With increasing presence in synthesis and manufacture of late stage intermediates and APIs, the role of Indian bulk drug manufacturers in the global pharmaceutical supply chain is gradually evolving according to an  ICRA study.

Innovator companies have traditionally preferred to perform the final stages of API synthesis in-house or partner with a small group of European suppliers while relying of Indian suppliers for early stage intermediates. In recent years, as Indian bulk drug manufacturers have gradually begun to offer higher quality APIs coupled with low developments costs and complex synthesis capabilities, innovators have started to source late stage intermediates from India and in some case have formed partnerships with domestic manufacturers, the study said.

However, given the fairly risk-averse profile of innovators with regards to outsourcing, the role of European bulk drug manufacturers such as Lonza and DSM in partnering with innovators for supply and synthesis of late stage APIs is expected to remain prominent in the near future, the study said

In the case of generic pharmaceutical companies, the outsourcing of APIs and late stage intermediates to China and India is well established as intellectual property protection is less of a concern as compared to patent holders. Furthermore, in contrast to innovators, generic companies source APIs from Indian manufacturers more frequently given the substantial cost pressures faced in the highly competitive generic market.

Today the leading generic companies have developed strong expertise in patent challenges, unique formulations and are investing heavily in shortening the time period for generic patent challenges in order to capture first to file opportunities. As a result, bulk drug suppliers are required to be more dynamic, innovative and responsive to meet the evolving needs of customers. In fact, in many instances, bulk drug manufacturers work closely with generic pharmaceutical companies in API synthesis well before patent challenges are filed, the study said.

Since the merchant API industry faces significant cost pressures from the end user segment coupled with considerable competitive intensity in certain mature bulk drug segments, a majority of the manufacturers prefer to focus on a smaller basket of APIs. Such an approach offers sufficient volumes to ensure economies of scale thereby helping manufacturers protect their operating margins. However, ICRA notes that this strategy results in high product concentration and narrow therapeutic coverage for a majority of the pure play bulk drug manufacturers which adversely impacts their business profile. Realising the need to diversify, some of the merchant API manufacturers are looking to enter into the relatively less mature therapeutic segments such as oncology, CNS, and CVS; wherein the competitive intensity is relatively lower.

In recent years, certain domestic bulk drug companies have adopted differentiated manufacturing technologies through in-house R&D and collaborations with global companies in order to attract new customers. For instance, Arch Pharmalabs Limited entered into a strategic collaboration with Codexis Inc., a privately held biosciences company, to implement their biocatalyst technology for manufacture of various APIs and intermediates. This technology enables the manufacturing process to be carried out at room temperature, shortens process development timelines and substitutes the use of certain hazardous chemicals thereby resulting in a 20 per cent  cost differential in comparison to conventional methods of production.

The importance of backward integration into bulk drugs is further highlighted by the substantial API manufacturing capabilities of some of the leading global generic players such as Teva and Mylan. In addition to sourcing a majority of their API requirements from in-house facilities, Teva is also amongst the leading global suppliers of APIs to third parties for both generic and branded customers. In an attempt to vertically integrate its operations, Mylan acquired Matrix Laboratories - a leading supplier APIs for the manufacturing of anti-retroviral (ARV) drugs, which are utilized in the treatment of HIV/AIDS in 2007.