BUSINESS NEW DIGS Avra's production facilities in Hyderabad were just built.
A S I A - P A C I F I C
SPEEDING UP DRUG DISCOVERY South Indian entrepreneurs offer contract research services to global pharma JEAN-FRANÇOIS TREMBLAY, C&EN HONG KONG
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CONTRACT RESEARCH INDUSTRY
focused on developing new compounds for foreign drug companies is rapidly emerging in India. Although India currently plays a marginal role in the pharmaceutical world, it has an opportunity to become an important link in the creation of new, international blockbuster drugs. This burgeoning industry is centered in two dynamic southern cities: Hyderabad and Bangalore. Well managed and relatively calm, the cities are far removed from the violence that has raged in the northeast Indian state of Gujarat since February Moreover, local company managers can point to the earlier success of the software industry in both Hyderabad and Bangalore to convince foreign clients that they can meet deadlines and deliver results. 'About 4 0 companies are going in this direction, and more people will be joining the bandwagon," says Venkat Jasti, chairman of Suven Pharma and president of the Bulk Drug Manufacturers Association of India. Suven offers research compounds to foreign drug companies. HTTP://PUBS.ACS.ORG/CEN
Andhra Pradesh, the state where Hyderabad is located, is already home to about 4 0 % of India's pharmaceutical production capacity, Jasti says. The state has enjoyed a business-friendly environment since 1995, when Chief Minister N . Chandrababu Naidu came to govern. Bangalore has a long tradition of supporting scientific research and is home to the prestigious Indian Institute of Sciences. BUT THERE ARE numerous limitations on the type of services these Indian companies can provide. Although synthetic organic chemists are abundant in India, medicinal chemists are comparatively scarce. "India is strong in chemistry but weak in biology," saysJarp Sarma, head of drug discovery at GVK Bio, a one-year-old drug discovery firm in Hyderabad. Moreover, for ethical reasons, there are restrictions on tests using dogs and primates. In addition, the lack of testing standards acceptable to foreign agencies such as the U.S. Food & Drug Administration and the lack of hospital infrastructure to conduct tests to international standards means that India's ability to conduct clin-
ical trials on humans is severely limited. Nonetheless, there exists a unique opportunity that Indian entrepreneurs are eager to seize. Foreign pharmaceutical companies have a keen desire to cut down on the 15 or more years and hundreds of millions of dollars that it can take to discover a new drug and bring it to market. India can play a role in the first six-and-a-half years of that process, when drugs are discovered and preclinical trials conducted (C&EN, Jan. 28, page 21). Dr. Redd/s, India's most research-intensive drug company, is launching a separate drug discovery company called Aurigene Discovery in Bangalore. "We thought we could use the Indian advantage to debottleneck the drug discovery process," says G. V. Prasad, executive vice chairman and chief executive officer of Dr. Redd/s. Foreign companies are encouraged by India's commitment under the World Trade Organization to adopt a new patent regime in 2005, one that protects intellectual property in ways similar to Europe and North America. Since 1972, companies in India have been free to produce pharmaceuticals protected by patents in other countries, as long as they use a different production process. IN THE FUTURE, if new regulations are drafted that permit testing on dogs and primates and if a better environment for testing on humans is created, much more drug discovery activity could start to take place in India. For companies interested in performing clinical trials on a contract basis, one major selling point is that most Indians have never taken any modern medication, providing a huge pool of people from whom more accurate test results could be obtained. For the time being, entrepreneurs are starting up companies or offering contract research services that are based on India's advantages. Under the prevailing patent regime, Indians have become proficient at discovering novel ways to synthesize various molecules. Companies such as Suven Pharma and Hyderabad's Avra Laboratories are harnessing this capability to provide foreign drug companies with the compounds and intermediates that are used in the production of new chemical entities still under trial. Other entrepreneurs are going further. Partly by training young Indian organic chemists and partly by luring back to InC&EN
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motley crew of companies offering power generation. M. Narendra, head of various types of contract research business development at GVK Bio, says the services has emerged in the Indian original idea for the venture was partly his. cities of Hyderabad and Bangalore. "We talked to lots and lots of scientists who know the field in order to know Dr. Reddy's, a firm traded on the what to focus on," Narendra says. For NASDAQ stock exchange and widely recthe time being, it makes use of its Siliognized as the most research-intensive con Graphics #2100 server, 02 and Ocpharmaceutical company in India, has tane workstations, and Accelrys softlong been involved in drug discovery. ware to perform bioinformatics and Founded in 1984, the Hyderabad-based cheminformatics work. company has licensed the rights to drugs it discovered to Novo Nordisk and Novartis for milestone payments in the tens of millions of dollars. Dr. Reddy's is starting up a new company that will be dedicated to supporting the drug discovery efforts of multinational drug companies. Aurigene Discovery will be based in Bangalore rather than Hyderabad to help keep the two companies' intellectual properties separate. While the bulk of the work will be done in India, a U.S. lab will be used to liaise with local customers and also to perform research tasks for which India's expertise is weak. Aurigene will focus on structured drug design, protein structure determination, and medicinal chemistry. Funding is entirely H O M E B A S E Rama Rao stands in front of Avra's provided by Dr. Reddy's, headquarters in Hyderabad. Prasad says. "I don't see any~~ one in India's contract research industry GVK Bio says it can undertake many as well funded from the stock market as computational activities that are part of Dr. Reddy's." the drug development process for about one-third of what it costs in Europe or the Electricity is the source of funding for U.S. But that's not its entire business GVK Bio, another Hyderabad company that plan. This month, it will complete consees opportunities in the drug discovery struction of its wet chemistry lab in Hybusiness. GVK Bio was launched only last derabad that will offer medicinal chemyear by the GVK Group, a $500 million Indiistry services. And by the end of the year, an business group primarily involved in
dia successful scientists now based abroad, Dr. Reddy's and GVK Bio hope to build up companies providing a wide range of drug discovery services. GVKBio andAurigene have both hired CEOs who were living in the U.S.
Sources of revenues for Indian contract research companies vary according to the way the firms interact with their foreign customers. Prasad says it makes little sense for Indian research firms to be paid simply for time and effort. 'At Aurigene,
it expects to also complete a preclinical development lab. These new facilities will sharply increase GVK's capabilities. Apart from microbiology and tissue-culture labs, the preclinical development lab will feature an animal farm where guinea pigs, rats, mice, and rabbits will be bred in accordance with international standards, Narendra says. This will allow the company to offer in vitro and in vivo studies in the anti-infective, anti-inflammatory, and anticancer fields. GVK will perform pharmacology and toxicology studies as well as pharmacokinetics. GVK's first year of operation, even within the limited range of services it could provide, has been extremely encouraging, Narendra says. He notes that two important partnerships got underway, in the coming year, business volume should further increase four- to fivefold, and the company will invest up to $30 million in Hyderabad in the next three years. Eventually, GVK Bio expects to become a biopharmaceutical company providing the full range of drug discovery and preclinical trial services and possibly co-owning intellectual property. A strong personality more than a strong parent company is behind Avra Laboratories, another Hyderabad company. A. V. Rama Rao, who founded the firm, is an authority on organic synthesis research who has been invited on several occasions to lecture at U.S.based pharmaceutical companies. From 1975 to 1977, he was a research fellow of Nobel Laureate E. J. Corey's at Harvard University. From 1985 to 1995, he was di-
we are bringing intellectual content to the process, and it is not time alone that we are bringing," he points out. "It is not like software programmers; we are creating an environment where we have chemists, biologists, pharmacologists, and
"We thought we could use the Indian advantage to debottleneck the drug discovery process." 14
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rector of the Hyderabad-based Indian Institute of Chemical Technology (IICT). Rather than fading into obscurity upon his retirement from IICT, in 1995 at the age of 60, the energetic scientist founded Avra. "This research lab exists primarily to keep me busy, not to make money," he says. "I also use it to provide work experience to Ph.D. students." Although Avra is a commercial entity, Ph.D. students will soon be able to perform academic work there. The young company now employs 80 people, 45 of whom are scientists. Its business is mostly to synthesize analogs of lead compounds that foreign pharmaceutical companies are experimenting on. "We make building blocks," Rama Rao says. The contracts come to the firm primarily through his personal contacts at U.S.-based pharmaceutical organizations. About five years ago, the chairman of Suven Pharma, Venkat Jasti, started to supply foreign customers with intermediates used in the production of new chemical entities in clinical trials. Suven, which employs about 30 research staff, has supplied about 180 intermediates so far. Two of them have become part of commercial products; the majority are still at various stages of clinical trials. When approved, Suven can expect rewarding production contracts. Suven follows a business model that Jasti calls CRAMS, for contract research and manufacturing services. "We supply from the ground level and scale up to mass production if required," Jasti says. Jasti earned a master's degree in industrial pharmacy from St. John's University, Queens, N.Y., and from 1977 to 1989 owned six drugstores in the New York City area. When he founded Suven in 1990, he initially focused on the production of bulk actives. He later focused on niche products, before transitioning to his current business of supplying intermediates for new chemical entities.
bioinfbrmaticians working together to innovate." However, he believes that some Indian contract research companies are billing their customers only for time and effort and are not sharing in the upside of the intellectual property discovered. But he concedes at the same time, that, initially, Aurigene may simply bill customers for the time spent on various projects. Other companies, such as Suven or Avra, are paid for HTTP://PUBS.ACS.ORG/CEN
in India. Suven'sJasti, however, the compounds that they develsays there maybe 40 firms that, op and produce. like Suven, are now merely proDepending on whom one talks viding chemical intermediates to, there are between a handful for new chemical entities to and 40 pharmaceutical contract foreign drug companies, but research companies in India alwho hope to get involved in disready The wide range arises from covery work after 2005. differences in definition. Dr. Reddy*s Prasad considers GVK Bio and Aurigene contract research Prasad ALL AGREE THAT the emerg companies because their mission ing industry will attract new enis to perform drug discovery work— some- I trants. Avra Chairman A. V. Rama Rao tiling that only a handful of companies do I notes that successful business plans tend to
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BUSINESS CONFLICT?
Government Lab Finds Work In Private Sector hould a state-owned lab with a mission to build up Indian technological capabilities perform contract work for foreign companies? So far, Raj Hirwani, head of business development at National Chemical Laboratories (NCL), has not found a satisfactory answer. Nonetheless, the amount of work that NCL performs for foreign companies is steadily increasing. Until about a decade ago, much of the research work at NCL was of the reinventing-the-wheel type. From the 1950s to the early 1990s, India imported little technology from abroad and was determined to develop its own capabilities. It was for this purpose that NCL was created in 1950 in Pune, a two hours' drive south of Mumbai. Technology that was developed at NCL was transferred to Indian companies to foster industrial development. The lab is also an academic institution. At any time, between
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200 and 250 Ph.D. students train and conduct research at NCL. Even though most graduates later find jobs in industry, the majority perform fundamental research while at NCL. For much of its history, NCL found that it was too sophisticated to serve the needs of the Indian industry. "We came up with several new products, but Indian industry was not mature enough to bring them to market," Hirwani says. When India began opening up in 1991, NCL became free to consider doing business with foreign customers. NCL also had a financial incentive to look for outside customers. For the past decade or so, the government funding on which it used to be almost completely dependent has risen by less than the rate of inflation. NCL now derives 50% of its revenues from private sources, both in India and abroad. The core expertise of the lab is in synthetic organic chem-
be emulated in India. Hyderabad-based of the pharmaceutical industry in Andhra entrepreneurs could well jump on the conPradesh, Suven's Jasti envisions investtract research bandwagon if they see it as ing in much more than a bit of training. the next "big thing" after software develAs president of the Bulk Drug Manuopment. But the industry is unlikely to atfacturers Association, he champions cretract so many entrants that it will become ating, in the coastal city of Vishakhapatoversupplied. nam, a $125 million industrial park It takes a long time to build enough trust dedicated to serving the pharmaceutical industry "It has to be self-contained, selfwith a foreign customer to be allowed to get involved in drug discovery activities, Prasad sustained, and self-regulated," he says. notes. In the past, profitability dropped in The park would be a joint venture with the Indian drug industry because too many the state government, which would conentrepreneurs with a "getrichquick" men- tribute 1,900 acres. It would be managed tality became bulk drug producers. by a private company earning revenues from the sale of land and the provision of The growth of the industry will also be limited by a lack ofsome types of researchers in India. Rama Rao INDIA says Indian universities are slow Contract research is centered in southern cities to develop interdisciplinary programs. "The system is very rigid," he says, noting that, at most universities, students are PAKISTAN not allowed to take minors in other subjects. As a result, India-trained chemists know little about biotechnology, for example. Dr. Redd/s Prasad concurs. Despite the touted abundance of chemists in India, this does not extend to medicinal chemistry "In organic chemistry there are a lot ofpeople," he says. "But it is not taught in a way that is useful to industry. So industry has to get hold of these guys and train them on the job, give them training experience through which they become good medicinal chemists, from being pure organic chemists." To support the development 16
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services. The "pharma city" would feature "state-of-the-art infrastructure, starting with environmental protection; and resources such as water, power, hospitals, and schools; and may be set up as a kind of special economic zone, where everybody can have a free port facility," Jasti says. The idea has a pie-in-the-sky ring to it, but Jasti points out that he coordinates a committee, chaired by Chief Minister Naidu, to develop and implement a plan for drug industry development in the state. The emerging plan envisages Vishakhapatnam becoming the main location for bulk pharmaceutical production in Andhra Pradesh. Hyderabad would become a "discovery city." To strengthen the drug discovery skills of scientists in Andhra Pradesh, Jasti says the government is planning the construction of a life sciences institute in Hyderabad to be located between the Indian School of Business and the University of Hyderabad. So far, the government has reserved 10 acres of land for the institute, but work has yet to get under way. MOVING AHEAD with these projects is urgent, Jasti says, because there are only three years left before India changes its patent regime. "Unless you prepare now, you cannot have infrastructure three years from now," he says. The need to build a life sciHTTP://PUBS.ACS.ORG/CEN
istry, Hirwani says. Since the 1980s, the lab has further focused its research activities in four areas: catalysts, polymers, biotechnology, and organic chemical process technologies. "We started by reinventing the wheel 50 years ago; now we're involved in discovery," Hirwani comments. Based on these areas of expertise, NCL can cooperate with foreign companies in three main ways, Hirwani explains. The organization may develop a new process and license it to an Indian company that will perform toll manufacturing or custom synthesis for the foreign customer. Or NCL may adapt for the Indian market the proHirwani duction process for a foreign product. Third, it might develop products for the global market. Foreign companies accounted for 37% of NCL's $5.6 million in external revenues in the fiscal year ended March 31, 2001. The amount may appear small, but Hirwani notes that research in In-
ences institute in India's main pharmaceutical production center illustrates the paradox of Indian attempts to attract drug discovery work. The main draw in using India as a base to perform drug discovery work is its availability of skilled human resources.
But under the patent regime that has significant role in drug discovery work will existed since 1972, India has primarily been depend on their ability to attract and deknown for grooming synthetic organic velop new types of chemists specializing chemists skilled at developing new pro- infieldssuch as medicinal chemistry and duction processes for molecules discov- biotechnology Failure to do so will mean ered and tested elsewhere. they keep their marginal status in the pharIndian companies' ambition to play a maceutical world. •
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dia costs about one-fifth what it costs in the U.S. or Europe. NCL's dollar earnings have quintupled since 1995 while its total external revenues, in rupees, have grown four times. The additional money has allowed the organization to acquire some nice pieces of equipment. The newest machine, delivered in April, is a $400,000 mass spectrometer with a liquid chromatograph. In another lab, Vedavati G. Puranik cannot refrain from constantly smiling as she demonstrates a $300,000 single-crystal X-ray diffractometer that was also delivered in the spring. NCL's head of polymer chemistry, Swaminathan Sivaram, stresses that foreign companies should compensate their Indian partners fairly when they come to India to develop intellectual property. "There must be a sense that some of the benefits from that R&D flow back into the country," he says. Yet it is unlikely that NCL would turn its back on foreign customers after the years of success it has enjoyed dealing with them. Not, that is, after the foreign earnings have helped it buy several nice new machines.
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