FOR IMMEDIATE RELEASE

September 7, 2005.

Cost Issues Compel Pharmaceutical Companies to Make Drug Development More Financially Viable

Pharmaceutical Companies Identify Excipients and their Strategic Product Applications as Cost-reduction Opportunity.

London, UK – 7th September, 2005 - The global pharmaceutical industry is currently in a state of flux. Imminent patent expiries, growing generic competition and drug failures are combining to create significant cost issues for pharmaceutical companies, compelling them to cut expenditure on product development without compromising on quality. In such a scenario, excipients offer a welcome opportunity to add better functionality to products at lower costs.

Pharmaceutical companies are increasingly realising the importance of excipients in drug efficacy, safety, stability and storage. Although traditionally, little attention has been paid to excipients, companies are expressing greater interest in them for their cost-saving potential in drug development. Excipients enable enhanced functionality, besides helping to innovate drug formulations and extend patents.

Global growth consulting company Frost & Sullivan (http://healthcare.frost.com) estimates the total pharmaceutical excipients market revenue to be worth USD 1.13 billion in 2004. The market is expected to grow at a compound annual growth rate (CAGR) of 5.3 per cent between 2004 and 2008, representing revenues of USD 1.39 billion in 2008.

One of the major challenges facing pharma companies is that their profit margins do not reflect the constantly increasing investment in drug development. On the one hand, this factor has acted as a key driver for pharmaceutical companies’ growing interest in cost-effective excipients.

“The low returns on investment coupled with various regulatory issues account for the dwindling focus on innovation in the pharmaceutical industry,” remarks Frost & Sullivan Industry Analyst Himanshu Parmar. “However, new technological advancements and novel drug applications in the pharmaceutical industry are likely to drive the excipients market, as well as heightened innovation in this sector.”

While Europe and North America currently contribute to approximately 75 per cent of the global excipients market – with Europe accounting for about half of this share – the entry of manufacturers with substantial cost advantages is posing a challenge to European pharmaceutical excipients manufacturers.

For instance, India and China are poised to enter the excipients market in the next four to five years. These countries are likely to have the advantage of low-cost manufacturing capabilities without compromising on product quality. Moreover, both India and China have a strong presence in active pharmaceutical ingredients (APIs) and intermediates manufacturing and have built up a good brand image here. This is likely to help both countries in improved market penetration.

Added to this challenge, excipients, particularly bulk excipients such as microcrystalline cellulose and lactose, face the problem of continuous commoditisation. This has created a situation of increased price pressure and shrinking profitability, with even speciality products likely to be at risk. Commodisation is primarily caused by manufacturers that are always looking for opportunities to reduce their expenses. Manufacturers from low-cost countries entering the market are another contributory factor.

The need of the hour, therefore, is for companies to focus on understanding the customer’s requirements comprehensively and managing myriad aspects such as technical and budgetary issues, regulatory issues and quality assurance. Manufacturers that understand and follow such approaches are more likely to gain customers’ trust and consequently, earn continuous business from them. This is likely to help them avoid downward price pressure while achieving comfortable margins as customers could well agree to pay higher prices for value-added services.

Despite these challenges, the market outlook for pharmaceutical excipients in Europe continues to be positive. Frost & Sullivan believes that the changing definition of excipients from inactive ingredients to functionally active materials has contributed and will continue to contribute tremendously to their success. Biotechnological developments and various emerging protein-based therapies are broadening the definition for excipients products.

“The definition for excipients is changing and includes a wider range of products such as anti-bodies and chimera products,” says Mr. Parmar. “Many new natural products, synthetic polymers, small molecules and the modifications of these molecules are likely to assume importance as this happens, and this enhanced product portfolio is likely to improve the market conditions.”
If you are interested in an analysis overview, which provides manufacturers, end users, and other industry participants with a synopsis, summary, advantages and disadvantages of Strategic Analysis of Pharmaceutical Excipients Market in Europe (B533-52) – then send an e-mail to Katja Feick – Corporate Communications at Katja.feick@frost.com with the following information: your full name, company name, title, telephone number, e-mail address, city, state and country. We will send you the information via e-mail upon receipt of the above information.

Background
Frost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 40 years. The company's industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities. Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community, by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics, and demographics.