Singapore, Feb 20, 2010: Tokyo-based Eisai one of the leading Japanese healthcare companies opened its new facility to manufacture active pharmaceutical ingredients (APIs) with a process research base in India in December 2009.

The $54.23 million facility, Eisai Knowledge Center, would be its global API manufacturing hub. The 50- acre facility has a production capacity of 30 tons and two billion tablets/annum. The company noted that in about a year’s time, production of four key APIs and two formulations would be moved to India from its Kawashima plant in Japan.

DSM, a Dutch pharmaceutical giant that creates innovative products and services in life sciences and materials sciences signed long-term supply contracts with two Chinese drug markers for a patented green technology-processed API in December 2009. According to the announcement, Guangzhou Baiyunshan Pharmaceutical and Shandong Xinhua Pharmaceutical will purchase DSM’s Pure Actives cefalexin API for use in the production of cefalexin capsules, a type of cephalosporin antibiotic. This will allow both Baiyunshan Pharma and Xinhua Pharma to produce drugs in a more environmentally-friendly way as the use of DSM’s Pure Actives cefalexin API can help manufacturers to cut solvent and chemical wastes by up to 90 percent. Baiyunshan Pharma is adopting green technology to have a better manufacturing practice even though production costs are expected to rise by 30 percent.

These two recent developments in Asian region indicate the level of interest among the MNCs to operate in India, and also the level of interest among the local companies in country like China to go green and global. Both India and China are fast growing markets in API business. The API market in India is set to grow at a CAGR of 24.07 percent from 2008 to 2020 while China is expected to grow at a CAGR of 32.15 percent same period. The growth rates of these two countries are tremendous as compared to the single digit global growth rate.

According to Frost & Sullivan, the global API market was estimated at $78 billion in 2007 with captive manufacturing facilities accounting 59 percent of the total production and outsourced manufacturing was estimated at 41 percent; the merchant parties manufacturing both active ingredients accounted for 75 percent and advanced pharmaceutical intermediates accounted for 25 percent of total API production. Generics that accounted for 45 percent of the Contract Manufacturing Organizations (CMOs) API revenues in 2007 are expected to be their mainstay through the forecast period and are likely to account for 52 percent of their revenues in 2011. The biologicals that are fast gaining ground are largely manufactured in-house by the innovators due to complicated manufacturing processes and intellectual property concerns. Within the biologicals, monoclonal antibodies and therapeutic proteins are growing very fast as compared to other segments with cumulative annual growth rates of 14.6 percent and 15.9 percent in 2010 and 2011 respectively.

There are three tiers in the API market segment. The first level comprises big chemical and biological manufacturers like Switzerland’s Lonza, DSM, Germany’s BASF and large pharmaceutical companies like Germany’s Bayer Schering and Merck. Emerging companies like Dishman, Divi Labs, Hikal, Shasun and Orchid Pharma, all from India, come under second tier. In the last level one can find the companies offering contract manufacturing of Highly Potent Active Pharmaceutical Ingredients (HPAPIs) and other niches.

In 2007, North America was the largest market for APIs with innovator products generating 75 percent of the demand and generics generating the remaining.

Within North America, US is the market leader and it is expected to lead the way even in 2010 with an overall API market size of $18.4 billion. Asia Pacific is slowly surpassing the Western Europe as the second largest market. In North America innovator API market is about $11.4 billion and $3.8 billion was from generics and in West Europe the innovator APIs generated $4.7 billion and generics about $2.9 billion, reports Frost & Sullivan.

Growth in the Asia Pacific market is being driven primarily by two of its largest markets—India and China. In 2007, China generated demand of $3.4 billion ($0.26 billion for innovator and $3.14 billion for generics) and India generated a demand of $1.07 billion ($0.14 billion for innovator and $0.93 billion for generics) for APIs. Quoting CPA, Frost & Sullivan reported that both India and China are expected to be the fastest growing markets with approximate annual growth rates of 20 percent until 2010.

India and China are set to post the highest growth rates in the API market. The aging population and the increasing affordability of healthcare services are increasing the demand for APIs in these emerging countries. Lesser developed areas within these countries, especially rural and tier II and III cities, offer huge growth opportunities for the generics sector. This surging demand for generic drugs and the essential need for pharmaceuticals are favoring the rapid growth of the market in these countries.

According to Research and Market’s latest report, the growth in biotech APIs will also increase rapidly in the coming years due to the increased focus on drugs based on biologicals. The increasing competition in the overcrowded API market in Asia Pacific has forced the producers to look for other avenues that will enable revenue growth. The emerging biopharmaceuticals market is one such field which offers promising growth to the producers due to several factors such as the growing need for biological drugs, the assured protection of the drug because of the difficulty in copying the structure, and the increasing support from the governments to boost the growth of the biotechnology sector.

These factors are expected to enable more producers to enter the market in the coming years thereby dramatically increasing the growth of the biotech APIs in the Asia Pacific region. The market will grow at a CAGR which is significantly higher than the growth in the synthetic API market. Meanwhile, the innovative sector of the synthetic API market in Asia Pacific is set to witness significant slowdown due to the economic recession. Globally, countries including the US, Japan, and Australia are increasing their focus on the generic sector as opposed to the innovative sector to cut down the additional expenses incurred as part of healthcare expenditure.

Increasing usage of generic drugs, which are cheaper by 40-50 percent of the cost of innovative drugs, enable governments to reduce their healthcare expenditure significantly. This trend will result in the slow growth of innovative sector in the API market. Japan, the leading producer of innovative APIs in Asia Pacific, is also set to increase its generic production which will considerably reduce the growth of its innovative sector pulling down the overall growth of the innovative APIs in Asia Pacific. The innovative sector will grow at a CAGR close to 12 percent from 2008 to 2020, says the report from Research and Market.

“The API market, traditionally dominated by small molecule drugs, is currently witnessing a rapid shift towards biopharmaceuticals. At the same time the manufacturing volume outsourced to contract manufacturing firms is on the rise. As generics continue to get highly competitive, API manufacturers are searching for newer avenues such as the production of high potency API’s to differentiate them from competition,” says Mr Sumanth Kambhammettu, Program Leader, Pharmaceutical & Biotechnology, Frost & Sullivan.

He also observes, “It is a difficult time for API manufacturers as they continue to battle challenges such as growing competition from low-cost countries and overcapacity. Market participants will increasingly have to rely on strategies such as capability differentiation and consolidation to stay ahead of competition.”

ResearchInChina, in its latest report on Indian API market says India plays an important part in the global API market as it ranks fourth in the world in terms of API output. The API output value of India was $4.1 billion in 2007, with the CAGR as high as 18.81 percent during 2003-07.

India currently has about 3,000 API factories and 5,000 reagent factories. The key API producers include Ranbaxy, Dr Reddy’s, Cipla, Cadila Healthcare and Matrix, the Indian subsidiary of Mylan. These companies produce more than 400 types of APIs and around 10,000 types of reagents, satisfying over 90 percent of Indian domestic demand. Pharmaceutical companies such as Dr Reddy’s, Wockhardt and Sun Pharmaceuticals are also producing APIs. The API export of India will enjoy a rapid growth in the coming years. According to the Tata Strategic Management Group, Indian API export value will increase to $12.75 billion in 2012 from $3.75 billion in 2007.

Considering the growth opportunities, Dishman Pharmaceuticals and Chemicals has announced strategies to cooperate with leading API players and pharma companies such as Polpharma from Poland with its strength in R&D and API plants in India as CRAMS player. Such partnership will ensure long-term API manufacturing contracts to Dishman and also provide API development and DMF preparation capabilities to partners to cut short their time to market. Polpharma is a strong player in the Central and Eastern European markets and CIS countries. Both companies feel that this partnership will benefit mutually and pave the way for a stronger growth in coming years. Dishman plans to set up four new API plants in India. The new plants will increase its drug production capacity by 400 cubic meters. The company expects the new plants to be fully operational by March 2011.

However, price erosion and economic recession are affecting the growth of the API market as these are leading to reduced consumption for APIs and fierce competition in the market. Camlin Fine Chemicals, one of India’s earliest makers of API is exploring options to sell its pharmaceutical businesses in a bid to focus more on the chemicals business that has seen growing applications. Its API business is not growing and wishes to focus on fine chemicals, which now accounts for more than 80 percent of its revenue.

Intense competition in the domestic market, declining prices and the decreasing demand for APIs in the US market have forced the API producers in India to look for alternative opportunities to boost their growth. The Japanese market, which has opened up its generic sector, offers good growth potential for the Indian producers. Also, the improved technological capabilities of these producers give them a competitive-edge over the Chinese producers enabling them to make a successful entry into the market. Indian companies like Lupin and Zydus Cadila made their presence increasingly felt in the Japanese market.

 

 

The global pharma players are looking at sourcing cheaper APIs, particularly in the situation of weak purchasing power worldwide. This is because of patent expiry of the blockbuster drugs, cut in medical costs in developed world and rise in R&D spending. Therefore, the opportunity descends upon low cost producers such as Chinese API makers. The API players in China also see the growth in local market driven by couple of factors such as growth in the generics sector, government’s plan to develop multi-level insurance system and the development in biotech drugs. Considering this growth, Mr Robert Kennedy, Manager, Industry Research, Thomson Reuters API Intelligence, says “Chinese companies are gearing up to supply pharmaceutical ingredients to the regulated markets of the west. The number of companies offering APIs to regulated market has steadily increased over the past five years.”

Since 2004, the number of ‘established’ manufacturers, defined as having years of experience supplying active ingredients to regulated markets, has increased from eight to 11. Examples include Zhejiang Hisun and Zhejiang Huahai. The less established manufacturers’ number too has increased from 11 to 30 and potential manufacturers’ number has increased drastically from 44 in 2004 to 153 in 2009. The rise in number of players indicates that the Chinese players are keen on supplying APIs to regulated markets. The companies are investing large sums of the money on infrastructure development to meet the international regulatory guidelines.

China has integrated itself into the global supply chain for both innovator pharma and generics companies and is no longer merely a low-cost threat. For many years, it has been an important supplier of intermediates and older offpatent molecules. Increasingly, it is moving towards supplying newer molecules and is slowly becoming involved in the development of non-infringing processes in support of patent challenges.

“The situation is better and improving for API manufacturing, because of good infrastructure, talented pool of scientists and low cost of production. China is strengthening its IP laws and regulations to attract the MNCs,” says Mr Kennedy.

Over 50 MNCs have opened manufacturing facilities in China for producing APIs. Companies like Lonza, Hovione, and Israel’s Teva have been working with local companies through joint ventures. The companies from the west are sourcing older, off patented APIs mainly the fermentation products from China. Currently, more than 80 percent of the manufacturers are offering APIs to local companies. In late 2009, Hebei Union Pharma nd Yuekang Pharma announced their plans to build APIs base in China.

In December 2009, Qilu-antibiotic Pharmaceutical announced that it had received five COS certificates from EDQM for its five sterile APIs, i.e., Cefotaxime Sodium, Cefoperazone Sodium, Cefuroxime Sodium, Ceftriaxone Sodium and Cefazolin Sodium. Of which, its Cefotaxime Sodium had passed the spot examination of EDQM and got CEP certificate in 2004 and this time it was the re-authentication.

Similarly, Xinchang Pharmaceutical manufacturing plant has received formal notification from the US FDA that its two APIs of Benflumetol and Artemether have got certification after locate inspection. With this, Zhejiang Medicine can now distribute these two APIs in the US. Though steps have been taken to improve IP protection, Mr Kennedy says that the enforcement still

needs to be addressed and still it is a good place for counterfeits. The other major problem China is facing is language and cultural differences. Though one can see more of reverse brain drain still it is difficult to find people who can speak English fluently at the manufacturing sites.

Economic recession has affected the Chinese API business as it has reduced demand for APIs. Even the price erosion had affected the export of APIs to India resulting in fall in revenue growth of the API market in China. China’s API imports in the first eight months of 2009 declined 31 percent year-on-year and the exports too have decreased by four percent, according to China Chamber of Commerce for Import & Export of Medicines and Health Products. The double declines took place for the first time in the past five years.

The sector is also facing over production by the local companies which will end up in drivibg down the costs. In addition to this the API sector is under the scanner of the environmental groups with concerns raised over its high energy consumption and high pollution rate. China has issued new emission standards for the API manufacture sector in August 2008, which will increase the cost of API makers by 20 percent.

To overcome the above and other issues, Chinese API makers began to shift their business to the highend, represented by the penicillin production chain. This shifting trend can also help API makers to avoid risks from local currency appreciation (RMB), environmental protection pressure and unstable demand in the global market.

The relation between India and China in the API sector is very interesting. On one hand, Indian pharmaceutical companies need to import Chinese made APIs and intermediates in order to cut cost. On the other hand, report says that they are not keen on supporting Chinese API sector to grow rapidly.

Under the current economic situations, if India and China wish to grow in the API business then they have to work closely for mutual benefits through partnerships, and collaborative approaches to succeed in the global competitive market.

 

 

China To Overtake India after 2015

Faced with growing challenges in major markets, demands from customers and growing pressures from global competitors, pharma companies are adopting a range of strategies designed to reduce costs and maximize efficiency.

To be able to aggressively pursue new growing markets, boosting its innovative capabilities and trimming its R&D budgets have amplified the role of API manufacturers in the pharmaceutical industry supply chain.

Several factors make India an attractive alternative for sourcing active ingredients. However, it has been noticed since last 15-20 years that China has evolved as viable source for supply of key pharmaceutical intermediates and actives. India is ahead of China in terms of FDA approved plants today, but by building up huge capacity, China has outperformed other countries that were relied upon for active ingredients in the global market.

Current statistics indicate that countries like Japan, Europe and the US have curtailed their production and some have already closed their facilities in contrast to China which has demonstrated an increase of 70-75 percent of market share.

The Chinese have historically been strong in high volume and commodity chemicals. The lower cost base and the continual government support has led their leadership in certain fields like fermentation-based and prostaglandin and steroidal-based APIs.

India on the other hand has been booming supported by the low-cost innovation and manufacturing coupled with skilled manpower and cutting-edge R&D. Indian firms are able to tackle complex synthesis in relatively short periods of time with cost-efficiency.

Although China has the capital and the hard capabilities, its capabilities in soft skills and supply of the dossiers and other technical documents required as supporting data to file Drug Master File (DMF) have tremendous short comings. India, on the other hand is way ahead of its competitors in DMF filings.

New, highly-efficient, and extremely low-cost API manufacturers may begin to surface on account of the collaboration between Indian process chemists and Chinese manufacturers creating a newfound need to either compete on cost or, in contrast, provide an extremely high level of custom synthesis capabilities.

India does have a long way to go but is sure to emerge as a substantial player provided we adapt appropriate measure and policies (balanced approach), between the stringent patent regime and drug price along with increased focus on niche segments. The factors favoring India’s pharma industry include stability of supply, high quality of products and firm governmental policies.

Despite India’s current advantage it is predicted that China is very likely to overtake India after 2015 as they have fewer growth resistors.

Mr Yash Sanghavi, Satyan Pharmaceuticals, Mumbai, India

Future Trends

New biologicals entities are a small but fast growing segment with double digit growth expected

for most of the leading product classes.

Growth of biologicals is leading to a restructuring of the global market with big pharma scaling

down small molecule manufacturing facilities around the world and increasing their focus on biologicals.

Although the API industry is highly fragmented, consolidation is expected over the next five to seven years to meet the competitive pressures of the pharma industry.

Innovative drugs are expected to suffer as generics make further inroads.

As big pharma continues to scale down on manufacturing, core opportunities for CMOs are expected to crop up both in the biologicals space as well as small molecule API space.

With the increasing emphasis on cost containment generics and biosimilars are expected to throw up significant opportunities.

Outsourcing to India and China is expected to continue as they consolidate their position as

research and manufacturing hubs for both small molecules and biological APIs.