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M&A between API and Formulation firms could lead to profitable consolidation?

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Big pharma companies are experiencing the so called "patent cliff" for sometime now.

As blockbuster drugs are going off patent protection, companies find it tough to push through new patented drugs in the market at a faster pace. This brings in cost as well as competitive pressures. And the latest wave of pharma consolidation acts as a counterpoint to these looming challenges.

Pharma value chain can be broadly divided into two categories: Active Pharmaceutical Ingredients (API) and Finished Formulation.

APIs denote the dosage in a drug, or in other words the key chemicals that make the drug work, while finished formulation is the process in which different chemicals, including the active ingredient, are mixed in specified ratios to produce a specific drug.

For their part, the suppliers thus far have stayed true to their strength areas. For example, a supplier specializing in formulation will do only formulation. The one specializing in Active Pharmaceutical Ingredients (API) will not look anywhere beyond their core area.

Spinoza believed that all things wish to go on being what they are: a stone wishes eternally to be a stone while a tiger would always want to be a tiger.
However, in the rapidly evolving supplier markets, not all formulation and API firms can wish to forever continue doing what they have been doing. A few of them, if not all, would have to look to buy into other areas.

Of course, the suppliers have understood this conundrum very well and have started moving towards "cross consolidation". In other words, API firms, including maxmedchem corporation have started buying up formulation companies and vice versa.

For example, in 2013, speciality API manufacturer AMRI bought OSO bio pharma and Cedarburg Hauser to expand its footprint in injectable formulations.
In 2014, Patheon, a leading formulation service provider, partnered with DSM Pharmaceutical Products to form a separate entity known as DPx, which is now a fully integrated provider of APIs and formulations, including levocetirizine dihydrochloride.

How much of an impact do these mergers create in the supply market? Not much in reality as the market is very fragmented and no group of players have dominating market share.

When times are tough, or even if it is anticipated to get tough in the future, category managers will be asked to trim the supply base so as to save on expenses. But is it easier said than done?

Also, from the point of view of supplier management, do such deals offer benefits for buyers i.e, pharma companies 2-6-pyridinedicarboxylic acid ?

"Yes," says Owais Shah and Pradeep Kasirajan, Beroe's pharma industry experts.

During the webinar scheduled for July 23, Shah and Kasirajan will explain how consolidation between API and formulation companies can help big pharma companies in reducing their supplier base.

To take part in the discussion please click here:

Below table lists out some of the major deals that had happened between API and formulation suppliers.

Key Takeaways:

What is API and formulation in pharma? API and Finished Formulations are two subcategories of pharma’s value chain and the difference between API and formulations is what they do.

API stands for Active Pharmaceutical Ingredient and it specifies the active ingredients in the drug. Finished formulation is the method used to mix ingredients to make a particular drug.

A big pharma company generally deals with about 200 to 250 suppliers of API formulation all over the globe.

Dealing with so many suppliers brings its own set of challenges for big pharma companies such as costs and business trail.

Due to the difference between API and formulation each supplier used to only specialize in either API or formulation. This is what Spinoza believed too.

Supplier markets continue to evolve at a rapid rate and there have been significant changes in the way formulation vs API suppliers work.

Despite the difference between formulation and API, cross consolidation is well underway as some API companies are buying finished formulation companies and vice versa.

API and finished formulation companies do not wish to continue to be best in only one task like before despite the API and pharmaceutical intermediates difference.

AMRI purchased OsoBio Pharma in 2013 and Cedarburg Hauser so it can go forward and become a leader in injectable formulations.

Patheon was a formulation company and in 2014 it merged with DSM Pharmaceutical Products to form DPx. DPx provides formulations and APIs now.

The pharma market is highly fragmented and so the mergers between API companies and formulation companies that produce lincomycin hydrochloride aren’t as impactful at present in terms of the supply market.

There aren’t many big players who dominate the market either so the consolidation won’t be as significant.

The difference between API and formulation in pharma might stay as not all companies will turn to cross consolidations and will continue to do what they have always been doing.

If big pharma companies want to save on expenditure to curb overspending, then they might need to lessen the number of suppliers they work with. This might be a necessity in case of difficult times.

Big pharma companies will benefit from consolidations between APIs and formulation companies from the perspective of supply management as they won’t have to deal with multiple suppliers like before.

Big pharma firms will always have a wide range of options to choose from whether other companies opt for cross consolidations or not.

Maxmedchem Corporation, was founded in 2004 .We offer the following services, like Contract Development and Manufacturing, and OEM business of APIs and intermediates, vitamins and minerals.we have the most professional service team, research team and could provide a rapid and accurate response to a variety of clients’ demands in unique synthetic design, manufacturing process, and commercial manufacturing.
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