"Shadow" Contract Manufacturing Industry Increasing

By Kate Hammeke, Director of Marketing Intelligence, Nice Insight

The combination of increased government healthcare coverage, ballooning government debt, and massive expiry of patent protection on originator drugs has spurred an interest in sourcing generic active pharmaceutical ingredients and finished drugs from lower-cost countries.

In this context, India has emerged as a powerhouse in supplying the Western pharmaceutical markets. India now ranks second to the U.S. only in terms of FDA-inspected facilities and number of active DMFs (drug master files), and it provides great value for a relatively secure supply of pharmaceuticals.

U.S.-based pharmaceutical companies now have numerous strategic supply and marketing agreements in place with the Indian pharma industry. Allergan and Pfizer with Nicholas Piramal, Wyeth with Bharat Biotech, and DSM with Lupin are examples of such strategic collaborations.

These strategic supply and marketing partnerships extract maximum value for their shareholders as they maximize capacity utilization in India and market share in the U.S. at minimum incremental expense. No up-front capital investment, lower manufacturing variable, and fixed costs in combination with higher sales volumes/prices are all powerful drivers in setting up these strategic agreements. This relationship, in fact, has obvious similarities with formal contract manufacturing arrangements. Nevertheless, due to the lack of transparency in these supply and marketing arrangements, the outcomes are not generally included in the contract manufacturing industry landscape.

Nice Insight market research shows now that this “shadow” contract manufacturing industry has been increasing spectacularly over the last five years and is expected to continue to provide great opportunities for both Indian and U.S. parties.

For example, Lupin has a strategic supply and marketing collaboration with DSM in the field of cephalosporines. Figure 1 shows that Lupin’s number of shipments for four cephalosporin products will nearly triple by the end of 2014 when compared to 2009.

Wockhardt, another major name in the Indian pharma landscape, had a similar strategic agreement with U.S.- based Ivax* for anti-ulcer drugs.

Figure 2 shows a comparative view of Wockhardt’s Q2 shipments to the U.S. for famotidine, lansoprazole, and ranitidine. The cumulative profile of the graph suggests that Wockhardt has quadrupled its shipments of antiulcer drugs to the U.S. between 2009 and 2013.

Dishman offers yet another example of synergies between American and Indian contract manufacturing companies. According to the company website, Dishman’s focus is on highvalue, cost-competitive contract services including process development, process optimization, and the manufacture of late-stage clinical and commercial supplies of prescription and over-the-counter drugs.

Dishman is a leader in the ammonium salts for food and drug use such as cetylpyridinium chloride (CPC). CPC is a bactericide used in OTC mouthwash, lozenges, and cough syrups. By way of example, CPC is used in the formulation of branded products such as Listerine (J&J), Crest (P&G), Colgate (Colgate Oral Pharmaceuticals), and ACT (Chattem). It is also used in a range of other no-name products sold by chains such as CVS, Walgreens, Target, and Walmart. Dishman’s expertise in highly regulated manufacturing of quaternary ammonium salts in combination with the marketing power of P&G, for example, makes good business sense.

Figure 3 shows the number of annual quaternary ammonium salt shipments to the U.S. made by Dishman, including cetylpyridinium chloride. While the business displays considerable year-over-year volatility, the linear trend line clearly shows that Dishman’s business has roughly doubled between 2009 and 2014. In fact, if Dishman shipments continue at the same pace in the second half of this year, 2014 will be a record year for the company’s quaternary ammonium salt business.

In conclusion, our research clearly shows that strategic supply and marketing agreements can produce spectacular results for Indian manufacturers and American sellers alike. There is little market research publically available in the “shadow” contract manufacturing industry. Nice Insight research is now shedding some preliminary light on the spectacular growth rate of this market segment.

* Ivax was acquired by Teva in 2013; therefore, data is available only to the end of Q2/2013.

If you want to learn more about the report or how to participate, please contact Nigel Walker, managing director, or Kate Hammeke, director of marketing intelligence, at Nice Insight by sending an email to nigel@thatsnice.com or kate.h@thatsnice.com.