Despite the challenges, the Indian active pharmaceutical ingredients (APIs) industry, which comprises a large number of small and mid cap manufacturers, is well on its way to become the number one player in the global market, thanks to the stringent pollution control measures and the heparin episode, which put at stake Chinese dominance on APIs.
The production of APIs continues to increase in India with more and more international companies making a beeline to the country to meet their bulk-drug supply requirements. The industry stands a good chance to become a leader in drug development and API production. India is not only self-sufficient in terms of pharmaceutical products, but has also achieved global recognition as a manufacturer and supplier of low-cost, high-quality bulk drugs and formulations. In fact, over fifty countries worldwide depend on India for their formulations and API needs. Several leading Indian companies have the know-how to develop cost-effective technologies in the shortest possible time for bulk actives and intermediates without compromising on quality and regulatory norms.
The sector has gone through several developmental phases in the past five decades and has now emerged as a major supplier of active pharmaceutical ingredients to the global markets. The industry meets approximately 90 per cent of the domestic requirement of the active pharmaceutical ingredients. Currently the Indian API firms manufacture more than 400 different APIs, as per industry reports.
India now exports APIs to both regulated and non-regulated markets, besides meeting the domestic requirements. It is learnt that the API export numbers would increasingly get merged into formulations numbers with most of the players investing in backward integration for cost control.
Indian companies mostly concentrate their API business to countries like China, Europe, Middle East and Asia Pacific, because these regions contributed about 81 per cent of the API revenues in the financial year 2005-06, as per the industry reports.
Chinese pharmaceutical companies, both private and state-owned, are traditionally oriented to non-innovative products, which are popular in the domestic market. So the Chinese pharmaceutical industry is among the less innovative in the world, as per the industry reports.
With competition intensifying, developing a profitable product portfolio of APIs for the regulated markets is increasingly becoming a challenge for Indian firms, as it requires balancing of several factors. In certain segments, competition from low cost destinations like China is a significant threat. Although, China is a stiff competitor to India, when it comes to the manufacture and supply of intermediates, Indian companies are preferred over their Chinese counterparts by the western world, thanks to the quality standards maintained by Indian firms and their promptness in honouring commitments.
While European API producers will see their share of the global market diminishing 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 a study by Italy's Chemical Pharmaceutical Generic Association. Also, the study found that the fastest growth rates for the merchant API market over the next five years are expected in Asia/Pacific, with an average yearly increase of 13.7 per cent in the global demand.
The European API market was estimated at $4.7 billion in 2004, with an annual growth rate of about 3.5 per cent. The key therapy drugs driving API sales in Europe have been CVS drugs, CNS drugs, gastrointestinal drugs, drugs for pain management and oncology drugs.
Early entry and development of non-infringing processes for products with complex patents hold the key to developing a profitable API product pipeline. Hence, the pipeline and product concentration remain the key vulnerable areas for the most of the API manufacturers, according to industry sources.
The heightened merger and acquisition activity in the generics industry would continue to sustain momentum with several global majors viewing India as a manufacturing destination. Globally, one of the key drivers for generics consolidation is the vertical integration into active pharmaceutical ingredients, which demonstrates relatively more resilient profit margins.
Active pharmaceutical ingredients suppliers are increasingly evolving into integrated players, posing a direct threat to finished form generics manufacturers. Indian companies offer an attractive option with both strong active pharmaceutical ingredients cash flows and more than 75 US Food and Drug Administration (FDA) approved plants.
As per the industry reports, Ahmedabad-based Dishman Pharmaceuticals is planning to set up a new active pharmaceutical ingredients manufacturing unit at China as per the US FDA standards. The new manufacturing facility will be located at Shanghai chemical industrial area and is expected to be commissioned in the middle of 2008. The company has entered into a long-term agreement with some global pharmaceutical players like GSK, AstraZeneca, Pfizer, Novartis, Merck, Johnson & Johnson, for both on-patent as well as off-patent supply of active pharmaceutical ingredients and intermediates.
Teva Pharmaceutical Industries recently acquired over 100 acres of land near Gwalior in Madhya Pradesh, to set up active pharmaceutical ingredient (API) manufacturing facilities that will match the production capacity of domestic generic majors such as Dr Reddy's, Ranbaxy, Cipla, Sun Pharma and Wockhardt.
MAJOR API PLAYERS
The leading Indian API manufacturers are Dr. Reddy's Laboratory, Aurobindo Pharma, Cadila Health Care, Glaxo India, Ranbaxy, Century Pharmaceuticals and Matrix Laboratory.
The author is a specialist in chemicals and pharmaceuticals