Have CMOs dealing with active pharmaceutical ingredients (APIs) come to prove that manufacturing done by a third party is a time cost-effective and a better option than doing the production in-house? This may ring true, at least for multinational companies (MNCs) having a base in India.

GlaxoSmithKline’s recent act of shutting down an API facility in Mumbai is a case in point. In August, the British pharma shuttered a 50-year-old factory located in the suburbs and offered voluntary retirement for the 330-strong staff. The reason cited for the closure of the betamethasone plant was mounting operational costs. Announcing the company’s intention to outsource the steroid, GSK contended that the API can be obtained at desirable prices from contract manufacturers in India.

Cost factor, apparently, is also the driving force behind Hospira’s move this August to buy out the API business from Orchid Pharma. The generic injectable maker from U.S., which had acquired Orchid’s finished dosages division in 2010, paid nearly $200 million for the facility and an associated R&D center. Apart from lowering costs, Hospira expects the integration of the factory ensure uninterrupted supply of penems and penicillins.

In a related development, Sandoz closed its API facility near Mumbai, recently. Novartis, Sandoz’ parent company, later clarified that the closure of the unit was part of a project portfolio optimization within Sandoz Global Development. The Swiss generic firm will combine API development activities from India with centers in Europe to focus on its formulation business.

Focus Shifting to Quality
With generics coming center-stage in the pharma marketplace, the rules of the game have also changed. Generics are the cost-effective alternatives for the usually expensive patented drugs; pricing forms the survival strategy for any generic. Usually, for a generic drug it works this way: the lower the price, the better it fares in the market. 

The rising popularity of generics and the proliferation of the medicines of not-so-standard quality in the global markets, however, have forced regulators keep a vigilant eye on these low-cost products supplied. Several agencies have already brought in tighter norms for monitoring generics.

Caught between stringent quality standards on the one hand and the threat of diminishing margins on the other, the generic players must look for non-customary ways, and the making of APIs — the backbone of any formulation — is considered a “non core activity” by many drugmakers.

As third-party service providers, CMOs from India can fit the bill on three major counts upfront: quality-assured APIs, competent prices and unceasing, reliable supply. Similar to the business that got acquired by Hospira, Indian firms own more than 100 manufacturing facilities that have passed the quality standards set by FDA (U.S.), MHRA (UK) and other leading regulatory agencies.

“Large Indian companies shifted focus to quality, by investing in quality manufacturing. With over 175 FDA approved and 90 MHRA approved manufacturing plants, India is far ahead of China, with regard to quality certified plants,” said Prof. O.R.S. Rao, director of Cygnus Research, a business consulting and research firm based in Hyderabad, southern India.

DMFs Lead the Charge
If quality of the product is guaranteed and the price is really handsome, then there can be no reason to hold back. If still some concerns on the supply aspect lurk, then some MNCs buy an entire facility out. Purchasing an FDA-approved factory, even paying a premium price, may amount to far less a cost than what it takes to build the same in a leading market.

The deals forged by GSK and Hospira seem to align with this view. Hospira, perhaps, went one step further in acquiring Orchid’s unit engaged in the R&D of cost-effective manufacturing technologies.

Competency in the know-how of low cost production notwithstanding, there has been a lingering concern on the quality of APIs sourced from India. The increasing number of facilities sporting approval stamps from world’s leading regulators is gradually putting these fears aside.
Indian firms have been successfully filing a record number of DMFs in the recent years. As per the estimates, they submitted more than 400 DMFs with the FDA in 2011.

“Indian API companies also increased investments in R&D, particularly in process chemistry. Today, India is the world leader in filing DMFs. More than 31% of all DMFs filed with FDA are from Indian companies,” added Prof. Rao, who is also vice chancellor, Institute of Chartered Financial Analysts of India University, in the northern state of Jharkhand.

Currently estimated to be around $4.6 billion (2011-12), the Indian CMO market is growing at CAGR of more than 48% in the last five years. CMOs constitute more than half of the estimated $9.3 billion of API exports from India during 2011-12, according to Prof. Rao. Adding up the numbers, Indian CMOs continue their expansion spree at home and abroad.