The Chang­ing API In­dus­try

The spend­ing on health­care has grown at a rapid pace in re­cent years world­wide and this has di­rectly ben­e­fited the Ac­tive Phar­ma­ceu­ti­cal Ingredients (API) mar­ket. Ac­cord­ing to Stratis­tics MRC, the Global Ac­tive Phar­ma­ceu­ti­cal Ingredients mar­ket is ex­pect

BioSpectrum (Asia) - - Bio Content -

Growth in health­care adop­tion has ben­e­fited the API mar­ket im­mensely. There is greater fo­cus on ac­ces­si­bil­ity to af­ford­able health­care and this has led to in­creased surge for ac­cess to medicines, in turn driv­ing the growth of the mar­ket as a whole. San­jeev Ku­mar, In­dus­try Man­ager, Trans­for­ma­tional Health, Frost & Sul­li­van, Asia Pa­cific says, “In­no­va­tor APIs which were tra­di­tion­ally the largest seg­ment are con­tin­u­ing to grow much more slowly in com­par­i­son with generic APIs, which con­sti­tute the fastest grow­ing seg­ment. With sev­eral key brands go­ing off-pa­tent, and as and con­sol­i­da­tion in the phar­ma­ceu­ti­cal in­dus­try, the de­mand for branded APIs has gone down sig­nif­i­cantly over the years. Con­se­quently, generic APIs have wit­nessed a boom, and are ex­pected to con­tinue grow­ing steadily, with fur­ther ex­pected pa­tent ex­piries and a sub­se­quent in­crease in generic pro­duc­tion ca­pac­i­ties glob­ally.”

Trends in API mar­ket

Pa­tent ex­pi­ra­tion of prom­i­nent drugs, govern­ment ini­tia­tives, re­gional pen­e­tra­tion and in­creas­ing aged pop­u­la­tion are some of the fac­tors that are driv­ing the mar­ket growth. Strict val­i­da­tion and safety guide­lines stated by World Health Or­gan­i­sa­tion (WHO) and frag­mented mar­ket are the fac­tors that are ham­per­ing the API mar­ket growth. “The trend is shift­ing to­wards out­sourc­ing the man­u­fac­tur­ing of ad­vanced

APIs, such as biotech-based

APIs, bio­phar­ma­ceu­ti­cals, and ad­vanced bulk drugs re­quired for the pro­duc­tion of dosage forms of new chem­i­cal en­ti­ties in high-end

ther­apy ar­eas, such as on­col­ogy”, says Ku­mar. Over the next five years, the global mar­ket for APIs will be driven by in­creased de­mand for phar­ma­ceu­ti­cal prod­ucts such as gener­ics and bi­o­log­i­cal drugs.

Spe­cialty medicines driv­ing the mar­ket

A higher generic adop­tion rate in de­vel­oped coun­tries that ranges from 27 per cent to 32 per cent is driv­ing global medicine spend­ing and aid­ing greater ac­cess to im­proved, life­sav­ing health­care ser­vices. The adop­tion of branded generic drugs is pre­dicted to be higher in emerg­ing economies such as China and In­dia and generic drugs ac­counted for nearly 80 per cent of the to­tal drugs sold by value in th­ese fast-grow­ing na­tions in 2016. In­crease in the use of spe­cialty medicines is an­tic­i­pated to grow the phar­ma­ceu­ti­cal spend­ing world­wide with quicker growth in richer, de­vel­oped na­tions as com­pared to their emerg­ing counterparts. This is pri­mar­ily be­cause the for­mer have ad­e­quate man­u­fac­tur­ing units, a higher spend­ing power, and greater em­pha­sis on trans­par­ent pric­ing by as­sess­ing mea­sur­ing ef­fects on the pop­u­la­tion.

Karen Wai, Chief Op­er­at­ing Of­fi­cer, Bio­four­mis says, “In gen­eral in de­vel­oped mar­kets the reg­u­la­tions are clearly de­fined or there are am­ple re­sources to keep reg­u­la­tions rel­e­vant to tech­no­log­i­cal advances. In de­vel­oped mar­kets due to the re­duced abil­ity to spend on health­care in gen­eral you are look­ing at places that are play­ing on the abil­ity to man­u­fac­ture at a cost ef­fec­tive price point ver­sus a mar­ket that will drive rev­enue from the sales of the prod­uct.” San­jeev adds, “Due to the cur­rent re­struc­tur­ing of the phar­ma­ceu­ti­cal in­dus­try, API Con­tract Man­u­fac­tur­ing Or­gan­i­sa­tions (CMOs) are ex­pected to wit­ness a strong up­surge in de­mand, par­tic­u­larly in the gener­ics sec­tor. How­ever, in the in­no­va­tor drugs seg­ment, a ma­jor por­tion of the man­u­fac­tur­ing process is still con­trolled by big pharma and the role of CMOs is lim­ited.”

API mar­ket in Asia-Pa­cific

Asia-Pa­cific is an im­por­tant ge­o­graph­i­cal re­gion and has a num­ber of emerg­ing coun­tries in terms of API man­u­fac­tur­ing. Even though the pro­por­tion of health­care spend­ing in the APAC re­gion is com­par­a­tively low, the growth rate in this strate­gic re­gion has out­paced that of ma­ture mar­kets in North Amer­ica and Europe. Ris­ing health­care spend­ing has led to qual­ity health­care be­com­ing ac­ces­si­ble along with a higher de­mand for phar­ma­ceu­ti­cal prod­ucts across APAC. The phar­ma­ceu­ti­cals con­sumed here are mostly pro­duced in on­shore man­u­fac­tur­ing units. Fur­ther­more, con­tract man­u­fac­tur­ing or­ga­ni­za­tions are key out­sourc­ing al­lies for phar­ma­ceu­ti­cal com­pa­nies that sup­ply their wares to North

Amer­ica and Europe. With in­creased com­pe­ti­tion, pric­ing pres­sures and reg­u­la­tory changes, drug man­u­fac­tur­ers are re­sort­ing to out­sourc­ing raw ma­te­rial pro­cure­ment and man­u­fac­tur­ing ac­tiv­i­ties.

Asia-Pa­cific and Rest of the World are the fastest­grow­ing mar­kets for APIs (8 per cent and 7.2 per cent CAGRs, re­spec­tively) due to in­creases in con­sump­tion, health­care ex­pen­di­tures and ac­cess to medicines. In the global API and in­ter­me­di­ates in­dus­try, Asia-Pa­cific ac­counted for 27.9 per cent of the mar­ket share by rev­enue in 2015, and this is ex­pected to grow to more than 33.2 per cent by 2020. San­jeev Ku­mar says, “Al­though the over­all cases of poor qual­ity and un­safe APIs are rel­a­tively low, an in­crease in the num­ber of cases is likely to have a neg­a­tive im­pact on the en­tire re­gion. How­ever, with gener­ics ac­count­ing for over 50 per cent of the over­all API pro­duc­tion, con­tract man­u­fac­tur­ers in Asia are es­ti­mated to ac­count for

over 80 per cent of the over­all small mol­e­cule API pro­duc­tion glob­ally. In ad­di­tion, In­dia fea­tures the high­est num­ber of FDA-ap­proved units next only to the United States, and sev­eral hun­dreds of com­pa­nies are in­volved in the pro­duc­tion and sup­ply of APIs, for­mu­la­tions and fin­ished dosage forms to the reg­u­lated mar­kets. The chal­lenge for reg­u­la­tory au­thor­i­ties from ad­vanced mar­kets is the con­tin­u­ous phys­i­cal in­spec­tion of hun­dreds of th­ese units to en­sure prod­uct qual­ity and safety.”

The vast ma­jor­ity of anti-in­flam­ma­tory and an­tibi­otic drugs are man­u­fac­tured in Asian na­tions such as China and In­dia. The low labour cost and abun­dant raw ma­te­rial avail­abil­ity needed to make API are the crit­i­cal fac­tors re­spon­si­ble for the mas­sive growth in the APAC API mar­ket. In ad­di­tion to this, reg­u­la­tory sup­port and govern­ment en­cour­age­ment to es­tab­lish API man­u­fac­tur­ing hubs by way of favourable tax poli­cies are help­ing drive the APAC API mar­ket. The large pa­tient pop­u­la­tion base that con­sumes non-con­trolled drugs over the counter is also a key fac­tor lead­ing to the boom in APAC in­house API con­sump­tion.

Pa­tent cliff and API

Apart from in­creased health­care ex­pen­di­ture by the ur­ban pop­u­la­tions across the world and rapid in­cre­ment peo­ple aged over 60 years, the global

API mar­ket stands to gain ad­di­tion trac­tion from the in­crease in drug mas­ter file (DMF) fil­ing from pharma com­pa­nies. That be­ing said, pa­tent ex­piry of lu­cra­tive bi­o­log­i­cal drugs is ex­pected to open new op­por­tu­ni­ties in API mar­ket in the com­ing five years (busi­ness in­tel­li­gence study).

There has been an in­creas­ing em­pha­sis on bio­phar­ma­ceu­ti­cals API. Man­u­fac­tur­ing of bio­phar­ma­ceu­ti­cals is a cap­i­tal-in­ten­sive, com­plex and highly tech­ni­cal process in com­par­i­son to that of small mol­e­cules. The out­sourc­ing of bio­phar­ma­ceu­ti­cals man­u­fac­tur­ing is be­com­ing in­creas­ingly at­trac­tive, driven by the lack of cap­tive man­u­fac­tur­ing ca­pac­ity with mid and small biotech­nol­ogy com­pa­nies that drive the re­search and de­vel­op­ment pipe­line. Talk­ing about the busi­ness strat­egy for pharma com­pa­nies to re­spond to API in­dus­try land­scape given the pa­tent cliff and op­por­tu­ni­ties it has opened up for gener­ics, Wai says, “Some have gone the way of de­vel­op­ing biosimilars (e.g. No­var­tis through San­doz) to com­bat the ero­sion by gener­ics. Some have built generic arms (with var­ied suc­cess) Merck, Sanofi. Oth­ers have in­creased the value propo­si­tion for their drugs by chas­ing pa­tient re­lated out­comes on top of the stan­dard clin­i­cal trial safety and ef­fi­cacy. An­other new value dif­fer­en­ti­a­tion is in­cor­po­rat­ing dig­i­tal tech­nolo­gies that are tied to the demon­stra­tion of out­comes for the pharma brand and aid in med­i­ca­tion ad­her­ence and mon­i­tor­ing – e.g. through dig­i­tal biomark­ers.”

Ku­mar adds, “The busi­ness model of con­tract man­u­fac­tur­ing or­gan­i­sa­tions (CMOs) is rapidly evolv­ing to suit the chang­ing de­mands of bio­phar­ma­ceu­ti­cal in­no­va­tion, with over 50 per cent of bio­phar­ma­ceu­ti­cal com­pa­nies out­sourc­ing some form of their bio­phar­ma­ceu­ti­cal pro­duc­tion. CMOs have also adapted well to the change by of­fer­ing value-added ser­vices such as packaging, lo­gis­tics and anti-coun­ter­feit­ing in ad­di­tion to tra­di­tional man­u­fac­tur­ing, mak­ing out­sourc­ing in­creas­ingly at­trac­tive op­tion.”

Qual­ity Con­trol and API

The ICH guide­lines and FDA rec­om­men­da­tions about how to ef­fec­tively man­age qual­ity risk in drug

“Cost ef­fec­tive­ness might not be the only key sales & mar­ket­ing points with the tight­en­ing of reg­u­la­tions, higher cost for com­pli­ance. Now they must look at dif­fer­en­ti­a­tion through po­ten­tially niche spe­cial­iza­tion due to the changes in the health­care en­vi­ron­ment where due to in­creased knowl­edge of dis­eases there are bet­ter molec­u­lar tar­gets and we can now get into the sub­type of a dis­ease and make an im­pact there.” - Karen Wai, Chief Op­er­at­ing Of­fi­cer, Bio­four­mis

man­u­fac­tur­ing are clear and plen­ti­ful. How­ever, the amount of qual­i­fi­ca­tion and val­i­da­tion that take place is re­ally left to the dis­cre­tion of drug man­u­fac­tur­ers and their CMOs. Believ­ing in the process, Ku­mar says, “In 2016, warn­ing let­ters were is­sued by the US FDA to sev­eral Chi­nese phar­ma­ceu­ti­cal man­u­fac­tur­ers for GMP non-com­pli­ance, re­sult­ing in a de­nial of en­try of the lat­ter’s prod­ucts into the United States. Fol­low­ing this, the US FDA has opened af­fil­i­ate of­fices in Chi­nese cities such as Bei­jing, Shang­hai and Guangzhou to con­duct pe­ri­od­i­cal in­spec­tions to en­sure that stan­dards are met. Re­cent ef­forts have been made by the CFDA to ad­dress is­sues of IP pro­tec­tion and de­vel­op­ment of in­no­va­tive drugs which will have a pos­i­tive im­pact on in­no­va­tive API man­u­fac­tur­ing”. Sim­i­larly, dur­ing 2015-2016 In­dian man­u­fac­tur­ers have faced qual­ity is­sues, which have raised reg­u­la­tory con­cerns from im­porters. The is­sues are be­ing ad­dressed by both the In­dian gov­ern­ing bod­ies and FDA. The gov­ern­ments in APAC are im­ple­ment­ing favourable fund­ing reg­u­la­tions that pro­mote the de­vel­op­ment of high­qual­ity phar­ma­ceu­ti­cal prod­ucts.

Prod­uct-Of­fer­ing Ex­pan­sion and Cost Re­duc­tion

For the drugs man­u­fac­tur­ers, APIs are of great essence as their qual­ity de­fines the ef­fec­tive­ness of the prod­ucts. How­ever, not all phar­ma­ceu­ti­cal com­pa­nies pos­sess in-house API man­u­fac­tur­ing ca­pa­bil­i­ties and it is not fea­si­ble for a sin­gle com­pany to pro­duce all the APIs re­quired for their for­mu­la­tion of­fer­ings. An in­tense fo­cus on com­mer­cial­iz­ing drugs and re­duc­ing op­er­at­ing costs by out­sourc­ing R&D ac­tiv­i­ties can im­prove the or­ga­ni­za­tional ef­fi­ciency sub­stan­tially. Out­sourc­ing at later stages of de­vel­op­ment through the ap­point­ment of strate­gic part­ners can po­ten­tially im­prove op­er­a­tional ef­fi­cien­cies through­out the value chain. A bal­anced port­fo­lio ap­proach goes a long way in ex­pand­ing sales and si­mul­ta­ne­ously re­duc­ing risk. Karen Wai notes, “Cost ef­fec­tive­ness might not be the only key sales & mar­ket­ing points with the tight­en­ing of reg­u­la­tions, higher cost for com­pli­ance. Now they must look at dif­fer­en­ti­a­tion through po­ten­tially niche spe­cial­iza­tion due to the changes in the health­care en­vi­ron­ment where due to in­creased knowl­edge of dis­eases there are bet­ter molec­u­lar tar­gets and we can now get into the sub­type of a dis­ease and make an im­pact there.”

This could be by possess­ing branded generic drugs, branded drugs, and un­branded drugs within the same port­fo­lio. In ad­di­tion, clearly de­fined for­ward link­ages in the sup­ply chain can gar­ner greater mar­ket share in dif­fer­ent regions. Ku­mar, looks at the po­ten­tial and says, “As the API man­u­fac­tur­ing in­dus­try be­comes more com­pet­i­tive, there is an in­creas­ing onus on tech­nolo­gies that en­hance man­u­fac­tur­ing ef­fi­cien­cies. Sev­eral lead­ing API par­tic­i­pants, par­tic­u­larly those in the Asia-Pa­cific re­gion, are tak­ing mea­sures to im­prove equip­ment util­i­sa­tion and prod­uct yield, as well as to re­duce process time and harm­ful emis­sions and in­crease re­use and re­cy­cling. From a ge­o­graph­i­cal per­spec­tive, Europe-based par­tic­i­pants cater to the in­no­va­tor sec­tor in the US and Western Euro­pean mar­kets be­cause of their proven ca­pa­bil­i­ties. On the other hand, Asian com­pa­nies are ma­jor sup­pli­ers to the gener­ics in­dus­try in the Western mar­kets.”

Look­ing into the fu­ture

In or­der to keep pace with the in­dus­try, many gener­ics-fo­cused com­pa­nies will con­tinue to gain ca­pa­bil­i­ties through ac­qui­si­tion. In­no­va­tor com­pa­nies are build­ing their own fa­cil­i­ties to pur­sue new ther­a­peu­tic ar­eas of in­ter­est while oth­ers are trend­ing to­ward out­sourc­ing the de­vel­op­ment, scaleup and com­mer­cial pro­duc­tion of API to cus­tom de­vel­op­ment and man­u­fac­tur­ing or­ga­ni­za­tions with di­verse ca­pa­bil­i­ties that can of­fer a one-stop shop.

With the con­tin­u­ous growth and shift in the mar­ket, we can ex­pect more merg­ers, ac­qui­si­tions and in­vest­ment as com­pa­nies strate­gize in or­der to be com­pet­i­tive and rel­e­vant in the in­dus­try.

Priyanka Ba­j­pai­j­[email protected]­

“In the phar­ma­ceu­ti­cal in­dus­try, API sourc­ing is in­creas­ingly be­ing con­sid­ered as a highly crit­i­cal strate­gic de­ci­sion. While most of the de­mand in value terms for APIs is still from the United States and Europe, the role of the Asia Pa­cific re­gion as a key lo­ca­tion for API sourc­ing is be­com­ing more prom­i­nent. “ - San­jeev Ku­mar, In­dus­try Man­ager, Trans­for­ma­tional Health, Frost & Sul­li­van, Asia


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