In pharmaceutical manufacturing process , the first step is to convert the raw materials into Active Pharmaceutical Ingredients (APIs), which play an important role as it constitute a significant portion of the total cost (~ 40-50 per cent) for a drug. According to the World Health Organization (WHO), any substance or combination of substances used in a finished pharmaceutical product, intended to furnish pharmacological activity or to otherwise have direct effect in the diagnosis, cure, mitigation, treatment or prevention of disease, or to have direct effect in restoring, correcting or modifying physiological functions in human beings are API. Production of API is a highly sophisticated, demanding, challenging, chemical, biochemical or fermentation process as per the good manufacturing process, which is followed in the global pharmaceutical industries.

Global API manufacturers
The API market is very competitive as there are more than 2,000 firms, which produce APIs and these firms have more than 5,000 manufacturing sites around the world. In the US and EU there are some major API manufacturers, which produce some specialty APIs which share a major fraction of global market. A significant numbers of API manufacturers are located around Asia, specifically in India and China. This has led to more and more pharmaceutical companies to outsource API manufacturing to such countries. Merck, AstraZeneca and GlaxoSmithKline, Teva Active Pharmaceutical Ingredients (TAPI), Dr. Reddy’s Laboratories, Aurobindo, Cipla, Sandoz, Sandoz-Lek-Biochemie, Ranbaxy, Matrix, Sun Pharma, BASF SE, Fabbrica Italiana Sintetici, GlaxoSmithKline, Pfizer CentreSource, Royal DSM and Zhejiang Hisun Pharmaceutical Co. Ltd., are the leading API manufacturers in the world.

Teva Active Pharmaceutical Ingredients (TAPI) is the leading manufacturer of APIs in the world today with over 75 years of experience and around $750 million annual sales. The company currently manufactures more than 300 API s. TAPI has employed more than 5,000 professionals worldwide with its headquarters located in Israel next to Tel Aviv. Its production facilities are located in Italy, Hungary, the Czech Republic, Croatia, Israel, India, China, Mexico, Puerto Rico and the United States. The company’s research & development unit currently comprises over 750 scientists who are specialized in the fields of chemical synthesis, fermentation, high potency APIs, plant extraction, synthetic peptides, vitamin D derivatives and prostaglandins.

Aurobindo and Cipla each manufacture 200 APIs, exporting their products to well over 200 countries worldwide. Cipla is one of the first companies to fully develop and manufacture active pharmaceutical ingredients and in this way helped lay the foundation for the pharmaceutical industry in India. Today they manufacture over 200 generic APIs covering a wide range of therapeutic categories, reaching out to more than 170 countries worldwide. Cipla have three manufacturing facilities located in India that are approved by reputable regulatory agencies. Aurobindo is a fully integrated global pharmaceutical company. The API business is fully supported by technologically advanced API research and development infrastructure that develops new products and is involved with them right up until their delivery to market. Aurobindo has a product list of over 200 APIs with five of their manufacturing facilities inspected by reputed regulatory agencies such as the FDA and MHRA. According to a recent report of Nanjing Limu Pharmaceutical Co. Ltd. in China is a leading API manufacturer, which exports its API products to 181 countries and regions.

Dr. Reddy’s is another leading manufacturer of APIs with over 60 APIs that are used for drug manufacture, diagnostic kits, critical care and biotechnology products. By 2006, Dr. Reddy’s Laboratories reached over $500 million in revenue of which 75 per cent came from their APIs and branded formulations. By 2007, Dr. Reddy’s had six FDA plants producing active pharmaceutical ingredients in India alone. Currently, Dr. Reddy’s deals with and manages all the processes from the development and manufacture of the API to the submission of the finished dosage dossiers to the regulatory agencies.

Sun Pharma’s API programme began in 1995.They today manufacture APIs at nine different plants located at Hungary, Israel and the U.S. They have expanded their API manufacturing and currently produce over 200 APIs including warfarn, carbamazepine and clorazepate.

Ranbaxy is a leading pharmaceutical company that supplies APIs to leading innovators and generic companies in more than 65 countries. They currently have four API manufacturing facilities across India where they produce just over 100 API products.

Sandoz is a subsidiary of Novartis, a multinational pharmaceutical company. As of 2011, Sandoz was the world’s second largest generic drug company with a total revenue of nearly $11 billion.  Sandoz offer around 20 API products.

Current API market around the world
According to a recent report, in 2008 the global API market (including both captive and merchant) worth was $91 billion; and it increased to $113 billion in 2012. From 2008 to 2012, the global API market increased at an average annual growth rate of 5.6 per cent, though it is less compared to an annual growth rate of 7.2 per cent from 2004 to 2008. The market, which stood at US$ 113 billion in 2012, is expected to grow at a CAGR of around eight per cent during 2012-2017.

The captive API market is defined as APIs used by pharmaceutical companies for in-house production of finished dosage forms and the merchant API market is defined as APIs sold by third parties. The slowing market is attributable to factors affecting the pharmaceutical industry as a whole: slowing global economic growth increased pricing pressure due to cost-containment policies adopted by most countries, increased competition from generic drugs, higher risk of pipeline failures with elevated costs for drug discovery, and increasing competition from low-cost producing countries.

North American API market is the largest (including both captive and merchant markets) and the Asia Pacific API market followed it. It may be noted that the growth in the Asia Pacific API market is more than the North American API market. The North American share of the global API market declined three percentage points between 2008 and 2012 as the share of Asia Pacific increased. North America’s share was 43 per cent in 2012, down from 46 per cent in 2008. Asia Pacific’s share was 28.3 per cent in 2012, up from 24.2 per cent in 2008, according to the CPA report. The US remains the largest global market on a country basis, accounting for 39.7 per cent of the global API market in 2012.

The overall trends of increased globalization, generic-drug incursion, and the rising importance of emerging markets can be further seen in the demand and supply patterns of the API market. In keeping with overall pharmaceutical industry trends. Recent growth in the global API market has slowed although the overall market is still increasing at a moderate pace. Led by India and China, Asia Pacific has had the highest recent growth in the API market although North America and the US remain the largest markets, respectively, on a regional and country basis. Generic APIs are outpacing growth for branded, innovator APIs. On a global supply basis, China remains the largest producer of generic APIs, largely for its domestic market as well as the largest exporter of APIs on global basis, primarily to emerging markets. Italy retains its historical position as the largest supplier of generic APIs to both Western Europe and the US although India’s position as a supplier to developed markets is on the rise.

On a geographic basis, the highest growth rate for APIs between 2008 and 2012 was in Asia-Pacific (excluding Japan), which experienced average annual growth rate of 13.9 per cent, followed by the Middle East with 8.7 per cent average annual growth, and Eastern Europe and the Commonwealth of States (CIS) with 8.2 per cent average annual growth, according to the CPA report. The developed markets in Western Europe, North America, and Japan had slower annual growth rate. Western Europe’s API market had the lowest annual average growth rate at 2.5 per cent, followed by Japan at 3.4 per cent and North America at 3.8 per cent.

Asia Pacific accounted for 39.6 per cent of the global generic API merchant market in 2012. China is the largest consumer on a country basis of generic APIs in the merchant market, accounting for 23.7 per cent of the global total, surpassing the North American market as a whole (21.9 per cent) and the US (20.4 per cent). During 2008-2012, China registered the fastest annual average growth rate in the generic API merchant market at 13.2 per cent, followed by India at 11.9 per cent.

Collectively, the two countries accounted for 29.7 per cent of the global generic API merchant market, according to the CPA report.

Western Europe ranks second behind Asia Pacific in the supply of generic APIs on a global basis, but its market share declined from 16.7 per cent in 2008 to 14.2 per cent in 2012. Italy remains the largest producer of generic APIs in Western Europe, accounting for 58.3 per cent of the region’s total, followed by Spain at 21 per cent. Italy is also the largest supplier of generic APIs to the US market. Italian API producers accounted for 31.2 per cent of the supply to the US generic API market in 2012, and their growth in supplying the US increased at an annual average growth of 5.2 per cent between 2008 and 2012. India is the second largest supplier of generic APIs to the US market with a 24.4 per cent share, according to the CPA report. India is also increasing its supply to Western Europe, accounting for 19.2 per cent of the supply to the region.

In Asia Pacific, China is the largest generic API producer, with its domestic market representing its strength. Between 2008 and 2012, overall API production in China increased at an average annual rate of seven per cent from $6.43 billion in 2008 to $8.44 billion in 2012. During this period, sales to China’s domestic increased at an average annual rate of 11 per cent while export growth increased only 5.8 per cent.. Sales to emerging markets represented the largest target for China’s API export sales, accounting for 63.1 per cent of production. More than 50 per cent of the export values of China’s pharmaceutical trade are from the API industry. China’s export sales to developed markets (North America, Western Europe, and Japan) accounted for 36.9 per cent of overall export sales and 24.7 per cent of total API production, according to the CPA report. Overall, China ranks as the largest producer of generic APIs in the world and the largest exporter of APIs, followed by India.

 By 2016, China is expected to account for 27.7 per cent of the global generic API merchant market, making it the largest market and surpassing the US, which will be the second largest global market with an 18.2 per cent share. India will remain as the third largest merchant market for generic APIs with a projected 7.2 per cent by 2016, according to the CPA report . Ten emerging markets are projected to experience double-digit growth of 10 to 14 per cent in the generic API market. These countries are Brazil, China, Egypt, India, Jordan, Pakistan, South Africa, Thailand, Turkey and Vietnam.

 India unlike China (whose domestic market is the largest target for its API production) relies heavily on export sales. India’s API production was valued at $4.70 billion in 2012, which has increased from $2.27 billion in 2008. India’s supply to the US market increased at an average annual rate of 44 per cent from 2008 to 2012 (i.e., from $255 million in 2008 to $1.12 billion in 2012).

The three main exporting countries of API products include Asia, Europe and North America, where the exports accounted for a total of 87.4 per cent bulk drugs. China produces more than 1,500 varieties of API products with the capacity approximating two or three million tonnes. In current scenario mergers and collaborations are the strategies followed in the global API industry as the newer market entrants cause threats to the existing small and medium manufactures, leading to high competition. To overcome these challenges, companies are now forming joint ventures for sharing technology to manufacture API drugs.