Pharma & Biotech Economics
Contract Manufacturing in Pharma
How drug companies outsource research and production to contract firms, and why India hopes to win more of this business as buyers look beyond China.
Many drug companies don’t make all their own medicines. They hire contract research organisations (CROs) and contract development and manufacturing organisations (CDMOs).
What they do
- CROs run clinical trials and research services.
- CDMOs develop manufacturing processes and produce drugs for other companies.
Why outsource?
- Avoid building expensive factories.
- Access specialised skills.
- Scale up or down quickly.
- Focus on research and marketing.
The industry
CDMOs range from small specialists to large global firms. China and India are major locations due to skilled chemists and lower costs.
India’s opportunity
In 2024, US lawmakers debated the BIOSECURE Act, aiming to limit US reliance on certain Chinese biotech companies. Western drugmakers began looking for alternatives, and Indian CDMOs such as Syngene, Divi’s Laboratories and others hoped to gain business.
Challenges
- Quality: strict inspections by regulators like the US FDA.
- Intellectual property protection.
- Scale and speed compared with Chinese rivals.
Economic benefits
Contract manufacturing brings exports, high-skill jobs and technology transfer.
A small US biotech discovers a promising drug but has no factory. It hires an Indian CDMO to develop the manufacturing process and produce batches for trials, saving years and hundreds of millions of dollars.
Much research and manufacturing is outsourced to contract firms around the world.
- CROs run research and trials; CDMOs develop and manufacture drugs for others.
- Outsourcing saves capital and adds flexibility.
- US concerns about Chinese biotech firms opened opportunities for India.
- Quality, IP protection and scale are key challenges.
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