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capsule shell. In addition, plant-based capsules offer nutraceutical companies product differentiation among consumers wary of animal-based products. Given that acceptance and success, pharmaceutical manufacturers have taken notice. Because HPMC capsules were seen as posing less risk in some areas and offered functional ben- efits, they gained acceptance. Benefits include HPMC's lack of crosslinking, which can raise stability issues, impair dissolution, embrittle cap- sules, and reduce customer acceptance. HPMC capsules also remain strong and durable at higher temperature and humidity, thereby improving stability. With a low moisture content (5 to 8 percent) compared to HGCs (12 to 15 per- cent), HPMC capsules are better suited for moisture-sensi- tive APIs. Similarly, in the niche of dry powder inhalation (DPI) applications, HPMC capsules are preferred because they minimize agglomeration, inconsistent delivery, and hygroscopicity issues. HPMC capsules also provide supe- rior bioavailability when used with poorly soluble APIs. With 60 percent of new chemical entities exhibiting solu- bility challenges, HPMC capsules offer a competitive option for new formulations. While there are numerous advantages to HPMC capsules, pharmaceutical compa- nies have more stringent requirements than nutraceutical manufacturers and will look for HPMC capsule suppliers offering innovative technological advantages and a broad product offering. Supply base In the global HPMC capsule market, a few major sup- pliers account for 70 to 80 percent of the total market share. Capsugel, ACG, and Qualicaps are the leading suppliers, and due to a high barrier to market entry, they are likely to remain the leaders. The primary HPMC capsule suppliers are focused on creating processes to improve quality, refine production, and improve filling techniques. They are also working to improve the in vivo and in vitro dissolution characteris- tics of HPMC capsules to encourage more formulators to adopt them. One company, Capsugel, notes that its cap- sules are free of gelling agents and thus deliver faster, more consistent, and more predictable dissolution com- pared to capsules that contain gelling agents. In 2007, it introduced VCaps Plus, an HPMC capsule that uses a thermo-gelation process to give it properties similar to those of HGCs. In 2015, Capsugel invested $25 million to expand production of vegetarian capsules. Indeed, increasing global and domestic demand has prompted many capsule suppliers to boost their invest- ments in HPMC capsule production. India-based ACG expanded operations in Croatia in 2016, roughly tripling the workforce at the facility it acquired in 2007. The capacity increase is aimed at satisfying demand from European and Russian manufacturers. Qualicaps, the market leader in pharmaceutical-grade HPMC capsules, acquired a capsule manufacturing fac- tory in Romania, enabling the company to develop low- cost production capacity in Europe for HGCs. In February of this year, Qualicaps acquired Genix Industria Farmaceutica in Brazil, giving it the dominant position in the important and growing Brazilian market. In August 2014, CapsCanada invested more than $10 million in a new manufacturing facility in Canada. In 2011, Suheung Capsules, a South Korean supplier, added a production line to meet demand from vegetarians and people in the Middle East who prefer non-gelatin cap- sules. In 2015, an Indian supplier of gelatin and HPMC cap- sules, Natural Capsules, announced plans to invest 1.5 billion rupees to upgrade its manufacturing facility, including converting some of its existing gelatin lines to HPMC at its Bangalore site. Another Indian supplier, Sunil Healthcare, recently launched HPMC capsules and has begun supplying overseas markets. Raw materials The raw materials—gelatin and HPMC—are the major cost for producing capsules. For HGCs, gelatin accounts for 45 to 50 percent of production cost, and for HPMC capsules, HPMC typically accounts for 50 to 60 percent of the production cost. Table 1 lists the market sizes for pharmaceutical-grade HPMC and gelatin and notes what portion of production is used in making cap- sules. The price of HPMC has been relatively stable, with a marginal increase of 3 to 4 percent in the last 2 years. Gelatin prices have increased more over the last 2 to 3 years, causing the price of HGCs to increase 5 to 10 per- cent. The increase in the cost of gelatin has been attrib- uted to supply constraints and higher demand for raw materials from the leather, food, and other industries. Challenges facing HPMC capsules Price challenge. The process to make gelatin capsules is simply more efficient. While HPMC offers a number of advantages over traditional gelatin, it also has drawbacks, including cost. See tables 2 and 3. HPMC capsules are more expensive than their gelatin counterparts, largely due to lower production yields, or conversion ratios, compared to gelatin. For example, manufacturing 1 million capsules requires roughly 126 kilograms of HPMC but only 85 kilo- grams of gelatin. As a result, the prices of HPMC capsules are four to five times higher than those of HGCs. But as Table 1 Market for pharma-grade HPMC and gelatin Raw material Global market, usage in pharmaceutical industry (2015) Portion used in pharmaceuticals globally HPMC 35-40 kilotons 20%. Of that portion, 58% is used as an excipient in tablets and 42% in cap- sule shells. Gelatin 113 kilotons 28%. Of that portion 85% is used in capsule shells and 15% in vaccines and blood plasma expander. Note: Information gathered from private correspondence Tablets & Capsules September 2016 43