India’s clinical research market entered a new era in January 2005 with the signing of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. TRIPS requires the country to honor all product patents issued after 1995.

A paper published by the U.S.-based National Bureau estimates that in the antibiotic sector alone, TRIPS will result in a $713 million loss to the Indian economy; $50 million of this amount represents foregone profits of domestic drug companies. To avoid these losses, Indian pharmaceutical companies are looking for new revenue streams. Increasingly, large domestic—formerly generic—pharmaceutical companies are focusing on new drug development.

A partnership deal made last week reflects the changes going on in India’s domestic pharmaceutical market. A contract research organization (CRO) called ClinTec International, based in the UK with operations in 27 countries in Europe, South Africa, the Middle East and India, has formed a co-development partnership with Hyderabad, India-based Dr. Reddy’s Laboratories. The risk-sharing agreement involves co-development of DRF 1042, a topoisomerase inhibitor that has shown potential as an anti-cancer treatment.

Risk-sharing agreements between big pharma and CROs are rare. Two global CROs—Quintiles and PPD—have made them. More recently, a small Croatia-based CRO, Ergomed, has entered one. It remains to be seen if this is a trend that will take hold in countries where clinical research is an emerging market.

Typically, CROs provide outsourced services, project management, site selection, data management, etc., on a contract basis for a set fee whether a drug compound is successful or not. A risk-sharing agreement is more collaborative and both parties invest their time and resources in developing a drug compound for approval. The risk for the CRO is that it will not be paid for its services, but if the drug is approved the potential gains can far exceed any fees it would have received. A risk-sharing agreement makes sense for a large generic pharma company dipping its toe into clinical research development.

Dr. Reddy’s has completed phase I trials of the compound in India. Even though the country’s regulations governing clinical research have become more harmonized with international standards, first-in-man phase I studies are still not allowed in India unless the molecule was developed in the country. This could give domestic big pharma in India an edge over competitors from the West in terms of a potential drug’s time to market.

Under the terms of the agreement, ClinTec will be granted the commercialization rights for all major European markets. Dr. Reddy’s retains the commercialization rights for the U.S. and the rest of world markets, excluding ClinTec territories. On commercialization of the product, Dr. Reddy’s will receive royalty on sales by ClinTec in its designated territories and ClinTec will receive royalty on sales by Dr. Reddy’s in the U.S. Dr. Reddy’s will also retain the exclusive rights to supply commercial quantities of the drug product.

Dr. Reddy’s and Ranbaxy are India’s two largest domestic pharmaceutical companies. According to the India Brand Equity Foundation, they each have five compounds in the preclinical stage. Given their infrastructure and financial incentives, these two big pharmas could become a formidable force in the global pharmaceutical market. GV Prasad, CEO of Dr. Reddy’s, has stated unequivocally that he considers the co-development partnership with ClinTec to be “a step forward in our efforts to transform ourselves into a discovery-led global pharmaceutical company.”