An Active Pharmaceutical Ingredient (API) is a substance that is intended to furnish pharmacological activity, or other direct effect in diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure and function of the body. In order to understand the global market for APIs better, one can broadly classify them into 2 main categories based on the customer base - APIs for the innovative pharma sector, and those for the generic sector. With drugs worth over $50 billion going off-patent in the next 5 years, it is the generic sector that is the key driver of the global API market growth. In 2004, the overall generic and biogeneric revenues worldwide totaled $39 billion, with an average annual growth rate of 10%.
Although US is the biggest market for formulation sales, Europe ranks higher when it comes to the production of fine chemicals used in pharmaceuticals, namely APIs and intermediates (both basic and advanced). The highly fragmented nature of the European API market, and the captive production of APIs by pharmaceuticals, makes market revenue calculation extremely difficult. However Frost & Sullivan has made an estimation that the total API market in Europe was worth $4.7 billion in 2004, and this is anticipated to grow at a compound annual growth rate of 3.5% over the years till 2010.
The generic segment is expected to exhibit a higher growth rate in comparison to that displayed previously due to imminent patent expiries and government initiatives across Europe. The innovative segment is likely to show low growth due to overcapacity, pharmaceutical consolidations, increasing captive production by pharmaceuticals, drug failures and delays adding to the drying drug pipelines. The European API market is estimated to be worth $5.85 billion by 2010. Although Europe ranks higher than other world markets in API production, some of the major challenges facing the growing API industry are:
n Increasing competition from low cost manufacturers
n Supplier base suffering from overcapacity with diminishing profits
n Consolidations in pharmaceutical industry
n Lack of capability differentiation
n Thinning drug pipeline
n Fine chemical industry consolidations
The major therapy areas that currently drive API market growth in Europe are CVS drugs, CNS drugs, gastrointestinal drugs, drugs for pain management, and oncology drugs - ranked in decreasing order of their contribution to total drug sales.
The United Kingdom API market accounts for approximately 22% of the total European API market. The German industry is responsible for about 18%, while the French market has a 10% market share. Countries such as Switzerland and Italy have approximate market shares of 8%, with Spain having a 3% share. Slovenia/Croatia, Czechoslovakia, Hungary and the Netherlands have about 4, 2, 2 and 2% shares respectively.
India's lower cost advantage
In comparison to the European market, the India's is relatively small, although fast growing, mainly due to inherent advantages of lower cost of services and manpower, skilled labour, strong technical knowledge and capabilities, and international qualities. Net production of bulk drugs in India was in the range of $1-1.5 billion in 2004, with an annual growth rate of 8-10%. As of today, over 70% of the total APIs manufactured is exported. Riding on the generic growth wave, the number of DMF filings by Indian companies are also increasing year on year. The key therapy areas driving sales, and hence the production of APIs, have been antibiotics and anti-infectives, cardiovascular system (CVS; mainly hypotensives and cardiac therapy drugs), central nervous system (CNS), respiratory drugs (cough and cold preparations and anti-asthmatics), anti-inflammatory drugs, and the fast growing segment of anti-diabetes - all ranked in decreasing order of their contribution to total drug sales.
HPAPIs driving US market
High Potent Active Ingredient (HPAI) is an active pharmaceutical intermediate or ingredient that has a specific Occupational Exposure Limit (OEL) at or below 10 micrograms per cubic meter of air as an 8 hour time weighted average. Basically, it means the particular compound is a potent and toxic compound. Currently, high potent active ingredients are gaining importance due to their efficient toxic effect over various diseases. Also, their ability to kill cancerous cells is an important factor that is giving momentum to the widespread usage of high potent active ingredients in oncology related treatments. This potent capability is also of interest for other diseases warranting research and development for producing such high potent active ingredients by leading pharmaceutical majors.
A major contributing factor for pharmaceutical majors to look for potent compounds is the increasing shift in disease treatment trends across various therapeutics. More and more drugs available in the market aspire to have functional properties such as low dosage and high potency. This is due to the emerging attitude of an effective drug which is patient friendly, treatment friendly, offers lower dosage options, and provides a sure shot cure at a faster rate than other drugs, which otherwise requires a long dosage time and less effective.
The requirement of an effective drug is essential especially in life threatening disorders such as cancer wherein the expectation of the patient is to have an effective treatment in lesser time. Hence, pharmaceutical majors are on the lookout for potent substances, which can arrest the spread of disease and kill infection faster by increasing the potency of the compound.
Considering this kind of growing trend in drugs-"faster efficiency, lower dosage thereby higher potency" it has become increasingly important to have a fool proof, safe system to manufacture these high potent active ingredients. This entails the need for safer efficient manufacturing facilities, superior toxic chemical handling equipment, and state-of-the-art laboratories, which offer safe containment facilities.
As of 2004, Oncology drugs contributed 95% of the revenues in which HPAPIs were used. This was followed by cytotoxic drugs with a 3% share, and hormone drugs with a 1% share. Other drugs contributed the remaining 1%.
High Potent Active Ingredient Market: Percent of Revenues by Product Type (U.S.), 2004
Some of the key challenges faced by the US HPAPI industry are
n Confidentiality factor seen as competitive advantage by big pharma firms
n Volume of high potent active ingredients is too small to outsource at present
n Safety issues involved in the manufacturing of high potent active ingredient compounds
Manufacturers in the US are seen taking advantage of this growing trend for HPAPIs. It is already estimated that the market for HPAPIs in the US was worth $265 million in 2004. This is expected to reach close to $755 million by 2010, with a compound annual growth rate of almost 19%. This high growth rate, in turn, translates into a huge growth opportunity in various segments of the high potent active ingredients market.
It is therefore seen that the high potent active ingredients market is poised for an exciting revenue growth. The market for outsourcing the manufacturing of high potent active ingredients is showing an uptrend with more and more pharmaceutical majors having arrived at the cost benefit advantages of outsourcing this production at present, although they are cautious in this approach owing to confidentiality and volume feasibility reasons. HPAPIs coupled with generic and biogeneric drugs are seen as true growth drivers of the API market globally. Manufacturers in the Indian market have already realized the potential for generic APIs and have established themselves as global suppliers. With many block-buster drugs going off-patent in the near future, this trend is surely going to continue if not increase. Having said this, the time is not too far when they establish themselves as key suppliers in the niche categories as well.
-- The author is Research Analyst, Chemicals, Materials and Food Practice, Frost & Sullivan, India. He can be contacted through: sdedhia@frost.com