The drug discovery outsourcing market for India and China will grow 15.3 percent annually to $19.8 billion in 2011 from $7.3 billion in 2004, according to a report released Monday by the research firm Frost & Sullivan.

With competition in the global market escalating, multinational companies are aggressively outsourcing their production facilities. Global pharmaceutical manufacturing was worth nearly $50 billion in 2004.India and China have the potential to garner about 35 to 40 percent of the outsourced market, said the report.

The revenue forecasts for both India and China look optimistic. Frost & Sullivan anticipates the drug discovery outsourcing market in India will grow at an annual rate of 15.1 percent to $7.54 billion in 2011 from $2.81 billion in 2004. 

In 2004, the pre-clinical discovery and development market was worth $1.18 billion, while the clinical development market was worth $1.63 billion. Both segments are expected to grow to $3.18 billion and $4.35 billion, respectively, by 2011.

The Chinese drug discovery outsourcing market, which was almost double that of India at $4.48 billion in 2004, will be worth $12.26 billion in 2011, according to the firm. The market will grow at a compound annual rate of 15.5 percent during the period.

The pre-clinical discovery and development market will grow to $5.11 billion in 2011 from $1.88 billion in 2004. Meanwhile, the clinical development market will swell to $7.15 billion from $2.60 billion.

“The Indian and Chinese drug discovery outsourcing market is evolving, with both [countries] gaining an edge in the global arena by producing a continual pipeline of drugs, which are approved faster than those produced in western countries,” said the report.

The governments of these countries have worked to attract outsourcing contracts through stringent regulations, mandatory good manufacturing practice (GMP) compliance, and improved laws governing clinical trials.

“Regulatory bodies will have to sort out the ambiguities in regulatory issues and legislation of intellectual property rights to lure a greater number of international pharmaceutical companies,” warned the report.

Inadequate Patent ProtectionThe report found that both China and India have inadequate patent protection, however. That shortcoming can discourage global pharmaceutical and chemical companies, especially from the United States. These companies stand to lose about $450 million every year due to piracy.

“It is vital to maintain a sustainable balance sheet during various production phases such as pre-clinical discovery, screening, and process development since the majority of revenues are derived from successful licensing and regulatory approval,” said the report.Patentable products can be developed if companies make a healthy investment in R&D and ensure sufficient confidentiality of results to enable a strong intellectual property portfolio to develop.

Patentable products can be developed if companies make a healthy investment in R&D and ensure sufficient confidentiality of results to enable a strong intellectual property portfolio to develop.

“To ensure that technological innovation is commercialized to its best potential, companies need to continuously work with domestic government officials and key opinion leaders in establishing and defining standards to comply with regulatory standards,” said Amarpreet Dhiman, EMEA drug discovery technologies team leader at Frost & Sullivan.Even though India is obliged to comply with World Trade Organization rules and meet numerous drug regulatory standards issued by the International Conference on Harmonization, industry experts believe the regulatory environment still needs to improve its enforcement mechanisms.

“The government must make sure that strong checks are in place to enforce the new patent law,” said Omkar Singh Kanwar, president of the Federation of Indian Chamber of Commerce and Industry in New Delhi.

Biotech Growth

India has more than 260 biotechnology companies. The industry has experienced double-digit growth in the past year, principally in the areas of pharmaceuticals, agriculture, and bio-informatics, producing approximately 22 percent of the world’s supply of generic drugs, according to the report.

By 2007, India is expected to capture a third of the world’s generic drug business, representing 13 leading pharmaceutical companies, including Ranbaxy Laboratories, Dr. Reddy’s Laboratories, and Nicholas Piramal India.

Global pharmaceutical companies are focusing on Chinese progression as the country is slated to become the fifth-largest pharmaceutical market in the world by 2010.

“Western multinational pharmaceutical companies are not content just to outsource R&D, drug screening, and testing to China,” said the report. “Offshoring has accelerated, with Novartis, Pfizer, and Roche launching new R&D facilities in Shanghai.”