Fine Chemicals

Our cover story this week assesses recovery in the fine chemicals industry as the sector readies for the CPhI meeting in Frankfurt later this month (p. 21). The outlook for contract manufacturers looks promising despite cost pressures and increased competition. Active pharma ingredient (API) and pharma intermediate producers are planning expansion as regulatory bodies, meanwhile, tighten scrutiny of the sector.

The $40-billion/year global API market is expected to grow 4%-5%/year in volume terms and roughly flat-to-1%/year in value terms over the next 3-4 years, according to Arthur D. Little (Brussels). Manufacturing is continuing to shift to Asia, and to India in particular. About 60% of pharma companies expect to increase their API outsourcing over the next three years. AstraZeneca aims to exit API manufacturing completely, and Pfizer and Merck & Co. plan to outsource 30% of their requirements.

The economic downturn of 2008-09 put tremendous pricing and margin pressure on API manufacturers. Producers are attempting to increase prices in second-half 2011, but analysts note that pricing power will vary by company and product.

API demand will continue to increase as populations age in mature economies and new consumers enter in emerging markets. Dynamics are not all favorable, however. Health care reforms targeting drug costs, continued globalization of the sector, and few new drug introductions will keep competitive pressures high.