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This report focuses on human dose-form active pharmaceutical ingredients (APIs)
from the viewpoint of the fine chemical producer—its main focus is on noncaptive
use. The geographic coverage is centered on the United States, Europe and Japan,
but our overall estimate of the market includes other areas.
The world market for human dose-form active pharmaceutical ingredients (APIs)
is estimated to have been $52 billion in 2003 and is expected to grow to $70
billion in 2008, a 6% average annual growth rate. The largest new product opportunities
for noncaptive API manufacturers will result from the loss of patent protection
by human pharmaceutical dose-form products and increased outsourcing of difficult
or hazardous chemical synthesis steps, bulk intermediates and active ingredients
by the pharmaceutical industry.
The world pharmaceutical market has continued to grow over the past decade.
In 2003, it grew by an average of 11% with respect to 2002 (dollar value, dose-form
level). A further expansion of 6.2% annual compound growth is forecast for 2002-2008.
Ten strategic markets accounted for approximately 85% of growth in the ethical
pharma market (pharmaceutical market excluding OTC medications) from 2002 to
2003-Italy, Spain, France, United Kingdom, Germany, Japan, Mexico, United States,
Canada and Brazil.
The human pharmaceutical sector accounts for about 75% of the market worldwide
and is composed of some 1,500-2,000 individual products. While aggregate market
production and consumption information does not exist for all these products
and industry segments, a top-down API market consumption analysis is possible
using dose-form sales estimates for the various market segments.
The API industry continues to be extremely fragmented, but consolidation is
occurring among its major customers—branded dose-form and generic pharmaceutical
companies—in the United States and Europe. These companies have followed
the example of those in other industries and are increasingly outsourcing their
manufacturing operations. The percentage of manufacturing that is outsourced
among the branded pharmaceutical companies varies by company. Some manufacture
all their products in-house, while others outsource synthesis steps, intermediates,
bulk active ingredients or even final dose-form products.
In the generic dose-form sector, while U.S. generic drug makers typically do
not produce APIs, the trend toward increased acquisitions and industry consolidation
will lead to fewer customers for API suppliers. Generic drug makers will remain
prime customers within the bulk active ingredient market, especially with the
large number of products losing patent protection in the coming decade. However,
the higher-value business of custom manufacturing for the pharmaceutical multinational
corporations (PMNCs), has become a more attractive market for the top fine chemical
producers that are in a position to offer a variety of services to the PMNCs.
As the pharmaceutical industry looks increasingly to biotechnology for its
pipeline products, a new generation of bulk biopharmaceutical chemicals is entering
the market. The business model used by some emerging biotech companies is also
to rely on outsourcing, including outsourcing of manufacturing. While the next
generation of biotech companies can be a new source of customers for API manufacturers,
opportunities are currently limited because few biotech products have reached
commercialization, those that are commercially available are primarily captively
produced, and to date most outsourcing of biotech products is for clinical supply
lots. In contrast to the multistep synthesis of chemically derived drugs, biopharmaceuticals
are typically produced in a one-step fermentation that PMNCs are unlikely to
outsource because of concerns about leakage of proprietary expertise. Much of
the outsourcing that the pharmaceutical industry does continues to be for isolated
intermediate chemical compounds, and it remains the norm for the final synthesis
step to be done in-house.
The pharmaceutical industry is under great pressure to raise critical mass
in R&D in order to increase its development potential and improve drug pipelines.
A number of scale factors have become important in past years in this respect.
One of them is the overall size of the marketing organization. Another factor
is the need to master new enabling technologies, such as genetic engineering,
high-throughput screening, bioinformatics and structural chemistry. These technologies
are cost-intensive and their cost is constant and fairly independent of the
company's size. Consolidation in the pharmaceutical industry has therefore continued
in the past three years with a number of major deals.
Regulatory changes will have a significant impact on API manufacturing. Supplementary
protection certification (SPC) regulations in European Union (EU) countries
will encourage API manufacturers that supply U.S. generic drug markets to manufacture
outside the region. Generic drug companies typically require samples years in
advance of patent expiration, but SPC regulations prohibit plants in EU countries
from supplying any drug for qualifying and registration purposes before the
drug has lost patent protection. India and China are the most attractive alternative
production sites, as well as the United States, where producers can be close
to customers. In the United States, API producers are allowed to manufacture
patented drugs prior to the patent expiration as a result of the Hatch-Waxman
Act, which was a compromise between generic drug companies and brand-name pharmaceutical
companies, enabling generic companies to market their products immediately upon
patent expiration and extending the patents of the drug innovators to compensate
for regulatory delays at the FDA.
After the pharmaceutical manufacturers, the fine chemicals industry is the
largest supplier of active pharmaceutical ingredients (both standard and custom)
and of intermediates for the pharmaceutical market. Pharmaceutical companies
are the largest customers of the fine chemicals industry. It is estimated that
up to 67% of worldwide sales of the fine chemical industry sector go to the
pharmaceutical industry.
The fine chemicals industry has experienced a wave of consolidation in the
past several years. The industry is still extremely fragmented; in some segments
profitability is low and in some cases profits are not enough to cover the cost
of capital in an industry that is capital intensive. This situation, combined
with slowing growth in some areas and with the desire by some suppliers to offer
a broader range of services to the pharmaceutical industry and/or to expand
market reach, has prompted many companies to join forces. This consolidation
trend is accompanied by an increasing focusing of fine chemical suppliers on
the life sciences market. A number of companies in the past few years have signaled
this intention through divestment of business divisions not targeted at the
life science arena.
Demand for chiral chemicals and intermediates from the pharmaceutical industry
has been rapidly increasing. The $470 billion pharmaceutical industry accounts
for the majority of the market for chiral chemicals. Although most large pharmaceutical
companies have established chiral technology including bioprocessing to produce
chiral compounds, outsourcing to contract manufacturers is a growing trend in
the manufacture of chiral chemicals in this industry. The market for chiral
chemicals is increasing at an annual rate of 8-10%, and worldwide revenues are
expected to reach $15 billion by 2008.
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