API and Peptides : A Chinese Monopoly ?
APIs and China Play-
On an average, prices of APIs imported from China have gone up by 20-30% from
January 2020 till date thus leading to 4-5% decline in profit margin of drug
makers, said a drug industry representative. API Mkt –55bn$ in 2020
The prices of anti-infective APIs such as tinidazole, amoxicillin, ceftriaxone,
clav avicel, diclofenac sodium, ofloxacin, clav syloid, clotrimazole,
ciprofloxacin as well as anti-inflammatory API-dexamethasone sodium have hiked
by 24% to 38% from January to April this year. The prices of erythromycin
thiocyanate which is the raw material for preparing erythromycin derivative
products, such as azithromycin, clarithromycin and roxithromycin have spiked by
20% from pre-COVID period till now.
Besides them, the prices of four APIs-- paracetamol, ornidazole, azithromycin
and nimesulide have risen from 62% to 189% from January to April. The price of
paracetamol has increased from Rs. 262 a kg in January to Rs. 425 per kg in
April. Para amino phenol (PAP) used as a key starting material for
manufacturing paracetamol has also witnessed 27% rise in prices.
If there are more than three producers
then it is difficult to cartelize within China and whenever Indian producers
start thinking to produce that product they want to make money for the next two
years because Indian companies will start making, they will take two years to
produce that product, so they typically I said those products like PAP, Para
aminophenol or CBA the price has almost doubled than last year. So there are
many other products and they want to make very fast money and then once the
Indian companies are producing they want to dump, that is the strategy that is
what we see now
It depends on the chemistry.
Fermentation, India is not at all there in Fermentation technology and some of
the products formulation depending on the chemistries, so China is ruling the
world actually speaking. So those chemistry, formulations and all India will
take 4 to 5 years more to come, the Indian company to start, government giving
permission and all that. So gradually, for the next 10 years for the chemical
industry and many multinational companies across the world want an alternative
to China. So definitely the Indian companies eventually will come out with more
and more visions.
The demand for pain reliever and fever
reducer paracetamol has gone up across the globe since the outbreak of
coronavirus. A supply shortage combined with rising demand has led to steep
rise in prices of paracetamol and its key starting material- PAP. There is a
huge shortage of paracetamol in Europe due to rise in demand amid COVID-19
pandemic.
Indian drug makers heavily rely on China for supply of PAP. There are a couple
of PAP manufacturers in the country but they are hardly able to meet demand of
drug manufacturers due to capacity constraints.
Besides APIs, isopropyl alcohol (IPA) used in hand sanitizer and as a solvent
in pharmaceutical manufacturing has also witnessed cent per cent rise in
prices. Despite 100 per cent increase in prices, IPA imported from China has
seen 10-15% rise in its import prices. It is learnt that 20,000 to 30,000
tonnes of IPA are used by Indian drug manufacturers per month.
Air freight charges have gone up from US$ 2 a kg to US$ 5- 6 per kg amid
COVID-19 pandemic. The average cost of shipping a container from China to India
has also increased from US$ 750 to US$ 1,200-1,300.
The prices of certain Chinese APIs have gone up by 20-30% from January to till
date as the production cost of Chinese manufacturers has increased due to
implementation of safety and hygiene measures post lockdown.
On 23 January 2020, China imposed a lockdown in Wuhan and other cities in Hubei
in an effort to prevent the spread of coronavirus. After nearly three months of
grim battle against the coronavirus since January, economic activity in China
is back to normal. The APIs and KSMs started arriving in India from China by
early March.
Sudarshan Jain, secretary general, Indian Pharmaceutical Alliance, said “On an
average 20% rise in prices of Chinese APIs is affecting the financial viability
of many of the formulations.”
Jain said the rise in API prices is attributed to a host of factors such as
spike in logistics cost coupled with hike in manufacturing cost of Chinese
units because of implementation of employees’ safety measures amid coronavirus
pandemic and short supply of APIs. API supply is relatively less as a number of
manufacturing units are not operating at full capacity due to shortage of
manpower and raw materials, he stated.
Let us understand this with Granules case study,
How China dents margin of Granules?
Overview of the company -
GRANULES-API-Formulation-Final
Dosage (major chunk from PFI & FD)
Focus on volume based products such
as Paracetamol, Metformin HCl, Ibuprofen, Guaifenesin, Methocarbamol
and newly added Losartan, Cetrizine and Fexofenadine
P/S—2.5x
P/E—15 i.e. valued relatively cheap by market.
QoQ drop in income from operations and
profits was mainly on account of reduction in Paracetamol due to KSM shortage.
Situation likely to improve Q2FY22 onwards
Better realisations across our
existing molecules contributed to the increase in gross margins (57%)and new
launches.
EBITDA Margin improvement was mainly
on account of higher sales and volumes over a lower base of previous year. The
low base of the previous year was due to lockdowns and export ban of
Paracetamol.
Insights on Paracetamol
“PAP(Paraamino Phenol) is a chemical which is made from PNCB (ParanitrochloroBenzene). Aarti industries and Valiant Org are working on the API to make low cost production in India. So there are a lot of people who are integrated into PNCB. So they start with chlorobenzene and then they make PNCB. And when you make PNCB, you get on ONCB. It is a downstream product in ONCB. So just a individual company making PAP from bought-out PNCB cannot be competitive as they go by."
"If we want to be integrated in PAP, we need to have a different
technology, which we have where we start from nitrobenzene, we don't get any
byproducts. But however, the cost of the plant -- the scale has to be very high
and also the cost of that plant is going to be very high. So we were
encouraging other partners to start production for us, and we were in the
process of discussing buybacks with them. And a few people have -- it's in
advanced stages. So we will be partnering with people rather than integrating
backwards. It's a chemical, and we want to be competitive and use our cash
judiciously rather than going into backward integration just for the sake of
that. We know we are going to be secure in the future--Going to get some from
Indian capacities .”
Not priced at around 400/kg---Come
down to normal prices 200-250/kg by Q4 and hence boost up margins of
Formulations business and deflate the PAP and PNCB players margin
By 2022, it is likely to reach US$1.04
bn. Meanwhile, the global para-aminophenol (PAP) market is expected to rise
from US$0.45 bn in 2014 to US$0.70 bn by the end of 2022
From this case study we can infer the dependence India and the whole world has on Chinese API manufacturers. With PLI scheme and China+1 trend, India can take advantage and build resilient supply chain to cater the world.
Overview of
Peptides Market
There are currently more than 60
peptide based products in the market. These drugs, in particular, are one of
the earliest groups of biologics and have shown a great promise in the
treatment of a wide range of metabolic and oncological disorders. Peptide drugs
are in high demand due to their demonstrated pharmacological value and high
therapeutic profiles. Such efforts in this field, combined with the increasing
clinical and preclinical pipeline of therapeutic peptides, are expected to
further boost overall demand for peptide APIs.
Examples of popular, marketed
therapeutic peptides include Victoza, Lupron Depot, Zoladex, Sandostatin and
Somatuline.
Further, according to experts, more
than 600 pharmacological leads based on peptides are currently being
investigated across various phases of development.
Owing to their proven pharmacological value and favorable safety profiles, the demand for
peptide drugs is on the rise. As a result, there is an increasing interest in
manufacturing solutions for large quantities of such molecules, often requiring
complex manipulations of long macromolecular structures, chemical
modifications and thorough purification, for both clinical and basic research
applications.
The peptide API market is
expected to be consolidated in order to meet increasing industry demand
and growing number of clinical peptides in production. Key players
in this segment include Bachem, Corden, Ambiopharma and Polypeptide,
all of whom have made significant investments.
Large CMO players are investing in
infrastructure, R&D, strategically positioning their
facility (near a raw material supply market), and novel manufacturing methods
to boost their capabilities.The demand for conjugated peptides (lipidations, PEG, and glycosylation) is increasing, resulting in increased drug
bioavailability. As a result, pharmaceutical firms are looking for CMOs that
have expertise in this field. Targeted synthesis of specifically glycosylated
proteins and peptides is also becoming more common, and CMOs who can handle it
are in high demand.
Despite the fact that the
current market is oligopolistic, new suppliers are emerging in Asia, such as
Aurobindo Pharma especially in the United States, Europe, and Japan. It is also
notable that Asia is expected to be the fastest growing region in the peptide
API space in another five years.
In terms of technology, new
technologies have been on the rise by peptide CMOs to increase yield, lower
production costs, and improve drug delivery. Currently, peptides are
manufactured primarily using SPSS, LPSS, and mixed phase synthesis by CMOs.
Recombinant DNA technology
is now competing with such chemical synthesis. In addition, Sosei
has developed a new technology called Molecular Hiving, which lowers API
manufacturing costs to a tenth of what they are now (SPSS and LPSS).
Fermentation and recombinant are also new methods but still have few drawbacks.
Global peptides
API market scenario
The global peptides API market was
estimated to be worth US$17.6 billion in 2020 and is expected to grow at a CAGR
of 10% from 2021 to 2026 to reach US$34.5 billion by 2026. During the historic
period, the peptides API market showed a CAGR of 27% and it is expected to
further grow in future due to its proven effectiveness in treatment of a wide
range of metabolic and oncological disorders.
More manufacturers will add peptide
products as CMO capabilities improve and more dosage types become available on
the market. Currently, the three most popular clinical fields where peptide
APIs is used are oncology, diabetes, and obesity. They are also in high demand
for antibiotics, vaccines and for treating respiratory, renal, and other
diseases.
Currently, injection is used to
administer more than 80% of approved peptide drugs. Oral and other forms of
distribution are becoming more common. Approximately 9% of the
peptide can now be taken orally, and manufacturers are working with
pharmaceutical companies to improve this percentage. Nasal delivery of peptide
drugs is another choice. Other methods, such as sublingual and transdermal
dosage types, are still in the research and development stage.
Glenmark -DRHP
Threats :
1)Inflation pressure
2)Overdependence on China
3)Supply chain disruptions
Opportunities :
1)China + 1
2)Outsourcing by American and European
countries
