The Indian manufacturers of active pharmaceutical ingredients (API) are closely watching the global trends to leverage the wide space left open for the API sector in a promising generic era, by playing on its advantages. The forthcoming decade is definitely a golden opportunity for the Indian players for aggressive API research, manufacturing and marketing activities, if all goes well.

The generic boom is expected to reach highs in the next five to ten years with a large number of blockbuster drugs lining up to exit from patent protection. The Indian companies are highlighting the quality and value based production capacity as against the huge bulk drug manufacturing capacity of its Chinese counterparts.

The Indian companies which are also keen in exploring the strict regulated markets of US and European Union has already identified the evolving opportunity and has weaved out suitable strategies to become market leaders in each product after patent expiry.

"In view of the number of patent expiries coming up in the near future, sales of patent expiry drugs in the US as well as in Europe represent significant opportunity for all generics and API manufacturers," comments the API and formulations major Dr Reddy's Laboratories. The company is currently developing 40 APIs for future launches, eyeing on the regulated market.

The API business of Dr Reddy's grew by 44 per cent from Rs 8,238 million in FY 2005-06 to Rs 11,827 million in FY 2006-07 in which international revenues accounted for 82 per cent of API revenues. Each of six major API products from the company were sold over Rs 500 million in the year; three over Rs 750 million; and the antidepressant sertraline has fetched revenue worth Rs 2,461 million.

"Indian companies already have a good position in global API business. If you look at the next ten years of patent expiry, the domestic players are in a stronger position," says Prashant Tewari, Managing Director, USV Limited.

USV, global leader of the anti diabetic metformin API business, is scaling up 11 APIs and developing 7 other active ingredients based on the patent expiry of the existing products. The company is planning to bring in 10 new products in the coming five years, to explore the situation, said Tewari.

"The export market is expected to witness a healthy growth in the coming years due to imminent patent expiries and pro- generic initiatives across the US and Europe. Unichem is also expected to benefit from some of these emerging opportunities in the near future with its expanded capacity and its increased focus of API business approach," says reports from Unichem Laboratories India, a major API player in India. The API business of the company recorded a turnover of Rs 638 million in FY 2006-07 as compared to Rs 537 million in the previous fiscal.

Leaving more room for the generic products in the market, several major blockbuster drugs are reaching patent expiry, which may create more space for the Indian companies in the global market, especially in United States and Europe.

In the next five years more than 70 major drugs are expected to come off-patent in the major markets of the US and Europe. Patent expiries of blockbusters like Risperdal, Effexor, Fosamax, Prevacid, Nexium, Pantozol and Cozaar will drive growth for generic companies in the regulated markets.

In a period from 2007 to 2011, around 52 major drugs in the US would come out of patent protection, counting an average of ten a year. The generics, in the period 2007 to 2011, may claim for USD 100 billion of revenues generated in the United States and Europe.

According to the latest Frost & Sullivan study in 2007, US Generic Pharmaceuticals Market Outlook, the generic market which has earned revenues of USD 24.71 billion in 2006 is estimated to reach USD 49.49 billion in 2013 at US alone.

"Having a strong API backbone not only ensures steady supply of raw materials for captive consumption, but could also develop into a successful business unit by itself and contribute significantly to the growth of the company," adds the study. Meanwhile, the acquisition strategy would be only beneficial for big pharma while the outsourcing alliance would be better option for small companies in overseas market.

The target of Indian companies is evident with the reports on the significant number of filings of drug master file (DMF) with US FDA. As per the report of US FDA till December 2006, the Indian companies hold 21 per cent of the total DMF filings in United States. This, in numbers, is exactly 1171 DMFs out of the total number of 5551 filings with US FDA in 2006.

The reports also show that the leading companies like Dr Reddy's, Aurobindo, Cipla and Matrix have more number of filings out of the 1171 DMFs. Dr.Reddys have 103 DMFs (9 per cent of the total filings carried out by India) even as Aurobindo with 99 DMFs (8.5 per cent), Cipla with 87 filings (7.4 per cent) and Matrix with 71 DMFs (6 per cent) falls into the list.

Matrix Laboratories, another major API manufacturer in India, has attributed its growth in ingredient sales to supply of certain generic APIs to both US and European markets, in addition to the retention of the market share for Citalopram. The growth in generic API product segment constituted 43 per cent in FY 2006-07, over the business of previous year, contributing 33 per cent of total sales of the company. Further, Amplodipine besylate API which has been supplied to Mylan for its generic launch in the US has been a significant value driver.

The company also explains that the increase in R&D expenses during the last financial year has been increased 156 per cent to reach Rs1,008 million, from Rs 394 million in the previous year, is due to development of more number of APIs as well as ramping up of the finished dosage development and filings.

The trend will be one among the factors to carry the Indian API industry to claim as the second largest player in merchant APIs, supplanting its Italian counterparts. The merchant API market, which is expected to touch USD 46 bn in 2010, with a 49 per cent (USD 22 bn) weightage to generic segment, is another stimulant phenomenon for the Indian API manufacturers.

According to a study by the Chemical Pharmaceutical Generic Association, CPA, Italy in 2006, the Indian API is expected to grab USD 4.8 bn global merchant API market by 2010 from the more than USD 2 bn market at present. While the overall growth of merchant API business would mark from USD 31 bn to USD 46 bn with an estimated CAGR of 8.2 per cent, the Indian players is expected to mark a growth at the rate of 19.3 percent in CAGR.

The increased pressure from the fast growing generic market may result in more acquisition or outsourcing efforts from the big pharma, which may look out for low cost manufacturing facilities to compensate their loss through patent expiry. More big pharmaceutical companies may explore India and China for possible acquisition of quality driven API manufacturing plants or for alliance with Indian companies for outsourcing low cost products, speculates industry analysts.

The manufacturing strength of APIs in India is gradually growing high to meet a considerable share of pharmaceutical needs in global market. Industrial sources asserts that the quality of products offered by Indian API manufacturers in a highly safety conscious regulated market turns the key to success for the domestic players.

Apparently, it should also be noted that the aggressive DMF filings records only a part of the efforts of Indian companies in API business, as a large number of merchant API players are focusing on exports to semi regulated and less regulated markets as well as the domestic market.