The global active pharmaceutical ingredient (API) industry has grown substantially over the past few years due to growth in the generic industry. Global bulk drug demand increased at a compound annual growth rate (CAGR) of 11 per cent over the last five years to reach US $84 billion in 2006. It is estimated to have reached US $90 billion in 2007. Most of the companies that purchase bulk drugs are generic manufacturers.
India's bulk drug/API exports accounts for 21 per cent of the country's pharmaceutical industry, which, in contrast to many developed countries is significantly higher as bulk drugs are mainly manufactured for internal consumption.
Bulk drugs exports grew robustly by 28 per cent CAGR between 2001-02 and 2007-08 to reach an estimated US $4.2 billion. The major factors that assisted this growth include:
● Growth of generic industry: Generic market grew from around US $27 billion in 200l to around US $75 billion in 2007 on account of large scale patent expiry
● Increasing share of Indian companies in drug master filings
● Contract manufacturing opportunity
ADVANTAGE INDIA
In the pharmaceutical industry India has carved a niche for itself by being one of the largest bulk drug suppliers. India offers a number of distinctive advantages in the pharmaceutical space.
Apart from the availability of cheaper labour forces, India has several local manufacturing equipment manufacturers. These equipments are of high quality and law cost, thus reducing the cost of capital. According to industry estimates, Indian companies are able to reduce the upfront capital cost of setting up a project by as much as 25-50 per cent due to locally manufactured equipment and high quality technology/engineering skills.
Competition in India's domestic formulation market has made it inevitable for API suppliers to continuously develop alternative production methods to improve yields or reduce costs. This ensures that India has a significant cost advantage due to process engineering.
Apart from availability of a high number of skilled chemists, India also offers scientists with vast experience and unmatched skills. They are available at a fraction of the cost that is in foreign countries. This makes Indian research firms more competitive than many international firms. Labour costs are also low in India.
Over the years, India has also developed regulatory skills required for getting approvals in regulated markets like US, Europe and Japan.
GENERICS GROWTH
The worldwide generics market has seen a phenomenal rise over the past few years fuelled largely by patent expirations of blockbuster drugs. The growth in generic industry is expected to continue over the next eight years as drugs worth US $105 billion are expected to face patent expiry. As generic medication is cheaper than originator products, the overall value market increase has been much lesser compared to the volume rise. This can be seen by the substantial increase in the sales of APIs from the Indian market to highly regulated markets like USA and Western Europe.
MERCHANT API MARKET
The growth in the generics market worldwide has also resulted in a marked increase in the market for merchant APIs worldwide. Merchant APIs reportedly constitute 41 per cent of the total APIs manufactured.
The global generics market is expected to grow at 8-10 per cent over the next decade. Highly price competitive generics require cost cutting and sourcing of lower cost raw materials. It in turn increases demand for merchant APIs worldwide. Chemical Pharmaceutical Generic Association (CPGA) expects merchant APIs to constitute up to 45 per cent of the total APIs demand by 2010, a rise from the present 4l per cent.
INCREASING DMF FILINGS
Of the total drug master file (DMF) filings to the US Food and Drug Administration (FDA), the proportion of filings by Indian players jumped from around 14 per cent in 2000 to 46 per cent in 2008 (January-June). This growth speaks volumes about the quality standards followed at Indian manufacturing facilities.
Although, a DMF filing does not necessarily result in business, it provides an indication about the capabilities of players - the filings provide details of manufacturing facilities, processing, packaging, storing of drugs etc - to the global pharmaceutical industry players, who would be outsourcing the manufacture of bulk drugs. A DMF is submitted to gain the confidence of prospective outsourcers. The growing number of DMF filings also signifies the increase in the number of contracts that Indian players have garnered.
India is way ahead of competitors in the total number of DMF filings. While India has recorded 1,671 DMF filings, China shows a tally of 520, the second largest number of DMF filings after India. Even in 2008 (January-June), India's DMF filings were around 3.5 times that of China - l8l and 51, respectively.
India is also one of the largest API producers for the US market and holds the largest number of US FDA approved plants outside US. The products registered by India vary in complexity and range of therapeutic areas. This ensures that competition for the products offered by Indian companies is restricted, thus ensuring steady demand for Indian API.
CONTRACT MANUFACTURING
API costs account for around 30 per cent of the total cost of a generic drug. This does not impact patented products as much as cost competitive generic medications. The price of a generic formulation is highly dependent upon the cost of APIs and companies attempt to determine firms, which can provide APIs with stable costs. This has resulted in a growing demand for contract manufacturers who produce pre-determined products at prices fixed in advance.
The contract manufacturing market comprises of bulk drugs as well as formulations. However, the bulk drug contract manufacturing contributes to 77 per cent of the total contract manufacturing market. India has emerged as one of the prime destinations for contract manufacturing due to its low cost and high efficient manufacturing processes. Many international companies have invested in contract manufacturing assets in India, including the likes of Actavis.
India has a cost advantage unrivalled by many countries, while offering state-of-the-art manufacturing facilities. Considering the advantages offered by India, innovator companies are opting India for contract manufacturing. This is further strengthened by the fact that many innovator companies have in recent years focused on cost cutting and thereby have closed down or sold their manufacturing units.
In recent years contract manufacturing has emerged as a major revenue source for Indian companies. Contract manufacturing is a growing industry in the country. As more and more innovator companies are reducing manufacturing spend, there would definite increase in the companies that offer contract manufacturing services.
The contract manufacturing in India is expected to grow from approximately US $0.625 billion in 2007-08 to US $3.2 billion by 2015.
INDIAN API EXPORT: VISION 2015
The Indian API exports have been growing on a consistent basis over the past few years. The main reasons for the growth have been entry into markets which have a growing generics demand and increasing number of competitors in the domestic market.
The growth of the bulk drug industry is directly linked to growth in formulation sales and requirements. The international generics market is continued to grow with many blockbuster drugs coming off patent in the coming years. Also, the domestic formulation market is also seeing a marked growth.
The Indian bulk drug export is expected to touch US $12.6 billion in the near future, thanks to the significant increase in sales to the regulated markets.
(Courtesy: Yes Bank report)