Outsource the Drug Industry

In her expensive headquarters just blocks from some of Mumbai's worst areas, Swati Piramal is halfway through an undelightful pitch about revolutionizing the world of drug discovery. Sanskrit passages of the Bhagavad Gita, the ancient Hindu text that guides her business philosophy, decorate the office walls of her company, Piramal Life Sciences. Its logo is gyan mudra, a finger gesture used in yoga meditation resembling the Western sign for "A-O.K."

After a walk through the city's worse traffic and a bone-rattling ride over a potholed road that washes away with each rainfall, the four-wheel-drive van arrives at the sparkling, ocean liner-shaped headquarters of Jubilant Biosys. The laboratories inside are world-class. But when equipment fails, repairs often take a week, scientist Ajith Kamath explains. Lunch is Domino's pizza with toppings that include corn, Indian paneer cheese, and hot spices. Jubilant is co-owner of India's Domino's franchise.

At first look, companies such as Jubilant and Piramal may seem too underdeveloped to meet up with the world's top pharmaceutical makers. But judging from all the deals taking shape in India, they may have a vital role to play in the industry's future.

In recent months, Western executives have been gathering to India's quickly built science parks, looking for allies in the never-ending journey to develop blockbuster treatments. With little news, they've started a process that could turn to wide-scale outsourcing of drug research to Asia.

Western companies collaborate

Five Western companies have formed drug discovery partnerships with Jubilant, including Eli Lilly, Amgen, and Forest Laboratories. Lilly is also partnering with Piramal, as is Merck. Every month, deals are signed with India's best pharmaceutical companies.

The goal is to take promising compounds discovered by the multinationals, run tests to move out the weakest candidates, and develop some of the others into marketable drugs. Eventually the Indian partners also hope to come up with scientific breakthroughs that lead to entirely new medicines for diseases such as Alzheimer's, cancer, or diabetes.

Looking beyond India's potholed streets and poverty, Western drug executives say they've made a powerful model for research collaboration. The timing is no accident. Despite spending billions at home on technologies to change gene-based discoveries into new medicines, pharmaceutical companies are trying to come up with revolutionary products that will pull them out of a five-year slump with virtually no revenue growth.

In desperation, the drug giants are paying huge premiums to swallow biotech companies—witness Roche's $44 billion bid to purchase Genentech in July.

What the multinationals now try to search from India is the same combination of brainpower and cost savings that made the subcontinent a leader in software and computer services. Some Western companies are volunteering to share intellectual-property rights on new discoveries and even come up with profits.

"It's a transformation of the R&D enterprise," says Robert W. Armstrong, Lilly's vice-president for global external research. "We have to think in a totally different mode."