Tracking API Growth

February 3, 2010
Patricia Van Arnum

Patricia Van Arnum was executive editor of Pharmaceutical Technology.

PTSM: Pharmaceutical Technology Sourcing and Management

PTSM: Pharmaceutical Technology Sourcing and Management-02-03-2010, Volume 6, Issue 2

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

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)

Pharmaceutical industry growth

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."

Patricia Van Arnum

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.

API consumption

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.

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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.

Innovator versus generic APIs. 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.

On the horizon...

Generic API demand. 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.

API production

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%.

APIs under development

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.

Patricia Van Arnum is a senior editor at Pharmaceutical Technology, 485 Route One South, Bldg F, First Floor, Iselin, NJ 08830 tel. 732.346.3072, pvanarnum@advanstar.com