APIs: high-volume business with low profit margins, says analyst

Looking forward to 2020, the report, published by Persistence Market Research​, predicts the global API market to reach $185bn, with North America remaining the largest market – currently representing a revenue share of 35%.

Asia Pacific is the second-largest market due to its low cost production facilities and population, which is largely geriatric. In generally, a growing geriatric population globally is driving API demand, in addition to an increasing number of lifestyle related diseases.

Specifically, cardiovascular drugs are the largest segment – with a revenue share of 24% in 2015; however, oncology is expected to see the highest year-over-year growth in 2016 over 2015.

“Bulk manufacturing of the APIs has now become high-volume business with a very low profit margin​,” Sakshi Goel, Senior Consultant at Persistence Market Research, told us. “Usually the API manufacturing companies earn less than 10% profit margin, however several companies in Asia, particularly in China and India operate on 3% profit margin​.”

Demand for low cost medicines and increasing number of ANDA filings are fueling growth of the global active pharmaceutical ingredients market.

Demand is particularity high in low- and middle-income countries in the Asia Pacific, Africa and Latin America. “This increased demand fueled the surge of API manufacturers, as pharmaceutical drug manufacturers do not have enough in-house capacity to meet the enormous market demand​,” said Goel.

With this increased demand, several API manufacturers have come under scrutiny​ lately for quality systems and data issues. As In-PharmaTechnologist.com previously reported​, drug inspections in China have been increasing as the agency has made a concerted effect to increase its presence in the country.

Consequently, as more companies have begun to bring API capabilities in-house in order to better manage quality and techniques as they pertain to niche APIs, the market size for in-house manufacturing is estimated to be almost double the size of the API contract manufacturing market during 2016.

“The captive or in-house API manufacturing segment, once dominated by Europe, is steadily shifting toward Asia Pacific where low cost of manufacturing as well as demand from generic manufacturers is huge​,” added Goel.

Currently, more than 70% of the APIs available in the market constitute synthetic chemical APIs; “Although the top-selling drugs constitute biologics, the number of these drugs is quite small as compared to the small molecule drugs​,” said Goel.

However, while the synthetic chemical API segment accounted for a higher market revenue share in 2015, biological API is expected see a higher year-over-year growth in 2016. “Furthermore, major pharmaceutical companies are preferring biological API segment​,” explained Goel.

Additionally, the overall drug development costs for biologics is less as compared to chemical APIs, “primarily because of low failure rates in the pipeline phase​,” said Goel. “This factor has attracted higher investments in the biologics and biosimilars market​.”