Active Pharmaceutical Ingredient (API) is an essential part of any drug development. API is the component that produces the desired effects. Although a drug is composed of many components, API is a primary part of the drug. According to a report by Data Bridge Market Research, the active pharmaceutical ingredient (API) market was valued at USD 300,722.26 billion in 2021 and is expected to reach a value of USD 540335.81 billion by 2029 at a CAGR of 7.6% during the forecast period of 2022 to 2029.
The report also revealed that the rising prevalence of various chronic diseases and an aging population are the major drivers driving the active pharmaceutical ingredients (API) market during the forecast period.
The pharmaceuticals industry in India is the third-largest in the world. However, China caters to about 70 percent of India’s pharmaceutical requirements including APIs that are required to produce finished drugs. IOL Chemicals and Pharmaceuticals Limited which has a one-third market share globally in painkiller drug ibuprofen active pharmaceutical ingredient (API), in Agust this year said while announcing their quarter one results that they will be focusing on diversifying into other speciality chemical products and increase the share of non-Ibuprofen business. The company, as part of de-risking their business, has started reducing the share of ibuprofen in their overall turnover, and add more popular products to the portfolio.
Financial Express.com reached out to Dr. Sanjay Chaturvedi, Executive Director & CEO, IOL Chemicals and Pharmaceuticals Limited and he talked about the company’s plans regarding non-ibuprofen business, upcoming product launches, their API business among others. Excerpts:
IOL Chemicals and Pharmaceuticals is the largest producer of Ibuprofen with over 30 percent global share. Why and how are you planning to increase the share of the non-Ibuprofen business?
IOL is the largest producer of Ibuprofen in India with backward integration to KSM level having its 33% worldwide market share. We have a strong API portfolio that covers multiple therapeutic areas. Since we already command a considerable market for Ibuprofen, the plan to increase the share of other API businesses is our conscious decision. This is to lessen the company’s reliance on Ibuprofen and thus expand into non-ibuprofen APIs. Diversification of our API portfolio is of paramount importance to us to grow further and to de-risk ourselves from relying heavily on the Ibuprofen side of our business and gradually we are improving it. In- fact in the last fiscal, the non-Ibuprofen business achieved a growth of about 70% as compared to the previous year.
We have a significant capacity for medications like Metformin and Clopidogrel and we defiantly would like to grow our market presence of other APIs. Thus we are commencing an aggressive capex programme worth Rs 11 billion over the next three to four years to meet our future objectives of diversifying into new APIs and Specialty Chemicals. Our product portfolio in the pharmaceutical segment is improving year on year basis by adding new products. Last year the Company filed 4 new DMFs with USFDA in addition to 3 CEP applications with EDQM. The Company has got additional approval from the Korean FDA for 2 products and 6 products have got approval from Russian regulatory Authorities.
Development of your products: Fexofenadine, Quetiapine Fumarate, and Dextromethorphan which are Anti-Histamine, Anti-Psychotic, and Anti-Tussive respectively are completed and are under validation. When will these products be launched? What are market expectations from these products?
The APIs under validation are- Quetiapine Fumarate, Allopurinol, Irbesartan, Valsartan, Vildagliptin. These products will be launched in the Indian market within a year or so and in the regulated markets as the approvals from regulatory authorities and customers come in. Typically, it does take > 2 years to build any API business in regulated markets. We expect these products to further de-risk the API business from Ibuprofen.
IOL Chemicals and Pharmaceuticals has many APIs in its portfolio such as Metformin, Clopidogrel, Fenofibrate, Lamotrigine, Pantoprazole, Paracetamol etc. What are some other APIs that you are working on currently?
We have added new products to the API product portfolio this year as we aim for the non-Ibuprofen business to contribute 50% to the total pharma business. The Company has filed 4 new DMFs with USFDA in addition to 3 CEP applications with EDQM and has got approval from Korean FDA for 2 products and 6 products have got approval from Russian regulatory Authorities during the financial year 2021-22. We have successfully set up multi-product manufacturing facilities ‘Unit 10’ for manufacturing the new pharma APIs. The Company has identified to manufacture Fenofibrate, Lamotrigine, etc in this unit. Further, the Company also initiated the project for the installation of new manufacturing facilities (Unit-9) for manufacturing Gabapentin and other Pharma products during the year, which is under implementation.
What are the key challenges that you are facing at the moment with respect to the global and domestic markets? How are you planning to overcome them?
The volatile nature of changing global scenario, worsened by the Russia-Ukraine conflict has impacted the overall pharma industry. We had faced cost challenges on several fronts throughout last year. Strained supply chain networks across the world which increased the price levels of several commodities, freight fees, and transportation costs have raised the production cost. The Ukraine-Russia conflict which created uncertainty in global markets has led to a notable increase in energy prices.
We expect the energy and raw material price increases to be temporary and not structural. Meanwhile, we are passing along some cost increase to customers. Despite a challenging environment, we are confident that our strong business fundamentals will help us deliver a strong performance. Our business strategy of using both pharmaceutical and chemical segments as growth engines, our planned capital expenditure, and our strong product pipeline make us well-positioned to take advantage of upcoming opportunities and be on a high growth trajectory.
In April this year, you commenced the commercial production of ‘Paracetamol’. What has been your experience so far? Are you planning the same with other APIs?
IOL commenced the commercial production of ‘Paracetamol’ from 22 April 2022, with installed capacity of 1,800 MTPA along with backward integration of Para Amino Phenol (PAP). The product has received good traction in the Indian market and we are in the process of getting approvals for export markets too. We will increase the capacity further to 3600 MT/year likely by Q3. For other APIs, we will enhance capacity when the asset utilization of other API units goes > 90%.
IOL Chemicals and Pharmaceuticals is a key player in the API market. According to you, what is holding back India as against China despite a PLI scheme?
India is heavily dependent on other countries for active pharmaceutical ingredients (API) and other intermediates. We are aware that almost 70-80% of the APIs are imported from China. We at IOL are thus working continuously to fill up this gap in the Indian pharma industry.
In the domain of APIs and related DIs and KSMs, the PLI Scheme in the Indian pharmaceuticals industry has been a significant step towards boosting domestic manufacturing and reducing import dependence. However, there are also certain challenges being faced by pharmaceutical companies in regards to reducing dependence on China. One of the reasons for the sector’s lukewarm response is that for some of the products covered under this scheme the import dependence is already quite low. Also, the cost of domestic production of these APIs becomes many times more than that of the cost of imports.
The global Ibuprofen market was valued at USD 400 million in 2020 and is expected to reach USD 475 million by the end of 2027, growing at a CAGR of 2.7% during 2021-2027. India is the second largest supplier of Ibuprofen, enjoying a production market share of nearly 50%. How do you see retaining your hold and still broadening your product footprint?
IOL presently has a huge manufacturing capacity for Ibuprofen along with backward integration. We manufacture all intermediates and key starting materials (KSM) for Ibuprofen. To keep our market position intact we have been constantly adding value to our flagship product – Ibuprofen, and have been manufacturing several derivatives for fully backward integration in one place. Our Ibuprofen Portfolio covers Ibuprofen, Ibuprofen Lysinate, Ibuprofen Sodium and Dex-Ibuprofen.
The USP of IOL is the ability to manage the scale of making quality products. We started as a specialty chemical manufacturer and it still runs as our base. Because of this, we have always been a top-quality producer for any large APIs. IOL has believed in manufacturing few products but at world-class scale, quality, and with as much backward integration as possible. We are a large volume player and can efficiently handle the complexity of supply chain management. As such, our other API products will also be manufactured with the same philosophy and focus. We have set up separate units for producing other APIs which can be managed well with even huge scale requirement.
What are the key specialty chemical products that you are planning to focus on?
The key speciality chemicals products of IOL at present are- Ethyl Acetate, Acetyl Chloride, Mono Chloro Acetic Acid, Iso-Butyl Benzene. As one of largest manufacturers of Ethyl Acetate, going forward, we have strengthen position in the ‘green solvent’ market by increasing its capacity by 20% to 120,000 MTPA from 100,000 MTPA recently. Ethyl Acetate is widely used in Printing & Packing Industry, Adhesives, Agrochemicals & Pesticides industry, pharmaceuticals industry and cosmetics industry.
We plan to focus on specialty chemicals products that leverage our technical and or supply chain capabilities with a focus on customers with whom we have existing relationships.
You are also planning to set up a new plant. What will be its impact on your current business? What are the locations that you will be focusing on for new plants in the coming years?
IOL has plans to increase its penetration in western markets of India where we are also coming up with a new plant that will produce both specialty chemicals and pharmaceuticals intermediates. The company is investing Rs. 300cr in this project which is expected to be completed in 18-24 months. Through this plant, IOL plans to increase its market share in the domestic market as well as cater to international customers. At maturity, we expect this plant to deliver > 1000 Cr of revenue
Anything else that you would like to add?
The API sector is growing at a rapid pace. To continue our growth trajectory, we have made considerable investments in the research and development of new APIs in several therapeutic categories, which we have launched in the market. We have successfully launched six molecules in the market in a short period of time, starting with pilot phase development and scaling up in large quantities to commercial manufacturing. All of the recently released and marketed medicines are generic APIs with high growth potential in the pharmaceutical industry.
Despite a challenging environment, we are confident that our strong business fundamentals will help us deliver a strong performance in our revenues and EBITDA next year. Indian pharmaceuticals and chemical companies are getting increased outsourcing opportunities, fueled by the China+1 strategy. We also think that the increasing domestic needs that are unmet due to the supply chain disruption owing to the disturbed geographical scenario can be efficiently met by domestic producers like us.
We have a strong technology focus and have increased our R&D spend. The company has filed 3 patents in the previous financial year and will continue to develop proprietary technologies.