The real boost for outsourcing is expected in the next few years from the generic drug market. The market for generics is growing annually by 14 per cent, eight per cent faster than prescription, or branded, products.

Inherently, the competition for generics is intense, and timing is a crucial factor. Past experience indicates that the first company to launch a generic version of a particular product tends to capture 60 to 80 per cent of the market. Hence outsourcing will proliferate in a big way whenever there is a generics boom.

In 1996, the world market for generics was $30 billion. It is likely to touch $50 billion by the year 2000, as drugs worth $25 billion will break the shackles of patents.

Significantly, in the US, while the ''ethical'' prescription products market is estimated to grow 6 per cent by 2000, the market for generics is estimated to grow at 14 per cent. With the improvement in the quality of generic formulations over the years, governments in many countries are encouraging generic substitutes in place of patented drugs to cut down drastically on healthcare costs. That''s what health management organisations and insurance firms are pushing for too.

In fact, industry experts say that the expected generics boom may be the only saving grace for companies that are seriously considering outsourcing.

Says Lalit Kumar, president - international business, Lupin Laboratories: "Weak intellectual property laws in India make multinational companies apprehensive about outsourcing bulk drugs and formulations of products that are protected by patents. Hence outsourcing from Indian manufacturers will be restricted to drug intermediates, and the final stage conversion will be done in countries where patent laws conform with World Trade Organisation norms. Indian companies will gain if they concentrate, instead, on generic molecules, bulk drugs and intermediates."

And gain they will as plethora of European drug companies (mostly generic players) are in a shopping binge in India for all sorts of alliances, ranging from contract manufacturing to product development and co-marketing.

There are two reasons for this. First, Indian companies offer cheap alternatives on all fronts. In the case of manufacturing, both hardware and scientific manpower are easily available and cheap. Says V M Gupte, general manager, Kopran Research Laboratories: "An American or European scientist earns 30 times more than his or her Indian counterpart."

The disparity is even more striking in the case of labour. Plus, there is no dearth of production capacities in the country. Most Indian companies have their facilities, which can be upgraded to international regulatory standards with relative ease.

Secondly, and more significantly, European companies face a peculiar problem with generic drugs. European Union laws prevent companies in member countries from undertaking any sort of development activity for patent-protected drug molecules. In other words, no European company can develop alternate process for manufacturing a particular drug until the expiry of the patent.