Polpharma Pharmaceutical Works - API Manufacturer

How to compete on the pharmaceutical substances market?

The market of pharmaceutical substances is increasingly dominated by producers from China and India. Do producers from other parts of the world stand any chance in this fierce competition? Mr. Theodore Iliopoulos, Chairman of the Polpharma Fine Chemicals Business Unit, presents his comments on this issue as well as provides answers to several detailed questions.

How should the API Sales Leaders change their business strategy in today’s competitive business environments in order to be successful?

The key to success is the work being carried out in the development of an API. Sales start from the early development phases. I recognize that a salesperson today has to possess extensive knowledge of the development work done in the molecule. At the end of the day, they do not sell good prices only (this is true only for the mature and commoditized APIs), but essential information that is related to the development work in a molecule that helps the customer to speed up and be successful in the development of the finished dosage form. This secures future sales. I would also emphasize the importance of an effective management of customer relationships. Being as close to the customer as possible provides insights and increases the effectiveness collaboration work.

What are the main business drivers in today’s API market?

Ongoing globalization, consolidation of the market, low wage countries, driving of sourcing to the Asian giants China and India, dramatic technological change, cost pressures due to high energy costs, currency fluctuations and the war of Intellectual Property rights not only between originators as it was some years back but also between the imitators.

What are the most frequently applied strategies among the US and Europe based fine chemical producers?

Transferring manufacturing to low wage countries. The most effective is the creation of partnerships in low wage countries in technological platforms as well as taking advantage of the low cost capacity. The key is to keep in-house, in Europe or in the US, the most value adding parts of the chemistry in the synthesis of a molecular entity, namely the last steps of the synthesis where the intellectual property competition is fierce.

How to convert innovation into economic value? In the crowded market differentiation and specialization are more important than ever. What are the best ways to differ from competitors? What are some examples of best practice?

The success is in the development of APIs. In an overcrowded environment of manufacturers, the best way out is excelling in chemistry and identifying areas where you can be the best and fast enough. The winning strategy is to use knowledge and open innovation and bring together in-house capabilities with external expertise in a collaborative way so that your development meets the expectations of the customers. To beat the competition you need to be the first to come to the market with strong chemistry skills. The reward is significant profitability, which is declining as more and more competitors come on stream. Strength in chemistry will drive the way, even when more entrants lower the prices to get a part of the market because they will help contain the process cost and manage a longer profitable product life.

How to realize supply chain integration to boost operational excellence?

Integration in this respect requires linking all the players of a supply chain together so that they share inputs and outputs and the necessary information in zero time with interfaced operating systems to drive inventories down and customer service up. The level of service is key to the satisfaction of the customer who often values service and quality more than the price. Setting a target of 99 % customer satisfaction with affordable supply chain costs should be the minimum objective. Price alone is not a driver of a good relationship with a customer.

How to measure sales effectiveness?

Obviously, the expectation is that you get more with the same resources. There are several Key Performance Indicators (KPIs) that one can use to measure the said effectiveness. My expectation is to attain profitable sales - and not simple sales - while spending less. Such an expectation can be fulfilled, only if the sales force is aware and fully understands the economics of the business, together with the expansion of the business, and all eyes on the bottom line results.

What suggestions can be proposed for a successful pricing system?

Bring together potential buyers and competitors’ sellers, to define true preferences and study the potential outcomes. Market intelligence is important in establishing a competitive pricing scheme.

How to apply the game theory in our company?

We apply traditional economic empiricism and simple methods with formal reasoning, in turn attempting to predict customer’s behavior.

How will China and/or India`s prices evolve in the future? What is the threat of their competition?

In early July of last year, the Chinese government reduced subsidies to the exporters on the net invoice value excluding VAT from 13% to 5% in other words from an 11.1% level of subsidy to 4.27% considering the VAT impact. Furthermore, the number of the industries obliged to deposit 50% of duties when they buy in US currency for re-export, has increased to enable the government to control the growth of the export surplus. Together with the revaluation of the national currencies of the two Asian countries and the increase of oil prices, which significantly affects the fine chemicals industry, these cost pressures will drive an increase of the prices of the chemicals imported from these two counties to a level of 15-20% in the very near future.