Expansions, exits and much more
(This Article appeared in the Contract Manufacturing Magazine, dated April 2012)
For api outsourcing, it has not been a bumpy ride thus far. CMOs have remained rather unscathed by the vagaries of the weather, despite the fact that other contract service providers have taken fortune’s inevitable rollercoaster ride. Trade in APIs has been growing steadily (but not slowly) over the years.
Analysts now see India's API industry growing at a faster clip. It is forecast to touch $16.9 billion by 2014, growing at an increased CAGR of 21%, according to a sector report by Cygnus Business Consulting & Research, a knowledge services organization based in Hyderabad. For the last three years, Indian pharmaceutical companies have been filing around 38-40% of the total DMF submissions (all types) globally from more than 180 factories approved by the U.S. FDA.
“The absence of development costs together with efficient production has enabled Indian companies to establish a solid position in bulk drug manufacturing,” said O.R.S. Rao, director, Cygnus. Costs at FDA-approved plants in India are 65% lower than the U.S. and 50% lower than that in Europe, he noted.
While therapeutic categories of oncology, cardiology and diabetology and tropical diseases continue to be the mainstay, Indian CMOs are increasingly getting into high potency and niche APIs as well. The high potency active pharmaceutical ingredients (HPAPIs) market is the fastest growing segment in the pharma industry globally. It is expected to grow at a CAGR of 8.4% from 2011 to 2015, led by anti-cancer drugs. They are going to be a major growth driver in future, added Mr. Rao.
Low Profile, But Vibrant
Assured returns and a comparatively low-risk business model compel some Indian companies to retain their API portfolios while selling out their main line of business to foreign firms. For instance, Orchid Pharma sold its entire injectables division to Hospira for $400 million in 2009, but the Chennai-based generics player held onto its API business after signing a long-term supply agreement with the buyer. Piramal Healthcare operated on similar lines; in May 2010 Abbott acquired Piramal’s generic formulations business in a $3.7 billion deal, leaving theContract Research and manufacturing Services (CRAMS) division intact.
Such big-ticket deals and high-premium sell-offs have seldom been part of the pure-play API sector. Still, there are quite a few less-noisy events happening, indicating the dynamic nature of a low-profile but vibrant industry. Here are a few such recent developments, which are worthy to watch:
At the beginning of February, Hikal Ltd., an intermediates and API supplier for pharma/ag firms, reported that its multi-product factory at Jigani (near Bangalore) had successfully completed the third audit by FDA inspectors. To meet rising demand from U.S., EU and Japanese markets, Hikal is constructing a new facility at this site. The plant, which can accommodate 32 reactors with capacities ranging from 6 m3 to 10 m3, resulting in a total reactor volume of approximately 300 m3, will go on stream by June, reports said.
Another key player, Aurobindo Pharma, has announced a strategy to focus on advanced markets for API exports. This measure would help stabilize revenue streams, which have taken a dip. The company wants totarget high-value CV and CNS segments for better returns, as sales in traditional antibiotic products such as cephs start tapering.
Bedrock of Quality
Even as the likes of Hikal and Aurobindo are aggressively exploring newer markets, Dishman Pharma is considering exiting its manufacturing operations from China, in what may appear a reversal of sorts. The Ahmedabad-based CRAMS provider is reportedly looking for a prospective buyer for its Shanghai facility, which the company started way back in 2005 to supply HPAPIs and intermediates to western markets.
Dishman lists one of the reasons for the divestiture as inordinately long timelines for getting required clearances from local regulatory bodies. It has already invested about $20 million at the Shanghai Chemical Industry Park. The company also proposes to pay down its debts and focus back on Indian operations. Dishman suffered a consolidated net loss in the quarter ended Sept. 30, 2011, owing to marked-to-market losses on its foreign-currency debt due to weakening Indian rupee during the period.
As mentioned, India-based API makers, in recent years, outpaced competitors belonging to China and Italy in terms of filing DMFs. The rising numbers simply suggest more and more companies are getting bitten by the DMF bug, analysts opine. If DMFs are any gradient of quality, these firms are ready to give a tough fight to the rivals. A higher penetration of quality combined with attractive cost-propositions is what makes India a choice destination for those looking for a partner to produce APIs. In such a scenario, it would not take much effort to beat all the forecasts, they pointed out.