By the end of 2017, the worldwide demand for active pharmaceutical ingredients (APIs) is estimated to reach $92 billion, according to the European Fine Chemicals Group (EFCG). Other analyst reports estimate the API manufacturing market to be worth more than $140 billion today and reach $186 billion by 2020. While details vary among analyst reports, almost all cite similar breakdowns in captive vs. merchant market splits. EFCG estimates the $92 billion demand to be split between $44 billion for captive production and $48 billion for the merchant market. The merchant market of $48 billion is further divided into $35 billion for generics and $13 billion for innovator custom synthesis. Much of the growth is happening in the outsourced market for small molecules. In order to meet customers’ needs, many companies are investing heavily in building up in-house capacity or acquiring facilities for specialized manufacturing.
Currently, more than 3,000 API manufacturing groups are operating across the globe. Clarivate Analytics assesses the capabilities and experience of API manufacturers using a proprietary scheme based on objective regulatory data. According to the Clarivate Analytics Newport database, the majority of API groups, 64% or 1,955 corporations, are classified as “local.” These companies are focused on or may only be capable of supplying their domestic market or less regulated markets. Another 504 companies, or 17%, are classified as “potential future”; these companies are interested in supplying to regulated markets but may have limited or no known experience. There are currently 542 API manufacturers (18%) classified as “established” or “less established” which means these companies are capable of supplying highly regulated markets such as the U.S. and EU. Big Pharma only accounts for 1% of API manufacturers.
API manufacturing facilities able to supply highly regulated markets are mainly based in the U.S., Europe, Japan, India and China. Below, Figure 2 demonstrates the number of API groups by country rated as “established” and “less established” that are able to supply regulated markets. Several second wave emerging countries like Argentina, Brazil, South Korea and Russia have some API industry due in part to governments offering incentives to encourage domestic API manufacturing to decrease dependence on foreign drug substance supply. However, despite predictions of API manufacturing moving to emerging countries, there has been slow growth of manufacturers in these regions. The majority of emerging countries depend on imported API for domestic production of finished medicines.
Competition is increasing for both API suppliers and customers. Generic companies are finding that mergers, acquisitions and regulatory issues have taken some facilities out of the running as supply partners. Generic API manufacturers are challenged with developing syntheses that don’t infringe on patents while keeping costs low.
Companies interested in supplying APIs to regulated markets are coping with increasing regulatory-related expenses, such as fees related to the Generic Drug User Fee Act in the U.S.
Regulatory requirements are tightening and will likely continue to do so with a push for more transparency in the supply chain. This could result in requiring certification for good manufacturing practices for key intermediates and raw materials. Environmental regulations, especially in China, are putting pressure on corporations to remedy pollution problems. Some plants are being shut down or moved, causing capacity issues and supply chain interruptions from raw materials to intermediates and APIs.
In an effort to circumvent supply issues, many companies are increasing oversight in evaluation and management of supply chain partnerships. Additionally, qualification of second sources for key materials is becoming a more widely accepted practice in risk avoidance to thwart interruption in supply chain.
Market outlook and conclusions
According to the EFCG, the growth rate per year for APIs is anticipated to be 4.5% in the generic sector and 4.8% in the custom sector. Newer APIs may not be simple small molecules but, rather, more complex, highly potent APIs and biologics which require more specialized equipment and even dedicated facilities.
In order to keep pace with the industry, many generics-focused companies will continue to gain capabilities through acquisition, as Strides did when purchasing Perrigo’s API plant. On the innovator side, a number of companies are building their own facilities to pursue new therapeutic areas of interest. Still other innovators have been trending toward outsourcing the development, scale-up and commercial production of API to custom development and manufacturing organizations with diverse capabilities that can offer a one-stop shop.
As the market grows and shifts, the future of the API industry likely holds more mergers, acquisitions and investment as companies strategize in order to be competitive and relevant in the industry.
For more insight on recent developments in the generics, finished dose and API manufacturing industries, as well as the latest updates on biosimilars, download “Market landscape: Generics, manufacturing, and biosimilars,” a featured news collection from CPhI and Clarivate Analytics BioWorld.
Attending CPhI Worldwide? Join industry expert Kate Kuhrt, Head of GTM – Life Sciences, Clarivate Analytics for an “API Sourcing & Manufacturing Update,” or connect with us onsite at Hall 8, booth 80H08.