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42 September 2016 Tablets & Capsules made from hydroxypropyl methylcellulose (HPMC), how- ever, offer a number of advantages and are having a great impact on the market. HPMC capsules originated in Japan in 1990, and the first US patent on them was issued in 1993. Throughout the 1990s and early 2000s, HPMC capsules slowly gained market acceptance and began to encroach on gelatin cap- sule market share. Several factors helped HPMC, including the perception that consuming gelatin could lead to bovine spongiform encephalopathy and transmissible spongiform encephalopathy disease (BSE/TSE), commonly known as "mad cow" disease. Other headwinds included fluctuations in the price of gelatin, consumer preference toward vege- tarian capsules, and technical difficulties, including cross- linking and brittleness from moisture loss. Capsules can also be made from other plant-based materials, such as pullulan and starch, but HPMC capsules offer several technical benefits, including low moisture content, no crosslinking, and better stability. While gelatin has many desirable properties, pharmaceutical and nutraceutical developers are using more HPMC capsules in new products. By 2019, it is expected that gelatin capsules will exhibit a marginal 2 percent decline in demand. Gelatin capsules market The gelatin used in capsules is made from the bones and hide of cattle and pigs. In fact, the gelatin capsule industry consumes roughly 90 to 95 percent of all bovine-bone gelatin production and, in 2015, about 628 billion gelatin capsules—both soft and hard—were made. Within the gelatin capsule market segment, demand for hard gelatin capsules (HGCs) is growing faster than for soft gelatin capsules (softgels) due to their higher adop- tion rate. The HGC segment is mature but is still expected to grow at a compound annual growth rate (CAGR) of 3 to 4 percent. Challenges in the gelatin capsule industry The animal origin of gelatin, price fluctuations, and technical limitations have hampered growth in the gelatin capsule market. In 2012 to 2014, overall prices of pharma- ceutical-grade gelatin increased 10 to 15 percent due to increased demand from competing industries and a reduced slaughter level. The price of bovine-bone gelatin used in HGCs increased by 13 to 15 percent in 2013 from the prior year due to increased demand for raw bones from the com- peting meat and bone meal industry. Fears of BSE/TSE have affected the gelatin industry, but according to all scientific bodies, there is no risk of contracting the disease from gelatin capsules due to the high temperature and pH of the manufacturing process. Gelatin derived from pigs is also widely used in manufacturing HGCs, but outbreaks of porcine epidemic diarrhea (PED) in the USA in 2014 led to a temporary hike in global porcine gelatin prices. The situa- tion is now under control and the price of porcine gelatin is expected to remain stable. Porcine gelatin also faces reli- gious objection. As a result of stronger demand for the raw materials of gelatin from other industries, more regulations, perceived risk of BSE/TSE and PED, and climatic conditions that affect the availability of cattle, gelatin prices increased, which led to increases in the price of HGCs. That moti- vated pharmaceutical and nutraceutical companies to evaluate HPMC capsules as an alternative. Opportunities in HPMC capsules There has been more consumer demand for plant- derived materials in the pharmaceutical and nutraceutical industries. That development, coupled with the factors cited above, have given suppliers of HPMC capsules the opportunity to grow, and the HPMC capsule market is expected to increase at a rate of 10 to 15 percent between 2014 and 2019. The gelatin capsule market is expected to grow at 3 to 4 percent over the same period. The use of HPMC capsule shells in nutraceuticals and over-the-counter formulations has grown. According to surveys conducted by Capsugel in 2013, about 40 percent of users said that they would prefer dietary supplements in vegetarian capsules instead of HGCs. Triggered by the influx in demand for capsules that aren't sourced from ani- mals—often stemming from the dietary or cultural needs of customers—HPMC capsules are poised to capture addi- tional market share from HGCs. HPMC capsules are fore- cast to grow from a 3 to 4 percent market share in 2014 to a 9 to 10 percent market share by 2019. While consumers are pushing for alternatives, so are regulators. In April 2016, India's Central Drugs Standard Control Organization proposed banning gelatin capsules in favor of cellulose-based capsules. However, regulatory constraints, the small number of qualified HPMC capsule suppliers, lack of domestic pharmaceutical-grade HPMC, and the higher price of HPMC are likely to work against this proposal. No final decision has been made. Advantages of using HPMC capsules in pharmaceutical applications Initially, suppliers had more success selling HPMC capsules to nutraceutical companies over pharmaceutical companies because it was easier for them to adopt a new Figure 1 The capsule market: Actual and forecast sales volumes Hard gelatin capsules Vegetable/HPMC capsules Soft gelatin capsules Billions of units 35 116 490 596 128 70 2014 2019E