Health Administrator Vol : XX Number 1&2 : 87-90 Pg.
21 – THE GLOBAL BULK DRUGS MARKET
Cygnus Business Consulting and Research*
The global bulk drugs market, worth an
estimated US$70.81 billion in 2004, grew at an
compounded annual growth rate (CARG) of 9.2
percent in the last five years. The bulk drugs or
active pharmaceutical ingredients (APIs) industry
provides inputs to three segments: branded
prescription drugs, over-the-counter drugs and
generic prescription drugs. The branded
prescription drugs accounted for nearly 86 percent
of the bulk drug consumption in 2004. Of late, the
generic prescription drugs segment has emerged
as a promising market for bulk drugs.
The bulk drug industry is highly-fragmented,
with a large number of small players. The bulk drug
producers can be classified into three categories.
• Contract manufacturers
• Niche bulk drug manufacturers
• Commodity bulk drug manufacturers
Typically, large pharmaceutical companies
outsource intermediaries from contract
manufacturers and complete the final production
stages themselves. The key issues in contract
manufacturing include quality, cost, secrecy and
reliability. More importantly, the contract
manufacturers build close relationships with the
pharmaceutical companies. The contract
manufacturing of bulk drugs and prescription drugs
touched an estimated US$26.2 billion in 2004, and
expected to rise to US%43.9 billion by the end of
2009. The contract manufacturing of over-the-
counter and nutritional products is the largest and
fastest-growing segment, worth an estimated
US$59.9 billion in 2004.
Some bulk drug manufacturers are focusing
on niches such challenging patents and
synthesizing rare active ingredients. With Waxman
Hatch Act granting 180 days of exclusivity for the
first successful generic patent challenge, generic
drug producers have started outsourcing product
development to bulk drug manufacturers. The
niche bulk drug manufacturers are required to pay
a great deal of attention to quality and confidentiality
besides possessing specialized skills for meeting
the unique needs of pharmaceutical companies.
* Cygnus Business Consulting and Research – The Pharma Review, August 2005.
87
The last category includes companies that
produce commodity bulk drugs. Historically,
commodity bulk drug manufacturers provided
inputs to generic drug companies. The key driver
in this segment is cost. In 2004, generic companies
in Europe bought nearly 70 percent of their bulk
drug requirements from cost-competitive
producers in India and China.
Now the global bulk drug industry is plagued
by overcapacity. High growth in the past has
encouraged bulk drug producers to expand
capacities, but demand has not grown as fast as
expected due to fall in new drug launches. For
example, several drugs failed in the late stages in
the recent past. Now the bulk drugs industry is
saddled with excess capacity waiting for the
demand to catch up.
Worse, the heightened competition is adding
to the woes to bulk drug producers especially in
Europe and USA. On the flip side, the bulk drug
producers from India and China have emerged as
credible sources of bulk drugs due to high-quality,
low-costs and skilled personnel. The bulk drugs
producers in these two emerging markets have
also upgraded their plants to US Food and Drug
Administration standards, which has enhanced
their attractiveness to pharmaceutical producers
in developed markets. Also, suppliers in Europe
have been constrained with the regulatory
limitations such as Supplementary Protection
Certificates and higher costs relative to rivals in India
or China.
The bulk drug producers in developed regions,
however, are in no danger of becoming extinct due
to inherent strengths such as quality, reliability and
secrecy. Instead what could happen is that
producers in developed regions may migrate to
premium-end of the market leaving the cost-driven
segments to producers from India and China.
Interestingly, some pharmaceutical companies and
lashing together producers in the developed
markets and their counterparts in India and China
into a complex supply chain that is at once
responsive and cost-effective.
Indeed the bulk drug industry is undergoing radical The production of bulk drugs is estimated to
change. The thinning research pipelines, the have touched 477.69 million kg in 2004 and forecast
growing pricing pressures and increasing to reach 501.58 million kg in 2005. The production
importance of generics are leading to far-reaching volume has increased at a CAGR of 5 percent over
changes in the bulk drug industry. With a large the last five years (see chart 2)
number of products losing patent protection in the
The producers of generic drugs are fast-
coming decade, the generic drug makers will
becoming the key customers for bulk drug
account for ever-increasing share of bulk drug
suppliers. With a large number of drugs losing
consumption. The worldwide drive to cut health
patent protection in the next decade, the demand
care spending also favors generic drug makers but
for bulk drugs is expected to increase.
ongoing consolidation among generics players
could lead to concentration of buying power, which Chart 2 – Bulk Drug Volume
might hurt margins of the bulk drug producers.
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On the other hand, the growing demand from 500 1234
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In the long-term, mergers and acquisitions will blur 2000 2001 2002 2003 2004 2005E
the boundary between generic drug makers and
bulk drug producers. The vertical integration
between generic companies and the research- Source : Cygnus Research
based pharmaceutical companies cannot be ruled In the US generic dose-form sector, most
out either. companies outsource the production of bulk drugs
to specialists in other countries. Increasing
Market size consolidation, however, is concentrating buying
power in the hands of a few generic players.
The worldwide production of bulk drug,
Consequently, the suppliers of bulk drugs will be
substances in drugs that perform the desired
under enormous pressure to cut prices.
therapeutic actions, totaled US$ 70.81 billion in 2004
and expected to touch $77.33 billion in 2005. The Major Segments
worldwide production to bulk drugs grew at a CAGR Three segments-Branded Prescription Drugs,
of 9.2 percent during the last five years (see chart Over-the-Counter (OTC) Drugs and Generic
1). Prescription Drugs account for a majority of global
Chart 1 : Global Drug market (2000-05) bulk drug consumption. The branded prescription
drug segment with a market size of US$61.26
100 billion, accounted for 86 percent of the total bulk
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drug consumption in 2004, while OTC and generic
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US$bn

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0 patent, the demand of bulk drugs originating from
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generic prescription drugs will increase at a faster

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pace.
Source : Cygnus Research

88
 Highlights
Chart 3: Market Share by Different Segment
• The worldwide production of bulk drugs, active
2004 substances in drugs that p1erform the desired
4% 5% therapeutic actions, totaled US $ 70.81 billion
in 2004 and expected to touch US$77.33 billion
87% 86% in 2005. The world wide production of bulk
9% drugs grew at a compounded annual growth
9%
rate (CAGR) of 9.2 percent in the last five years.

Branded prescription drugs • The production of bulk drugs is estimated to

OTC (Over -the-counter)
Generic prescription drugs
Source: Cygnus Research
Top 10 Bulk Drugs Therapeutic Class-wise
The top ten bulk drugs as per therapeutic class
accounted for 23.6 percent of the global bulk drug
sales in 2004. The Cholesterol & Triglyceride
Reducers drugs accounted for bulk drugs worth
US $5.8 billion in 2004, followed by antiulcerants
(US$4.9bn) and anti-cancer drugs (US$4.6bn) (see
table 5).
Table 1. Top Ten Bulk Drug-Therapeutic Class-wise, 2004
Leading Therapeutic Segments Sales 2004 % Global
(US$bn)
Cholesterol & Triglyceride Reducers 5.8
have touched 477.69 million kg in 2004 and
forecast to reach 501.58 million kg in 2005.
The production volume grew at a CAGR of 5
percent over the last five years.
• The North America, European Union and Japan
together account for about 87 percent of the
global bulk drug sales in 2004. No significant
change has taken place in percentage terms
in 2004 over 2003.
• The demand for bulk drugs originating from
generic prescription drugs stood at US$3.27
billion in 2004 while demand for bulk drugs
relating to over-the-counter drugs totaled
US$6.39 billion in 2004.
• The top ten bulk drugs, as per therapeutic
class, accounted for 23.6 percent of the global
bulk drug sales in 2004. The Cholesterol &
Triglyceride Reducers drugs accounted for
bulk drug consumption worth US$5,8 billion in
Sales
2004, followed by antiulcerants (US$4.9bn)
4.1 and anti-cancer drugs (US$4.6bn).

Antiulcerants 4.9 3.5 • The generic drug makers will remain prime
customers within the bulk active ingredient
Anti-caner 4.6 3.3
market, especially with a large number of
Antidepressants 3.9 2.8 products losing patent protection in the next
five years and the growing importance of cost
Antipsychotics 2.7 1.9 containment.
Antirheumatic Non-steroidals 2.5 1.8 • The new product opportunities for non-captive
Angiotensin-II Inhibitors 2.3 1.6 API manufacturers will result from the loss of
patent protection for pharmaceutical dose-
Calcium Antagonists Plain 2.2 1.6 form products. Industry estimates suggest
Erythroprotein Products 2.2 1.6 that drugs worth US$60 billion will go off-patent
by 2010.
Anti-Epileptics 2.2 1.6
• India has low development costs, complex
Total 33.3 23.6 synthesis capabilities and considerable
experience with current good manufacturing

89
 practice (cGMP) compliance. Owing to these
strengths, Indian companies are able to tacke
complex syntheses in relatively short periods.
China, meanwhile, is rapidly evolving into a
cost-effective producer of key intermediates
and bulk drugs.
• The pure-play bulk drug companies are
dwindling, with most of them moving into
generics even as research-based
pharmaceutical companies eye generic drug
makers.
Issues And Challenges
With developing countries adopting product
patents, the global proprietary products market is
likely to expand at a faster rate. With increasing
number of blockbusters coming off patent in the
next few years, the demand for generics will also
rise. The anticipated surge in sales has
encouraged bulk drug producers to increase
capacity, but less than expected demand has led
to overcapacity. The bulk drug industry also faces
other key issues and challenges, some of which
are as follows:
1) Overcapacity
2) Competition on the cost front
3) Undifferentiated capabilities
4) Backward integration of Research-based
companies
5) Coping with changing disease profile
6) Depreciating US dollar puts pressure on
realizations
7) Varying regulatory requirements lead to
additional costs
Future Outlook
The bulk drug industry is expected to grow at
an annual rate of 9 percent of US$77.33 billion in
2005. While the bulk drug sales to research-based
pharmaceutical companies are expected to
accelerate, the sales to generic pharmaceutical
companies will accelerate driven by the ageing
population; governments opting our generics to cut
costs; higher growth in chronic therapies; social
security systems; patent expiries and thinning drug
pipelines.
90
The bulk drug consumption of generic
prescription drug segment will grow at an annual
rate of about 12 percent to US $3.7 billion in 2005,
followed by over-the-counter drugs segment, where
bulk drug consumption will increase 10 percent to
US$7.1 billion. The bulk drug consumption of
branded prescription drug segment is likely to grow
by 9 percent to US$67 billion.
With research pipeline drugs skewed towards
the biopharmaceutical products, the bulk drug
companies are beginning to build skills in
biotechnology. The patent expiries relating to
biopharmaceutical products in Europe and USA will
increase demand for bulk drugs. Historically, the
demand for bulk drug related to a specific patented
molecule doubles after patent expiry. Currently the
biopharmaceutical products constitute near about
8 percent of the total pharmaceutical market and
expected to grow at double digit rates in the future.
The overcapacity in the bulk drug industry is
likely to increase in the coming years with bulk drug
producers in India and China rushing to create more
capacity. Consequently, the capacity utilization of
the traditional plants in Europe and other markets
will decline and precipitate a move toward value-
added products. The pharmaceutical companies
in the developed world. Meanwhile, will start
sourcing complete bulk from India and China
instead of early-stage products or intermediaries.
As recent agreements between pharmaceutical
companies in the developed countries and Indian
Companies show that this trend has begun to
unfold.
The basis of differentiation in the global bulk
industry will shift from cost to relationships in the
coming years. In the near-term, however, cost will
continue to influence the fortunes of bulk drug
producers in India and China. The bulk drug
producers are focusing on scale and process
efficiency to cut costs. In a bid to raise process
efficiency, bulk drug producers are focusing on
reactor design, product design, technology for
purification and separation, wider use of catalysis.
Increasing consolidation will erase the
distinction between bulk drug companies and
generic drug makers. The integration of research-
based companies and generic drug makers has
also become a real possibility.