Active pharmaceutical ingredients focus helps drug firms offset slowdown

Major drug firms in India have posted robust growth in their active pharmaceutical ingredients (API) business in 2018-19, as supply disruptions in the international market helped them gain share. 

Analysts say that with the prices of API or bulk drugs going up, the segment’s revenues have seen a rise. 

Growth in the API business has also partly offset slowdown in the domestic business. 

Sun Pharmaceutical Industries, for example, has posted a 24 per cent year-on-year (YoY) jump in its API business in 2018-19 to Rs 1,730 crore, against 8.5 per cent dip in revenues from the domestic formulations business. The firm said the key growth drivers include new contracts, better realisations and a favourable foreign exchange rate. 

Sun Pharma, which has 14 API manufacturing units, started producing bulk drugs since 1995 to strengthen backward integration.

Besides captive consumption, the company also supplies APIs to external customers across international markets. 

Edelweiss analyst Deepak Malik noted, “Most pharma firms have seen good growth in their API business in FY19. This is because of multiple factors. The prices of APIs in the international market went up after supply disruptions in China. This has boosted revenues from the API business. Also, with the US-China trade war, many companies are also looking at diversifying their source of bulk drugs, and this is helping Indian players.” 

Several Chinese API units were shut down last year after a crackdown on polluting industries, which spiked the prices of APIs in the international market. Moreover, around July, the US Food and Drug Administration (USFDA) notified health care professionals about a voluntary recall of several drug products containing active ingredient valsartan, a hypertension drug. The recall was due to an impurity. 

The USFDA also placed primary Chinese supplier Zhejiang Huahai Pharmaceutical on import alert. The European Medicines Agency also withdrew authorisation for the Chinese valsartan product maker. This led to global formulation makers scouting for the valsaratan API from alternative sources. 

Another leading Indian drug firm Lupin registered a 23.2 per cent YoY growth in the API business, which contributes 8 per cent of its overall revenues. In comparison, the emerging markets contribute around 10 per cent of the revenues. “We witnessed a resurgence of our API business with growth of 23.2 per cent and sales of Rs 13,46.4 crore,” Lupin’s managing director Nilesh Gupta said in its FY19 annual report. Lupin supplies APIs to over 50 countries. 

Dr Reddy’s Laboratories (DRL), which is one of the largest manufacturers of API globally, has partnered several leading generic formulation makers across the world to bring their molecules first to the market. DRL posted a 10 per cent growth on a high base to Rs 2,400 crore in 2018-19 in its API business. 

“During FY19, we launched our advanced B2B customer service portal called ‘XCEED’, which is expected to increase the operational efficiency of our partners by enabling them to transact online and access real time information about their business and products with us,” DRL noted in its annual report.

It added that it wants to leverage its relationship with its key customers by supplying materials that have value addition over being ‘plain-vanila’ APIs. 

Cadila Healthcare posted a 16 per cent growth in its API business to Rs 424.5 crore. During the year, it filed 10 drug master files (DMFs) with the US drug regulator for APIs, taking the cumulative US DMF filings to 143. 

Vadodara-based Alembic Pharma saw 18 per cent YoY rise in its API business. To meet the rising demand, it has enhanced its effective capacity from 400 tonnes to 800 tonnes by spending Rs 300 crore  over the past two years. 

The domestic market, on the other hand, has been witnessing a slowdown off late, in terms of volumes. In the January to March quarter, the domestic market saw a meagre 0.1 per cent growth in volumes.

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