Indian companies are poised to explore a $48 billion outsourcing opportunity in the global pharmaceutical industry, says Kotak Securities in a recent report that analyses the potential of the domestic sector.

"India has the key ingredients -- technical skills, regulatory compliance, cost advantage and global relationships-to emerge a powerhouse in this space," said the report.

Kotak estimates that the global outsourcing opportunity in pharmaceuticals, which was at $24 billion in 2002 will rise to $48 billion by 2007.

Outsourcing in pharmaceuticals is broadly divided into manufacturing outsourcing, development outsourcing and customised chemistry services.

Manufacturing outsourcing will involve the supply of active pharmaceutical ingredients/intermediaries, development outsourcing will involve pre clinical and clinical trials and customised chemistry services will involve contract research for molecules in the pre launch stage.

The bulk outsourcing or manufacturing outsourcings, said Kotak, is currently at $14 billion and will be a $27 billion opportunity by 2007. This is the segment that Indian companies can best exploit.

Big firms like Ranbaxy and Dr Reddy's, however, are not likely to be the ones that will look at manufacturing outsourcing as a major factor for their revenues.

It is players like the Hyderabad based Matrix Laboratories or Shasun Chemicals or Cadilla that are likely to take the lead.

Recently, Matrix Laboratories was one of the three Indian drug companies apart from Ranbaxy and Cipla, that was chosen by the Clinton Foundation to supply low-cost anti-AIDS drugs to countries in Africa and the Carribean. South African pharmaceutical major Aspen Laboratories is the other partner.

Matrix will supply the active ingredients in the anti-AIDS drugs not only to Ranbaxy and Cipla, but also to any other drug company that will partner with the Clinton Foundation.

Despite their relatively lower spend on research and development, Indian drug companies have built strong manufacturing processes over the years.

"Indian pharmaceutical industry has evolved by abandoning the product patent regime for the process patent raj. The industry has grown by reverse engineering and by tinkering and tweaking molecules," says Sameer Narayan, pharmaceutical analyst with Enam Securities.

In the last few years, as companies have looked to expand in international markets, the emphasis on complying with international FDA standards or European clinical practices has gone up.

When it comes to manufacturing, Kotak says, India ranks only second to the US in the number of global Drug Master Filings every year.

DMF is essentially permission to enter the US bulk actives market with the objective of either supplying to a large US generics player or captive consumption.

According to Kotak, DMFs by Indian pharmaceutical players has risen to 19 per cent of the world filings in 2003 compared to 2.4 per cent in 1991.

"For the April-June quarter 2003, India accounted for 34 per cent of the world's filings," says the report.

Development outsourcing is seen as the next big space. A number of pharmaceutical companies including Pfizer prefer to run clinical trials in India because of the heterogeneous gene pool and the easy availability of patients.

Worldwide, this segment currently estimated to be around $9 billion is likely to reach $18 billion by 2007.

India has emerged as an attractive place to conduct clinical trials because of the speed with which the patients can be recruited and the process completed.

Kotak estimates that the cost of doing clinical trials in India is 40-60 per cent lower than in developed markets.