Industry Analysis



The active pharmaceutical ingredients (API) industry is growing due to increased demand and R & D investment. It is a highly competitive market, often volatile, but with many opportunities. Highly potent APIs are expected to drive further demand in the near future, especially in the oncology segment. The significant dependency on China is one of the industry’s biggest threats. As required, some selected insights concerning regulatory hurdles were included in the SWOT analysis. However, the API market has a complex regulatory framework, and guidelines change according to the market, product and authority involved; therefore, it was only possible to provide a brief overview of some relevant barriers.

SWOT Analysis


  • Recent biological and digital technologies are strengthening the API market, which has seen steady growth over the last few years due to an aging global population and the emergence of chronic ailments that require medication for disease management increasing the demand for innovative medicines.
  • Key players are increasing their investment in R&D activities.
  • Traditionally, the API market has been dominated by drugs, such as anti-infective and chronic pain management. However, the demand seems to be shifting towards the “the development of complex APIs used in novel formulations, targeting niche therapeutic areas.”
  • The current market move towards more complex APIs is resulting in key technologies in the “synthesis of a single API i.e. cryogenic chemistry and hydrogenation or carbonylation and tetracycline chemistry.”
  • Strong demand for generics worldwide is a key driver, as they account for approximately 45% of the merchant market.


  • Highly competitive market, leading to a loss of profitability.
  • It can be a volatile market, mainly driven by patent expiration, sales, and uptake of biologics. It is also exposed to price fluctuations of raw materials, such as crude oil.
  • The API market is a heavily regulated business. Advanced manufacturing technologies may face hurdles with the current regulatory framework since they were developed based on “traditional batch manufacturing methods,” albeit the FDA is trying to address this issue and implement the required adaptations in the regulatory structure.
  • There are many regulations players have to follow, such as Good Manufacturing Practices (GMP). GMPs are specifications required to ensure the safety, effectiveness, and quality of APIs (and other products) and must be documented throughout the process. It is the primary standard of the industry. However, there are different kinds. WHO has its own set of guidelines, as well as many countries.
  • The same thing is valid for Drug Master Files (DMF). Companies typically have to file US DMF, Japanese DMF, ASMF, Chinese DMF, among others.
  • In summary, each API will have a required set of certifications/guidelines it needs to comply with to go to market. They may or may not vary according to the country. For example, Aurobindo’s API facilities have been inspected by “various regulatory authorities such as the USFDA, UK MHRA, Japan PMDA, WHO, Health Canada, MCC South Africa, and ANVISA Brazil.”
  • It is one of the industry’s most challenging legal aspects, a lack of unified regulation framework, as players have to adhere to the regulation of the country importing the API. Therefore, an API manufactured in India for use in the United States will have to be inspected and licensed by the FDA, as well as the facility it was produced.
  • There is an inherent imbalance between the players according to their locations. For example, Pfizer announced it would have to spend close to $60 million to adapt to the relevant regulatory requirements that emerged in Europe after Brexit; meanwhile, Asian players are able to cut prices due to low-cost labor.
  • Nicole Strauss, Pfizer CentreOne Pipeline and Innovation Lead, explains, “Pharma’s innovators face a number of key issues sourcing APIs to support their overall drug strategies. Perhaps one of the most critical is understanding the regulatory environment in the context of commercial API development and manufacture. Ensuring that custom APIs can meet the different regulatory requirements across the globe is vital, particularly considering increasing product complexity and the additional regulatory considerations that this brings.”
  • The legal challenges go beyond facilities and productions. Sun Pharma, one of the identified key players in the API market, suffered a 37% profit reduction in 2020 after it agreed to pay $200 million to settle price-fixing charges. Novartis, another key player, will have to pay a $642 million settlement in the US for the same charges.


  • The market is far from consolidated. The top five pharmaceutical contract development and manufacturing organizations (CMDOs) account for only 15% of the market.
  • Some API manufacturing firms are moving into formulation and final-dose manufacturing to guarantee generic manufacturing as a competitive advantage. For instance, API producer Hovione “provides particle design services for generic and other inhalant formulations.”
  • Highly potent APIs (HPAPIs) and specialty APIs are expected to see a surge in demand.
  • The Asia-Pacific is expected to grow at a CAGR of 8.4%, particularly the Indian and Chinese industries due to “low labor cost, regulatory relaxation, abundant availability of raw materials, infrastructure facilities, a rise in generic demands, increased production capabilities, the presence of a large number of domestic and international players, and concentration of CMO companies.”
  • Oncology is the fastest-growing segment due to the rising incidence of breast and lung cancer, the effectiveness of synthetic HPAPIs, and an increase in FDA approvals.
  • A recent court decision (February) may help API manufacturers and pharmaceutical companies aiming to sell to the US government. In the past, under the Trade Agreements Act (TAA), if a drug’s API was sourced outside of the country (or designated countries), the US government could not purchase the drug. The Federal Circuit ruled that if the drug is manufactured in the US, it will be compliant with the TAA even if the API is sourced abroad. The full implications of the decision are not entirely clear yet.


  • Consolidation among buying groups, such as Walgreens partnership with Boots, puts pressure on finished-dose drug manufacturers to reduce prices, and that pressure is “passed along to the API supplier.”
  • Local players are offering APIs at a lower cost and putting pressure on large companies’ profit margins.
  • Increasingly FDA scrutiny on Asian suppliers, mainly Indian and Chinese, is a potential threat.
  • The API industry has a significant and well-reported problem with pollution. Multiple organizations and governments are starting to pressure the industry to go green, reduce emissions, and improve waste management.
  • The heavy reliance on China is a significant threat to the industry, regardless of the market. According to the Trade Promotion Council of India, 85% of the country’s APIs imports come from China. For example, when the price of certain imports from China rise, some Indian companies stop drug productions that require the component.
  • The US faces a similar situation. COVID-19 made the situation even worse, as the production of Chinese APIs dropped by as much as 30%. Richard Saynor, Sandoz CEO, stated, “I am very concerned about reports that prices for basic medicines such as painkillers and antibiotics are rising substantially as a result of a tightening supply situation for active pharmaceutical ingredients out of China.
  • Speed-to-market is crucial for the API business, making regulatory hurdles and supply issues even more threatening to the industry.

Competitive Landscape

  • The previously selected key players in the API market are among the biggest pharmaceutical companies in the world. The amount of information available regarding their API operations varies according to the player, but, as a rule, they do not disclose their biggest customers, apart from some partnerships and vague statements. API-related revenue was available for most companies, except for Merck and Bayer, which tend to be more reserved about their API businesses. As requested, regional coverage was included, as available.

Sun Pharmaceutical Industries

  • Established in 1983 by Dilip Shangvi, Mumbai based Sun Pharma is the “largest chronic prescription company in India.” With a market capitalization of nearly $15 billion, 32,000 employees, and total revenue of roughly $4.5 billion in 2019.
  • It has a total of 44 manufacturing sites in multiple countries (including all operations) and over 450 approved products.
  • The company’s three primary markets by revenue share are the United States, India, and emerging countries (Brazil, Mexico, Russia, Romania, and South Africa), as defined by its annual report. The US alone contributed to $2.3 billion of its revenue in 2019.

API Business

  • In 2019, Sun Pharmaceutical’s API business generated 6% of the company’s total revenue, amounting to approximately $230 million, a 24% increase from 2018.
  • It is a segment “of strategic importance for Sun Pharma,” with 413 DMF/CEP filings, 305 DMF/CEP approvals, and 17% CAGR.
  • A significant share of Sun Pharma’s API production “acts as inputs for its formulations business.” However, captive consumption for vertical integration benefits is not the only focus, as the company also supplies external clients across various international markets.
  • The company has 14 manufacturing units dedicated to APIs, located in India (9 units), Australia (2 units), Israel (1 unit), United States (1 unit), and Hungary (1 unit). The company has standalone units for peptides, anti-cancer, steroids, and hormones, as these are complex APIs that require isolated manufacturing areas.
  • Sun Pharma is currently investing in API technologies, such as the “use of green reagents for chemical transformations in API synthesis and ultrasonic crystallization for achieving required particle size, capillary flow reactors for continuous process and safety-related studies using reaction calorimetry.”
  • External customers are comprised of large generics and innovator companies in over 60 countries. For these clients, the company offers “Bulk Actives, Intermediates and services for Custom Synthesis providing an integrated solution for the diverse requirements of generic and innovator companies.” Its services include development, launch, regulatory assistance, and IP professionals.
  • According to the company, the key focus areas of its API business are “timely development and commercialization of strategic APIs for captive consumption; expansion in scale and scope of API operations; and development and sustenance of enduring supply relationships with customers.”
  • A full list of Sun Pharma’s APIs can be found here.

Competitive Advantage

  • Sun Pharma has a good global footprint, with products sold in over 160 countries around the world. Its expertise in complex generic pharmaceuticals provides a slight edge over some of its competitors. It is a well-recognized brand in emerging markets, which could be a valuable asset, despite its limited presence in Europe.
  • One of its main advantages lies in its diversified low-cost generics portfolio. It is the “4th largest generic pharmaceutical company in the world.” Sun Pharma is also known for maintaining a reasonable pricing strategy to reach local customers.
  • In the US market, Sun Pharma faces limited competition for the Pantoprazole & Eloxatin market.
  • The competitive advantage of Sun Pharma’s API business rests in its backward integration, which provides “cost competitiveness and supply reliability.” It has a relatively extensive portfolio of approved products. The company scales up approximately 20 APIs each year.
  • The growth of the company’s API segment can be traced back to “new contracts, better realisations and a favourable foreign exchange rate.”


  • Founded in Brooklyn in 1894 by Charles Pfizer and Charles Erhart, Pfizer is one of the largest pharmaceutical companies in the world and a “leading supplier of specialty APIs.”
  • Pfizer’s total revenue in 2019 was $51.8 billion. The pharmaceutical giant divides its operations into three segments: Biopharma ($39.8 billion revenue), Upjohn ($10.2 billion revenue), and Others ($2 billion revenue).
  • The company’s R & D efforts focus on oncology, inflammation and immunology, vaccines, internal medicine, rare diseases, and hospital. Nearly 17% of its revenue goes to R&D.
  • Based on total revenues, the US (46%), China (9%), and Japan (8%), are Pfizer’s largest markets.

API Business

  • Pfizer’s contract manufacturing operation, Pfizer CentreOne, is a “global contract manufacturer embedded within Pfizer that focuses on API synthesis, sterile injectables fill-finish, and highly potent solid oral dose.”
  • The company is a result of the union of “CMOs Pfizer CentreSource (specialty APIs) and Hospira One 2 One (sterile injectables) following Pfizer’s acquisition of Hospira in 2015.”
  • Pfizer’s API business generated a total of $810 million in revenue in 2019 from contract manufacturing, supply agreements, and active pharmaceutical ingredient sales operation.
  • CentreOne offers CDMOs focused on small molecule APIs, large molecule biologics, oral solids, and sterile injectables. Its capabilities include clinical manufacturing, cell cultures and fermentation processes, API syntheses, lyophilization development and optimization technology, among others.


  • It has over 35 manufacturing sites. It offers clients development, supply-chain, regulatory affairs, commercial, and lifecycle management services. Most of CentreOne client base is composed of major innovative brands and generic formulations.

Competitive Advantage

  • Overall, Pfizer is one of the largest pharmaceutical companies in the world, with an immense network and a wide array of capabilities. It has a strong brand name, extensive portfolio, and substantial cash reserves and profitability.
  • Its large cash reserves allow important investments. For instance, Pfizer announced in 2018 that it is investing $5 billion from 2018 to 2022 in the US, including plans to strengthen its manufacturing presence in the country.
  • Its focus on R & D and innovation is a competitive advantage, especially considering APIs’ fast-moving market.
  • Pfizer has a long history, a strong knowledge base and skilled workforce. For example, it has been a leading provider of specialty APIs for more than 50 years, and most of its CentreOne employees have more than 15 years of experience.
  • Pfizer invests a lot in its API and manufacturing business, over $1 billion each year, including in “state-of-the-art technologies, equipment and facilities.”
  • It has a strong reputation in the API and CDMO market, considered the industry leader in solid dose manufacturing and small molecule manufacturing.

Teva Pharmaceuticals

  • Headquartered in Israel, Teva Pharmaceuticals was established in 1901 by Chaim Salomon, Moshe Levin, and Yitschak Elstein. Through numerous mergers and acquisitions in key markets, Teva expanded its global footprint, and it now reaches 200 million consumers in 60 countries.
  • Teva operates 47 finished dosage and packaging pharmaceutical plants in 22 countries. Its revenue in 2019 was $16.8 billion.
  • North America and Europe are Teva’s primary markets. Fifty-six percent of its revenue in the first quarter of 2020 came from North America, and 28% from Europe.

API Business

  • Teva API is a stand-alone unit within Teva Pharmaceuticals Industries. The unit dates back to 1935 with the founding of Assia, a company specializing in the production of veterinary and pharmaceutical ingredients.
  • Teva API operates 16 production plants, 5,000 employees and 5 R&D centers worldwide. It has over 400 high-quality API products, serving 1,100 customers in over 100 countries.
  • Teva’s APIs sales to third parties reached $754 million in 2019.
  • It specializes in a wide range of technologies, encompassing synthetic organic chemistry, fermentation, semi-synthetic chemistry, downstream processing, plant extraction, chromatography, high potency, and peptides.
  • The company sources a large portion of its APIs from its own manufacturing facilities. Additional APIs are “purchased from suppliers located in Europe, Asia, and the United States.
  • Teva API’s capabilities include “specifications for particle size distribution, bulk density, specific surface area and polymorphism, as well as other characteristics.”
  • It provides customers with a dedicated team throughout the project life cycle, including an “account manager, a customer experience expert, and supply chain representative.” It also has a Regulatory Affairs department committed to high-quality DMFs, regulatory trends and submissions, and customer support.
  • Its API R&D division is focused on “the development of processes for the manufacturing of APIs, including intermediates, chemicals and fermentation products, for both our generic and proprietary drugs.”
  • Teva API has a wide client base, supporting 75% of the “top 50 global pharmaceutical companies.”
  • Full API catalog is available here.

Competitive Advantage

  • Teva directs substantial investments in API R&D, which generates a “steady flow of API products, supporting the timely introduction of generic products to market.” The division is also able to streamline the process, reducing API production costs.
  • Teva believes its competitive advantages include commercial marketing, global R&D capabilities, its body of scientific evidence substantiating the “safety and efficacy” of various medicines. The company invests in the training and development of employees, creating a motivated and skilled workforce.
  • Teva won an “EcoVadis Silver Medal for Corporate Social Responsibility” award in 2019.
  • The company is among the generic drugs segment leaders, with a well-established distribution and sales network.
  • Teva API holds the industry’s broadest API portfolio. It has an API intellectual property portfolio of nearly 650 granted patents and pending applications, high-quality supply of on-demand APIs, and decent global coverage.
  • Research investments enable Teva API to provide customers with early launch opportunities and support to highly-complex products.
  • It recently started to use co-crystals to produce new APIs, a valuable tool to overcome challenges regarding APIs and drug solubility. The innovative use led to the development of a “unique crystal form of Ibrutinib.”

Aurobindo Pharma

  • Founded in 1986 by P.V. Ramprasad Reddy, K. Nityananda Reddy, Aurobindo Pharma is headquartered in Hyderabad, India. It commenced operations with a “single unit manufacturing Semi-Synthetic Penicillin (SSP).” It now has a large manufacturing structure for APIs and formulations and diversified portfolio.
  • The company’s strategy is based on four key principles, or “LEAP”: “Lead with a range of products,” “Expand into new areas,” “Attaining capabilities & strengthening compliance,” and “Promote an execution-oriented growth mindset.”
  • The company has established a footprint in multiple therapeutic segments, such as antibiotics and antiretrovirals, and its currently expanding into specialty generics.
  • The total revenue in 2019 was $2.6 billion. It is the 10th largest generic company in the world.
  • It is present in 34 countries, with products exported to 155 nations. Forty-six percent of Aurobindo’s revenue derives from the US and 25.4% from Europe.

API Business

  • Aurobindo is one of the top API manufacturing companies globally, with almost 500 patents in place. The business is supported by “technologically advanced API research and development infrastructure, which develops new products and is engaged up to the delivery of products to the market.”
  • Aurobindo’s plants are equipped with “particle size modifications to supply compacted and micronized materials.”
  • API revenue reached $455 million in 2019, representing 17.4% of its total revenue. It is a rapidly growing business, with a 14.9% 5-year CAGR.
  • On the API front, the company filled “242 DMFs with USFDA, 1,834 DMFs in Europe (multiple registrations) and 932 DMFs across other geographies (multiple registrations).” The company announced it would start to file injectable products using Auropeptide API in 2020.
  • It has 27 manufacturing facilities for API and Formulations, and 70% of its API is manufactured in-house, which according to its annual report, enables the company to own a “larger part of the value chain.” Its API business also supplies third parties.

Competitive Advantage

  • Aurobindo is among the top ten generic companies in eight out of 11 countries it operates in Europe. It is the second-largest generic company in the US in terms of prescriptions.
  • It received the IDMA Best API Patents Award in 2018.
  • Unlike Teva, Aurobindo is a company with low debt.
  • Its HIV medication, Nevirapine, is expected to increase the company’s market size and profitability.
  • The company is a key player in the API segment and has been able to “control its quality, improve on timelines, be competitive on costs and delivers at short notice. This is a unique advantage that Aurobindo enjoys across the world.”
  • Aurobindo has demonstrated a good ability to enter new markets and therapeutic areas. As a result, the company is experiencing sustained growth across markets, driven by its diversified portfolio. Its revenue increased by 18.6% in 2019.
  • The growth is largely driven by its ability to develop a diversified portfolio. As explained by the CEO, “Our philosophy has been to enter a market with a basket of products that provides us a larger market share and significantly minimises our risks and reduces our dependence on a single product.”
  • It is one of the few pharmaceutical companies with a presence in the Formulations and API segments, and one of the few players “present across beta-lactams and non-beta lactams.”


  • Born out of the merger of Ciba-Geigy and Sandoz, Swiss pharma giant Novartis’ products are available in 155 markets across the globe.
  • Novartis’ total revenue in 2019 was $47.5 billion.
  • Novartis has a somewhat equally distributed presence worldwide. Thirty-seven percent of its business comes from the United States, 34% from Europe, and 22% from Asia, Africa, and Australasia.

API Business

  • Novartis’ API business is part of the Sandoz Division, a “global leader in generic pharmaceuticals and biosimilars.” It produces APIs for internal use by the Retail Generics segment, and sales to third-party customers.
  • In 2019, the Sandoz division achieved net sales of $9.7 billion, 21% of the group’s total. API sales to third parties amounted to $534 million, a 5% increase from 2018.
  • Sandoz has a different market presence. Europe is its main market (53%), followed by the United States (26%).
  • Sandoz’s API business is part of the Anti-Infectives & API Business Unit. It is a “fully-integrated provider of affordable, high-quality pharmaceutical intermediates, active pharmaceutical ingredients (APIs) and finished dosage forms.”
  • The division is headquartered in Austria. Ten production facilities worldwide cater to “industrial customers and partners.” Its portfolio covers over 50% of the antibiotics available, the largest and oldest business of the division.
  • Sandoz has a more limited portfolio than the previous competitors, focusing mainly on antibiotics. Classical fermentation-derived antibiotics are the leading components of the unit’s portfolio, primarily Penicillins, Cephalosporins, and Macrolides.
  • Sandoz recently added other therapeutic areas, hoping to become a “one-stop-shop for bulk pharmaceutical intermediates and active pharmaceutical ingredients (APIs).”
  • It has partnerships with selected pharmaceutical companies to “provide access to finished products and active ingredients manufactured across the global Novartis manufacturing network.”
  • On July 27, 2020, Sandoz announced a combined investment of EUR 150 million with the Austrian government to “drive long-term competitiveness of European production for key antibiotics in Europe.”
  • The government funding (EUR 50 million) will “support new process technology to produce API for penicillin products at Kundl. Sandoz would commit to related penicillin API production in Europe for the next 10 years, despite fierce global price competition, particularly from China. “
  • Sandoz seems to be closing or selling many of its API facilities lately. In 2015, it announced it would close its Mumbai API plant. In September 2019, Zhejiang Jiuzhou Pharmaceutical, an API CDMO, announced the purchase of “Suzhou Novartis Pharmaceutical Technology (SNPT), an API manufacturing facility in Changshu Economic Technology Development Zone, Suzhou, China.”
  • In October 2019, SUANFARMA announced it was acquiring Sandoz’s API facility in Rovereto, Italy. In the same month, Sandoz also announced it would close the Ringaskiddy production building in Ireland, responsible for the production of intermediates and APIs since 1994. The API production will be “outsourced to external suppliers by mid-2022″.
  • A spokesperson for Novartis explained, “The impacted production building no longer presents a long-term competitive option for Novartis with forecast utilization rates declining and a portfolio of smaller volume APIs.”
  • Full list of available APIs.

Competitive Advantage

  • Sandoz is the largest generic antibiotic manufacturer in the world. The company owns the last remaining “fully integrated production facility in Western Europe, located in Kundl, Austria.”
  • Sandoz is the largest “fully-integrated producer of ß-lactam antibiotics in the western world.”
  • Novartis has decades of experience in pharmaceutical development and production, ensuring quality and continuity of supply. The company also has a high approval rate.
  • According to Novartis’ Chairman of the Board of Directors, the company’s recent move into gene therapies, radioligand therapies, and digital health confirms its position at the forefront of scientific discovery.
  • Like Pfizer, Novartis is a global company with large assets, a robust pipeline portfolio and a strong network. R&D is a big focus of the company. The company also has a successful track record of developing new products and innovations.
  • Novartis is becoming a data-driven company with a digital approach. Its CEO declared, “I choose to bet on innovation…that can deliver real breakthroughs and inflection points in valuation, rather than trying to mitigate the downside.”

Boehringer Ingelheim International

  • Founded in 1885 in Germany, Boehringer Ingelheim is a family-owned company focused primarily on “cardiovascular disease, respiratory diseases, diseases of the central nervous system, metabolic diseases, virological diseases and oncology.”
  • Most of the company’s business comes from Europe (30%) and the Americas (46%).
  • The company’s total Revenue in 2019 was $18.9 billion.

API Business

  • Boehringer Ingelheim’s Biopharmaceutical Contract Manufacturing business, which includes the API market, reached net sales of EUR 786 million in 2019. The contract manufacturing business covers the entire value chain, generic development, the manufacturing of the API and filling of the finished product, product launch and market supply.
  • It has two facilities dedicated to APIs within its global network after the Malgrat plant (producer of synthetic pharmaceutical active ingredients) was sold to AGC in 2018.
  • The company is currently working on over “100 clinical and preclinical research and development projects involving 60 new active ingredients.” In 2018, ten new ingredients were tested in clinical environments for the first time.
  • In 2019, Boehringer invested EUR 230 million in its production facility in Vienna, which will serve for the production of its own portfolio and for third party contract manufacturing. The company also increased production capacity for active pharmaceutical ingredients in Fornovo (Italy).
  • It also invested in a new development center in Biberach to increase its contract manufacturing capacity, focused on oncology and immunology.

Competitive Advantage

  • Seventy percent of the top 20 pharmaceuticals and innovative biotech firms in the world are Boehringer’s clients. The company fosters cooperation with innovative partners. Over 30% of APIs in the company’s pipeline come from collaboration with external researchers.
  • Boehringer is a prominent player in the biotech API market. Its API business is experiencing continued growth over the last few years. Its high investments in the API industry secured a position among the leading players in the global API market.
  • In 2018, the company won an infringement lawsuit against Teva in Italy concerning exclusive rights on the active pharmaceutical ingredient (API) tiotropium bromide, used in “Boehringer Ingelheim’s product Spiriva for the management of chronic obstructive pulmonary disease.”
  • Boehringer’s focus on innovation and digital transformation is one of its main competitive advantages. The company invests in its employees, providing training and employee development programs.
  • It has a long history in the pharmaceutical industry. Despite a few issues over the years, such as controversial drug trials, lawsuits, and FDA warnings, it was able to maintain a solid reputation for “quality and ethical practices.”
  • The company has manufacturing contracts with “15 out of the Top 20 global Pharma players.”
  • It has the “only biopharmaceutical manufacturing site established by a multinational active pharmaceutical company in China.” It produced its first biopharmaceutical approved in China in 2019.

Merck Co.

API Business

  • Merck’s API business is somewhat obscure. There is not a lot of information in the public domain about its API operations, apart from few insights.
  • In 2010, one report unveiled Merck’s tendency to be “pretty tight-lipped about is contract manufacturing efforts.” These efforts are usually connected to the API business in most companies.
  • According to the company’s annual reports, in 2013, Merck sold its API manufacturing business in Oss to Aspen. As it is typical for this type of deal, it became a customer of Aspen API operations.
  • In the same year, it sold/closed four other manufacturing facilities as part of its new business strategy. “The annual sales associated with the divested API manufacturing business were approximately $200 million and related to non-segment revenues.”
  • Merck’s Director of Communications explained at the time that while “Merck and other pharmaceutical companies outsource API supply to contract manufacturers, strategic internal API manufacturing capability is an important part of the company’s integrated interdependent global network.”
  • Examination of the company’s annual reports and press releases from 2014 to 2019 revealed no other direct reference to its API business or operations, besides the mentioned deals and a cyberattack incident. The company does state that it has “end-to-end supply planning,” and 144 external manufacturing sites. Third-party sources yielded few results as well.
  • An analysis of the company’s operations indicates that Merck & Co. typically relies on third parties for manufacturing. It recently decreased its manufacturing footprint by “outsourcing up to 40% of its active pharmaceutical ingredient (API) supply to contract manufacturers.” For instance, Chinese manufacturer Hisun Pharmaceutical provides APIs to Merck & Co.
  • There are still some remaining API operations. For example, it restructured its Brinny site to manufacture biologic APIs to serve Fujifilm Diosynth Biotechnologies. It also has a 15-year manufacturing capacity-sharing agreement with MedImmune, which started in 2011.
  • Furthermore, it still produces APIs for captive use, as shown by the 2017 NotPetya cyberattack, which targeted its in-house API manufacturing, resulting in millions in damages.
  • In 2019, it announced a new restructuring program, “as part of a global initiative focused primarily on further optimizing the company’s manufacturing and supply network as well as reducing its global real estate footprint.” Although the specific details were not released, it is supposed to build upon previous strategies and continue the company’s plant rationalization, which could mean it will reduce API production even further.

Competitive Advantage

  • The company has a gigantic global presence. Even if most of its revenue comes from Europe and the US, its revenues in Japan, China, Latin America, Africa, and the Asia Pacific region all surpass the $2.5 billion mark.
  • A significant footprint enables large investments. Since 2010, Merck invested over $60 billion in R&D activities. Its R&D expenses in 2019 amounted to nearly $10 billion.
  • It is probably paying off, as it was the first company to launch an anti-PD-1 receptor inhibitor for malignant melanoma in the US, named KEYTRUDA.
  • It has a wide range of products and robust pipeline, with more than 50 prescription products in multiple therapeutic areas.
  • Merck’s drug KEYTRUDA is performing well, driving growth in the oncology segment. Sales grew 45%, reaching $3.3 billion in the first quarter of 2020.
  • It has a risk diversified business portfolio and solid investment grade grating.
  • In 2020, Merck chose to spin off several assets from its women’s health, legacy brands, and biosimilars franchises into a new standalone publicly traded, called “NewCo.”
  • The outcome of Merck’s move is still unknown, but it shows that the company is at the forefront of a broader trend in the industry. Analyst Kelly Lambrinos noted that “NewCo has a ‘strong advantage’ from its origins in Merck and its extensive experience in multiple therapy areas, including women’s health. This can present an attractive opportunity for investors, allowing it to maintain a strong presence in the field.”
  • The company believes the deal will generate over “$1.5 billion in savings by 2024 for Merck and reduce the company’s manufacturing footprint by about 25%, the company said. The transaction is intended to be completed during the first half of next year.”

Bayer AG

  • Founded in 1863 in Germany, the Bayer group is composed of 392 companies in 87 countries, with over 103,000 employees worldwide.
  • Bayer revenue in 2019 was EUR 43.5 billion, an 18.5% increase from 2018; 15.4% of its Pharmaceuticals sales are directed towards R&D expenses.
  • The company finished 2019 with an above expectation free cash flow of EUR 4.2 billion.

API Business

  • Like Merck, Bayer does not disclose many details about its API business. For example, the information regarding the Bergkamen Supply Center was only found as part of a job description, in German.
  • Proquina serves as Bayer’s low-cost supplier of high-quality APIs and intermediates. Located in Mexico, it serves external costumers in South and Central America, North America, and Europe.
  • Bayer’s Proquina site offers clients “customized active ingredient production” according to their individual needs. Its services include chemical development of manufacturing processes and syntheses, micronization, regulatory support, synthesis and development, among others. It has two plants for intermediates and three plants for APIs.
  • Bayer produces APIs in different supply centers all around the world. The Bergkamen Supply Center has 1,500 employees working on “APIs for contrast agents, contraception and hormone replacement therapy. In total, 60 different active ingredients are manufactured in the plant with over 50 years of tradition. This makes Bergkamen the largest Bayer site for the production of active pharmaceutical ingredients.”
  • In 2017, most of its Crop segment, containing many APIs, was acquired by BASF. On February 11, 2020, Bayer announced that it had entered into a “definitive agreement to transfer a large part of its Berlin-based small molecule research unit to Nuvisan ICB GmbH, a subsidiary of Nuvisan GmbH.”

Competitive Advantage

  • Despite scandals, Bayer has a good reputation in the United States, ranking high (sixth place in 2018) on the most reputable pharma companies list, based on public perception. For reference, Pfizer (22 — last place), Merck (20) Teva (17), and Boehringer (14) all ranked much lower.
  • Raymond F. Kerins, Jr., Senior Vice President of Corporate Affairs for Bayer US, states, “In this era of consistent focus on crucial reputation aspects of business conduct such as ethics, leadership, transparency and workplace equality, it is tremendously gratifying to see Bayer featured on this prestigious list. This recognition is a resounding testament to the efforts of all of Bayer’s employees in the U.S.”
  • The company offers a “diverse and flexible operation guided by industry knowledgeable project managers and pharmaceutical manufacturing professionals.”
  • For over 100 years, Bayer has “maintained a worldwide reputation for unsurpassed quality and dedication to its partners and customers. With EU-approved and FDA approved industry facilities featuring different technical capabilities.”
  • Bayer’s “extensive product portfolio contains” numerous globally renowned brands. A diversified supply process combined with long-term supply deals diminishes Bayer’s exposure to production process risk.
  • Bayer continues largely dominant in “pediatric vitamins and dietary supplements” with a 25% value share.
Glenn is the Lead Operations Research Analyst at Simple Manifestation with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.


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