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Demand for Generic APIs is on the Rise – but Differentiation Matters

NL-stock1There have been a number of articles recently pointing to growth in the API industry, and it’s something I’ve discussed as well – most recently in a post on the growing complex chemistry involved in API production. That post focused more on trends in custom API design, in which increased API manufacturing complexity is providing CMOs with ways to differentiate their services.

The generic API industry is undergoing a similar shift towards differentiation – and away (in some cases) from commoditization. Generic APIs are – far and away – the mainstay of the contract manufacturing industry, especially in BRIC countries where domestic demand for generic drugs continues to grow. Historically, generics have been only seen as cost-driven commodities, leaving most CMOs to compete on the basis of price.

The rise of niche chemistry, the increasing complexity of operating under multiple regulatory frameworks and pharma’s increasing reliance on API suppliers since shuttering many U.S. and EU-based API facilities are contributing to the erosion of traditional supply chain relationships.

There are some key areas in which companies in the generic API market tend to differentiate themselves, and much of the growth and positioning in the coming years in the space will undoubtedly reflect companies who are successful in communicating their advantages.

Here are four differentiation trends we’ve seen in the generic API industry:

  • Depth of Capabilities
    The traditional ‘APIs are supply chain/sourcing matters’ mentality is undergoing a monumental shift as the chemistry grows more complex and highly-specific capabilities & expertise are in demand.  Bulk API manufacturers (including Neuland) are ramping up efforts with route design & scouting capabilities, proficiency & infrastructure to manage high-potency APIs (HPAPIs), peptide capabilities and much more. All of these emerging techniques and technologies are creating a value-add industry, in which API producers are moving up the supply chain and playing much more prominent roles.
  • Breadth of Markets
    Markets are growing – not just in size, but in scope. Science that was inconceivable thirty years ago (‘omics, personalized medicine and gene therapy – all come to mind) are now at least a part of our scientific lexicon, if not therapeutic practice. This is true of pharma – and the life sciences as a whole – and it is also true of the active pharma ingredient industry where tremendous advances in technologies, techniques, and general life sciences knowledge are shifting away from API commoditization as opportunities expand and niche expertise becomes a necessity.On the globalization front, API suppliers are also expanding into new geographic markets – especially the Asia Pacific region. Moves such as these are being undertaken to diversify geographic portfolios and reduce the risk of western market cost pressures while maximizing emerging opportunities.
  • Process & Regulatory Adherence
    API companies will continue to differentiate themselves on the basis of regulatory and process competency and excellence. Today, most issues that arise don’t involve product quality but rather cGMP issues such as:

    • transparency of practices
    • strength of processes
    • quality of documentation
    • adherence to specific controls in order to avoid U.S. FDA warningsCMOs have long stressed their performance and track record in regulatory environs (Neuland is no exception). Pharma has come to recognize that contract manufacturers – who by their very nature may have projects subject to a variety of different regulatory regimes – have regulatory expertise they lack.

Business Efficiencies

Companies that operate efficiently tend to build dominant market positions. This should come as no surprise to anyone who has ever been employed, but – and this is surprising – it’s a lesson that’s often overlooked in the pharma corporate suite where ‘efficiencies’ are frequently cherry-picked based on ease of implementation and cost.

Efficiencies impact not only cost of a generic API, but also time-to-market. Efficient, well-developed CMO processes – combined with the proper allocation of finite resources – can help pharma clients move products to market in a timely fashion. Efficiency-focused organizations tend to also communicate better. And as the line between strategic supplier and strategic partner becomes blurred, pharma companies are increasingly demanding more communicative and sharing relationships.

What do you see as today’s core differentiators in the API space?

 

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