API is an Active Pharmaceutical Ingredient, the main component of drugs that cures diseases. To understand the business model of a topical drug manufacturer, you must understand the cost relation between API, tablet, and the drug market price. Many companies specialize in the field of API procurement. Some companies purchase intermediates from different outlets and mix them to form an API, and some companies themselves produce all intermediates as well.
API procuring companies deal only in API and sell their product to different formulation manufacturers. A consumable drug gets made by mixing API with other excipients. These companies first need to register them with the US FDA by filling a Drug Master File or DMF. After ensuring safety, the products can get sold out for drug formation.
This market has a high density of competitors and makes the profit margin less. Many players are producing a single chemical. If a company raises the prices to acquire higher revenue, they will lose their consumers to other suppliers in topical drug manufacturing. Also, API deals are done in bulk. So losing a single contract means a massive loss of revenue.
There are three types of APIs sold: Oncology, Hormones, and Steroids. Oncology yields the highest profit. These drugs need specialized handling because of which the costs are high. The company themselves put up a lot to manufacture this stream of API. The resources consumed are five to six times more than the other streams. Special conditions like entry procedures and isolation chambers are needed for the production to protect the workers from hazards and toxicity. Companies follow these guidelines, as they are set up by regulatory authorities. It helps them give quality products in the market.
