With an estimated $8 billion opportunity in the coming years, India is well-positioned to expand its global footprint in the CDMO sector. However, capturing a larger market share will require substantial infrastructure, talent, and compliance investments.

In this special edition of Market Master, Madhu Kela, Founder of MK Ventures, discusses India’s CDMO potential with industry leaders Satyanarayana Chava, Founder and CEO of Laurus Labs, and Neeraj Sharma, MD and CEO of OneSource Specialty Pharma.

Below is the verbatim transcript of the discussion.

Q: The way you have navigated Laurus Lab from being, a few years back, a main antiretroviral (ARV) supplier to now being a leading company in the CDMO space. And going forward, you are talking about biopharma, gene therapy. What goes through your mind when you formulate this kind of strategy, and you are years ahead in the game?

Chava: The industry is going through a significant transformation, and India is in the right place and position right now to capture this opportunity. You are saying the amount of opportunity in front of Indian pharmaceutical companies, in CRDMO, is multibillion. Your number says there is $8 billion in the next 2-3-4 years. The opportunity is, I would say, to fragment this into two buckets: one is research and development, and the second is development and manufacturing.

The development and manufacturing needs significant investments, assuming the $8 billion, half goes to research and development (R&D), and half goes to development and manufacturing, then that $4 billion opportunity in the next four years, people have to invest $3-4 billion capex to capture that $3-4 billion. So, the opportunity is very large, provided our investments are also very large, not only in capex, but also in technology, in the recruitment of people and training them to deliver products.

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I would say the current situation is, there is business, there is money, but the opportunity can be realised, provided if we recruit right talent and train them very well, I would say opportunity is very, very large, and the companies were geared up to tackle this opportunity will see a significant progress, significant growth.

Q: Despite having 28% of United States Food and Drug Administration (US FDA) approved facilities, India holds only a 4% revenue share in the global CDMO market, while high-cost regions like the US and European Union (EU) control over 65%. Given India’s talent, capabilities, and investment potential, what steps are needed to secure a more significant share of this growing market?

Chava: In the big pharma, when they launch a new drug, it is single digit, and most of the time it is less than 5% of the sales, sometimes even much lower. For them, the decision to identify a partner predominantly doesn’t depend on the cost. It depends on the longevity, sustainability. So, a big pharma will choose a partner because it is cheap. I don’t think so.

In CDMO, it doesn’t happen. In research and development, it may happen because they are looking at one kg, five kg, and 100 kg quantities at that stage. But when they do phase three, and commercial, for them, companies of scale, companies with a good track record, good sustainability, then only they will get business. So, our manufacturing cost is cheaper compared to Europe and the US, and that is the reason we get business. I don’t believe in that hypothesis. It’s a capability, scale. Those are very critical for any Indian company to capture the opportunity.

Q: We had the Eli Lilly global CEO with us two days back, and they said the cost of development of a new drug right from scratch, about $4 billion. You put those in percentage terms, as a percentage of sales, about 5% of the value of the drug was they can monetise. You know, just to come back to the earlier question, those numbers that we put up, it’s about $6 billion in opportunity over the next three years. You said we need to invest $3-4 billion to be able to capitalise on that opportunity. Is that the correct way to look at it as an industry?

Chava: I took the industry assuming you have a two times asset turnover ratio. That means every dollar you invest, you get $2 in revenue. That means you have a billion-dollar extra opportunity for any company. They have to invest at least half a billion dollar in capex to capture $1 billion in revenue. I took a very high number. If you take one-to-one, then for every billion-dollar revenue opportunity, that means a billion dollars. So somewhere between $0.5-1 billion people have to invest to capture $1 billion. So that’s the number I give. So, capex capex-intensive, and it also takes a lot of time. By the time you put facility and you get the commercial opportunity, it takes three years. So, you have to invest money well ahead of the curve to capture the opportunity.

Q: What was the strategic intent behind creating OneSource and consolidating various group entities? Additionally, given concerns about US FDA audits and India’s quality track record, how crucial is compliance in the CDMO space, and how has your group maintained a strong reputation over the past 19 years?

Sharma: To your first question around what is the inception philosophy of Onesource is. It basically started with the need of our customers to reduce complexity in their supply chains and the need for having a one-stop shop solution in terms of CDMO partners. And that is where we come in by having our multiple offerings, so we reduce their complexity in their supply chain, and in turn get a much higher share of our customers’ wallet.

So, to just tell you a little bit around what Onesource says why we are one of a kind and one of the points you already mentioned around compliance, but our key differentiation, which we offer is around our capability, which we are today, of having one of the widest offering in the CDMO industry, right from biologics drug substance, drug device combinations, trial injectables, oral technologies around soft genetic capsules. So, across this, it is a very wide offering and a real one-stop shop solution for our customers, which is our capability. Around capacities, we offer some of the largest capacities, industry-leading capacities in drug, device combination, cartridge filling, for example, where it’s on isolator-based technology, soft gelatin; we are among global leaders in that area when it comes to capacity.

And finally, what differentiates us, along with the capability and capacities, is our compliance status, which is what your question, your key point, which you mentioned. So, our compliance record has been stellar. And yes, this is important in the pharma more generally, but in CDMO, it is critical because that is what global customers, Indian customers, any customer comes to a CDMO for, that compliance track record. And we are in the group, and that’s been the group’s DNA, with a very clear focus on quality and compliance, and that has brought us where we are as a CDMO partner of choice for our global customers.

For the entire discussion, watch the accompanying video