiftly emerged as a rare green shoot of growth amid economic gloom.
Prime Minister Narendra Modi interacting with the members of the pharmaceutical sector. India's pharma markets have swiftly emerged as a rare green shoot of growth amid economic gloom.

The reasons for this exuberance are not far to seek.

The Indian CMO market was valued at $9.04 billion in 2019, and is expected to reach $23.72 billion by 2025, registering a robust CAGR of 17.6%, during the period 2020-2025. That staggering prospect of growth is not only due to India's large population base but also due to a sharp rise in demand for injectable drugs, especially in cancer research. With the injectable drugs industry offering substantially higher returns as compared to other drug formulation types, the higher ROI and therapeutic efficiency are expected to boost the growth of the CMO sector in the country.

According to GlobalData's Pharma Intelligence Center Contract Service Provider database, there are over 1,600 contract manufacturing facilities across almost 1,000 companies in India, with a major potential for private equity investment in the CMO industry.

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According to GlobalData's Pharma Intelligence Center Contract Service Provider database, there are over 1,600 contract manufacturing facilities across almost 1,000 companies in India, with a major potential for private equity investment in the CMO industry.

“In the PE transactions this year, both Advent and KKR have a well-established investment history in India and the recent deals reaffirm the growing interest of private equity firms in the Indian pharmaceutical industry,” said Bhavani Nelavelly, pharma analyst at GlobalData. “From the Piramal, JB Chemicals and RA Chem deals, it is evident that there are growing opportunities in CMO, complex generics and bulk drug manufacturers,” she said.

Agile pharma regulations benefit CMOs

With increasing focus on the pharma manufacturing sector both due to the pandemic and a renewed focus on Make in India, the government has also rushed to fulfil its obligations by overhauling its pharma regulatory norms and expedite approval process to promote innovation. Given that India is now focused more than ever on developing novel therapies and vaccines on account of the COVID-19 situation, the move will not only remove unnecessary procedural roadblocks but also foster innovation and help attract larger structured investments, say analysts.

With increasing focus on the pharma manufacturing sector both due to the pandemic and a renewed focus on Make in India, the government has also rushed to fulfil its obligations by overhauling its pharma regulatory norms and expedite approval process to promote innovation.

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In May 2020, a high-level Indian government committee proposed setting up a single-window system to accelerate the approval of new drugs. Accordingly, parallel submission of applications for new drug approval and for grant of import license and manufacturing license will be allowed. Additionally, the Central Drugs Standard Control Organisation (CDSCO) will now be the first designated point of registration for clinical trials of all drugs and vaccines, which is likely to significantly reduce the approval time to as little as three months from 12 months.

“The process overhaul is a paradigm shift from the standard sequential process. The pharma industry in India has long reiterated that there is a need to come up with an agile regulatory system along the lines of those followed in the US and the EU,” said Sasmitha Sahu, pharma analyst at GlobalData.

The lure of a cost-effective market

Add to this the fact that the availability of skilled labour at relatively lower cost drives the Indian pharma and CMO market, and it's not hard to fathom why Advent, Carlyle and others are looking at India as a long-term lucrative source of innovation and profitability.

The Indian pharma workforce costs about 33% lower than their western counterparts on average. More than 225,000 pharmacy students graduate from India′s education system every year.

The scale and scope of the Indian pharma sector becomes clear when compared to the West. The Indian pharma workforce costs about 33% lower than their western counterparts on average. More than 225,000 pharmacy students graduate from India′s education system every year, compared to just about 17,000 pharmacy students graduating in the United States. The Indian Government, through its national skill development program (NDMC), has launched various skill development programs for the healthcare and pharmaceutical industries.

The result

Experts forecast the Indian pharmaceutical market to increase from around $34 billion in 2020 to more than $45 billion by 2025, dovetailing with it a flurry of private equity inflows for the flourishing CMO segment.

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