From APIs to innovation: India’s bulk drug makers ramp up CDMO bets

The shift reflects both ambition and timing. While APIs remain a mainstay, firms are now building capabilities in niche molecules, drug discovery, development and scaled manufacturing, as global companies look to derisk supply chains away from China. According to a JM Financial analysis, China accounts for about 13% of the global CRDMO market.

Some have already won early business with global innovators, but analysts say most still lack the scale and track record to compete globally.

Investor enthusiasm, however, suggests the market is betting on change.

India’s contract development and manufacturing organizations (CDMOs) have seen sharp traction over the past two years on the back of the China-plus-one narrative, reflected in the lofty valuations enjoyed by market leaders.

Divi’s Laboratories, for instance, is India’s second-largest pharma company by market capitalization despite being smaller than several diversified drugmakers. Its shares have risen 8% over the past year, outpacing the Nifty Pharma index’s 5.5% gain.

Research-focused contract manufacturers have also drawn investor attention. Anthem Biosciences and Sai Life Sciences both made strong market debuts in the past year; Anthem is now trading at a price-to-earnings ratio of 69.14, while Sai Life Sciences trades at 64.27.

In contrast, legacy players such as Dr Reddy’s Laboratories and Cipla Ltd are trading at PE ratios of 18.16 and 22.72, respectively.

A February report on India’s CRDMO industry by BCG-IPSO noted that the industry is at a tipping point, with massive headroom to grow, “fuelled by competitive advantage in small molecule capabilities, faster startup time, focus on quality and cost advantage."

The Indian CRDMO industry remains small, about $3-3.5 billion, or just 2-3% of the $145-billion global market, according to the BCG-IPSO report. It is, however, expanding rapidly. The report estimated that the domestic sector could reach $22-25 billion by 2035 as companies build capabilities to rival Chinese incumbents.

Scaling up

That expansion is already underway.

Mumbai-based Supriya Lifesciences has been investing in R&D for niche molecules and has planned an initial ₹350 crore capital expenditure (capex) for a new facility in Patalganga, alongside upgrades at other sites. The company expects its first large contract to contribute ₹25-30 crore this fiscal, with another anaesthetics partnership poised to scale to around ₹70 crore annually.

“When you are fully backward integrated, there are a lot of opportunities because a lot of innovators or large multinationals want to now move their manufacturing base from China or Europe to Indian companies. So, that is how we started getting CMO opportunities," managing director Saloni Wagh told Mint.

Granules India is making a similar push. The company acquired Swiss CDMO Senn Chemicals AG in February and launched Ascelis Peptides, a global subsidiary focused on peptide-based therapeutics and CDMO services. Though peptides account for just 2% of its ₹12,970-crore second-quarter revenue, interest is rising.

“Recent interactions at major industry events…have reinforced growing interest from leading innovator pharma companies, emerging biotech, and cosmetic peptides customers. We are seeing multiple feasibility programs, new inquiries, and renewed discussion with several global innovators," chief strategy officer Sanjay Kumar told investors in November.

Others are restructuring to tighten their pitch.

Jubilant Pharmova recently transferred its API business to its wholly-owned Jubilant Biosys subsidiary, which already houses drug discovery and CRDMO operations. The goal is to offer a seamless path from discovery to clinical trials and later commercial scale.

“The market needs somebody who can support a molecule end to end," said Tushar Gupta, COO of Jubilant Biosys-CRDMO. The company has brought on four big-pharma customers since last year and expects both its discovery and API-CDMO businesses to grow about 20% annually over the next five years. Biosys, which has five facilities, is investing more than $120 million in a new Karnataka site expected to increase its discovery capacity 2.5x.

Supriya Lifesciences, which currently focuses on generic APIs, is also building R&D talent for innovative products. It has established an R&D hub aimed at developing new APIs and formulations, though Wagh noted the effort is at least two years away from bearing fruit.

The challenge

Yet the climb toward global competitiveness remains steep.

“Usually global innovators prefer when you have a good track record in the CDMO space and if you have good scale - when overnight if the innovator asks you to scale up production capacity, they can do it overnight as well," said Tausif Shaikh, pharma analyst at BNP Paribas.

Companies like Divi’s Laboratories and Neuland Laboratories have already made the leap, evolving beyond generic API makers into a custom synthesis specialists, with such offerings now accounting for more than half their revenues.

For most firms, early acquisitions and capex are less a reset of competitive dynamics and more a way to diversify, Shaikh said.

He added that the China-plus-one narrative and the expected benefits of the proposed US Biosecure Act, which aims to prohibit American government and contractors from working with specific Chinese firms, have been well flagged in the market recently, alongside a surge in requests for proposals. These, however, have not yet shown up in financials.