The highly potential, fast growing generic market and the big pharma's search for fresh blockbuster drugs and new chemical entities (NCEs) may bring an advantage for Indian manufacturers of active pharmaceutical ingredients (APIs). This, in turn, provides a vital advantage for Indian companies to become the second largest API business hub, next to the bulk drug major China.
The strategies adopted by the two countries - India and China - to strengthen their API business are entirely different. Though the Indian generics market is the blue-eyed boy of the global leaders who are keenly engrossed in strengthening their future business activities, China holds an edge over the country.
The highlight of this challenging business race in API sector is the importance of regulated markets and the growth rate of generic segment in these markets. For instance, the US generic pharmaceuticals market, the largest in the world, accounts for approximately 41 per cent or US $28 billion of the global market for generic drugs. The US generics market is expected to grow at a compound annual growth rate of 10.9 per cent over the next five years.
According to a study conducted by Espicom Business Intelligence, a leading market information provider in the medical devices and pharmaceuticals markets, the US generics drugs market account for approximately 51 per cent by volume and approximately 8 per cent by value of all drugs prescribed in the country.
The evolving trend in these market shows that the big pharma may consider shifting manufacturing of APIs to low cost production units as an option to compensate the generic boom. "Some of the larger companies are considering other strategies such as backward vertical integration into API manufacturing from low-cost manufacturing locations," says a recent Frost and Sullivan study on the US market.
One of the advantages the industry points out is the global majors' aggressive entry into fixed dose combination (FDC) business. With its known track record on shelving out FDCs to grab the market, the Indian pharma companies are a step ahead in aiding these new comers in drug launching.
Preparation of fixed dose formulations is in a growing stage in the global market. "The overseas firms, which brings new FDCs into market may rely more on Indian companies for production of off patent APIs, which would be another arena where the country's players get an advantage on," says Prashant Tewari, managing director, USV Limited.
Compared to China, India has more number of companies, which are equipped to provide competitive intelligence to their pharma clients. On the contrary, the Chinese companies have less experience in the emerging high-end technology field.
The efficiency of Indian players to forge alliance with overseas companies, who are keen on grabbing cost advantages, either for manufacturing or API custom synthesis is another key potential of domestic players.
"The Indian companies are relying more on regulatory capabilities, manufacturing in the GMP compliant plants, environmental protection methods, documentation, managing factories under good quality systems and dealing with customers in a manner that customers are comfortable. This is about speciality, innovation business and mostly supply of smaller volume of products," Tewari said.
The difference is evident in number game - in terms of achieving US FDA norms and filing drug master files (DMFs) in US. As per the report of US FDA, as of December 2006, the Indian companies hold 21 per cent of the total DMF filings in US.
According to a study by Cygnus Business Consulting and Research published in 2007, the Indian bulk drug market is fragmented with top 10 companies contributing 44 per cent of the market and about 1,323 companies accounting for the balance 56 per cent. Nearly 70 per cent of the bulk drugs manufactured are exported to more than 50 countries.
Europe is another major thrust area of many of the Indian companies, as the quality compliance required for certification in US and European countries are almost the same. The new legislations such as improved documentation, Common Technical Document (CTD) formats are forming merits for the companies, as these certifications is moving to one common standard of document. Ultimately, the material and pharmacopoeia standards, which have a very positive impact on the ability of companies to produce good documentation and quality product, would bring in competitiveness for domestic companies to win global market, as Indians have taken a lead in quality compliance certification from these countries.
Implementation of International Conference on Harmonization (ICH) Q7, a guideline for manufacturing API and intermediates has also pushed the domestic players forward in API business in regulatory sector.
European customers have started auditing the API manufacturing plants, which is leading to upgradation of the facilities, documentation and quality assurance systems. "European legislation is showing a positive effect on the Indian API manufacturers with long term benefits to the end customer," said, Dr Nandkumar Chodankar, president, API, Watson Pharma.
Currently, the top products exported by the Indian companies include APIs like cefadroxil, cephalexin and its salts, sulphamethoxazole, penicillins, tinidazole, ethambutol, timololmaleate, niacinamide and amoxycilline and its salts.
Though moving towards development and supply of newer molecules, China will take a few more years to explore the new arena considerably. The Indian companies should have to leverage maximum within the time, feels industry sources.
China's APIs and related goods exports alone would worth US $4 billion (Rs 16,000 crore), while the total market size of Indian APIs upto 2006 was about US $3.29 billion. However, the Indian bulk drug business is witnessing a growth of 19 per cent, more than double to the global growth rate of 8 per cent in 2005.
The recent efforts of Chinese government to reform its pharma sector through strict implementation of environmental standards in manufacturing plants and the withdrawal of value added tax (VAT) subsidies for chemicals are yet to make its impact on the Indian API business.
The move involves threat of price increase of raw materials in India, but industry experts comments that the tax cut may not be a serious problem for the Chinese manufacturers as the withdrawal is only eight percentage. The tax cut could raise drug manufacturing costs by nearly 10 per cent across the board.
Meanwhile, the strict implementation of environmental standards in chemical factories and the tax cuts may help the Indian API sector. "Now, with the Chinese government's move to waive off subsidies for exports in the country, Indian services would be more utilised by formulation companies for their raw material purchase. With the advantage of quality assurance for our products, Indian API manufacturers should grab the opportunity. But it should also be kept in mind that the Chinese companies are excellent in producing some particular APIs and India may never be able to get the market leadership in this segment," said Dr S V Joshi, Vice President, R&D, Organic Synthesis (APIs).
For instance, the Chinese government in 2006, asked to shut down one of the world's largest producers of the API penicillin G - Hong Kong-based United Laboratories plant - for flouting environmental norms. Lack of sufficient penicillin G ended up in skyrocketing of penicillin product price in India. The three major domestic manufacturers of this bulk drug - Alembic Limited, Torrent Pharmaceuticals and JK Pharma - has already stopped the product, due to tough competition from Chinese companies. Another major manufacturer of the product, the South India based SPIC Pharma remained with a small presence in the segment. The high demand for penicillin, happened recently due to the Chinese incident, would pave way for some of these companies to re-enter the segment, it is learnt.
The government also withdrew good manufacturing practices (GMP) certificates from 128 drug makers recently, considering the environmental compliance of the factories. Though these efforts may hinder the Chinese API dragon from its prance, but may help it to win the confidence of global customers in the long run.
The China-India comparison, which is a well discussed subject, doesn't mean that the two countries are in tough competition in API business. Though have a good strength in the sector, India purchases a considerable amount of raw materials from China. "The Chinese companies have undoable strength in high level scale of production for customers seeking large quantity of products. In a way, Indian companies essentially need support from China," maintains an industrial analyst.