The pharma sector may have underperformed in the Sensex , but companies providing contract research and manufacturing services (CRAMS) to global pharma companies have given good returns. While the shares of five most traded generic companies grew by a mere 4% during the last 3 months, CRAMS shares rose by 19% in the same period.
Cumulatively, the share prices of the five most traded generic pharma companies during the period Ranbaxy Laboratories, Orchid Chemicals & Pharmaceuticals, Aurobindo Pharma, Cipla and Sun Pharmaceutical grew by 3.84%. In comparison, the combined prices of the most traded CRAMS companies Divi’S Laboratories, Dishman Pharmaceuticals & Chemicals, Nicholas Piramal, Shasun Chemicals & Drugs, and Jubilant Organosys grew by 18.84%.
According to a recent report by Frost & Sullivan, the contract services market revenues for 2006 were estimated at $895 million or about one-sixth of the Indian domestic industry but it is growing at 43% annually. The market is still in its growth stage and is expected to sustain a grow rate of 33-34% between 2007 and 2013. Contract manufacturing accounts for 70% of this market, while clinical research and contract research account for respectively 16% and 13%.
According to ChrysCapital MD Sanjiv Kaul the shift is because of the perceived huge opportunities in the outsourcing market. In comparison, since India became TRIPS compliant in 2005, outsourcing is seen as a huge potential even though Indian companies are yet to show the performance. India now accounts for 3% of the global CRAMS market which will touch 10% in the next 10 years, he added.
The mood is also reflected in the investment by private equity (PE) players. The recent investments in the sector by private equity players such as ICICI Venture (Radiant Research), Citi Venture Group (Unimark Remedies), and Sequoia Capital (GVK Biosciences and Sai Adventium) have been bagged by outsourcing units.