Despite the bleak  global economic outlook , the Active Pharmaceutical Ingredients (APIs)  industry is moving at a scorching pace and  is expecting better  revenue growth in the coming years. With  several tailwinds that are favourable for innovative, forward-thinking companies, the Indian API manufacturers are fast gearing up to cash in on the bright  export market prospects, say  industry observers.

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. 15,680 crore  in 2010-11.

 Leading players in the country are 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.

India is ranked third in APIs after China and Italy. 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 historically 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.

Trends driving growth
The visible trends driving growth in the space are the expertise in process engineering and low cost advantage. Penetrating into the developed markets and shifting from bulk drugs formulation and exports to Contract Research And Manufacturing Services (CRAMs), Indian companies are fast ascending the value chain. The generics market provides  immense opportunity for the emerging market like India in the coming years.

Issues hampering growth
One of the  serious issues which hamper the growth is the delay  in   levying  anti -dumping duty  on  the  bulk drugs from China . The government has also not taken any effort to hike the registration fees of bulk drugs registered in China.   

The inability and lack of commitment on the part of the government to resolve the issue is viewed as a major deterrent to the  growth of the API production in India, said industry sources.

In spite of the fact  the  API manufacturers across the country has appealed to  the government to take a decision  on behalf of this, they don't have the hope that any decision would be taken in the near future. Any further delay in taking a decision  could decelerate the API industry  growth by 3-4 per cent, they point out..

The deceleration  in economic  growth  over the last 18 months, together with the  slump in global demand, may force the dragon land to  dump more APIs  and even increase its product registrations in India. While  the government of India levies only a low registration fee of Rs. 2,000 per product for  Chinese pharma companies, China  imposes Rs. 20,000 per product for Indian pharma companies. The scene is dull and unpredictable for Indian API industry, said Roy.  

The requests made to the government of India are now in vain. This is despite the fact that India’s strong strengths in chemistry, English speaking pool of experts and better quality of products which could allow  the country to maximize its revenue generation prospects in China,  he added.

Another issue is the lack of advanced infrastructure. The government has hardly supported the pharma sector for a dedicated API industry zone. Even though  industry players had come together to scout for common  pharma facilities at the state-level,  they have given up their efforts due to  lack of clarity in land availability and  hassles in land allocation, aver industry officials.  

In terms of production, plant modernization and technology adoption and  infrastructure, China is far ahead . India lags in modern industrial areas, environment  control and connectivity. Here the government is solely to be blamed, said industry officials.

There is no strong industry association to lobby for our cause. Although, in the last few months Pharmexcil has  taken on the onus of addressing  many of the issues, we are yet  to see the results said Roy.

Global economic slowdown, rising inflation, increase in excise duty and service tax have created a mood of desolation, since it will make drugs more expensive, observed India pharma majors.

In such a gloomy scenario,it is high time,  pharma companies particularly in the API space  re-devised manufacturing strategies  to look at different dosage forms, adopted nanotechnology and opted for genomic drugs,  pointed out Roy.

 The  deepening Euro zone crisis will now further impact  exports and  is a cause of concern  for the  pharma industry, said members of the Karnataka Drugs & Pharmaceutical Manufacturers Association (KDPMA).

 The sharp downturn in demand for API is a 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.

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, recipients 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.