Big pharmaceutical companies can pare its cost of developing a new drug, currently estimated between $600 million and $900 million, by as much as $200 million if it chooses to outsource development work to India, according to McKinsey & Co.
"The overall cost advantage in bringing a drug to market by leveraging India aggressively could be as high as $200 million," McKinsey associate principal Peter Pfeiffer said at the inaugural session of a two-day conference on 'Clinical Research: Roadmap for India' organised by the Confederation of Indian Industry, in New Delhi on Wednesday.
According to Pfeiffer, pharmaceutical companies in the United States and Europe will be pushed to offshore development (clinical trials) of new chemical entities on account of the declining productivity of R&D in those countries.
McKinsey analysis shows that overall R&D productivity has declined by 24 per cent between 1991-95 and 1996-2000.
"While R&D spending has increased five-fold between 1986 and 2001, IND submissions have increased modestly and development of new chemical entities has remained flat during the period," he said.
The decline in R&D productivity, as per Pfeiffer, has happened because of rising development costs, tightening of the regulatory environment and the emergence of complex organisational designs because of the mergers and acquisitions in the sector.
At the same time, development is accounting for more and more of the total investment in a new chemical entity.
According to McKinsey, while development was 42 per cent of the total cost in 1976, it has risen to as high as 60 per cent by 2000.
"India clearly provides an opportunity for western pharmaceutical companies as a catalyst in addressing the productivity challenge because of the availability of large patient populations, access to highly-educated talent and lower cost of operations," Pfeiffer said, adding: "The potential opportunity for savings is $120-200 million on a drug development base of $550-900 million."
Pfeiffer said that there still exist a few barriers against offshoring. These include a lack of real cost pressures as there are still too much "low-hanging fruit" to be picked, existing legacy systems in western pharmaceuticals companies, emerging public policy concerns about outsourcing to India and the threat posed by India's generic drug companies.
However, Pfeiffer added that India could have competition from countries in Eastern Europe and South East Asia, when it comes to carrying out clinical trials for western pharmaceutical companies.