India’s API manufacturing industry is the third largest in world in terms of volume & 13th largest I terms of value & is expected to grow at a CAGR of 17 per cent in 2011-2017. India’s API production has doubled in the last couple of years in generic sector. API market in India is currently highly fragmented but is expected to become consolidated in the coming years due to increasing competition.
According to a report by Frost & Sullivan, in the pharmaceutical industry, sourcing of APIs is now being considered as a crucial part of industry’s strategic plan and India is one of the top countries from which APIs are sourced. Although in terms of value the demand for APIs still comes from the United States and Europe, the role of the Asia Pacific region as an important demography for sourcing of APIs is becoming more prominent. Another noticeable aspect in the pharmaceutical industry today is the patent expiry of branded products resulting in expansion of generic sector. As a result of this the contract manufacturing organizations in countries like India are expected to witness a strong upsurge in demand of APIs in generics sector.
Inspite of this in the innovation segment, a major portion of the manufacturing process is still controlled by big pharma and the role of contract manufacturing organizations is still limited. Apart from this there are several other challenges faced by the industry.
The upcoming challenges for the API Industry in India are as follows:
1. Pricing
2. Remaining & Retaining Declining Markets
3. Transparency in supply chain
4. Regulatory issues
Pricing
The API manufacturers today are facing a tremendous competition, so for survival they have to produce APIs in large volumes but at a lower price. On the other hand the prices of raw materials are increasing making it tough for the small API manufacturers to manage things.
Final formulators continually push for lower API prices as they face incredible price competition themselves, to the point of sometime focusing more on market share than on the profitability. Each API market is divided in two: One is those manufacturers targeting regulated markets with approved facilities and higher cost APIs and the other is the manufacturers targeting unregulated markets with low quality mechanisms and lower cost APIs. Final formulators, often under the tremendous price pressures are more and more willing to take risks with less established companies than with more established ones. Such decisions influence the overall API market. Usually within a market segment the higher quality manufacturers exit first, leaving the market to the lower quality manufacturers.*
Remaining and retaining declining markets
The API market is not a uniform market it varies dramatically by product and quality level. Thus while some API markets function efficiently, others may not enjoy the same status. The API manufacturers usually do not continue to remain associated with small/declining markets. When the API manufacturers no longer view the API market worth competing in, they tend to leave the market and the final formulators may not be able to find the low-cost, high-quality API they used to procure. For the growth of API industry the manufacturers need to remain in the market and exploit its potential.
Transparency in supply chain
Many small local final formulation firms who procure APIs in the global market, mainly from the API-manufacturing firms located either in India or China sometimes find that navigating the market is challenging, especially when procuring the non-WHO GMP or SRA approved APIs. Furthermore some API manufacturers who could not directly export their goods had to go through a state-owned trading company, many Chinese API manufacturers still use such trading companies. These traders may have a tendency towards non-transparency. Moreover there is no public database that can track the API manufacturers and quality assessments.*
Usually when a final formulator procures APIs from global merchant market he should use US FDA audits along with internal audits aiming on the supply chain, technical processes and facilities in order to validate the quality of the API manufacturer directly. The direct contact of the final formulator with the API manufacturer provides the necessary transparency to the supply chain. A manufacturer would know the process better and would be able to do necessary quality control checks directly, provide any requested certification. Many smaller final formulators without the resources and experience rely on a trader to source the APIs.*
Regulatory issues
The stringency of regulatory requirements may delay product approvals, also this increasing stringency is forcing low quality manufacturers out of the market. There are several gaps in the regulations laid down such as overlapping jurisdictions in which no single agency exercises ultimate responsibility as a result of the fragmented authority structure However, gaps still exists. (According to SFDA officials the responsibility for food and drug safety involves as many as 17 government agencies, ranging from the Ministry of Health, which sets hygienic standards, to the Public Security Bureau, which has the power to investigate criminal cases.*)
Apart from this the companies making products as diverse as fertilizers and industrial solvents are neither certified nor inspected by many drug regulators, yet they are exported as chemical intermediaries for pharmaceuticals.
Potential of the API industry to become a brand
There is a need to looking at the API market from a sustainable and quality perspective as well as from a price perspective to exploit its potential to become a brand.
As an individual API manufacturer from India there is a need to create a differentiation factor, especially when the market situations are drastically changing. The differentiation factors can be attached to the entire organization or a product or a group of products, and also to a group of markets in which one operates.
APIs are a well-blended combination of product, service, and value.
The API manufacturers must maintain a differentiation factor to avail the market benefits. The manufacturers are required to have a long- term vision and choose what is right and what is sustainable to create a differentiation factor. Differentiation factor lies within and success lies with a win-win situation with customers. The Indian API firms are aggressively strengthening their credibility in the regulated markets by obtaining approval for their products, therapeutic applications, and manufacturing facilities. Higher quality, coupled with cost-containment, makes India increasingly lucrative for API sourcing.
As expressed in the Frost & Sullivan report, the Indian API manufacturers have been the early adapters of some new approaches such as the use of enzymatic catalyst platforms as an alternative for complex synthesis. The innovative efforts are often driven by the fact that Indian companies frequently compete as generic producers in the markets with a high degree of price competition. More advanced Asian producers may also follow their western counterparts and start to explore intensive processing approaches such as continuous production and micro-reactor technology, which have until recently been the domain of the bulk chemicals and petrochemicals industries. Thus, this factor is expected to have a high impact in the short and mid-terms, and a medium impact during the long term of the forecast period.
(Note: Excerpts taken from Exploratory Study on Active Pharmaceutical Ingredient Manufacturing for Essential Medicines, Janet Bumpas and Ekkehard Betsch, HNP)
(The author is managing director, Interlink Marketing
Consultancy Pvt. Ltd., Mumbai)