Indian APIs appear to be among those few businesses that see a silver lining even as downturn fears cloud over the horizons of every other industry across the economies. Perhaps the API players have their own reasons to be optimistic in this season of apprehension and uncertainty.

Exporters of APIs expect a three-fold growth in trade in the next three to four years, despite the figures on India’s overall export growth touching a five-year low in the recent months. A new report from Tata Strategic Management Group says API exports could reach $12.75 billion by 2012 leveraging the pro-generic policies in the U.S., Europe and Japanese markets. The figure was $3.75 billion in financial year 2007, according to Crisinfac, a credit rating info services firm.

India’s share of API supply to innovator companies will more than double – to 15% from the current 7% – by 2012. Similarly, API exports to regulated markets could rise to 65% during this period. At present, 54% of the total API exports goes to other developing markets. Foreign companies’ rising confidence in India’s efforts to safeguard patents, improving regulations and technical prowess is supposedly working behind the trend.

Cheaper Know-How

API makers from India hold forth that quality and lower costs are their forte. “Cost and quality rule the business,” said Venkat Jasti, vice-chairman and chief executive officer of Suven Life Sciences, a south Indian CRAMS (Contract Research And Manufacturing Services) company which designs and manufactures APIs.

Made-in-India APIs are probably the cheapest in the world, Mr. Jasti pointed out. Greater volumes and economies of scale and, above all, low-cost technologies, enable the API makers to sell out their products at a far lower price in a fiercely competitive market.

The highest number of cGMP manufacturing facilities in the country approved by the rather stringent U.S. FDA are often shown as testimonies of quality standards. And drug makers here claim for nearly half of the total DMFs filed with the U.S. drug regulator.

Indian firms boast of some unparalleled skills in technologies that enable even complex manufacturing processes in a highly economic way, thanks to its decades long tryst with reverse engineering of drugs’ chemical know-how in the process patent (pre-2005) era.

Shasun Chemicals, for instance, claims to be holding 62 such patents for manufacturing technologies. Merck Inc, in February 2008, entered a pact with this Chennai-based drug maker for licensing its cross-coupling copper technology for cheaper manufacturing.

Of late, Indian drug makers started building capacities for the more challenging and capital-intensive high potency APIs segments too. Around a dozen big and medium players – including Piramal Healthcare, Dr Reddy’s, Dabur Pharma (now part of the German drug major Fresenius Kabi), Hikal Ltd., Matrix Labs and Dishman – are reportedly in race to grab the high-value cytotoxics pie.

Generic Headwinds

The API industry expects its headwinds come from the booming generics markets. Generics now account for 63.7% of the total U.S. pharmaceutical market volume. Sales in generic products rose to double-digit growth in Japan, France, Italy and Spain in the 12 months through the September 2008, shows a recent IMS Health report.

The $78 billion generic business will continue to expand with the shifting industry dynamics. Even more markets are likely to rely less and less on branded products and turn to generics as governments search for cost-effective options to reduce their mounting healthcare burdens. So those with low-cost manufacturing base and proven quality would drive volumes, the API makers contend.

Some API makers also looking at the prospects of more venture capital moving to emerging markets like India with growth stalling in major global markets. “Now with the global meltdown, the venture capitalists do not see the U.S. and European markets as attractive as they used to be. [Here, we see an opportunity] that these funds would find their way to India over a period of time,” hopes Smitesh Shah, chairman and managing director, Calyx Chemicals and Pharmaceuticals Ltd, Mumbai.

In that case, low-risk ventures like API manufacturing will be favored. Stricter market regulations and advances in corporate governance add to the confidence quotient of the investors, Mr. Shah added. Claiming to be the largest producer of pyrazinamide, Calyx custom manufactures and supplies antibiotics, antidiabetics, antihypertensives and psychotropic drugs.

Drug companies from India make more than 200 different APIs across almost all categories. They also do a lot of contract manufacturing for world’s top drug firms. Several highly specialized or new generation APIs are yet to be cheaply produced here, but these firms would prefer to believe it only as a matter of time. “The industry is equipped with the right sort of quality manpower and facilities. It is also well positioned in terms of capabilities and capacities to handle any technology challenge,” they contend.

S. Harachand is a pharmaceutical journalist based in Mumbai.