The global Active Pharmaceutical Ingredients (API) market is in a period of exceptional growth because of the patent expiry which is slated to drive revenues. While it is consolidating in the US and EU resulting in the emergence of few big players producing speciality APIs that target high value markets, new players are entering in the mass markets of India and China.
With global healthcare spending to have reached around US$ 6.4 trillion in 2010 and a rapidly ageing population boosting the demand for pharmaceuticals, APIs represent one of the most exciting markets for growth.
As the API industry is poised for a bigger league in the global landscape by 2015 due to the global drug off patent cliff, Indian API manufacturers are likely to benefit as market dynamics undergo a major change in the Asian subcontinent. India, Japan and China are expected to receive a windfall of about $55-60 billion in the next two years.
The market for APIs across the globe is transcending from a price sensitive phase to a quality conscious one. Among the price conscious countries are Latin America and South East Asia. But the global slowdown has seen a huge interest from the big pharma of the West to look at quality conscious and price beneficial markets like India. The country’s expertise and plants will drive the opportunities, said Manoj C Palrecha, managing director, Lake Chemicals.
According to Jai Hiremath, Vice Chairman & Managing Director, Hikal Ltd from product development to new technology infusion, tapping global markets by proving its quality standards are all part of the India’s API industry capability.
Small and medium-sized Indian API and bulk drug manufacturers who have been targeting small and niche segments could garner substantial market shares in some advanced as well as emerging markets, effectively competing with larger Chinese and European counterparts on quality as well as scale in the high-margin/ low-volume complex chemical products where completion is less.
As per some estimates, Indian companies are expected to grab a substantial share of the pie from the regulated markets, such as the US and EU, which are saddled with mounting pricing pressures from low cost providers in developing markets and backward and forward integration by some generic companies.
Today, the Indian pharma market is pegged approximately at Rs 1.20 lakh crores, of which API comprises about Rs 50, 000 - Rs 55, 000 crores. Out of 10,000 manufacturers, about 70 per cent are into drug formulation, and the rest 30 per cent are into manufacturing APIs.
Hence, the patent expiry will provide a significant opportunity for API suppliers and generic drugs manufacturers. It will further offer multinational pharma companies the opportunity to outsource bulk drugs from India.
Today, the API landscape in India is quite promising due to the robust research-based processes, low cost operations and availability of skilled manpower. The global economic slowdown further fuelled the growth prospects of the API sectors in India, Japan and China, which on the other hand restricted the growth in developed economies such as the US and Europe and helped to fuel the growth in the Asian markets.
In terms of global ranking, India is now the third largest API producers of the world just after China and Italy, and by end 2015, it is expected to be the second largest producer after China. However, in Drug Master File (DMF) filings India is currently ahead of China.
Currently, there are two broad categories of markets for the API globally — highly regulated and semi regulated markets. Countries like the US, Europe and Asia Pacific under highly regulated category with high entry barriers for the global API players because of robust Intellectual Property (IP) regime and stringent regulatory requirements to meet the product quality standards. Such an environment prompts a premium price for the APIs. In contrast, the semi - regulated markets, which offer low entry barriers with not so stringent IP and regulatory requirements, attract more number of API players engaging in cut throat price competition.
However, a perceptible shift in API manufacturing has emerged from the western markets percolating into the emerging markets such as, India and China. In the Asia Pacific region, Japan and China enjoy the highest market share for API, about 43 per cent and 21 per cent, respectively. Whereas, India accounts for 11.5 per cent, while South Korea holds nine per cent market share. To avoid price erosions witnessed in the US, Indian API manufacturers have started exporting more APIs to Japan.
India has emerged as one of the most-favoured API producing hub globally owing to its credentials as the best quality manufacturer of generic formulations as well as cost competitiveness compared to its foreign counterparts. Indian companies have excellent chemistry skills due to their well-established generics exports industry, whereas Chinese companies are known for their bulk drug and intermediate sourcing.
While most Chinese firms specialise in the production of low-value, large-volume intermediates and APIs, Indian companies are known for producing high-value, low volume intermediates and APIs. All this well work in favour of Indian companies because of their reliability and the ability to meet delivery schedules which is a big concern for global drug makers while sourcing from China today.
India manufactures around 600 different APIs. Growth in categories like oncology, neuro psychiatry, diabetics, anti allergy, cardiology and nephrology are some of the focus areas for pharma companies in the country.
Bio-manufacturing, together with our large chemical synthesis-based pharma and petrochemical industries can build an indomitable position for India. It can make us a resource base for bio-fuels, petrochemicals and fertilisers. It can create a plethora of jobs it creates for engineers, scientists, technicians and entrepreneurs, said Kiran Mazumdar-Shaw, chairman and managing director, Biocon Ltd
" Indian pharma industry is known for its inherent strengths in chemistry. It has the sound technical expertise in development of chemical synthesis. Therefore only a bit of pragmatism and investment is required to further strengthen India's API development programme," said Anjan K Roy managing director, RL Fine Chem.
The country’s total pharmaceutical sales is now all set to increase to $27 billion in 2015-2016 from 23.6 billion in 2013-14, according to the Global Life Sciences Outlook report by Deloitte.
India is among the top five pharmaceutical emerging markets. The double digit growth registered by India’s life sciences and health care industry can be attributed to several socio-economic factors, including increasing sales of generic medicines, continued growth in chronic therapies, and a greater penetration in rural markets.
The leading API manufacturers in India are Dr. Reddy’s Labs, Hika, Sun Phamra, Aurobindo Phamra, Lupin and Jubilant Organsys, to name a few.
Growth in categories like oncology, neuro psychiatry, diabetics, anti allergy, cardiology and nephrology are some of the focus areas for companies like RL Fine Chem, Strides Arcolab, Micro Labs, Bal Pharma, Aurobindo Pharma and Dr. Reddy’s Laboratories.
According to Sujay Shetty, Director and Leader – Pharmaceuticals & Life Sciences, PwC, the emergence of chronic diseases like cancer, diabetes, Cardio Vascular System (CVS) and Central Nervous System (CNS) disorders is likely to drive demand for newer therapies. With increasing pressures on curbing healthcare costs in the US, India’s low-cost manufacturing capabilities coupled with attention to quality are seen to be an advantage. This is where India will be preferred to manufacture APIs because the country has the highest number of FDA-approved manufacturing plants outside the US which will be sought-after by multinational companies (MNCs).
India has a large pool of scientific manpower which can be used in drug discovery, development and clinical trials. Other growth drivers are heightened health awareness, increasing affluence, changing lifestyles resulting in higher incidence of lifestyle diseases, increasing government expenditure on health care, and a nascent, yet fast growing health insurance industry. In addition, the nation’s low cost of production and R&D boosts the efficiency of Indian pharmaceutical companies and its comparative cost advantage enhances Indian pharmaceutical exports, added Shetty.
The worldwide demand for cost-effective generic drugs is leading India to rise as a hub of generic drug manufacturing. India accounts for over 10 percent of global pharmaceutical production, with over 60,000 generic brands across 60 therapeutic categories and it manufactures over 600 different APIs. The country is the front-runner in a wide range of specialties involving the manufacture of complex drugs, reported Deloitte.
A number of pharmaceutical companies are increasing their operations in India. The main focus of the Indian companies is on countries with ageing populations such as Japan, Africa, and Latin America, which need cheaper drugs. It is estimated that Indian companies will benefit by about $40 billion as 46 U.S. drug patents expire in 2012-15.
According to Frost and Sullivan report, there are high unmet needs in cardiovascular and respiratory disease treatments. This sees global markets being dependent on parallel imports for innovative medicines. This is where highly skilled labour and low costs make an attractive market for partnerships for APIs in India. In fact, the country is known for its pharmaceutical companies with global presence and US FDA approved labs are preferred destinations for R&D outsourcing.
According to Shetty, the Indian pharma industry is on a major growth trajectory and is expected to reach US$ 74 billion by 2020. In order to realize the full potential of the market and tap growing global opportunities, companies operating here will have to collaborate in a mutually beneficial manner.
“As we move into the next decade, mergers and acquisitions, partnerships and licensing will drive future growth. MNCs will not be averse to acquisitions but high valuations will make mergers and acquisitions expensive in India.
Alternatives such as alliances and partnerships will actually prove to be more flexible and value-enhancing in the long term. MNCs can profit from the Indian market where it can benefit from the knowledge of the local companies, the strength of their sales force and significant cost advantage across drug development and the manufacturing process,” said Shetty.
Global pharma companies have the capability of bringing in newer products, technology, capital and quality leadership. They can help their Indian counterparts in their desire to ascend the innovation curve. However, alliances and partnerships face significant challenges of quality, valuation management control, corporate governance as well as cultural issues. Success will depend on thorough due diligence of quality aspects, appropriate valuation and synergy derived from the association, noted Hiremath.
The pharmaceutical industry in India is poised for a period of robust growth driven by alliances and partnerships. Success in the market will be dependent not only on pharma companies but also on other stakeholders like healthcare providers, health insurance companies, medical technology companies, government, patient groups as well as society at large acting in concert. How well they do will determine the future of the Indian pharma industry, said Shetty.