The pharmaceutical industry faces a  changing global footprint for the supply and demand of active pharmaceutical ingredients (APIs). These trends reflect the end-market conditions of increased generic drug incursion, a slowing of new product introductions, and the rise of emerging markets, particularly the BRIC countries (Brazil, Russia, India, and China). 

(PHOTO: JEFFREY COOLIDGE / GETTY IMAGES) 

The value of the global pharmaceutical market is expected to increase 4–6% on a constant-dollar basis in 2010 and reach $825 billion, according to estimates issued in October 2009 by IMS, the research firm's latest estimates. IMS projects comparable growth in the near term, with the global pharmaceutical market increasing at a compound annual growth rate of 4–7% through 2013, when the market is expected to reach in excess of $975 billion. 

Better growth prospects in the US, the single largest national market, are helping to lift demand. "Overall, market growth is expected to remain at historically low levels, but stronger-than expected demand in the US, is lifting our short- and longer-term forecasts," said Murray Aitken, senior vice-president of Healthcare Insight at IMS, in an Oct. 7, 2009, press release. "The economic climate will continue to be a dampening influence in more mature markets, particularly in those countries with rising budget deficits and publicly funded healthcare systems." 

The US pharmaceutical market is expected to increase 4.5–5.5% in 2009 and 3.5% in 2010, according to October 2009 estimates by IMS. Although prospects in the US market are better than earlier projected, the global market will continue to be pressured by the patent expiry of innovator drugs and fewer new product introductions over the several years. This imbalance is the primary factor limiting global pharmaceutical market growth to the mid-single digits through 2013, according to IMS. 

Products now generating $137 billion in value are expected to lose patent protection through 2013. Some key patent expiries include Lipitor (atorvastatin) by Pfizer (New York), Plavix (clopidogrel) by sanofi-aventis (Paris) and Bristol-Myers Squibb (New York), and Seretide/Advair (salmeterol and fluticasone) by GlaxoSmithKline (London). Lipitor, Plavix, and Seretide were respectively the number one, two, and fourth-selling drugs in 2008 with respective global sales of $13.7 billion, $8.6 billion, and $7.7 billion and respective US sales of $7.8 billion, $4.9 billion, and $4.4 billion.  

Despite economic conditions affecting some emerging markets, projected growth in the BRIC countries, Turkey, South Korea, and Mexico is still strong as these markets are expected in aggregate to increase by 12–14% in 2010, and 13–16% through 2013, according to IMS. China's pharmaceutical market, alone, is expected to increase in excess of 20% per year and contribute 21% of overall global pharmaceutical growth in 2013.  

The demand patterns for APIs parallel end-market trends with projected strong growth in emerging markets and for generic APIs. The global API market, which includes captive use, or APIs used from pharmaceutical companies for in-house production of finished-dosage forms, and the merchant market, or APIs manufactured by third-party providers, was valued at $91 billion in 2008, according to a report by the Chemical Pharmaceutical Association (CPA). CPA is a Milan-based association representing Italian producers of intermediates and APIs for generics. 

Formulation development forum: nanodiamonds for delivery  of  poorly water-soluble drugs 

The captive API market accounted for 60%, or $55 billion, of the global market in 2008, and the merchant market accounted for 40%, or $36 billion, in 2008. Between 2004 and 2008, growth in the captive API market outpaced that of the merchant market. Between 2004 and 2008, the captive API market grew at an annual average rate of 7.6%, from $41 billion in 2004 to  $55 billion in 2008. The merchant API market increased, 6.5%, from $28 billion in 2004 to $36 billion in 2008. CPA attributes the differential in part to consolidation among pharmaceutical companies and the resulting availability of more in-house API production capacity.  

. The rising importance of generic drugs is reflected in the recent growth patterns in the merchant API market. The merchant market for generic APIs has grown much faster than the market for innovator APIs. Between 2004 and 2008, the merchant market for generic APIs increased at an average annual rate of 9.1% from $12 billion in 2004 to $17 billion in 2008, according to CPA. In contrast, the merchant market for branded/innovator APIs increased at an average annual rate of 4.4% from $16 billion in 2004 to $19 billion in 2008. Looking ahead, the global merchant market for APIs is projected to increase at an average annual rate of 6.8% through 2013, increasing from $36.0 billion in 2008 to $50 billion in 2013. Growth in innovator APIs is projected at only 1.8% during this period (from $19 billion in 2008 to $20.8 billion in 2013), compared with growth of 11.4% for generic APIs (from $17.0 billion in 2008 to $29.2 billion in 2013), according to CPA.  

North America accounted for the largest share of the merchant API market (both innovator and generic) in 2008 with a 44.7% share and the US alone accounted for 41.9%. The US is also the largest consumer of generic APIs, representing 22.9% of global generic API demand in 2008, according to CPA. In contrast, China only represented only 9.8% of combined global merchant demand (innovator and generic) in 2008, but was the second largest consumer of generic APIs behind the US with a 19.2% share, according to CPA. Although the US is projected to remain the largest consumer of APIs (both innovator and generic) with a projected 36.6% share in 2013, China will become the largest consumer of generic APIs with a projected 26% share of the global merchant market for generic APIs followed by the US with a 20.5% share, according to CPA. 

 China, India, Latin America, and Central and Eastern Europe, particularly Russia, represent significant growth opportunities for the merchant market for generic APIs. Between 2004-2008, India and China accounted for the highest growth rates in the merchant market for generic APIs with respective annual growth rates of 15.8% and 11.8%. India and China now account for roughly 25% of the global merchant market for generic APIs, and growth in those countries is expected to remain strong. China is projected to have the highest average annual growth rate for merchant generic APIs—18.4%—through 2013, when the market in China is expected to reach $7.6 billion compared with $3.2 billion in 2008. India is expected to achieve 14% annual growth in merchant generic APIs through 2013, when the market is projected to reach nearly $1.7 billion compared with $860 million in 2008.  

Growth in Russia and Brazil, the other countries among the BRIC nations, is also expected to be robust. The merchant market for generic APIs in Brazil is projected to increase annually at 15.2% through 2013, from $340 million in 2008 to $690 million in 2013. Russia's merchant market for generic APIs is expected to increase 16.3% annually through 2013, increasing from $480 million in 2008 to $1.02 billion in 2013, according to CPA.  

The emergence of China and India as low-cost production centers for APIs, combined with rising domestic demand in those countries, is shifting the balance of API production on a global level from Western Europe to Asia. China has become the largest API producer globally, holding 9.3% of the global merchant market (both innovator and generic APIs) in 2008 and 37.8% of the merchant market for generic APIs. Italy now ranks second, with a 10.4% share on the global merchant market for both innovator and generic APIs and a 16.7% piece of the global merchant market for generic APIs. Japan ranks third, which includes primarily innovator APIs. India ranks fourth in global API production with 7.4% of the global merchant market for both innovator and generic APIs in 2008, but ranks third in generic API production, with a 13.4% share, according to CPA.  

Although India and China have increased their share of global API production, Western Europe remains the largest API-producing region in the world. Western Europe accounted for 38.9% of global API production (innovator and generic) in 2008, although this level is down from a 44.3% share in 2004, according to CPA. The Asia-Pacific region ranks a close second, with a 38.4% share of global API production (both innovator and generic), but holds a majority share of global generic API production with a 54.8% share in 2008. Italy has retained its historical position as the number one exporter of APIs to the US. Imports account for approximately 80% of total US generic API consumption, according to CPA, and of this amount, Italy accounts for 37% of US imports. China ranks second with 18%, followed by Spain and Portugal at 17%, and India at 8%. 

Despite shifts to offshore markets in commercial APIs, research and development (R&D) by the large US-based multinationals is still largely based in the US. Domestic R&D spending accounted for $36.2 billion, or 75.5%, of R&D expenditures for human pharmaceuticals, and R&D spending aboard was $11 billion, or 23%, bringing  total R&D spending on human pharmaceuticals to $47.2 billion in 2007, according to the Pharmaceutical Research and Manufacturers of America (PhRMA). Domestic R&D is defined as R&D in the US by PhRMA member companies. R&D abroad is R&D conducted outside the US by US-owned PhRMA companies and R&D conducted abroad by the US divisions of foreign-owned PhRMA companies. R&D spending performed abroad by the foreign divisions of foreign-owned divisions of foreign-owned PhRMA member companies are excluded. R&D spending (both domestic and abroad) on veterinary pharmaceuticals accounted for $718.4 million, or 1.5% of R&D spending, bringing total R&D spending by PhRMA member companies to $47.9 billion in 2007; it was $50.3 billion in 2008.  

Of the $47.9 billion total in 2007,  spending was greatest in Phase III and in prehuman/preclinical development, which respectively accounted for 28.5% and 27.3% of total R&D spending by PhRMA member companies. R&D spending for the rest of development broke down as follows: Phase I (7.4%), Phase II (13.0%), Approval (5.0%), Phase IV (13.4%), and uncategorized (5.2%). The drugs under development also were largely developed internally by the large companies. Self-originated compounds accounted for $27.1 billion, or 74.1%, of domestic R&D spending by PhRMA member companies in 2007. In-licensed compounds accounted for $63.3 billion, or 17.2%, and 8.7% of the drugs were uncategorized. Overall, there were approximately 2900 drugs in clinical development or awaiting review by the US Food and Drug Administration in 2009.  

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Articles

Ingredients Insider

Growth in emerging markets and across the generic-drug sector shifts the global demand and supply of active pharmaceutical ingredients.

Tracking API Growth

It's customary to begin a new year with some predictions. We don't honor that custom every year, but given what the contract services industry went through in 2009, it seemed appropriate to do so. 

The pharmaceutical services industry enters 2010 after enduring some of the most difficult market conditions ever faced by contract research organizations (CROs) and contract development and manufacturing organizations (CDMOs) in 2009. Unfortunately, the factors that created these problems have not fully resolved, and there may be new challenges. Funding remains uncertain for small and mid-sized drug companies, which account for 35% of all research and development (R&D) spending and a bigger share of outsourced expenditures. The companies formed by the big mergers of 2009 (Pfizer–Wyeth, Merck–Schering-Plough, Roche–Genentech, and Abbott–Solvay) are still sorting out what capacity, capabilities, and development candidates to keep. The fundamental transformation of the biotechnology/pharmaceutical business model continues, as companies continue to cut overhead, inventories, and pipelines in response to patent expiries and the new economics of drug development.  

CROs and CDMOs report some improvement in requests for proposals and new project awards, but we expect 2010 to start off slow. By the second half, we could see some pickup as the overall economy improves and the financial sector strengthens. We don't think the turnaround will be robust, but it will at least mark a halt to the revenue declines experienced in 2009. 

Big Pharma becomes a competitor to the CDMOs

. The major biotechnology and pharmaceutical companies will be a nuisance to CDMOs. Pfizer (New York) and Abbott (Abbott Park, IL) are already active sellers of their excess commercial manufacturing capacity. We expect at least one more major company to launch a formal effort to establish itself as a contract manufacturer. Also, we continue to see companies sell spare specialized capacity such as biologics manufacturing. 

Big Pharma may also be a problem in the market for clinical development and manufacturing services. We think there may be significant overcapacity for the manufacturing of clinical-trial materials resulting from  the trimming of development pipelines and the big mergers. While we don't expect the global biotechnology and pharmaceutical companies to start selling clinical manufacturing services, we may see them bring in-house work that they would otherwise outsource, including manufacture of placebos and comparative agents. 

We don't foresee this being a long-term problem for the contract services industry. Executives at the giant companies created by last year's megamergers need time to work through the implications of what they have created, and the further rationalization of these development and manufacturing operations will be second-order considerations. The major drug companies are more committed than ever to reducing fixed assets and fixed costs. They will get around to closing down their redundant capacity and outsourcing more of their development activities in the next several years. 

Intensifying competition for development services business. 

While we expect demand conditions to slowly improve, we expect competition to intensify. Contract service providers are expanding their service offerings to drive their own revenue growth by capturing more of available expenditures. They are also trying to improve their positioning as potential preferred providers for the major drug  companies, which tend to favor companies with broader capabilities. So we will see contract analytical laboratories offering formulation and manufacturing services, and providers of active pharmaceutical ingredient development services adding formulation-development and dose-manufacturing capabilities. Not all of these companies will be successful, but we expect the effort to negatively impact the smaller service providers that lack specialized expertise. 

Acquisitions of contract service providers.

 Look for acquisitions of contract service providers in 2010. Acquisitions almost always pick up after a recession as financing becomes more available, and companies that survived seek to exploit their relative strength. One factor driving deals will be the effort to increase service offerings across both capabilities and geography.  Companies will also seek to gain economies of scale by increasing their size and generating savings in back-office activities and sales and marketing.  

Private-equity investors have been active buyers of contract-services companies in recent years, and we expect that to continue despite the somewhat diminished attractiveness of the business. One interesting play among some private-equity firms is to view formulation-development CDMOs as platforms for creating specialty pharmaceutical companies. The rationale is that the formulation and drug-development expertise of these companies, combined with their manufacturing capabilities, makes them ideal vehicles for transformation into product-development companies. When it comes time to exit, valuations for companies with drug portfolios are almost always greater than valuations for service companies, so there is strong incentive for pursuing that strategy. 

 is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, 

Outsourcing Outlook

Some predictions for contract services in 2010.

A Look Ahead for 2010


The Drug, Chemical, and Associated Technologies Association (DCAT) announced its education programs for DCAT Week, which will be held Mar. 15–18 in New York City. DCAT is a business-development association whose membership is comprised of companies that manufacture, distribute, or provide services to the pharmaceutical, chemical, nutritional, and related industries. The educational programs at the 2010 installment of DCAT Week reflect several key changing dynamics of the pharmaceutical industry. 

One such consideration is the increased penetration of generic drugs in the pharmaceutical industry. On Mar. 15, DCAT will hold a program on the integration of the business models between innovator-drug and generic-drug companies. On Mar. 16, the association will examine the impact of mergers and acquisitions in the generic-drug industry. Also, on Mar. 16, the association will provide a pharmaceutical chemical outlook with analysis from the market research and consulting firms Life Science Analytics and Datamonitor. 

The elongation of the pharmaceutical supply chain and the evolving commercial and regulatory requirements between pharmaceutical companies and their suppliers will be examined in several sessions. One session will review how the US Food and Drug Administration, the International Pharmaceutical Excipients Council, and the pharmaceutical industry are addressing the issue of excipient equivalence. Another session will examine a recent initiative by several major pharmaceutical companies called the Qualified Trusted Importer Program, an approach in the border-management process. Also, Hilde Boone, the new liaison of the European Medicines Agency  to FDA, will participate in a lunchtime forum. This particular forum is open only to DCAT member companies. 

DCAT also added a Biologics Forum to its slate of programs during DCAT Week to reflect the growing business development needs of its members. “Many of our current members, especially those within the Big Pharma segment such as Merck, GlaxoSmithKline, and Pfizer, have been involved in the biologics/biomanufacturing business for a long time, but those business divisions are not integrated into the DCAT organization like their small-molecule/chemical divisions,” says Joe Principe, DCAT president and vice-president of global business development at Piramal Healthcare (Mumbai, India). “We want to expand our reach within our pharma and commercial member companies to include areas involved in the biologics/biomanufacturing area. In addition, we want to add more facets to our programming to attract nonmember companies that would derive value from DCAT programming and networking opportunities.”

DCAT will hold a Biologics Forum on Mar. 17 to examine approaches for designing and implementing a successful supplier-management program in biologics manufacturing given the specialized economic, regulatory, and technical issues involved with biologic-based manufacturing. Scheduled speakers include: Richard Crowley, senior vice-president of biopharmaceutical operations of ImClone Systems, a wholly owned subsidiary of Eli Lilly (Indianapolis, IN); Nigel Darby, vice-president of biotechnologies at GE Healthcare Life Sciences (Uppsala, Sweden); Jim Skrine, executive director and site head of quality at Amgen (Thousand Oaks, CA); Karen King, president of the biologics division at DSM (Heerlen, The Netherlands); and Michael Howaldt, vice-president of biotech operations at the biopharma business unit at Boehringer Ingelheim (Ingelheim, Germany). The session will be moderated by Marc Lampron, senior director of procurement at Genentech (South San Francisco, CA).  

The Biologics Forum is part of a larger effort by DCAT to broaden its membership to include more participation from the biotechnology side of its member companies and other prospective members. During DCAT Week, a steering committee of both DCAT members and nonmembers will meet to discuss how the organization can better serve this sector. “Many of our member companies have biologics and biotechnology business units,” explains Principe. “Those individuals are starting to attend more activities, including DCAT Week, so they obviously see the benefits DCAT provides, and we need to follow through with more business-development opportunities.” 

The biotechnology segment is one segment within the DCAT executive committee. The executive committee consists of four officers (president, senior vice-president, finance officer, and vice-president) and five segment vice-presidents: chemical, biotechnology, pharmaceutical, associated technologies, and nutrition and health. The executive committee also consists of the three immediate past presidents of DCAT. 

Full details of the educational programs at DCAT Week may be found 

Sourcing

The rising importance of generic drugs, evolving requirements in the ever-more global supply chain, and supplier-management strategies in biologics manufacturing are some key topics to be addressed next month during DCAT Week.

PTSM: Pharmaceutical Technology Sourcing and Management-02-03-2010

Tracking API Growth

A Look Ahead for 2010

DCAT Rolls Out Educational Programming for DCAT Week