Published on 5/05/2017 4:26:16 PM | Source: Emkay Global Financial Services Ltd

Pharma Sector Update API expert meeting takeaways Industry in a structural upswing - Emkay

Posted in Broking Firm Views - Sector Report | #Pharma Sector #Emkay Global Financial Services Ltd. #Sector Report

API expert meeting takeaways – Industry in a structural upswing

Key highlights

* Chinese API industry facing a ‘double whammy‘ from much stronger environmental norms and escalating US FDA strictures

* Global API industry has seen significant consolidation past few years ~ the top 45 companies have merged to about 7 top names now

* Recovery in US FDA approval rate for Orphan drugs (NCEs) has also helped revive API industry

* Globally the CRO space (Contract Research Organizations) has also seen significant consolidation past several years and many CROs now transitioning as API suppliers 


We met the head of the API business in India for one of the largest global generic companies, the following are the key takeaways

Global API business seeing a renaissance of sorts:

The global API (Active Pharmaceutical Ingredient) business is seeing a revival given a combination of various industry factors including -: 1) Chinese API makers under increasing regulatory pressure on environmental grounds. While this is not significantly impeding existing units, greenfield units not emerging at the same pace as earlier, due to new ‘green norms’ 2) Chinese API makers are also under increasing US FDA scrutiny with a large number of FDA approved units falling foul of the compliance norms (Exhibit 1) 3) Globally the API industry has seen significant M&A in the past 15 years and hence as a result the industry is structurally far less fragmented than it has been historically. The top 45 API companies have merged to form about 7 companies over a period of 15 years (Exhibit 2). 4) As per the expert, the Indian API industry has also seen significant shakeout which is perhaps less visible than the global API M&A. As a result of the remaining c250 API units, the serious players would be less than 50 with many of the others serving as ancillary to the bigger players. 5) Global API is also seeing a revival-of-sorts due to increase in number of orphan NCEs (New Chemical Entities) approved by the US FDA (Exhibit 3), as a result API companies are developing sustainable revenue streams and lastly 6). New genre of API companies emerging which are CRO companies transitioning to specialty API makers. The CRO space itself has seen significant consolidation (Exhibit 4) which coupled with the recent year’s boom in Orphan drug approvals has given the industry strong tailwinds. In India we have started seeing similar trends with Dishman Pharma (DISH) & Neuland laboratories (NLL) beneficiaries of supplies to small molecule NCEs which have just been commercialized while Syngene International (SYNG) is now transitioning from largely a CRO to a API supplier as well. 


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