New Focus - The importance of Indian companies in the global pharmaceutical supply chain is well known and well documented. Large quantities of base chemicals, intermediates, active pharmaceutical ingredients and finished formulations travel from India to all parts of the world. However, the increasing competition from China and the increased costs to participate in the U.S. market are changing the strategies of Indian companies.

U.S. Market Presence

Some of the first U.S. Drug Master Files (DMFs) from Indian companies were submitted in the late 1970s and early '80s. Since then, Indian companies have become some of the major API suppliers to the U.S. drug industry. By the end of 2012, Indian companies held approximately 40% of active type II U.S. DMFs submitted over the past 10 years (fig. 1).  Although filing a DMF doesn't necessarily mean a company is supplying API to the U.S., it is a good indication of intent and interest in supplying to the U.S.. The recently enacted Generic Drug User Fee Act (GDUFA) legislation adds a $20,000-$30,000 fee the first time the DMF is referenced in an Abbreviated New Drug Application (ANDA), and is likely to affect the number of DMFs filed in the coming years from India and around the world.

In addition to manufacturing API, many Indian companies supply finished dosages to the U.S. market. There is an almost exponential increase in the number of ANDA approvals by Indian companies over the past 10 years. The number of ANDA holders from India, indicated by the red line in figure 2, has similarly increased dramatically. In addition to the one-time DMF fee, there is also a $50,000-$60,000 filing fee for an ANDA. GDUFA requires that manufacturers must also pay annual facility fees for each site producing API and finished dosages for the U.S. market. The combination of these fees will significantly influence how companies choose what products to develop and bring to the U.S. market.  

Evolving Markets

Along with GDUFA fees, the increasing manufacturing costs, salaries, and environmental requirements in India are adding to the pressure on Indian companies. As a result, a growing number of Indian companies are purchasing active ingredients from China for their own market. The amount of India's pharmaceutical market supplied by Chinese API has increased significantly over time, as seen in figure 3. The list of active ingredients with the most Indian import registrations held by Chinese companies highlights the type of products in which China has overtaken India in manufacturing. This includes antibiotics, such as erythromycin, doxycycline and cephalosporins, as well as commodity products such as acetaminophen.

Many active ingredients made in China are increasing in price due to the rising costs of energy and new GMP regulations in China, thus escalating expenditure for many companies around the world. These increased costs of Chinese materials will, in turn, decrease the margins for many Indian companies and their customers. Indian companies are also challenged by excess API manufacturing capacity in India as the number of innovative large volume products going off-patent has declined in the past few years. In order to become more self sufficient and compete with China on the global market, some Indian players have called upon government incentives to boost local API manufacturing. However, it is likely that many Indian companies will continue to rely on China for APIs and advanced intermediates.

Future Prospects

In response to the growing competition in the global marketplace and the increasing costs to supply into the U.S. market, many Indian companies are investing in novel technologies. Indian companies are building more advanced facilities that can manufacture highly potent active ingredients, as well as complex delivery systems. In addition to making inward investments into specialized manufacturing, many companies are also partnering with others that have niche capabilities. Some examples include Sun's acquisition of dermatology company Dusa, as well as the joint venture between Omnichem and Granules for high potency products.

Over the next few years we expect India's reliance on China to continue, and rising costs in China will lead to a concurrent rise in costs in India. It is likely India will face increased competition for low-priced API from China on global market. Continued pricing pressures will impact many companies sourcing decisions, and Indian companies will likely increase their presence in the western markets despite the increased costs.