Global active pharmaceutical ingredients(APIs) are keen on maximizing the capability of the emerging markets for the production of bulk drugs, excipients and speciality chemicals. The biggest sourcing points for the global majors are now China and India, which has the largest USFDA approved plants outside the US.
The global environment restricts companies to expand. Right now even acquisitions of plants in the US and Europe are viewed unviable by Indian companies because of huge maintenance costs.
Currently, Italy holds the leadership status in APIs followed by China and India. But India can easily dominate the field by adhering to international regulatory norms and in a few years could be in the second position. Even as Asian manufacturers have made a mark for cost-effectiveness as well as in meeting regulatory standards, India in particular, is emerging as an attractive choice for API outsourcing due to low development costs, complex synthesis capabilities, cGMP compliance and a large domestic market. Indian API industry was valued at Rs. 16,775 crore in 2011-12.
Demand from the regulated markets is increasing because leading multinational corporations (MNCs) are able to source from India-based facilities, which can match the quality of material made in Europe and North America, at a lower cost than their own facilities. The value from efficient Indian facilities has allowed MNCs to mitigate margin pressures, which is why approximately 60 per cent of pharmaceutical companies expect to increase their API outsourcing over the next three years. AstraZeneca is aiming to completely exit from API manufacturing by next year while Pfizer and Merck plan on outsourcing 30 per cent of their requirements.
India’s API prowess rests in companies like Aarti Industries, IndSwift Pharma, Ranbaxy, Cipla, Aanjaneya Lifecare Ltd, Hikal, Granules, Dr. Reddy Labs, RL Fine, Shilpa Medicare, Lake Chemicals, AstraZeneca, Biocon, Micro Labs, Bal Pharma, Strides Arcolab, Orchid Chemicals, Aurobindo Pharma, Global Calcium, Jubilant, Resonance to name a few.
While China is far advanced in certain APIs in the antibiotics and vitamin space, India is competitive in new molecules particularly oncology and neuropsychiatry drugs which are the growth drivers in the global drug development space, said Anjan K Roy, managing director, RL Fine Chem.
India currently has about 3,000 API factories and 5,000 reagent factories. It is a difficult time for API manufacturers as they continue to battle challenges such as growing competition from low-cost countries and over-capacity. Market participants will increasingly have to rely on strategies such as capability differentiation and consolidation to stay ahead of competition.
The Chinese have traditionally been strong in high volume and commodity chemicals. The lower cost base and the continuous government support have led to their leadership in certain fields like fermentation-based and prostaglandin and steroidal-based APIs. Although China has the capital and the capabilities, its expertise in soft skills and supply of the dossiers and other technical documents required as supporting data to file Drug Master File (DMF) have tremendous short comings. India, on the other hand is way ahead of its competitors in DMF filings’, said Dr. Kannan Vishwanath, Chairman of Aanjaneya Lifecare Ltd.
Global economic slowdown, rising inflation, increase in excise duty and service tax have created a mood of desolation, observed India pharma majors.
In such a gloomy scenario, it is high time, pharma companies particularly in the API space will need to re-devise manufacturing strategies to look at different dosage forms, adopt nanotechnology and opt for genomic drugs, Anjan K Roy, managing director RL Fine Chem and committee member, Karnataka Drugs and Pharmaceutical Manufacturers Association (KDPMA).
There is also the issue of poor infrastructure compared to China and we need to make a strong pitch for investment to get rid of the growth impediments, Roy added
The deepening Euro zone crisis will now further curtail the exports and this is creating jitters for the pharma industry, said members of the Karnataka Drugs & Pharmaceutical Manufacturers Association (KDPMA).
The sharp downturn in demand for API is a cause for concern. The current subdued global environment limits the ability of companies to expand. Even buyouts of potential facilities in the EU or US is unviable because of huge maintenance costs . Thus survival is increasingly becoming difficult, said Roy.
Though the depreciating rupee gave higher export earnings for large pharma in the APIs space, it was offset by expensive dollar denominated imports. Even the interest outgo on foreign-currency-denominated loans would also be increased with higher value of foreign-currency-denominated debt. Now the appreciating rupee has seriously impacted exports, according to Fitch Ratings in its report of 2012 Outlook: Indian Pharmaceutical.
The stringent international regulations are making it tough for Indian APIs players but documentation and dossier submissions will give an edge over China in a phase of stiff competition, said industry experts.
The varied financial implications in the international market has negatively impacted the capex purchases which will reduce the growth of lab chemicals market worldwide, said S R Sudhakar, Director - Sales & Marketing, Leonid Chemicals Pvt. Ltd.
Lab chemicals are an indispensable component for the pharma and chemical industries space. It would make more business sense for companies in the European Union and US to shift focus to India “This will shift the focus towards the Asia Pacific region comprising India, China, Thailand, Malaysia and Indonesia which is growing much faster than what west market. By 2014 the market size is expected to change, as we will see a fall in growth. US share will dip to 33 per cent, Europe to 27 per cent and Japan to 12 per cent. The fall in growth is coming out of significant growth in the Asia Pacific where from a mere 11 percent it will register 20 per cent growth which is an increase of nine per cent by 2014, Sudhakar added.
Over the last three years, curtailing cost is on top of the agenda for global majors. The patent expiries and paucity of new molecules have chipped away their enthusiasm in working on novel products. Hence they are keen on outsourcing non-core activities. Their efforts to outsource non-core tasks like API, excipients and low-cost destinations including India has given a booster shot to the domestic pharma companies and has created exciting opportunities for Indian contract manufacturers, pointed out Roy.
“The United States Congress is poised to pass the Generic Drug User Fee Act (GDUFA) in 2012, which will raise $291 million in user fees over five years, with the intent of conducting more audits in non-US based facilities. Currently, the U.S. FDA inspects 40 per cent of US.-based facilities verus 11 per cent of non-US-based facilities. After passage of the Act, the FDA is targeting an equalization of audits between U.S. and non-US based facilities. In addition to audits from regulatory agencies, customers are requiring tighter controls and higher quality standards as well. Companies that will succeed view increased quality standards as an opportunity to improve controls and minimize variations, which will ultimately reduce costs.
Quality-focused companies will welcome the increased inspections because it will be an opportunity to distinguish themselves from competitors. Over the long-term, the increase focus on quality will provide opportunities for Indian manufacturers to boost wallet share. In addition, since systems will be more robust, companies can target more complex products such as high potency APIs (HAPIs), which are growing faster than bulk APIs. Also, Acts such as the GDUFA will benefit these companies since it will allow them to enter regulated markets in a much more timelier manner, which will improve shareholder returns.
Focusing on efficiency and quality will be critical for a manufacturer who wants to be competitive but it is still necessary to find ways to add value that customers are willing to pay for. A logical way of adding value is working towards a partnership approach. Customers are not necessarily looking for the lowest API price. They are looking for companies that offer additional value through services such as regulatory guidance, responsive Quality Controls (QCs) and exemplary customer service. Companies must start viewing customers as a long-term partner that they will grow with, instead of as a purchase order. This will require a major shift in how many companies do business; companies will need to shift their mindset to focus on wallet share instead of looking at the number of customers they serve. Instead of heavily relying on traders, who certainly do add value in certain circumstances, companies need to concentrate on developing an end-to-end relationship with customers. Shifting towards a collaborative approach will enable companies to deliver cost-effective, value-added products to customers. This approach is not only a better allocation of resources but will also help to build a long-term relationship that is not strictly driven by pricing,” said Pranesh Raj Mathur, President , API division, Granules India Ltd.