During the last decade the business landscape for Active  Pharmaceutical Ingredient (API) manufacturing has  drastically changed. While significant price erosion has taken  place, regulatory requirements have constantly increased.  Conversely, little has changed in terms of patent protection  since Roche v. Bolar. API-producers from Europe still lack  the patent protection needed to ensure a level playing  field with international competitors. As a result, concerned  API-producers are seeking “niches” such as products with  challenging syntheses, complicated polymorphism, or high  regulatory and safety requirements. In parallel, the producers  from countries without patent protection are leading in mass  production of interesting new APIs that are coming off- patent shortly. By producing generic versions of the patented  drugs, these less-regulated manufacturers are able to focus  on pushing the boundaries of the formula, extending their  knowledge in forward integration (i.e., finished dose) and  backwards integration (i.e., key starting materials).

Today, strong producers from India, Taiwan and China  dominate the world-wide API market. These producers  not only offer lower prices then the established (mainly  European or US) producers, they also offer reasonable  technology at new production plants. Given their strength in manufacturing, the best solution might be to close plants  in Europe or the USA, and transfer all processes to Asia or  elsewhere. In the short-term this may be the best solution,  but it does raise the question, “What will happen if there is  a political crisis or a boycott/embargo?” If this happens, we  may be unable to serve patients adequately, especially with  key products such as antibiotics, steroids or simple, blood- pressure-lowering APIs. Pharmacists in some German cities faced API shortages and can provide good insights on the implications.

Asian API producer compliance with cGMP (current good  manufacturing practice) is an ongoing issue that needs to  be addressed. Despite pushing for corrective action after  incidents with products such as Heparin, there still seems  to be no change in practice, as evident by the recent FDA  warning letters sent to an important Chinese API producer.  The lack of change is rooted in the conflicting interests  between increased costs to produce under and fulfill all  cGMP requirements, and price expectations set by API  consumer (the generics industry). These price expectations  are driven by the public health insurance system’s goal to  reduce final dosage prices each year by a fixed number or to  participate in “tender businesses”.

Motivation for continued business
As industry pressure will not stop, it is necessary to initiate  a broad discussion regarding the value of medicine. If  nothing changes (and this is my concern), price pressure  will kill the industry, quality and GMP issues will increase,  and patient safety will be threatened. With no clear and  immediate solution, European producers are still under  heavy price pressures. Despite all of this, they are still  serving the market. Why?

It’s not simple to answer this question. First, we must  examine the structure of API producers in Europe. Most  of the API producers in Europe (and very few in the USA)  are independent SME’s (small and medium enterprises)  and usually private owned. As a result, most of these API  producers have a strong interest to orient their business  around longer-term plans. Many of these companies  have more than 50 years of history in which they have accumulated a lot of knowhow and technology. In  addition, shareholders of those companies are usually  private persons or foundations with long-term thinking.

In speaking to the president of one such privately owned  company, I asked questions about his motivation for doing  business in this industry and his strategy. He told me that  a passion for chemistry and offering the right solution  to his customers is what drives him. More important  than price, his customers appreciate the flexibility of his  company, and the extremely short lead and response  times. In addition, he said that profit maximization and  growth are not the prime focus of his strategy. He knows  his customers personally, taking care to build long-term  relationships and understand their requirements exactly.  Last, but not least, he pays fair salaries and has a healthy  opinion about work-life-balance.

Necessary changes for ensuring success
In order to ensure the success of European API producers, small business owners will need to further differentiate themselves from Asian manufacturers that produce large batch APIs, by continuing to explore niche API markets. Operation of multipurpose plants is one such differentiator of European API producers, which seems to have already taken hold. Most European and US producers operate multipurpose plants instead of dedicated single product plants, as seen in Asia. Professional operation of multipurpose plants is the “Champions league” in chemistry, requiring an in-depth knowledge, experience and safety understanding. It is clear that multipurpose plants are useful to produce smaller quantities of API’s. Looking to the pipelines of innovators, this strategy might be the right one. Buzz words like “individualized medicine” or “niched individual therapeutics” describe the future of the pharmaceutical industry that may support SME’s. Supporting this strategy, there has been an increase in the number of enquiries for small-quantity API’s (i.e., a few kg up to 2-3 tons) and a focus to higher activity (i.e., smaller dosage) of the API’s. But it is not simply a question of the right strategy. It is also a question of having a broad technology portfolio in combination with well-trained employees and management that understand the market and cGMP.

Adoption of technology is another of the most crucial points for success of API producers. There are some basic technologies like low-temperature reactions, chiral catalysis, reductions with organo metal compounds, mild oxidations (e.g., SWERN) and enzymatic reactions, that are necessary to offer a full spectrum of support to the end customer. Additionally, in my opinion, there are new technologies that have tremendous potential but are not yet broadly established. A good example of innovation technology is the microreactor, which allows seamless upscaling of processes by parallelization instead of batch size increase. PAT (process analytical technology) also has great potential for future applications. However, both technologies require significant investments in IP and hardware; therefore it is unclear whether they will become established technologies. Aside from cost, other major inhibitors for establishment of these new technologies include the limited suitability of micro-reactors for certain chemical reactions, and the required changes to applied workflows in multipurpose plants for the implementation of PAT.

Lastly, European API manufacturers must meet size requirements to remain viable. Looking to the current playing field of API manufacturers, there is still no producer with more than 2 percent of the market share, which is estimated with US$8-11 bn. Excluding large companies such as Lonza and Evonik, the average CMO has between €10-100 mn turnover, 30 to 250 employees, and a reactor volume capacity of 10- 150m3. Therefore, a healthy, API fine chemicals manufacturing company must have a turnover per employee of €200-300,000 and minimum €250,000 turnover per m3 reactor volume. Most of the well-established CMO’s fulfill these requirements. Flexibility, quick response to enquiries and strict compliance are their key success factors.

Summarizing the issue and path forward
Let me summarize the challenges for European API’s producer and provide an outlook to the API manufacturing industry:

• Price pressure will increase, while large volume production of API will continue to move to Asia. European producers will focus on small to medium volume API’s, complex technology and highly active compounds.
• Smart operation of multipurpose plants, continuous Predictions for the Future of the API Market improvement of the current processes, and permanent investments in technology and people will guarantee the existence of the European API producers.
• Without compromise, cGMP compliance in combination with regular training of the employees is another requirement to stay in the business.
• Privately owned API producers will better fit future market requirements due to their long-term thinking, high flexibility and well-trained personnel.

Predictions for the future of the API market
Nobody is able to give a precise description of the future, as there are many questions regarding the future development of the pharmaceutical industry. My general assumptions about the pharma business for the next 10 years are as follows:

• Biopharmaceuticals will grow continuously and NCE’s (new chemical entities) will develop moderately. We might see a breakthrough in HIV treatment, Malaria treatment, and therapy of Hepatitis C or similar viral infections.
• Individualized medicine will become more and more popular. Either via individual dosages, mixtures of different API’s or new biopharmaceutical treatments. The pharmacist will lose influence; compounding pharmacies will become more important.
• Cancer treatment and development of new anti-cancers drugs will continue to grow. In parallel, a significant cost increase for the public and private health insurance system will occur.
• Antibiotics: The treatment of multiple drug resistance (MDR) will become more challenging. New ideas for treatment will be key. A good example for a new mode of action antibiotic is Bedaquiline.
• Government influence over health systems will increase. More and more generic API’s will be sold through so called “tender businesses”. Margins will continuously decrease and popular medicines will be less attractive to produce.
• As a direct consequence of increasing tender business, pharmaceutical producers and wholesalers will decrease warehouse capacities and stockpiling. Consequently, there will be shortages of popular drugs.
• Generic producers may decide not to participate in “tender business” in order to save their profitability. In parallel, the OTC business (over-the-counter) will increase.
• Mergers and acquisition of the “big 20” pharma companies will continue, but company prices will be incredibly high as there is too much money in the stock market. New mega companies will appear and disappear.
• Finally I will take this opportunity to provide a few points from my wish list for the future. Some of these wishes might help the patients while other might help the producers:
• Attractive development conditions for life saving drugs, like new antibiotics. Production of such new antibiotics close to the end user, strict control of the treatment and no misuse (i.e., use of antibiotics for treatment of viral infections as it is common practice today). No use of new antibiotics in animal treatment and pharming.
• More API production in Europe as a strategic decision to reduce the dependence of current drug supply from Asian countries. This will also help to keep the high regulatory standards in the USA and the EU, and the cost for GMP inspections under control.
• Level playing field for all API producers worldwide, especially with regard to cGMP, environmental protection and sustainability.
• Fair prices for API’s, end of the dumping price attacks from Asia, and a healthy understanding from the public that medicine is life saving and not for free.