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Frontier markets offer major opportunities for API manufacturers

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Jamie Davies

CPhI Worldwide 2013 highlighted several key trends impacting the global API industry, specifically currency fluctuations, frontier markets, biosimilars and, perhaps most importantly, ensuring quality manufacturing. Currency fluctuations are generally underappreciated by multinational API companies and their investors. These firms historically focused on few countries, mainly developed states, and domestic revenue accounted for a higher proportion of their overall sales. Due to the rise of emerging markets, drugmakers are increasingly entering non-traditional markets. These countries often have volatile currencies, which can dramatically affect the level of repatriated revenue from year-to-year and quarter-to-quarter. The dramatic weakening of the rupee in mid-2013 has significantly affected Indian API firms. Imports of raw materials are more costly, while revenue earned abroad is higher.

Frontier markets offer major opportunities for API manufacturers. Sales will be low initially and losses are possible for several years. However, those firms that aggressively penetrate frontier markets before competitors and maintain market share will see significant returns over the long term. Indian companies have expanded significantly in frontier markets, but competition is increasing.

API firms based in emerging markets will increasingly produce hard-to-manufacture pharmaceuticals. Firms in developing countries enjoy low operating costs, but have traditionally lacked the expertise and equipment to make advanced therapeutics such as biosimilars. As economies in these non-traditional markets grow, capital will be released for the establishment of modern production facilities, with output destined for both domestic consumption and export. Indian companies need to invest further to compete in the biosimilar sector.

Ensuring quality manufacturing standards is one of the fundamental responsibilities of API companies. Although costs will rise, we believe it is necessary for firms, agencies and payers to work collectively and increase dialogue to ensure compliance to Good Manufacturing Practice (GMP) within the increasingly globalised pharma market. There needs to be a cohesive top-down and bottom-up approach to guarantee public safety and trust in the industry. Indian firms are under intense scrutiny to improve standards and regain reputation.

Jamie Davies, Head of Pharmaceuticals, Medical Devices & Healthcare, Business Monitor International

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