The Indian Pharmaceutical Industry & CDMO Revolution : Part B

India's Rise as a Global Pharma Hub: Understanding the CDMO Revolution

The Indian pharmaceutical industry stands as a global powerhouse, renowned for its prowess in generic drug manufacturing and its burgeoning contract development and manufacturing organization (CDMO) sector. For India, it’s a competitive advantage because India is good at Service Exporter unlike China manufacturing exporters. Its journey from a nascent industry to a global leader is intertwined with the demographic dividend, evolving consumer behaviour, and a strategic embrace of outsourcing

Historical Evolution of the Indian Pharmaceutical Landscape

The roots of the Indian pharmaceutical industry can be traced back to the early 20th century, marked by the establishment of pioneering companies like Cipla and Bengal Chemicals & Pharmaceuticals. However, the industry remained largely import-dependent during its initial decades, relying heavily on multinational corporations for essential drugs.

The turning point came in the 1970s with the enactment of the Patents Act, 1970, which shifted the focus from product patents to process patents, paving the way for the rise of domestic generic drug manufacturers. This policy change, coupled with the availability of a skilled workforce and lower production costs, enabled Indian companies to reverse engineer and manufacture generic versions of patented drugs at significantly lower prices.

Demographic Dividend and Shifting Consumer Behaviour Fueling Growth

India's vast and growing population, combined with improving life expectancy and rising incomes, has created a significant demand for healthcare services, driving the growth of the domestic pharmaceutical market. The increasing prevalence of chronic diseases, such as cardiovascular disease, diabetes, and cancer, has further fueled this demand, particularly for chronic disease care drugs.

Consumer behaviour has also evolved significantly, with a growing awareness of health and wellness and a preference for quality healthcare services. This shift, coupled with government initiatives like health insurance schemes, has led to increased healthcare spending, supporting the growth of both the domestic and export-oriented pharmaceutical segments.

The Rise of India as a Global Generics Hub

The Indian pharmaceutical industry has capitalized on the global demand for affordable generics, establishing itself as a dominant force in the international market. India exports pharmaceuticals to over 200 countries, including highly regulated markets like the US, UK, EU, and Canada. The US market, in particular, accounts for a substantial share of India’s formulation exports, driven by factors like healthcare reforms, increasing insurance coverage, and a growing preference for generics.

Source – USFDA, CRISIL Research

Rise in number of drug approvals

An increase in drug approvals by regulatory bodies is expected to fuel pharmaceutical formulation manufacturing activities. These new drug approvals are expected to accelerate formulation development outsourcing market demand as outsourcing allows the pharmaceutical clients to expand their technical resources without increased overhead. Furthermore, many ongoing clinical trials have created numerous growth opportunities in the market for pharmaceutical manufacturing. For instance, according to the National Clinical Trials (NCT) Registry, as of October 2023, there were more than 469,500 ongoing clinical trials worldwide across different phases of development for the treatment of several disorders.

Emergence of the CDMO Sector

The global trend of pharmaceutical outsourcing has opened up new avenues for the Indian pharmaceutical industry, leading to the emergence of a vibrant CDMO sector. It is projected that the Indian CDMO market (including domestic and exports) will grow at a CAGR of approximately 12-14% from Rs. 1,310 billion in fiscal 2023 to Rs. 2,400 to 2,500 billion in fiscal 2028. As multinational and large Indian pharmaceutical companies seek to optimize costs, access specialized expertise, and accelerate time-to-market, they are increasingly partnering with Indian CDMOs for various activities, ranging from drug discovery and development to commercial manufacturing.

Note: P-Projected, CDMO market is inclusive of Domestic as well as export values of APIs and Formulation Source: CRISIL MI&A Research

Key Market Segments Driving the Indian Pharmaceutical Industry Today

●Chronic Therapies: The chronic segment, encompassing therapies for diseases like diabetes, cardiovascular diseases, and respiratory illnesses, constitutes a significant portion of the domestic formulation market. The growing prevalence of chronic diseases, changing lifestyles, and increasing awareness are driving the growth of this segment.

●Acute Therapies: The acute segment, comprising therapies for conditions like infections, gastrointestinal disorders, and pain management, also holds a substantial share of the market. While growth in this segment is expected to be slightly lower than the chronic segment, it remains a significant contributor to overall market revenue.

●Generic Drugs: Generics continue to dominate the Indian pharmaceutical landscape, both domestically and in export markets. The increasing demand for affordable medicines, coupled with patent expiries of many blockbuster drugs, has fueled the growth of the generics segment.

●Complex Generics and Specialty Drugs: Recognizing the growing competition and pricing pressure in conventional generics, Indian companies are strategically shifting towards complex generics and specialty drugs. These higher-value segments offer better margins and align with the evolving demands of regulated markets.

●Biopharmaceuticals: The global biopharmaceutical market is witnessing robust growth, prompting Indian companies to invest in this high-potential segment. CDMOs specializing in biologics development and manufacturing are well-positioned to benefit from this trend.

Future Outlook for the Indian Pharmaceutical Industry

The Indian pharmaceutical industry is poised for continued growth, albeit with a need to adapt to evolving market dynamics and overcome existing challenges.

●Growth Prospects: Despite near-term moderation in export growth due to pricing pressure in the US, the overall outlook for the Indian pharmaceutical industry remains positive. Factors like increasing healthcare expenditure in emerging markets, the rising demand for generics, and government support through initiatives like the PLI scheme will continue to drive growth.

●CDMO vs. Specialty Focus: The Indian pharmaceutical industry is likely to witness a balanced growth trajectory, with both CDMO services and specialized manufacturing playing significant roles. While the CDMO segment will continue to expand, driven by global outsourcing trends and India’s cost advantages, companies are also expected to focus on developing niche capabilities in complex generics, specialty drugs, and biopharmaceuticals to capture higher-value market segments.

●Challenges and Opportunities: The industry faces challenges like regulatory hurdles, import dependence, pricing pressures, and the need for technological advancements. Addressing these challenges will be crucial for sustained success. Opportunities lie in expanding into new markets, developing innovative drug delivery systems, and strengthening partnerships with global pharmaceutical companies.

The Indian pharmaceutical industry stands at a crossroads, grappling with a series of challenges that must be addressed to sustain its growth and global competitiveness

One of the foremost hurdles lies in regulatory compliance, as the sector operates within a framework of stringent quality, safety, and manufacturing standards. Domestic and international regulations, particularly those of the US FDA, often change frequently, placing immense pressure on companies to adapt. For smaller firms with limited resources, this regulatory maze is even more daunting.

Adding to these complexities is India’s heavy reliance on imports for Active Pharmaceutical Ingredient (API) intermediates, primarily from China. This dependency exposes the industry to supply chain disruptions, price volatility, and geopolitical risks, significantly affecting production costs and profitability. Smaller Contract Development and Manufacturing Organization (CDMO) players feel the pinch due to their limited bargaining power. Export markets, especially the US generics segment, also pose significant challenges. Fierce competition has led to intense pricing pressures, eroding margins for Indian pharmaceutical exporters. The consolidation of US wholesalers exacerbates the problem, as reduced bargaining power further constrains Indian companies.

Domestically, the CDMO sector’s fragmentation presents its own set of issues. With a plethora of small players vying for market share, intense competition ensues, leaving limited room for innovation or technological advancements. This lack of cohesion makes it difficult for the sector to meet the rapidly evolving demands of global pharmaceutical giants. The industry’s historical focus on generic drugs has resulted in relatively low investments in research and development compared to international peers. To remain competitive and explore new therapeutic areas, Indian companies must significantly boost their R&D efforts, fostering innovation and ensuring long-term sustainability.

Lastly, while India is renowned for its large talent pool, there is an increasing demand for highly skilled professionals in critical areas such as drug discovery, clinical research, and regulatory affairs. Addressing this gap will require substantial investments in education and specialized training programs to equip the workforce with the expertise needed to navigate the industry’s complexities.

Together, these challenges paint a picture of an industry with immense potential but one that must overcome significant obstacles to realize its aspirations on the global stage.

Current Conditions and Future Value Chain Shifts

●Export Dependence and Domestic Business Landscape: The Indian pharmaceutical industry relies heavily on exports, particularly to regulated markets like the US. However, the domestic market is also growing significantly, driven by factors like increasing healthcare awareness, rising incomes, and government initiatives.

●Margins and Profitability: Margins in the Indian pharmaceutical industry vary significantly depending on the segment and type of player. CDMOs generally operate on lower margins compared to companies focusing on branded generics or specialty drugs. Pricing pressures in export markets further impact profitability, particularly for companies competing in the conventional generics segment.

●Value Chain Shifts - Past and Future: The Indian pharmaceutical industry has witnessed significant value chain shifts over the past few decades. The shift from product patents to process patents in the 1970s enabled the growth of domestic generic drug manufacturers. The emergence of the CDMO sector further transformed the value chain, with Indian companies becoming integral partners in the global pharmaceutical landscape.

Looking ahead, the industry is poised for further value chain evolution, driven by factors such as:

●Shift towards Higher-Value Segments: Companies are increasingly focusing on complex generics, specialty drugs, and biopharmaceuticals to counter pricing pressure in conventional generics and capture higher-value market segments. This shift requires investments in research and development, specialized manufacturing capabilities, and regulatory expertise.

●Embracing Digitalization and Automation: The adoption of digital technologies, such as artificial intelligence, machine learning, and data analytics, is transforming the pharmaceutical value chain, from drug discovery and development to manufacturing and supply chain management. Indian companies are embracing these technologies to enhance efficiency, optimize processes, and accelerate time-to-market.

●Focus on Sustainability and ESG Compliance: Environmental, social, and governance (ESG) considerations are gaining prominence in the pharmaceutical industry. Indian companies are increasingly integrating ESG principles into their operations, focusing on reducing environmental impact, improving social responsibility, and enhancing corporate governance practices.

Within this complex value chain, specialised organisations provide services that assist pharmaceutical companies in navigating the various stages of drug development and commercialisation.

These include:

●Contract Research Organisation (CRO): CROs offer a wide range of services to support drug discovery and development, including preclinical testing, clinical trial management, data analysis, and regulatory submissions.

●Contract Development and Manufacturing Organisation (CDMO): CDMOs provide services for both drug development and manufacturing. They assist pharmaceutical companies in developing formulations, manufacturing APIs and finished drug products, and packaging and labeling.

●Pharmaceutical Development and Manufacturing Organisation (PDMO): PDMOs focus primarily on process development and manufacturing. They may specialise in specific technologies or dosage forms, such as injectables or complex formulations.

India, long recognized as a global powerhouse in the production and export of APIs and generic drugs, is now experiencing a transformative shift toward the CDMO (Contract Development and Manufacturing Organization) business model. This evolution is fuelled by a convergence of factors reshaping the industry landscape.

Global pharmaceutical companies are increasingly outsourcing drug development and manufacturing activities to specialized partners to cut costs, tap into niche expertise, and expedite their time to market. This outsourcing wave has opened a significant opportunity for CDMO services, making India a preferred destination for such partnerships. A key advantage lies in India’s cost competitiveness, where the cost of drug manufacturing can be 35-40% lower than in developed markets like the US and Europe, offering substantial savings for global firms.

Complementing these economic benefits is India’s vast talent pool. The country boasts a large workforce of skilled scientists, engineers, and technicians with deep expertise in pharmaceutical development and manufacturing. This resource base positions India as an ideal partner for end-to-end solutions in the pharmaceutical supply chain.

Moreover, government initiatives have played a pivotal role in supporting this transition. Policies such as the Production Linked Incentive (PLI) scheme aim to encourage domestic manufacturing and bolster the sector's global competitiveness. These strategic measures have reinforced India’s appeal as a hub for CDMO collaborations.

As a result, many Indian pharmaceutical companies have transitioned from API and generic drug manufacturing to offering a wider range of CDMO services, including:

●Drug discovery and preclinical research: Some Indian CDMOs have expanded their capabilities to offer drug discovery and preclinical research services, leveraging their scientific expertise and cost advantages.

●Formulation development: Indian CDMOs are increasingly investing in formulation development capabilities, particularly for complex dosage forms and novel drug delivery systems.

●Biologics manufacturing: With the growing demand for biopharmaceuticals, several Indian CDMOs are building expertise in biologics manufacturing, including cell and gene therapies.

●End-to-end services: To cater to the evolving needs of pharmaceutical companies, Indian CDMOs are focusing on providing end-to-end services, from drug discovery to commercial manufacturing.

Contract manufacturing refers to the outsourcing of production activities to third-party vendors. Contract Manufacturing has picked up in India because of vast availability of skilled personnel, lower production costs and large number of WHO-GMP certified plants. Indian CDMO space has seen traction in the recent times with big pharmaceutical companies preferring to outsource research & development as well as manufacturing activities. Many of the pharmaceutical players to move to asset light model have been outsourcing these activities. Most contract development and manufacturing organizations (CDMOs) cater to the domestic industry and exports to regulated as well as semi-regulated markets. Contract manufacturing is characterized by high fragmentation and competition, with large number of organized and unorganized players. The players are usually backed by promoters with significant experience in the pharmaceuticals industry. Going ahead, new product launches and volume growth in the chronic segment would support growth for the CDMOs in the medium term.

The Indian CDMO industry is poised for sustained growth, leveraging its strong fundamentals and capitalizing on global outsourcing trends.

By addressing key challenges and embracing emerging opportunities, Indian CDMOs can solidify their position as integral players in the global pharmaceutical landscape, contributing to the development and delivery of life-saving medications worldwide.

In the bustling world of pharmaceuticals, a critical but often unseen force is at work: the CDMO value chain.

Let’s understand with a story.

Imagine a brilliant scientist in a cutting-edge biotech firm, Dr. Sharma. She's on the cusp of a breakthrough - a novel drug that could revolutionise treatment for a rare genetic disorder. Years of research, countless trials, and a hefty investment have led to this moment.

But Dr. Sharma and her team are experts in discovery, not manufacturing. They need a partner to bring their innovation to life, to transform their groundbreaking formula into a tangible medicine that reaches patients. This is where the CDMO value chain steps in.

First, Dr. Sharma contacts a company specialising in pharmaceutical intermediates, like Aarti Organics. They'll source the raw materials and expertly synthesise the complex chemical compounds required to create the drug's active ingredient. These intermediates, like carefully crafted puzzle pieces, form the foundation for the next stage.

Next, a specialist API supplier, perhaps Divis Laboratories, comes into play. They take the intermediates and, leveraging their expertise in chemical processing, manufacture the drug's API - the crucial active component responsible for its therapeutic effects. It's a meticulous process, ensuring the highest standards of purity and efficacy.

Finally, Dr. Sharma turns to a formulation’s expert like Laurus Labs to bring it all together. This company will combine the API with other ingredients, carefully crafting the final product - be it a tablet, capsule, or injection - that patients will use. They'll ensure the drug is stable, safe, and effectively delivers its therapeutic promise.

Through this intricate dance of collaboration, the CDMO value chain takes Dr. Sharma's scientific vision and transforms it into a reality, making her life-changing drug accessible to those who need it most. Each step in this chain is critical, a testament to the power of specialised expertise and partnership in the world of pharmaceutical development.

Source- CRISIL MI&A Research

How the Indian CDMO Industry Works ?

The Indian CDMO industry operates on a business model that involves partnering with pharmaceutical companies to develop and manufacture drugs based on their specific requirements. The process typically includes:

●Request for Proposal (RFP): Pharmaceutical companies issue RFPs outlining their drug development or manufacturing needs.

●Proposal Submission and Selection: CDMOs submit proposals based on the RFP, highlighting their capabilities and expertise. Pharmaceutical companies evaluate proposals and select a suitable CDMO partner.

●Contract Negotiation and Execution: A detailed contract outlining the scope of work, timelines, costs, and intellectual property rights is negotiated and executed.

●Development and Manufacturing: The CDMO carries out the drug development or manufacturing activities as per the contract.

●Quality Control and Regulatory Compliance: Stringent quality control measures are implemented throughout the process to ensure compliance with regulatory standards.

●Delivery and Tech Transfer: The manufactured drugs are delivered to the pharmaceutical company, and technology transfer may occur if required

Interesting Challenges for Indian CDMO Players

The Indian CDMO (Contract Development and Manufacturing Organization) industry faces a series of challenges as it strives to solidify its position in the global pharmaceutical landscape. Regulatory compliance is a significant hurdle, as CDMOs must navigate stringent standards across both domestic and export markets. Keeping up with ever-evolving regulations and ensuring adherence demands continuous investment in quality systems and expertise, posing a challenge, especially for smaller players.

Another critical issue is input risk stemming from India's heavy reliance on imports for raw materials, particularly from China. Supply chain disruptions, as seen during the COVID-19 pandemic, exposed vulnerabilities, affecting production timelines and profitability. This dependency underscores the urgent need for diversification and a more resilient supply chain.

As the industry expands, talent acquisition and retention emerge as key priorities. The demand for skilled professionals proficient in emerging technologies and complex manufacturing processes is growing. Companies must invest in training programs and competitive workplace environments to attract and retain talent essential for long-term success. The adoption of advanced technologies is another area where the Indian CDMO industry must catch up. Leveraging innovations like automation, artificial intelligence, and advanced analytics can drive efficiency, improve quality, and boost global competitiveness. However, the high costs associated with these technologies often act as a barrier for smaller firms.

Lastly, the sector’s fragmentation adds to its challenges. With numerous small and medium-sized players crowding the space, intense competition is inevitable. To remain viable, many companies may need to pursue consolidation, fostering scale and enabling investments in technology and infrastructure necessary for sustained growth.

Despite these challenges, the Indian CDMO industry holds immense potential. By focusing on enhancing capabilities, embracing new technologies, and building strategic partnerships, Indian CDMOs can capitalize on the global outsourcing trend and establish themselves as key players in the global pharmaceutical value chain. As the industry continues to evolve, India's CDMO sector is well-positioned to play a pivotal role in bringing affordable and innovative medicines to patients worldwide.

The Contract Development and Manufacturing Organisation (CDMO) industry is a vital link in the intricate pharmaceutical value chain. It provides a range of services, from early-stage drug discovery to commercial production and packaging. This detailed exploration of the CDMO value chain, drawing on quantitative data from the provided sources, reveals the industry's crucial role in bringing life-saving medications to market.

1. The Genesis of Innovation: Drug Discovery and Pre-Clinical Trials

Traditionally, CDMOs have concentrated on later stages of development and manufacturing. However, recognizing the benefits of a holistic approach, some are venturing into the realm of drug discovery and pre-clinical research. This strategic expansion enables them to offer end-to-end services, capitalising on their scientific expertise and cost-effective operations.

Aragen Life Sciences, a leading Indian CDMO, exemplifies this trend. The company is actively investing in broadening its capabilities in this area, aiming to provide integrated solutions that span the entire drug development lifecycle.

2. From Concept to Reality: Drug Substance and Product Development

The transition from a promising drug candidate to a viable pharmaceutical product is a complex journey. CDMOs are crucial partners in navigating this phase, offering expertise in API development and formulation. They undertake process development, scale-up, analytical services, and even conduct clinical trials to ensure the safety and efficacy of the drug.

Aragen Life Sciences, again, stands out with its commitment to end-to-end solutions. It provides comprehensive services in this segment, including manufacturing clinical and commercial APIs and drug products.
The burgeoning biologics market presents a lucrative opportunity for CDMOs with specialised capabilities. The sector is projected to grow at a robust 9% CAGR, reaching US$509 billion by 2026 from US$303 billion in 2020.

3. The Foundation of Medicine: API Production

Active Pharmaceutical Ingredients (APIs) are the fundamental building blocks of medications. India has carved a niche as a global hub for API production, thanks to its robust supply chain, cost advantages, and a vast pool of skilled scientists.

Div's Laboratories, a major Indian CDMO, generates over 90% of its revenue from international markets, largely due to its API manufacturing prowess. It operates one of the largest API manufacturing facilities in Hyderabad and is further augmenting its capacity with a new unit in the Kona, Kakinada district of Andhra Pradesh.
However, the API segment faces headwinds from factors like changing government regulations and price control measures, such as the Drug Price Control Order (DPCO). These challenges underscore the need for agility and adaptability within the industry.

4. Shaping the Final Form: Formulation Drug Production

The conversion of APIs into patient-ready dosage forms, such as tablets, capsules, and injectables, is a critical step in the pharmaceutical value chain. Formulation drug production is a cornerstone of the CDMO market, with Indian companies offering a wide array of services.

Jubilant Pharmova is a prime example of a CDMO specialising in sterile injectables. It boasts a comprehensive manufacturing network spanning the US, Canada, and India. Recognising the growing demand, Jubilant Pharmova is investing US$370 million to double its sterile injectables capacity in Spokane, USA, and Montreal, Canada, over the next five years.
The demand for complex formulations, particularly for biologics and cell & gene therapies, is surging, leading to the emergence of specialized CDMOs equipped to handle these intricate manufacturing processes.

5. Ensuring Seamless Delivery: Packaging and Supply Chain Services

CDMOs are increasingly expanding their role beyond manufacturing, encompassing packaging and labelling to meet regulatory standards and customer specifications. Moreover, they are offering supply chain management services, including storage, distribution, and logistics, to provide a holistic service experience.

Integrated CDMOs, like Jubilant Pharmova, have embraced this trend, positioning themselves as one-stop shops for their clients' pharmaceutical needs.
A key advantage for India's CDMO sector is supply chain diversification. With strategic investments in world-class infrastructure and sourcing from diverse regions, including Europe, the US, and China, Indian CDMOs offer resilience and reliability.

6. Navigating the Regulatory Landscape: Regulatory Support

Regulatory compliance is paramount in the pharmaceutical industry. Indian CDMOs have earned a reputation for their stringent adherence to international quality standards, such as WHO GMP certification.

Aragen Life Sciences exemplifies this commitment to quality and compliance, making it a trusted partner for global pharma companies navigating the complex regulatory landscape.

7. From Lab to Market: Market Entry and Commercialisation

While development and manufacturing are core CDMO functions, some companies are extending their services to market entry and commercialization. This includes supporting technology transfer, regulatory strategy development, and market access initiatives.

Akums Drugs and Pharmaceuticals is a case in point. It has achieved forward integration, allowing it to market and distribute trade generics in both domestic and export markets. Its position as India’s largest contract manufacturer of generic medicines, controlling 30% of India's domestic CDMO market, underscores its successful foray into commercialization.

Quantitative Insights into the Indian CDMO Market

● The global CDMO market is valued at a staggering US$1.5 trillion, with drug manufacturing representing a substantial 15% share.

● The Indian CDMO market is poised for remarkable growth, projected to expand at a CAGR of 14.67% and reach US$44.63 billion by 2029. India is expected to become a major player in the global CDMO landscape, with its market size growing from US$28.47 billion in 2024 to US$330.36 billion by 2028.

● Generic drug manufacturers constitute a significant portion of the CDMO customer base, and this segment is experiencing rapid growth, fueled by studies demonstrating the efficacy of generic medications.

● India is a global powerhouse in pharmaceutical production, ranking as the world's third-largest producer, with over 10,000 factories. Indian producers contribute a significant 8% to the global output of APIs.

● Indian CDMOs enjoy healthy profitability, with EBITDA margins reaching up to 35%, compared to 20% for their counterparts in the Western hemisphere. This highlights the industry's financial attractiveness.

The future of the Indian CDMO industry is poised for significant transformation, shaped by emerging trends and ongoing challenges. One of the most promising developments is the global pharmaceutical industry's increasing reliance on outsourcing. This trend, driven by the need for cost efficiency, specialized expertise, and faster time-to-market, presents a substantial opportunity for Indian CDMOs to expand their footprint in the global market.

At the same time, the fragmented nature of the Indian CDMO sector is likely to evolve toward consolidation. As companies aim to offer end-to-end solutions and leverage economies of scale, mergers and acquisitions are expected to become more prevalent, creating a more streamlined and competitive landscape.

Specialization is another key trend defining the industry's trajectory. CDMOs are shifting their focus to niche segments such as biologics, injectables, and complex formulations to meet the growing demand for tailored solutions. This shift not only enhances their competitive edge but also aligns with the broader market's move toward innovation-driven growth.

Additionally, technology adoption is emerging as a critical factor for success. Investments in automation, advanced manufacturing techniques, and data analytics are essential for Indian CDMOs to improve efficiency, ensure quality, and maintain their competitiveness on a global scale. By embracing these innovations, the industry can strengthen its position as a reliable partner for pharmaceutical companies worldwide.

However, the industry must address certain challenges to maintain its upward trajectory:

● Talent Acquisition: Attracting and retaining skilled professionals, including scientists, engineers, and regulatory experts, is essential to support growth and innovation.

● Regulatory Compliance: Staying abreast of evolving regulations and maintaining stringent quality standards is critical to ensure continued access to key export markets.

● Evolving Customer Demands: Anticipating and responding to the changing needs of pharmaceutical companies, particularly in areas like personalized medicine and complex drug development, will be vital to remain a preferred partner.