Active Pharma Ingredient (API), the main ingredient in a pharmaceutical product is responsible for the potency and efficacy of a drug and at the same time for the major portion of overall costs of a drug. Therefore, companies need to look for high quality and cost-effective APIs. Qualitative API will produce drugs with superior quality enabling the company to pass through the Food and Drug Administration (FDA) approval process with relative ease, while reducing the cost of manufacturing and increasing margins.
The API market is largely dependent on the pharmaceutical formulation market and vice versa. However, the growth of the API market in terms of value is dependent on several other factors, which will be covered in this article. Presently, close to 90 per cent of the domestic API requirements are being fulfilled by domestic API manufacturers. Indian API manufacturers also supply APIs for the global pharma market apart from fulfilling domestic demand.Thus, the global pharma industry acts as a growth driver for Indian API manufacturers.
India is characterized by its low cost manufacturing and hence low priced APIs with international quality. Over the years Indian companies have manufactured more and more complex APIs with high quality and lower costs, thus earning them high repute in the highly regulated international markets
The API market
The FDA scrutinizes the source of API very strictly since it is the main ingredient of any pharmaceutical product. Price has been the most important criteria for selecting the source of API for pharmaceutical companies. However, with the increased focus of the FDA on the quality of API, pharma companies have also shifted focus to several other parameters to identify a sourcing partner for API.
A preferable API manufacturer should have:
■ Chemistry and manufacturing expertise
■ Meet regulatory requirements during manufacture, storage and other processes
■ Predictable lead time and timely delivery assurance
■ Intellectual property security
■ Quality compliance of the API as per the required regulatory framework
China, India and Italy are top three countries, respectively, in terms of supplying APIs to the global pharma market. China produces close to 70 per cent of world’s generic APIs followed by India with about 19 per cent and Italy close to 9 percent. Globally, 41 per cent of the API market consists of demand from the merchant market and the remaining 59 per cent is captive. Out of the 41 per cent merchant market demand, generics is 46 per cent , branded drugs 54 per cent.
India has world’s second largest API manufacturing industry after China. India’s drug industry produces more than 400 different APIs and is among the world’s top five API producers accounting for approximately nine percent of the world’s API production. According to Assocham, the leading APIs are for anti-infectives, gastrointestinals, cardiovascular and respiratory drugs. In terms of volume, the gastrointestinal and cardiac segments saw the highest rates of growth and accounted for the largest number of new drug launches in 2009.
Key facts about Indian API industry
■ Indian bulk drug market is fragmented with top 10 companies contributing 44 per cent of the market and about 1,325 companies accounting for the balance 56 percent
■ The Indian API industry is self-sufficient in terms of meeting the need of all the 300 essential drugs for the domestic Pharma industry. It caters to around 10,000 formulations and thus close to 90 percent of the total API requirement for the domestic industry
■ 15 to 20 percent of Indian Pharmaceutical Industry is contributed by APIs
■ Besides the highest number of USFDA approved plants for manufacturing drugs outside the US, India has 19 facilities recognized by TGA (Therapeutic Goods Administration), Australia; 45 plants by MCC (Medicines Control Council), South Africa and 3 certified by EDQM (European Directorate for the Quality of Medicines and Healthcare). At present, India has more than 175 USFDA approved plants
■ Major companies operating in this segment are Aurobindo Pharma, Dr Reddy’s, Orchid Chemicals and Pharmaceuticals, Divi’s Lab, Hetero Drugs, Shasun Chemicals and Drugs, Jubilant, Ranbaxy, Dishman and others
Drivers of API industry
The four main components of the global outsourcing market are intermediates, APIs, custom synthesis and formulations/dosage forms. It is estimated that approximately 38 percent of outsourcing demand is for manufacturing of APIs.
■ Between FY 2008-09 and FY 2010-11 molecules worth US$ 29 billion went or are going off patent, opening opportunities for API manufacturers
■ 2008-09: Value of off-patented drugs was US$ 8 billion. ($8?) Major molecules: Lamotrigine, Venlafexaine, Mycophenolate, Tacrolimus and Desloratidine
■ 2009-10: Value of off patented drugs was US$ 10 billion. Major molecules: Valacyclovir, Lansoprazole, Escitalopram, Peridopril, Gatifloxacin and Sirolimus
■ 2010-11: Value of off patented drugs are US$ 11 billion. Major molecules: Levofloxacin, Olanzapine and Pantoprazole
■ Biotech API is an area of high growth within the Asia Pacific region with a Compound Annual Growth Rate (CAGR) of 27 percent from 2005 through 2010; major demand in Asia is within India and China
■ New drug development pipelines in different therapy areas open new opportunity areas for API manufacturers
■ Increasing US Drug Master File (DMF) filings by Indian companies, as shown below: (Source: www.fda.gov)
■ 2003: Indian companies filed 122 US DMF out of total of 426 by all other countries across the world (29 per cent of total filing)
■ 2004: Indian companies filed 194 US DMF out of total of 541 by all other countries across the world (36 percent of total filing)
■ 2005: Indian companies filed 269 US DMF out of total of 688 by all other countries across the world (39 percent of total filing)
■ 2006: Indian companies filed 319 US DMF out of total of 689 by all other countries across the world (46 per cent of total filing)
■ Increasing generic penetration in developed markets will open new doors of opportunity for API manufacturers
■ Big western companies are taking advantage of the cost and skilled manpower in India, with producers such as Roche, Bayer, Chiron and Aventis already having made India a regional hub for APIs and bulk pharma supplies in Asia
■ According to a report on APIs, demand for Chiral chemicals from the pharma industry, which amounts for the majority of the market, is set to grow at an annual rate of 8-10 percent; worldwide revenues were estimated at US$15 billion in 2008. The increasing complexity of the chemistry required to make Chiral APIs provides a potential differentiating factor for manufacturers to separate themselves from their competitors in a fragmented market
Strengths of Indian API industry
■ Indian API manufacturers are highly preferred and accepted by big pharmaceutical companies, as they are the sourcing partners for their APIs. The key success factors of the Indian API manufacturers are as follows:
■ Low labour cost: Average wage index for India is 10 per cent of a typical Western API company. Even the higher productivity (turnover/employee) of a Western company (due to the higher average automation level of the manufacturing processes) can not nullify the labor cost difference
■ Highest number of USFDA approved plants outside US. India currently has more than 175 USFDA approved plants, the highest in the world in a country outside US
■ Strong process / chemistry skills
■ Ability to synthesize complex synthetic APIs, whereas China manufactures large volume APIs only
■ Capital efficiency
■ Availability of skilled workforce
■ Strict adherence to global regulatory compliances
■ Enforcement of product patent increases the confidence of global pharma companies
■ Large domestic market helps to achieve economies of scale to penetrate global markets
■ Desire and readiness of the Indian API manufacturers to operate at lower margins than their western counterparts
■ Growing experience with GMP compliance
■ Strategic alliances with the MNCs to supply APIs to them. A few examples are given below:
Challenges for Indian API industry
■ The following are the key issues and challenges the Indian API industry is facing:
■ Increasing competitive intensity within India and from other countries
■ Price erosion for products because of increasing number of filings for each product
■ Increasing costs and procedures for regulatory management such as regulatory filing costs, regulatory inspections / audits, legal costs, difficult labor laws
■ Shortage of legal talent for the pharma domain, which is a costly affair in the other parts of world
■ No product differentiation and only price differentiation approach by Indian players is rapidly commoditizing a once highly profitable market. Thus, a rapid price erosion pulls the market downward in terms of value
■ Capabilities of API manufacturers, which are not differentiated from each other results in competition on the cost front only
■ Overcapacity in manufacturing and large number of Drug Master File (DMF) filings forces API manufacturers to sell even at lower prices
■ Low cost of development and manufacturing but high logistics cost
■ Increasing difficulty in finding novel processes in APIs
■ Depreciating US dollar puts pressure on realization
■ Competition and threat from China
■ Lack of government support for the indigenous API industry
Prospects bright
Though the API market was led only by price competitiveness, due to lack of product differentiation, rapidly growing business areas like oncology, rheumatoid arthritis, biopharma and others may be considered as a potential business avenue to invest in emerging high-potency APIs. Since Indian companies have a high record of DMF filings and many approved APIs, Indian companies are competitively strong to be the preferred API sourcing partner by the big pharmaceutical companies in the highly regulated markets. Also, because of the cost pressure on the big pharmaceutical companies, the amount of outsourcing is increasing, which will add certain fresh opportunities for API manufacturers. Besides, a strategic tie up with big pharmaceutical companies to be an exclusive supplier for certain products can make Indian manufacturers think beyond the cost differentiation.
The author is Program Manager, Healthcare – Pharmaceuticals and Biotechnology, South Asia and Middle East, Frost & Sullivan