Active pharmaceutical ingredient (API) manufacturers in Europe are struggling to differentiate their capabilities and compete in an outsourcing market suffering from overcapacity, diminishing profitability and threats from Asia.
In order to survive in this tough climate, service providers must take the bull by the horns and differentiate themselves, finding a corner of the market in which to shine and focusing on strengthening customer relationships.
European API manufacturers are currently facing their biggest challenge from low-cost manufacturers in Asia, threatened by continuous price reductions of APIs and other basic chemicals, as well as significantly lower production costs.
While current capabilities allow Asian manufacturers to target only the generic sector, they are expected to be able to soon win over pharma customers in the West as their manufacturing capacity develops, according to a recent report by market analysts Frost & Sullivan.
This trend is already evident, with large pharma companies now sourcing an increasing number of advanced intermediates from Asia, particularly India and China, and the author of the report, Himanshu Parmar, believes the new challenge will impact the European market over the next three to four years.
This is happening in a European market place that is already bursting at the seams, full of players with similar production capabilities, technology portfolios, and equally efficient chemical processes.
"Given that they use common multi-purpose kits to cater to numerous and varied customer requests, there is little scope for differentiation in terms of capability and services offered," said Parmar.
Overcapacity is another significant problem affecting the European market, with the outsourcing of API manufacturing having been reduced considerably due to the lack of new drugs coming through pharma pipelines and the unexpected high-profile failures of several late-stage drugs, said the report, titled "The European Active Pharmaceutical Ingredients Market and Outsourcing Trends."
Many current Good Manufacturing Practice (cGMP) manufacturers who made huge investments in anticipation of strong growth in the custom manufacturing business are now suffering.
In the face of these challenges, European suppliers need to evaluate new growth opportunities in niche segments and in biopharmaceuticals as a way of breathing new life into their businesses. Many are already going down this path, said the report.
"Small suppliers that have good technological capabilities are expected to benefit from niche market applications such as those for high potency APIs," said Parmar.
"With greater focus on R&D, the industry can look forward to the introduction of new products that are of better quality, cheaper and more suited to customer needs," he said.
In addition to capturing niche areas, API manufacturers that enhance their production capabilities and improve their service portfolios will achieve a sustainable competitive advantage, said Parmar.
"Manufacturers must also now concentrate on building strong relationship with their pharmaceutical customers in order to secure steady business from them," he said.