Crams players see 15% growth this year as EU, US demand rises

Pharmaceutical outsourcing is once again picking up after a lull in the past few months.

Companies that operate in the contract research and manufacturing services (Crams) space are optimistic that their businesses will take a positive turn as the demand from clients in the US and Europe has started growing.

Experts predict a growth of about 15% in 2011-12 for this segment. This segment refers to the outsourcing of research and manufacturing of pharma products, including active pharmaceutical ingredients and finished dosages by multinational companies to India to save costs to the tune of 30-50%.

Nandini Piramal, executive director, Piramal Healthcare, said business was tough a little while ago because of the economic crisis and inventory rationalisation. “But now clients have started re-looking at their inventory.”

Crams had a per annum growth of 30-40% in 2007-08 and 2008-09, and stagnated after that. “From 2009-10 the growth stagnated as lots of clients were changing their inventory plans,” said Ajit Mahadevan, partner, business advisory services, Ernst & Young.

Another reason for the stagnation was due to the mergers and acquisitions (M&A) in the pharma world.

VVS Murthy, CFO, Dishman Pharmaceuticals and Chemicals, said the M&A activity lead to companies first trying to find synergies among themselves and their acquired firms for conducting research.

However, all these issues seem to be easing out slowly. Of the global Crams market of around $76 billion, India constitutes just a little more than $3 billion. “So there is tremendous potential for Indian firms as India has the cost and quality advantage. However Indian firms should be able to deliver on time,” said Mahadevan.

Piramal’s Crams business is expected to see growth in the range of 10-15%. Dishman, which gets about 75-80% of its business from Crams, is also expecting a 15% growth this year, said Murthy.

Surajit Pal, analyst, Elara Securities, said a player like Cadila Healthcare could see its Crams business, which is around Rs160 crore, ring in healthy margins. “Cadila’s joint venture with Hospira, for cancer products, should fetch margins of around 30%.”