Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Do you know?
-India is 3rd largest producer of drugs in terms of volume
-$17B worth of drugs exported from India in 2017-2018 (32% US, 20% Africa, 15% EU)
-Export from India covers 20-22 % of the world’s production, 60000 brands & 60 therapeutic classes
-7 Indian companies among top 20 global generics
-50% new DMF are from India
-Export value growing at 16-18% CAGR. Over 200 countries source from India.
-India Imports 60% of its API from China
Pharma
~2000 Manufacturing
Units
US FDA
Approved Sites 584
CEPs
WHO GMP
1105 1400 Approved sites
Note: This note doesn’t describe about Pharmaceuticals Industry, naming conventions, types of filings, ANDAs,
pharma processes, P&L etc. This note is purely on API domain
Equity Pulse, Twitter Handle: Equity_Pulse Page 2 of 14
What is API?
WHO Definition: any substance or combination of substances used in a finished pharmaceutical product (FPP),
intended to furnish pharmacological activity or to otherwise have direct effect in the diagnosis, cure,
mitigation, treatment or prevention of disease, or to have direct effect in restoring, correcting or modifying
physiological functions in human beings.
In Simple terms API is the key active ingredients in any formulation. Other substance is called excipients which
is inactive substance. Excipients provide bulkiness to formulations, facilitate absorption of the drug, provide
stability and prevent denaturation of drugs. Pharmaceutical excipients are cost effective, stable, feasible for
handling, and inert in nature
API
API consist of KSM+Solvent
Excipients
Mebendzole is anti infective. Alosetron Hydrochloride is for Gastrointentinal, Montelukast is for anti asthmatic,
Linagliptin for anti diabetic.
Name of the API and its strength is written on the formulation packaging
Each formulated drug has API name mentioned on the pack or bottle. In India, drugs are marketed on brand
name whereas in western countries, the drugs are marketed by API names.
Equity Pulse, Twitter Handle: Equity_Pulse Page 3 of 14
Formulations/
Dosage
Manufacturers
Contract API
Manufacturers Manufacturers
Drug Marketing
R&D
Companies
Over 100,000 tonnes of pharmaceutical products are consumed globally every year
1. Monoclonal Antibodies
HPAPI 2. Recombinant Proteins
3. Vaccines
Synthetic
Chemicals
High Potential Active Pharmaceutical Ingredients (HPAPI) has seen a boom while biotech API lagged behind a
bit. This is because HPAPI therapeutic applications in oncology are very effective in treating cancer and other
respiratory disorders.
An API is generally classed as highly potent if it has an occupational exposure limit (OEL) of ≤10μg/m3, a daily
therapeutic dose of ≤10mg/day or if a 1 mg/kg/day dose produces serious toxicity in laboratory animals.
The manufacture of Active Pharmaceutical Ingredients (APIs) typically involves the manufacturer of medium
sized quantities of material such as tens to hundreds of kilograms of solid material and thousands of litres of
liquids. The basic production of bulk API products can employ three different types of process:
Biological Processes - These predominantly involve fermentation where microorganisms are cultured
in a substrate to produce useful substances e.g. Antibiotics, steroids and vitamins. However other
biological processes are used such as the production of vaccines and genetically modified organisms.
Organic chemical synthesis – The use of chemical reactions to manufacture specific molecules.
Extraction from a Biological source – The use of a solvent or other extractive mechanism to release
substances from plants or other natural materials. e.g. digoxin, and opiates.
The API in this case is Acetaminophen which is first granulated and then mixed with excipients in V Blender. It
then goes from a number of manufacturing process which are executed in series to form a tablet as final
formulation.
Equity Pulse, Twitter Handle: Equity_Pulse Page 5 of 14
1. Branded Drugs
2. Generic Drugs
3. Over-the-counter (OTC) Drugs
1. Cardiology
2. Pulmonology
3. Opthalmology
4. Neurology
5. Oncology
6. Orthopedics
7. CNS
8. Endocrinology
9. Gastroenterology
10. Nephrology
11. Others
60% for the captive market (produced internally by pharma companies) and 40% for the merchant market
(produced by third-party providers). On a geographic basis, Western Europe and the US lead in terms of
experienced API producers.
Going forward ahead, the captive API manufacturers segment is expected to account for the largest share of
the APIs market. This can be attributed to the fact that most big pharmaceutical companies possess their API
manufacturing facilities and are vertically integrated across the pharmaceutical supply chain. Moreover,
innovator companies prefer in-house manufacturing of innovative products to avail economic benefit and
prevent technology leakage.
However, the growth in Merchant Manufacturers will be more due to halt in capacity additions to the in-house
API facilities by big pharmaceutical companies.
Equity Pulse, Twitter Handle: Equity_Pulse Page 6 of 14
Largest Share: Synthetic APIs are easiest to manufacturer and held the largest share of the API market in 2018.
The raw material for these types of API is easily available.
Highest expected CAGR Growth from 2019 to 2014: Biotech APIs are estimated to register the highest CAGR
over the forecast years due to rising demand for biopharmaceuticals and higher efficiency of these molecules
North America held the largest market share in 2018 and 2019. Asia Pacific is estimated to be the fastest-growing
region expanding at a CAGR of 8.2% over the estimated period.
Some of the key players of the active pharmaceutical ingredients market include:
AbbVie Inc.
Bristol-Myers Squibb Company
Equity Pulse, Twitter Handle: Equity_Pulse Page 7 of 14
North America
o U.S and Canada
Europe
o Germany, UK, Spain, Italy, France
Asia Pacific
o Japan, china, India, South Korea, Australia
Latin America
o Brazil, Mexico, Argentina
MEA
o South Africa
Equity Pulse, Twitter Handle: Equity_Pulse Page 8 of 14
4. China Factor
Environmental Issues
China’s chemical buildup over the past two decades had prioritized growth over environmental
quality. The 13th Five-Year Plan for environmental protection published in 2016 enshrining “clear
waters and lush mountains” as a national policy has marked a sharp shift, as China’s authorities
have started to address environmental degradation.
Some companies are not able to comply with the stricter regulations because their plants are
old and upgrading is not justified for low margin products. A major push to root out polluters
more systematically began last year. Government inspectors fanned out through industrial
areas, closing plants, fining companies, and in some cases jailing plant operators for air and
water pollution. It is widely reported that operations at nearly 40% of Chinese factories in 30
industrial provinces have been interrupted as a result of these inspections, which began last
year. The plants involved range across industries, affecting energy production, finished
product manufacturing, and essential raw materials. Among companies on edge over China’s
crackdown are producers of active pharmaceutical ingredients (APIs), many of whom claim the
sector is on high alert for supply chain disruption.
Per Shanghai Horse corporation, below are the numbers of plants which were impacted by the
Chinese Government strict rules in 2016 and 2017
▸ Hebei province: 69,000
▸ Henan province: 43,000
▸ City of Chengdu: 14,000
▸ City of Tianjin: 9,800
▸ Shanxi province: 6,760
▸ City of Beijing: 6,500
Equity Pulse, Twitter Handle: Equity_Pulse Page 10 of 14
144 API manufacturers in the Beijing-Tianjin-Hebei region and surrounding areas were required to
close in November in addition to raw material makers that supply the drug industry.
The china crackdown on chemicals and API manufacturing plants will not ease going forward.
China recently announced its plan to reduce the concentration of hazardous fine particulate
matter from 47 micrograms per cubic meter to 35 micrograms by the year 2035. It will lead to
closure of more and more plants causing pollution.
http://www.xinhuanet.com//english/2017-10/23/c_136700303.htm
There has been concerns over the quality of the API manufactured in China in 2017 and 2018.
In August 2017, two Chinese companies — Zhejiang Tianyu Pharmaceutical andZhuhai Rundu
Pharmaceutical — had come forth to say they were recalling blood pressure drugs tainted with N-
nitrosodimethylamine (NDMA) in the valsartan API which had been used to produce their finished
products that had been exported to Taiwan
These events lead of recall of drugs in over 20 countries. In Europe, Novartis recalled Sandoz’
products containing valsartan, as did Teva, Stada, Dexcel Pharma.
https://www.fda.gov/Drugs/DrugSafety/ucm613916.htm
And in 2018, besides the Valsartan recall, the USFDA have informed drug makers in August 2018
not to use porcine thyroid API manufactured by Sichuan Friendly Pharma. This was over quality
concerns as the API contains inconsistent levels of levothyroxine and liothyronine. The API
manufacturer was asked to recall all batches of the API since 2015.
India, realizes this Chinese quality issue too. In January 2018, the drug controller of India – DCGI
banned APIS from six Chinese companies. This alert was issued after inspection of the units by
Indian regulators and a lack of quality compliance by the units
Equity Pulse, Twitter Handle: Equity_Pulse Page 11 of 14
India’s Position
Growth of API Consumption in India is increasing at a rapid rate of 10% yoy. India imported 310,000 tonnes
of bulk drugs and intermediaries in FY18, compared with 278,000 tonnes in FY17. In the past one year, the
prices of APIs from China have gone up in the range of 15-80 per cent which is hitting the bottom line of major
pharma companies in India.
Apart from APIs, India imports worth $6 to $7 billion raw materials from China for API Manufacturing. These
raw materials are Key Starting Material KSM and Solvents. Prices of both has shoot up in last one year.
Majorly, India is currently heavily dependent on imports from China for 30-40 APIs, KSMs and intermediates.
The big pharmaceuticals companies in India have started to adopt the strategy of alternate vendor for API but
it is not a cakewalk. Due to the India’s dependence on Chinese imports, the country’s API manufacturing
infrastructure has not grown much, and it will require tremendous investments.
Two key concerns in replacing Chinese Vendors with Indian API Vendors:
1. The switching time from one API manufacturer to another one is high
It’s a six stage process which takes 5-6 months minimum. Each of these step is very critical in itself.
Specially document review which states that open part DMF should be reviewed and understood the
synthetic route, product specifications, analytical procedure, impurity profile, stability results, and
CMC changes.
Equity Pulse, Twitter Handle: Equity_Pulse Page 12 of 14
The shift from one API Vendor to another one is tough, time consuming and have a lot of challenges. But once
the changeover happened it is more tough call for a pharma company to go back to the old API Supplier. Most
of the pharma companies want long term commitment from the API Vendors whom they are dealing with. The
environmental issues in China will sustain for long as mentioned above that Chinese government has set strict
target to decrease the pollutants in next 5-6 years.
API players have also started the fresh capex to increase the manufacturing capacity and to bring in the new
capabilities for complex generics API development.
Divis Lab announces huge capex of 1580Cr for API plant expansion
https://www.business-standard.com/article/companies/divis-labs-earmarks-rs-15-bn-for-capex-as-greefield-
kakinada-project-stalls-118102900614_1.html
Laurus Labs, one of the world’s largest supplier of anti-retroviral active ingredients that goes into drugs to treat
HIV infection, took a hit due to rising costs in the June quarter FY19. The gross margins were compressed by
300 basis points even as its sales rose 13 percent to Rs 539 crore.
The company said its margins were impacted by hikes in raw material prices in China. For instance, two critical
intermediates used in anti-retroviral drugs — emtricitabine and lamivudine — have witnessed 80 percent price
hike.
Laurus Labs was importing 100 percent of some of its key raw materials from China in FY19 Q1, plans to
produce them entirely in-house this year
Certainly, the Indian pharmaceutical companies are not going to have the cost of production higher than their
purchase. If they backward integrate, the availability of raw material will be more certain and they will save the
money so that their gross margins will grow up.
The Indian pharmaceutical formulation players has realized that China issue with sustain for long so they
started sourcing the material from local sources, which resulted in significant jump in margin expansions of API
Equity Pulse, Twitter Handle: Equity_Pulse Page 13 of 14
players. Also, the API manufacturers has started sourcing key raw materials which are used in API production
from local manufacturers.
Divis lab has posted healthy growth in Topline, EBIDT Margins and PAT Margins in recent quarters
In API Segment there are a lot of different baskets of companies, like pure API play in common generics, pure
API play in complex generics, API+Formulations players, and Complex generics API + CRAM players.
Pure API common generics- Solara Active, Granules, DIVIS, IOL Chemicals
Any API player having below quality is likely to generate big alpha in long term in India:
It is very tough to find a Pharma API company which has all above quality.
In our next update, we will discuss about an API play which seems to be best placed as a pure API play in
India.
Note: This is not an investment recommendation. We are not SEBI registered Investment Advisors. The content
published here are only for educational purpose only and taken from publicly available sources. Please consult
your financial advisors before acting upon anything basis on this report.
@futuristicstock
@krishnblue