API makers in India are playing a catch-up game, focusing on niches. The strategy seems to enable them to sustain growth momentum in a market turning increasingly competitive. In fact, API CMOs believe that consolidated positioningin specific products and segments not only helps them keep going through the tides of time, but also to realize their near- and mid-term goals, even as global API buyers begin to downsize inventories.

Currently valued at about $12 billion, India’s API industry ranks third in terms of volume among the 15 manufacturing countries. More than 65% of APIs produced by 100-plus facilities are exported. As many as 1615 Drug Master Files (DMFs) were filed with the FDA by Indian players in the year 2009, almost triple the number of such dossiers filings by China, their nearest competitor, and way ahead of Italy, Spain, Mexico and Brazil, other well-known locations for APIs.

A recent sector report published by Cygnus, a Hyderabad-based market research firm, forecasts that India’s API business will reach $16.9 billion in the next three years, growing at a speed of 21% per annum, primarily driven by Contract Research and Manufacturing Services (CRAMS).

More action is likely in the API outsourcing scene in the coming days, with Big Pharma sharpening its focus on generics as a buffer to fend off the impact of slowing markets. One of the sought-after emerging markets, India stands only to gain in the whole game of generics, despite high competition and a steady erosion of costs as new entrants enter the fray. The benefits can arise either through higher contract manufacturing volumes or through longer term supply pacts, such as the ones signed by Pfizer (with Aurobindo, Claris and Strides) and GSK (with Dr Reddy’s) in recent years.

API Markets: Where & When

No matter how much smaller they are in size compared to the competitor, the CMOs are quite confident of their outlook.

“It is because of the niche positioning in specialized segments that some Indian players continue to see the growth unaffected at least in the next five to 10 years,” said K. Raghavendra Rao, managing director of Orchid Chemicals and Pharmaceuticals, an API maker from Chennai, southern India, specializing in penems, pencillins and cephalosporins.

Mr. Rao, who sold out Orchid’s lucrative injectables formulations business to Hospira in the end of 2009, has made aturnaround profit in the last quarter, buoyed by API sales. Orchid continues to find opportunity there as very few facilities in the world specialize in the domain of carbapenems and betalactams.

Niche players should also be confident of the market in terms of their potential as well as the opportunity to cash in with their products. “It is equally important for the suppliers to know where to market and when,” Mr. Rao explained, adding that Orchid would soon expand to CV and CNS segments.

More production-related work is expected to be transferred to the Indian CMOs as global players start closing down their factories in developed markets. This could revive the flagging sales of certain broad-based firms hit by slow uptake in early-phase contract research services.

Fewer Firms To Compete With?

The prime objective behind outsourcing to emerging markets is cost. And of course, cost-effectiveness is the forte of Indian players. “When everything is said and done, every buyer finally comes down to the cost factor. When it comes to cost, every penny matters,” said M. Narayana Reddy, managing director, Virchow Labs Ltd., Hyderabad. Virchow is currently the leader in sulfamethoxazole segment.Through constant improvisation of technology over the past three decades, the company is now able to meet nearly 80% of the global requirement of the API at a competitive cost.

“For the last 35 years, Virchow has been experimenting with newer technologies to improve quality and cut down production costs,” added Mr. Reddy, who was also the former president of Bulk Drug Manufacturers’ Association (BDMA), an umbrella body of API makers.

The challenge is to face the intensifying competition and still maintain the margin, concurred K. Subbarao, chief promoter and managing director, Glochem Industries Ltd., another mid-sized player from Hyderabad, the hub of India’s API industry. “Volumes can be a cushion to absorb cost pressures. But it’s a matter of how you stay afloat,” he said. Glochem is one of the leading suppliers of amlodipine salts.

Similarly, a few amongst the other Indian players who came out successful in carving a niche in select APIs including Shasun (ibuprofen), Malladi USV (metformin), Lupin Ltd. (ethambutol), and Malladi (pseudoephedrine).

While niche players consolidate their positions, others are working toward the big time generic basket of upcoming off-patent drug opportunities.

S. Harachand is a pharmaceutical journalist based in Mumbai.He can be reached at [email protected].