The API (Active Pharmaceutical Ingredient or bulk drug) outsourcing trend within the global pharmaceutical industry remains intact as pharmaceutical companies are increasingly looking to maintain focus on core competencies, access new technologies, preserve capital and ensure multiple sources of raw material supply.
However, API suppliers in Europe and US are facing increasing pricing pressures due to presence of low cost providers in developing markets, excess big pharma capacity, and backward integration by certain generic companies. China remains a dominant player in the global bulk drug industry given its large scale manufacturing capabilities, cost leadership and sufficient availability of intermediates due to strong technological capabilities in fermentation. However, quality concerns as reflected by instances of product recalls due to contamination continue to hamper the ability of Chinese manufacturers to source bulk drugs to advanced markets.
The domestic bulk drug industry is poised to benefit from the impending patent expiries in the regulated markets (including many blockbuster drugs) leading to increase in generic penetration; thereby providing a significant opportunity for supply of APIs to manufacturers of such generic drugs coupled with increased outsourcing of bulk drugs by multinational pharmaceutical companies. The surge in DMF fillings by domestic pharmaceutical and bulk drug companies reflect the growing presence of Indian manufacturers in the regulated markets. The growth is underpinned by heightened regulatory compliance amongst Indian companies with numerous US FDA approved manufacturing facilities, large talent pool and low cost of manufacturing.
Mr. Subrata Ray, Sr. V.P & Head-Corporate Ratings, ICRA, says, “The role of Indian bulk drug manufacturers in the global pharmaceutical supply chain is gradually evolving with increasing presence in synthesis and manufacture of late stage intermediates and APIs. Traditionally, innovators often opted to perform final stages of API synthesis in-house or partner with specialised European suppliers while outsourcing early stage intermediates to India. However, in recent times, the track record of Indian companies in supplying quality products coupled with complex synthesis capabilities has enabled increasing participation in supply of late stage intermediates to innovator companies.”
The low profitability and return on capital employed (RoCE) of bulk drug players relative to pharmaceutical formulation companies underscores the capital intensive nature of operations and high working capital intensity owing to maintenance of high inventory and elevated credit terms demanded by customers. Overall, a diversified product mix and stable pipeline of APIs; ideally a balanced mix across various stages of development is critical to long term sustainability. In-house or collaborative efforts for differentiated technologies, continuous improvement in operating efficiencies and high capacity utilisation are paramount.