Chinese APIs And Their Role in the World’s Pharmaceutical Industry

The Active Pharmaceutical Ingredient (API) is the most important part of any drug. The API, as the name would suggest, is the chemical part of any capsule or tablet that works on the disease condition or symptom. This means that the API is the backbone of the pharmaceutical industry, booming in its own right, as it provides the ingredients for all kinds of medication. As the world's largest API production and exporting country, China can produce thousands species of chemical raw materials. But what is the state of the API market today? How has it been influenced by the coronavirus pandemic?

The Global API is already a billion-dollar industry and the overall market is estimated to be worth around $246 billion dollars by 2025.(1) The API manufacturers’ productions are influenced by the human cost, materials prices, exchange rate fluctuations and other factors. The major driving factors of Global Active Pharmaceutical Ingredient Market are as follows:

• Growing in healthcare expenditure

• Advancements in the technology of API manufacturing

• Rapidly increase aging population

• Increasing Importance of Generics

• Increase in abbreviated new drug applications (ANDA)

• Growth in Incidence of Chronic Diseases (2)

The pharmaceutical manufacturing relies on an international supply chain with two stages. The first stage involves API production and the second one involves combining  these with other ingredients to make tablets, liquids, ointments, and other types of consumables. (3) Without APIs, it is not possible to create the end product, and today the API market is the biggest segment of the pharmaceutical market in general. (1) Indeed, API manufacturing Equipment and API Plant Eequipment are also becoming more and more important among all surgical supplies and instruments.

For more than 10 years, China holds a dominant position in the global API industry given its large scale manufacturing capabilities, cost efficiency and adequate availability of commodity bulk drugs and intermediates due to strong technological capability and fermentation. Moreover, China makes around 40% of all active ingredients worldwide and China and India together provide around 80% of all APIs in the U.S. (4.5) This percentage has been steadily growing in the past few years. India, on the other hand, is one of the biggest manufacturers of generic, off-brand drugs, and it, in turn, relies on China to provide the APIs. (6) Up to 80% of active ingredients used by Indian manufacturers come from China. (6) This reliance is not always clear to consumers. For instance, if a U.S. drug manufacturer acquires their API from China but assembles their pill on U.S. soil, they can claim that the finished product (pill) has a U.S: origin.  Many medications, including some massively important ones like acetaminophen (7) (for which the U.S. is the number one market), mainly rely on Chinese ingredients with no or few alternatives, which means that if China is not able to provide the API, there are likely to be drug shortages. (5.6.8)

2020 is the most unusual  year of our lives. The coronavirus (COVID-19) pandemic is spreading globally, which has had a significant impact on the pharmaceutical industry as a whole. It has disrupted normal activities and affected many organizations financially. APIs have a high manufacturing costs and require special equipment and chemicals, as well as extensive testing and investment in obtaining approval. They need specific raw ingredients that may be rare and expensive. This means that it is not very easy for companies to start manufacturing APIs and alter their whole supply chain.

The coronavirus pandemic is affecting every industry to some degree. In particular, it has affected the generics industry due to disruptions in regards to the coronavirus. As India is reliant on Chinese APIs, as is the U.S. (4), any disruptions threaten primarily the availability of generic drugs, a very important segment for many due to lower costs. The pandemic has exposed an existing problem - the manufacturing is so centralized that a  lack of supply could lead to significant drug shortages, and that, in turn, can have high individual and societal costs when people are not able to access their medication.

The coronavirus does not yet have an approved therapeutics. There might be one or there might not be by the end of this year. If there is, the market for this drug and also for the related API is likely to grow significantly. The same applies to the vaccines that are currently being developed and studied. Any ingredients that are required for their manufacturing will be in high demand for the short-term, at the very least. Additionally, people who face the threat of the pandemic still get exposed to other diseases and continue to have chronic conditions that require medication. An increased concern for their health might also increase the demand for accessible medication. (4,5,8)

In general, the API market is likely to grow and expand. Several other factors are driving it, especially its growth in China but also in other countries that might evaluate the current reliance on specific manufacturers for drug production. Healthcare expenditure has been growing across the world, as has the incidence of chronic conditions that require on-going treatment and support. This can be explained by the aging of the world population, as older adults who are more vulnerable to disease and also more likely to have chronic health issues make up  a bigger percentage of people overall. As the population ages, the need for medication grows.

Also, there has been an increasing importance of generics. The coronavirus and financial crisis have hit many businesses and people hard, forcing them to cut down their expenses. Generics are  more accessible than brand medications, and that makes the difference for many people, especially in regards to common medications or those that need to be use consistently. This creates a higher demand for generic drugs. (5)

Today, the globalization of the pharmaceutical industry has led to fears of over-reliance on particular sources of supply, especially China, for APIs. The coronavirus pandemic has shown vulnerabilities in the modern pharmaceutical supply chain, (5) for instance, India  has worked to increase the APIs manufactured nationally and has invested in new initiatives to depend less on Chinese exports.(6) However, it remains to be seen how this situation will impact the pharmaceutical industry on the long term. One thing is clear - APIs are the core element of pharmaceuticals, and the industry cannot survive without active ingredients, and at the moment, the world relies on China to provide them. Disruptions in the current supply chain can lead to significant shortages, which might mean that more countries need to get involved in this crucial step. 

References

1 MarketWatch. (2020). Active Pharmaceutical Ingredient (API) Market Research With Size, Growth, Manufacturers, Segments And 2026 Forecasts Research.

2 https://www.marketwatch.com/press-release/active-pharmaceutical-ingredient-api-market-research-with-size-growth-manufacturers-segments-and-2026-forecasts-research-2020-08-19

3 https://medicalxpress.com/news/2020-05-world-pharmaceuticals-china-india-coronavirus.html

4 Lazarus, D. (2020). Column: With most drug ingredients coming from China, FDA says shortages have begun. https://www.latimes.com/business/story/2020-02-28/column-coronavirus-china-drugs

5 (2020). The world needs pharmaceuticals from China and India to beat coronavirus. https://medicalxpress.com/news/2020-05-world-pharmaceuticals-china-india-coronavirus.html

6 (2020). Indian generic drugmakers may face supply shortages from China if coronavirus drags on. https://www.reuters.com/article/us-china-health-pharmaceuticals-idUSKBN2072GS

7 https://www.latimes.com/business/story/2020-02-28/column-coronavirus-china-drugs

8 (2018). https://indianexpress.com/article/business/business-others/pharma-sector-80-per-cent-apis-via-chinese-imports-despite-similar-making-costs-5222951/

About the Author:

Lin Zhang, M.D., senior director of a health care industry company in the United States. With the experience in clinical medicine, biotechnology, health industry and other fields, he is responsible for the research and development of plant medicine, functional food and health products. He was a clinician and worked for the National Cancer Institute, FDA and the National Cancer Center of Japan for many years.