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Active pharmaceutical ingredient (API) refers to a substance or mixture of substances prepared by chemical synthesis, plant extraction and biotechnology and used in the manufacture of pharmaceutical products. It is the active ingredient in a pharmaceutical product. According to the patent period difference of downstream preparations, apis can be divided into bulk, specialty and patent apis.

Bulk API refers to traditional chemical API with large tonnage, such as penicillin, vitamins and hormones, which does not involve patent issues. The product is characterized by large output, many manufacturers, fierce market competition, low price and low added value. Featured API mainly refers to the pharmaceutical API whose patent is about to expire or has just expired, and the manufacturer has mastered the mature production technology that can avoid the patent. However, patent apis are mainly supplied to original pharmaceutical companies, which have patent limitations, so they have high requirements on suppliers’ R&D and technical strength, thus bringing higher added value.

China is the largest API production and export country in the world, accounting for the highest proportion of API production capacity in the world, about 28%. About 65% of the country’s API is exported. At present, the domestic API has been exported to 189 countries and regions. The main exports are concentrated in Asia, Europe and North America, accounting for 89% of China’s total API exports.

Among them, India is the largest API export market of China, 70% of its APIS come from China, and the proportion of intermediates is higher. Japan has always been in the top three of China’s API export market list. The main export products to Japan include not only traditional APIS, but also sartan, Pullil and other featured APIS. Asean imports more than 90% of its apis, and is also the main export market of China’s APIS in Asia.

In the past two years, China’s API industry has faced unprecedented opportunities and challenges with the repeated epidemics at home and abroad and the continuous issuance of domestic policies such as quantitative procurement, green economy and national green API base. Then, what is the development trend of domestic API in the post-epidemic era?

The epidemic has eased the situation of excess production capacity of domestic apis

In recent years, the domestic API industry has been plagued by overcapacity, especially penicillin, vitamins, antipyretic and analgesic traditional bulk apis, leading to a decline in the price of related products. In the case of paracetamol, the average export price rose to a stage high of $5.93 / kg at the end of 2018 after years of weakness, but then entered a downward trend and fell to $4.11 / kg in early 2020, a range decline of 31%. Similarly, the export prices of amoxicillin trihydrate acid and vitamin C reached a stage high in 2018, but then fell again and bottomed out at the beginning of 2020.

With the outbreak of COVID-19 in 2020, the balance between supply and demand of global APIS has been broken. Due to the impact of the epidemic, Indian API companies have suspended production, which has led to the transfer of BULK API procurement from European and American countries to China, especially bulk API. As a result, the price of the above varieties rebounded slightly in the second and third quarters of 2020, and began to enter the main rising channel in the fourth quarter of 2020.

The pandemic has spawned new API production lines

Since the outbreak of the epidemic, the international community has been in strong demand for some anti-epidemic apis, and Chinese API has been deeply involved in the production of vaccines and oral medicines. In addition, 90 percent of the raw materials for sedatives, antibiotics, anti-inflammatory drugs and drugs for life-threatening low blood pressure used to treat severe COVID-19 come from China. Some domestic API enterprises rapidly develop or expand the production of related varieties, and some chemical plants also choose to temporarily switch to API production. For example, some enterprises will expand hydroxychloroquine production line in 2020, and some enterprises will expand Remdesivir production line in 2021.

In short, the outbreak of COVID-19 accelerated the restructuring of the global API supply chain and provided an opportunity for the development of API in China. With good epidemic control, China has guaranteed its domestic production capacity and is able to absorb the international shortage of API production capacity, especially the production capacity of featured APIS that India has transferred during the epidemic. So, what is the impact of domestic policy on the development of apis?

Policy to promote continuous optimization of API structure

In recent years, the market of featured apis, such as cardiovascular drugs, anti-tumor drugs, gastrointestinal tract drugs and so on, has maintained continuous growth due to the influence of many factors. Firstly, purchasing with quantity drives down drug prices, which has an obvious effect on improving market penetration of related varieties, and the increase in dosage drives the growth of upstream API demand. Secondly, the increasingly aging trend drives the growth of chronic medicine market, and there is a space for the continuous growth of characteristic APIS. Finally, the patent cliff increases the proportion of generic drugs and drives the development of characteristic apis.

In addition, as API belongs to heavy pollution industry, it is the key object of environmental protection verification. Since 2016, China’s environmental regulation has been continuously tightened, with several ministries and commissions, including the Ministry of Ecology and Environment and the Ministry of Industry and Information Technology, issuing regulatory policies. From the Guidelines for The Development planning of the Pharmaceutical Industry to the Environmental Protection Tax Law and the pollutant discharge permit system, China has been constantly strengthening the environmental protection regulation of API production and taking more comprehensive measures.

Under the influence of stricter environmental protection and supply-side structural reform, the domestic API industry is gradually developing towards green environmental protection and replacing traditional process with green production technology. For example, some domestic API production capacity with high energy consumption, high pollution and backward production technology has been gradually eliminated, and the concentration degree of production capacity has been improved. Although the pressure of environmental protection increases the environmental protection expenditure of pharmaceutical manufacturers, which has a certain impact on the API industry in the short term, in the long run, it promotes the withdrawal of small-yield capacity from the market, improves the industry concentration, and also brings some opportunities to the API manufacturers.

In addition to the general direction of green development, there is also a trend of surging demand for small varieties of API. Due to the gradual easing of competition in bulk API industry in the future and the serious overcapacity in China’s bulk API market, the bulk API industry has entered a period of consolidation or even decline under the multiple pressures of falling prices and rising costs. With the popularization of precision medicine, anti-tumor high-efficiency drugs, especially those with selective targeting characteristics, will become the key development direction in the future, and the corresponding API will also become the key investment field.

Challenges of China’s API

First of all, with the normalization of the epidemic, China’s API enterprises are also seriously affected by the epidemic. In particular, the epidemic control measures in East China since March this year have had a great impact on upstream raw material logistics and factory operation, and many enterprises are facing suspension of production. Even if some pharmaceutical companies resume work, most of them only maintain the minimum number of personnel in the production department, which is not enough to maintain normal production. Another significant impact is the sharp reduction in international freight capacity and the consequent increase in freight costs. Many domestic API exports are in the form of long-term contracts, some of which are signed at CIF prices. Under the circumstance of limited logistics, this part of export business will be significantly affected.

Secondly, overseas companies pay more attention to the production of apis to reduce their dependence on Chinese apis, which may squeeze the development space of domestic apis in the future. Since 2020, the US government has taken various measures to strengthen the API supply chain and reduce its dependence on China’s API, such as initiating relevant acts to safeguard the pharmaceutical supply chain, signing production contracts with enterprises and inviting tenders to reserve key APIS.

In Europe, the European Commission, the European Medicines Agency and other institutions have issued strategies on strengthening the pharmaceutical supply chain. In February 2020, Sanofi announced the realignment of its API base to help Europe move away from its heavy dependence on Asian APIS.

The Indian government is also vigorously promoting the development of API parks in China. Countries such as Brazil and Iran are also taking steps to promote indigenous production of apis.

Therefore, in such an environment, domestic enterprises may face the risk of market loss if they arbitrarily increase investment in API export business.

The fragility of the global pharmaceutical supply chain has been laid bare in recent years by the pandemic and geopolitical tensions. In the face of a variety of adverse factors, domestic production enterprises of API to accelerate the high-end transformation will become the trend of The Times, countries in recent years, vigorously promote structural reform is also supply side this, environmental protection and high pressure, quality standards, ascension will continue to accelerate the features of the API industry concentration with quantity procurement policy is conducive to the characteristics of active pharmaceutical ingredients enterprise transformation. As an API manufacturer, we should seize the opportunity, innovate and transform well, and increase our irreplaceability.