External manufacturing plays a crucial role in pharmaceutical companies’ supply strategy. The author examines market trends
for the captive (i.e., in-house ) and merchant (i.e., third-party) global market for active pharmaceutical ingredients and
David Crockett/Getty Images
The overall trends of increased globalization, generic-drug incursion, and the rising importance of emerging markets can be
further seen in the demand and supply patterns of the API market. In keeping with overall pharmaceutical industry trends,
recent growth in the global API market has slowed although the overall market is still increasing at a moderate pace. Led
by India and China, Asia Pacific has had the highest recent growth in the API market although North America and the US remain
the largest markets, respectively, on a regional and country basis. Generic APIs are outpacing growth for branded, innovator
APIs. On a global supply basis, China remains the largest producer of generic APIs, largely for its domestic market as well
as the largest exporter of APIs on global basis, primarily to emerging markets. Italy retains its historical position as the
largest supplier of generic APIs to both Western Europe and the US although India’s position as a supplier to developed markets
is on the rise.
Overall. The global API market (including both the merchant market and the captive market) was valued at $113 billion in 2012, up
from $91 billion in 2008, according to a recent report, The World API Market, by the Chemical Pharmaceutical Generic Association
(CPA), an organization representing Italian API manufacturers (1). The captive API market is defined as APIs used by pharmaceutical
companies for in-house production of finished dosage forms; the merchant API market is defined as APIs sold by third parties.
From 2008-2012, the global API market grew at an average annual rate of 5.6% compared to an annual growth rate of 7.2% from
2004-2008. The slowing market is attributable to factors affecting the pharmaceutical industry as a whole: slowing global
economic growth, increased pricing pressure due to cost-containment policies adopted by most countries, increased competition
from generic drugs, higher risk of pipeline failures with elevated costs for drug discovery, and increasing competition from
low-cost producing countries.
On a geographic basis, the highest growth rate for APIs between 2008 and 2012 was in Asia-Pacific (excluding Japan), which
experienced average annual growth rate of 13.9%, followed by the Middle East with 8.7% average annual growth, and Eastern
Europe and the Commonwealth of States (CIS) with 8.2% average annual growth, according to the CPA report (1). The developed
markets in Western Europe, North America, and Japan had slower annual growth rate. Western Europe’s API market had the lowest
annual average growth rate, 2.5%, followed by Japan at 3.4% and North America at 3.8%. (1).
On an absolute basis, however, North America is still the largest API market (including both captive and merchant markets)
followed by Asia Pacific, although Asia Pacific is gaining ground. The North American share of the global API market declined
three percentage points between 2008 and 2012 as the share of Asia Pacific increased. North America’s share was 43% in 2012,
down from 46% in 2008. Asia Pacific’s share was 28.3% in 2012, up from 24.2% in 2008, according to the CPA report (1). The
US remains the largest global market on a country basis, accounting for 39.7% of the global API market in 2012.
These market positions change, however, if looking at the generic API merchant market alone. Led by China, Asia Pacific accounted
for 39.6% of the global generic API merchant market in 2012. China is the largest consumer on a country basis of generic APIs
in the merchant market, accounting for 23.7% of the global total, surpassing the North American market as a whole (21.9%)
and the US (20.4%). Between 2008-2012, China registered the fastest annual average growth rate in the generic API merchant
market at 13.2%, followed by India at 11.9%. Collectively, the two countries accounted for 29.7% of the global generic API
merchant market, according to the CPA report (1).