PharmaSources/XiaoyaowanMarch 30, 2022
Tag: Specialty API , API Policy , API Trends
On November 9,2021, the National Development and Reform Commission and the Ministry of Industry and Information Technology issued the Notice on the Implementation Plan of Promoting the High-quality Development of API Industry. China intends to develop value-added and high-growth varieties, green and low-carbon technologies and equipment, supporting leading enterprises to gain international competitiveness and creating industrial hubs and production bases with global influence by 2025. This plan is the first policy document for the overall development of the API industry published by two significant ministries in recent years, which has crucial guiding significance.
API refers to any substance or a mixture of substances becoming an active ingredient of medicine when used in pharmaceutical manufacturing. APIs can be divided into three categories: bulk, specialty, and patent API in terms of differences in the patent period of downstream preparations. The specialty APIs are mainly chronic disease drugs, antiviral agents, anti-tumor drugs, contrast agents, etc. The downstream of specialty APIs are "new" generic, whose patents have just expired or are about to expire. Compared to bulk API, the technical barriers of specialty APIs are relatively high, with a looser market competition pattern and a relatively high gross profit ratio.
Most pharmaceutical enterprises of specialty API take total synthesis, fermentation, and chiral compounds as their major technology platforms. A few specialty API medicines, such as nucleosides, polypeptides, and PEG, belong to emerging technology platforms. Compared with traditional small molecule drug synthesis, specialty APIs based on new technology platforms are relatively scarce, and the technical threshold for R&D is high. Therefore, manufacturers with the production capacity of related categories have a unique competitive edge.
China is a large manufacturer of chemical raw materials, the overall industrial chain layout in China is good for developing the pharmaceutical intermediate and the API industry. At the beginning of industrial development, due to a series of backwardness in technology, capital, and equipment, the development of the entire API industry is extensive, and the proportion of specialty API, with high technical barriers and high gross profit ratio, is relatively low. In the early period, the advantages of the Chinese API industry chain are: more concentrated in intermediates and some bulk API, and the specialty APIs with high added value are mastered mainly by European, American, and Indian enterprises.
At present, China is the world's largest manufacturer and exporter of APIs. But in the standardized market with higher cost performance, specialty API is confronted with competition from mature suppliers in India and China. API products in the Indian market are mainly penicillin, clopidogrel, atorvastatin, and other varieties. These are all specialty API varieties used to treat diabetes, swelling, cardiovascular and other fields. India's specialty APIs account for a leading position in the standardized market, second only to the United States.
With the progress of the pandemic, China's API industry has ushered in an opportunity for development, and the growth of the specialty API industry has accelerated. From the perspective of industry attributes, the specialty API is a technology-driven industry. The industry enterprises are usually marked by a high proportion of R&D personnel, R&D expense rate, and a relatively stable net profit ratio. The industry has a high threshold and barriers in safety, environmental protection, quality, and cost control. Also, corporate champions have established multi-dimensional competitive advantages in production technology, capacity certification, and customer stickiness. and customer stickiness.
Early specialty API manufacturers in China represented by Huahai Pharmaceutical Co., Ltd and Zhejiang Hisun Pharmaceutical Co., Ltd, focus on statins, sartans and other specialty APIs. In recent years, new and cutting-edge APIs such as tinib and saban have emerged and been favored by the market. A number of API manufacturers such as Menovo, Apeloa, Ausun and Aurisco have gradually developed and expanded.
Driven by the continuous improvement of the production process of specialty API, and the price advantage in China, the substitution effect of Chines specialty APIs on overseas imported ones will gradually increase in the future. The specialty API industry in China has been in rapid development.
In the short and medium-term, influenced by the upstream costs and the downstream inventory digestion, specialty APIs in China are to start a new round of price increase cycles. At present, the price of valsartan in China has reached the bottom, the prices of telmisartan, irbesartan, calcium pantothenate, and caffeine are about to rise.
In addition, in early November of 2021, NMPA issued a notice on the enabling of the API production and supply information collection module, requiring enterprises to collect the production, supply, and inventory information of APIs, which approved through associated approval and review quarterly, and provide supervision and inquiry functions. The provincial drug regulatory departments can inquire about the API manufacturing and supply information according to their authority.
The transparency of API production information will further standardize the industry and accelerate the normalization of the small and medium-sized enterprises and benefit the leading enterprises with the scale advantage. At the same time, the standardization of API information makes it easier to implement centralized procurement of drugs, and the integration of API and preparations is the development direction. For API pharmaceutical enterprises, the consistency evaluation and volume-based procurement policy significantly reduce the threshold of sales end, and the entry of API enterprises with cost advantages into the preparation field can generate jumps in income. Therefore, it is a good option for enterprises to the downstream preparations and boosts their revenue quickly.
At the same time, in the short term, the US dollar interest rate hike is expected to lead to the depreciation trend of CNY, which will bring obvious exchange rate benefits of export-oriented API enterprises and is conducive to the increase of apparent income. Among many A-share API enterprises, the major clients come from foreign countries, playing a dominant role in China's API export. Among them, the overseas business of Huahai Pharmaceutical, Synergy Pharma, Hepalink, Menovo, and other enterprises accounts for a relatively large proportion of the income structure, and the depreciation of CNY is beneficial to the improvement of their performance.
In the medium and long term, with the orders from the key customers keeping generating revenue, specialty API enterprises will achieve the transformation to a CDMO business model. According to follow-up reports from industry insiders during industrial upgrading, leading enterprises in China have accelerated the industrial transfer to high-value-added and high-growth varieties by innovation and upgrading of production technology. The transformation business of leading API pharmaceutical enterprises has entered the cash period. In the first three quarters of 2021, the CDMO/CMO business income of Jiuzhou Pharmaceutical, Apeloa, and Tianyu Pharmaceutical achieved rapid growth of 35%+ year-on-year.
In the past three years, specialty API pharmaceutical enterprises in China, especially the leading enterprises, have generally experienced a large-scale expansion of production, and Chinese API enterprises have been preparing for the explosion of the market size of the generic drug. Specialty APIs with growth potential and parallel CDMO expansion is still the growth logic deserving attention in the future.
Xiaoyaowan, a pharmaceutical industry practitioner, a word carrier in the We-media era focusing on changes of the pharma industry.
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