While European producers of active pharmaceutical ingredients (APIs) will see their share of the global market fall in the next few years, Asian markets are growing at phenomenal rates, with India set to supplant Italy as the second largest API manufacturer on a worldwide scale by 2010, according a new report.
The study by Italy's >Chemical Pharmaceutical Generic Association (CPA) has found the fastest growth rates for the merchant API market over the next five years are expected in Asia/Pacific, with an average yearly increase of 13.7 per cent in global demand.
India in particular is well positioned, thanks to low labour and environmental costs, the size and dynamism of its economy, and incentives provided by the Indian government, not only to further squeeze the profits of European producers, but in the long term even threaten the dominance of China as top API producer.
With sales of $2bn (€1.56bn) in 2005, the Indian API manufacturing industry is the third largest in the world and is expected to make sales of $4.8bn by 2010, an average yearly growth rate of 19.3 per cent.
Italy, on the other hand, is in stagnation, with API sales of $3.2bn in 2005 projected to barely rise to $3.3bn by 2010.
Based on this, China should have no cause of concern, since its API companies made sales of $4.4bn in 2005 and are expected to bring in $9.9bn by 2010, an impressive annual increase of 17.6 per cent.
But the CPA report warns that India is poised to eventually emerge on top of global competition, pointing to its high - the highest in the world in fact - growth rates of API export sales, especially toward highly regulated markets like the US.
Whereas Indian API manufacturers expect their sales to foreign countries, and especially regulated markets, will increase faster than sales to the domestic market, Chinese API manufacturers expect that sales onto the Chinese market will increase faster than export sales.
This underlines a trend in Chinese chemical synthesis abilities towards lower-tech generic API producers in comparison with Indian companies who have a rapidly improving skilled basis for new drug discovery.
Thus, Chinese pharmaceutical companies, both private and state-owned, are traditionally oriented to non-innovative products which are popular domestically, so the Chinese pharmaceutical industry is among the less innovative in the world, the report claims.
Furthermore, Chinese API manufacturers are less organised than their Indian competitors for supplying documentation to the client for drug master files (DMFs), good manufacturing practice (GMP) compliance and so on.
It is therefore no coincidence that India is the top country in DMF submissions and has the largest number of US Food and Drug Administration (FDA) approved plants on a worldwide scale.
The report also found that Chinese API manufacturers are less marketing oriented in terms of presentation of their product portfolios, as well as in terms of organisation of the sales network on a worldwide scale.
Even in the area of intellectual property rights, where the record of both countries is poor, India appears to fare better in terms of the confidence it inspires in foreign investors.
Nevertheless, the fierce duel between India and China in APIs is of little consolation to European manufacturers who see the two countries holding a market share of approximately 57 per cent in the Western European generic API market, destined to rise to approximately 67 per cent by 2010.
"The cost of energy is very high in Europe and labour costs are much more expensive here than in Asia," Alberto Mangia, president of CPA and CEO of Poli Industria Chimica, told In-PharmaTechnologist.com.
"Global competition in APIs is hard but European companies can compete by focusing on the field of innovation of technology."
Indeed, it is hard to see how Europe can compete with Asia just by stringent cost cutting; the average wage of an employee working in a typical API manufacturer in the EU is ten times more than in China and India, environmental costs are much higher, while building a manufacturing plant complying with international regulatory issues in Asian countries typically costs a 25 to 30 per cent of the amount needed in Western Europe.
Still, there is great scope in increasing productivity in Europe, since, for generating $1m of revenues, a typical Italian API manufacturing company spends $178,500, that is 18 per cent of sales, whereas a typical Indian firm spends $71,450, just 7 per cent of sales.
The report therefore urges European manufacturers to seek innovative and cost effective production processes and also invest in environmental techniques which save money in the long term.
In the mean time, although the world demand for APIs is forecast to increase at an average yearly rate of 8.2 per cent over the next five years, reaching a value of $46bn by 2010, most European API producers seem destined to playing catch-up with their Asian competitors.