Faced with the threat of a big price competition from the generics industry for a clutch of their blockbuster drugs whose patents are slated to expire over the next four years, multinational innovator drug companies are rushing to clinch deals with Indian active pharma ingredient (API) suppliers to cut costs. The enhanced strength of Indian bulk drug industry to make core APIs is expected to buttress the trend. Innovator drug firms have historically relied on Indian suppliers for early stage intermediates, but shied away from sourcing Active Pharma Ingredient (API) from India. But the impending patent expirations imply prices of their branded drugs would erode in the range of 50-90%, due to onset of generic competition. To remain competitive in that environment, innovator companies are increasingly looking to partner with low cost API suppliers in India either through outsourcing contracts or long-term alliances, industry sources told FE.

?Currently, innovator companies either source APIs directly from their parent firm abroad or other European or American firms. This is to ensure greater flexibility and quality control for these drugs which are patented abroad. As a large number of patented drugs are approaching the end of their exclusivity periods, these firms are now looking at outsourcing APIs in order to achieve greater cost efficiencies in light of the entry of generics,? said Subrata Ray of Icra. For instance, UK-headquartered AstraZeneca CEO David Brennan has made clear that the firm intends to outsource its entire API requirements within next seven-eight years.

The orders would come primarily to China and India, which are known for cost efficiencies. As part of their strategy towards outsourcing, AstraZeneca has sold its manufacturing facilities located in France, Italy and Spain and closed its main API production facility in the UK, cites Ray. Top drug makers Pfizer and Merck have made known their plans to outsource 30-35% of manufacturing to India and China.

?Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis, Novartis, Teva increasingly partnering with Indian companies for many of their APIs in addition to their intermediates requirements. The strategy of these companies is to focus on their core strengths and look for competent outsourcing partners for other activities to reduce manufacturing spend,? a top API player told FE. He said talks between big pharma players and top Indian API firms are happening at an unprecedented level but there is a lot of competition which ensures that most of these engagements are strictly confidential. What has helped is that in recent years, as the Indian bulk drug manufacturers have earned the reputation and trust of offering higher quality APIs at low costs and demonstrated complex synthesis capabilities, innovators have also started to source late-stage intermediates from India.

Also, India has one of the largest number of FDA approved bulk drug plants in the world outside the US, numbering to greater than 70 and is capacity expanding spree. ?This gives greater confidence to innovator companies around the world as the FDA facility checks are considered one of the most stringent and widely accepted,? another bulk drug player told FE. Also India?s share of drug master filing with FDA grew to almost 46% of total filings in 2007 from a mere 14 % in 2000 before settling at 29% in 2009. Over 2000 drug master files (DMFs) were filed with the FDA by Indian players in the year 2009, almost triple the number of such dossiers filings by competitor China, and way ahead of Italy, Spain, Mexico and Brazil, other well-known locations for APIs. Although DMF does not necessarily result in business, it provides an indication about the capabilities of players. Also the products registered by India vary in complexity and range of therapeutic areas ensuring restricted competition for Indian companies. ?Apart from availability of cheaper labour sources, India has many local manufacturing equipment manufacturers reducing the cost of capital. Labour costs are also low in India, almost one seventh of that in many developed countries. Competition in India?s domestic formulations market has made it inevitable for API suppliers to continuously develop alternative production methods to improve yields or reduce costs. The scientific staff in India, though equivalent or better qualified, are available at a fraction of the cost,? the the bulkdrugmaker said.

The Bulk Drug Manufacturers Association (BDMA), pegs the API industry at about $6.61 billion,of which almost $3.1 billion comes from exports.