Over the years, Indian active pharmaceutical ingredient (API) companies have successfully established their mark as major players in the global market. A recent study by Italy's Chemical Pharmaceutical Generic Association (CPA) reported that over the next five years Asia/Pacific is expected to witness a rapid growth of API market, with an average yearly increase of 13.7 per cent in global demand. In this context, India with its known capabilities in this segment of business, in particular, is well positioned in the global API market to grab new opportunities. Certain factors, including low labour costs, size and dynamism of economy, strong domestic demand for many finished dose products and incentives provided by the government may work in favour of Indian API players to capture a tentative market share in the global market.
The Indian API manufacturing industry, which achieved sales of $2 billion in 2005, is the third largest in the world and is expected to make sales of $4.8 billion by 2010 with an average yearly growth rate of 19.3 per cent. Italy, on the other hand, is in stagnation, with API sales of $3.2 billion in 2005 and is projected to rise just to $3.3 billion by 2010. While the US API market is estimated to be about $5 billion, the European (regulated) API market is about $ 3 billion.
As per the data avilable with Frost & Sullivan, the total European API market was worth $4.5 billion in 2003 with an estimated growth rate of 2.8 per cent. Cardiovascular is the largest therapeutic segment accounting for approximately 20 percent of the total API market. Other major therapeutic segments include central nervous system disorder, oncology, pain management and gastrointestinal.
While European API producers will see their share of the global market fall in the next few years, Asian markets are growing at phenomenal rates, with India set to supplant Italy as the second largest API manufacturer on a worldwide scale by 2010, according to the report.
Experts feel that India is well positioned to not only to further squeeze the profits of European producers, but also to threaten the dominance of China as top API producer with its low labour and environmental costs, the size and dynamism of its economy and incentives provided by the Indian government.
In India, labour costs are much less compared to the European countries. Alberto Mangia, president of CPA and CEO of Poli Industria Chimica, said, "The cost of energy is very high in Europe and labour costs are much more expensive than in Asia. Global competition in APIs is hard but European companies can compete by focusing on the field of innovation of technology."
Indeed, it is hard to see how Europe can compete with Asia just by stringent cost cutting - the average wage of an employee working in a typical API plant in the EU is ten times more than in China and India, and environmental costs are much higher, while building a manufacturing plant complying with international regulatory standards in Asian countries typically costs only 25 to 30 per cent of the amount needed in Western Europe.
India & China - Great competitors
With respect to competition from India, China should have no cause of concern, since its API companies made sales of $4.4 billion in 2005 and are expected to bring in sales of $9.9 billion by 2010 with an impressive annual increase of 17.6 per cent. But the CPA report warns that India is eventually poised to emerge on top of global competition, on the back of its high - in fact the highest in the world - growth rate of API export sales, especially towards highly regulated markets like US.
While Indian API manufacturers are concentrating on improving their sales to foreign countries, especially regulated markets, Chinese API manufacturers are pinning their hopes on domestic sales rather than on export sales. Hence, Chinese pharmaceutical companies, both private and state owned, are traditionally oriented to non-innovative products, which are popular domestically. Therefore, the Chinese pharmaceutical industry is among the less innovative in the world, while India is improving its skills on new drug discovery.
All the leading Indian pharmaceutical companies are equipped with multi-ton and state-of-the-art facilities for manufacturing a variety of APIs. A lion's share of the domestically produced active pharmaceutical ingredients are exported worldwide, including both emerging and developed markets. Principal markets in this business segment include US, Canada, Europe, Middle East etc. The domestic demand is also partially fulfilled by these players.
Besides, when it comes to matters like supplying documentation to the client for drug master files (DMFs), good manufacturing practice (GMP) compliance and so on, the Chinese API manufacturers are less organised than their Indian competitors. It is therefore no coincidence that India is leading in DMF submissions and has the largest number of US FDA approved plants on a worldwide scale.
A recent report also found that Chinese API manufacturers are less marketing oriented in terms of presentation of their product portfolios, as well as in terms of organisation of the sales network on a worldwide scale.
Even in the area of intellectual property rights, where the record of both countries is poor, India appears to fare, as it has succeeded in creating confidence in foreign investors. Nevertheless, the fierce duel between India and Chinese API players is of little consolation to European manufacturers, who see the two countries holding a market share of approximately 57 per cent in the Western European generic API market, which is destined to rise to approximately 67 per cent by 2010.
API - the Indian scenario
The pharmaceutical industry in India has approximately 3000 active pharmaceutical ingredient manufacturing facilities, nearly 5000 formulation facilities and 2000 other pharmaceutical facilities. Out of these, 300 facilities are in the medium to large range. Some sub-sectors, including biotechnology, bioinformatics, contract research and manufacturing services, clinical research organisations and pharmaceutical machinery manufacturing are growing in tandem with the larger pharmaceutical industry.
To be specific, Indian bulk drugs market in 2006 was about US $3.29 billion, witnessing a growth of 19 per cent over 2005 at compound annual growth rate (CAGR) of 18.81 per cent in the last six years. India ranks fourth in terms of volume, among the top 15 drug manufacturing countries worldwide. Indian companies have the distinction of developing cost effective technologies for manufacturing bulk drugs and intermediates, conforming to global standards. India has over 80 US Food and Drug Administration (FDA) approved plants, the second highest in the world.
On the basis of the pharmaceutical customer base, the Indian API manufacturing can be divided into two sectors - innovative or branded sector and the generic or unbranded sector. The innovative segment accounts for more than half of the total API market in India followed by generic segment. API manufacturers of innovative sector are struggling to identify more outsourcing opportunities, while API manufacturers of generics are drawing all the attention. However, the laws in European countries forbid the development of APIs for generics until patent expiry, but the situation is different in US, where the development process starts even when patents are still in effect.
The need of the hour is the suitable company policies and strategies that would increase profit margin of Indian API players. An integrated approach with speedy delivery and cost competitiveness can be implemented for efficient API manufacturing and considerable profit margins. For the API manufacturers, considerable opportunities are available to improve their effectiveness. The approach for better project management includes understanding customer's requirements comprehensively and managing the technical aspects, budget issues, strategical regulatory issues and quality assurance. Those manufacturers, who understand and work on mentioned approaches, will gain trust from customers and ultimately earn continuous business from them.
Twenty leading players in the in the sector has recorded an impressive 29 per cent growth in the quarter ended March 31, 2006, according to a study by Cygnus Research, Hyderabad. APIs have also made a good show on the export front with an 8 per cent growth compared to the last year, demonstrating its potential as a sustainable business model.
Currently Indian API firms manufacture more than 400 different APIs and are among the top five API producers of the world. It caters to around 10,000 formulations meeting more than 90 per cent of the total API requirement of the domestic industry.
India's APIs have hardly left any location untouched in the world, though the regulated markets in the major 20 countries remain as pillars contributing 60 per cent of the total exports. It is amazing to learn that Indian APIs have found a firm foothold even as China throws open a serious challenge by producing almost entire range of APIs and intermediates that too at far lower costs.
(The author is a specialist in chemicals and pharmaceuticals based in Mumbai)