Chinese APIs reshape international market competitiveness

2024.12.30

Source: China Pharmaceutical News

Reprinted from: China Pharmaceutical News

It is the right time for China's API industry structure to be optimized and upgraded, and it will continue to maintain its advantages in the reshaping of the global industrial chain.

China's API exports are mainly bulk APIs, and the overall export scale has grown steadily. Overseas markets are mainly concentrated in the EU, India, ASEAN, the United States, Japan and other markets.

Developing countries represented by China and India have become the focus of global API production, but the production of patented APIs is still concentrated in developed countries such as Europe and the United States.

After the 1990s, due to environmental pressure, rising production costs and other factors, the API production capacity of European and American countries began to decline. At the same time, developing countries represented by China and India, with lower labor costs, continuous investment in API research and development, and continuous improvement of technology and production processes, have shown their advantages in API products. Since then, the focus of global API production has begun to shift to other regions, mainly in the Asia-Pacific region.

At present, developed countries and regions in Europe and the United States have taken a leading position in the field of high value-added patented APIs by virtue of their advantages in innovative drug research and development, production process improvement and intellectual property protection; India uses the generic drug industry to drive the production of specialty APIs; China mainly focuses on bulk APIs with mature technology and large market demand. China's API industry is ushering in a critical period of transformation and upgrading.

Export scale is growing steadily

Since Hisun Pharmaceuticals (8.390, -0.01, -0.12%) obtained the first FDA (U.S. Food and Drug Administration) certificate for tobramycin in 1992, my country's API companies have accelerated their recognition in the international market and gradually integrated into the international mid-to-high-end API market.

China is a major producer and exporter of APIs, responsible for about 1/3 of the global supply of APIs. According to data from the China Chamber of Commerce for Import and Export of Medicines and Health Products (hereinafter referred to as the Medical Insurance Chamber of Commerce), my country's API exports have continued to grow, from US$23.6 billion in 2013 to US$51.79 billion in 2022. Among them, during the period of 2020-2022, affected by the COVID-19 pandemic, the global demand for APIs, especially bulk APIs such as antibiotics, hormones, antipyretics and analgesics, increased significantly, and my country's API exports grew rapidly during this period. However, in 2023, the export volume of APIs reached 12.489 million tons, a year-on-year increase of 5.4%; the export value was US$40.93 billion, a year-on-year decrease of 20.6%. The increase in volume and decrease in price of API exports can be attributed to the shrinking demand for APIs in the international market in the post-epidemic period. Bulk API companies are facing destocking pressure, so they have adopted price cuts to cope with it.

APIs are the export advantage products of my country's pharmaceutical industry. According to the data of the Medical Insurance Chamber of Commerce, the top three varieties of my country's bulk API exports in 2023 are amino acids and their derivatives, vitamins and hormones, which are US$3.79 billion, US$3.27 billion and US$2.75 billion respectively; except for the increase in the export value of antibiotic APIs compared with 2022, amino acids and their derivatives and vitamins have all declined year-on-year.

Outstanding performance in key markets

Chinese APIs are exported to nearly 200 countries and regions around the world, and are relatively concentrated in a few key markets. From the perspective of market segments, in 2023, the EU, India and ASEAN are the top three markets for China's API exports, accounting for 25.2%, 15.2% and 10.5% respectively; exports to the US market are US$4.04 billion, a year-on-year decrease of 24.5%.

EU

The EU is the world's largest market for APIs and intermediates. According to data from the Medical Insurance Chamber of Commerce, the EU's API imports in 2023 reached US$82.07 billion, with a compound growth rate of 14.53% in the past five years. The EU's API intermediates mainly come from Switzerland, China, the United States and other countries. There are two main ways for APIs to enter the EU market-obtaining the European Pharmacopoeia Certificate of Suitability (CEP) and the Active Substance Master File (ASMF). CEP is issued by the European Directorate for the Quality of Medicines (EDQM). The quality of APIs that have obtained the CEP certificate meets the European Pharmacopoeia standards and is recognized by EU member states.

As of July 2024, EDQM has issued 6,590 valid CEP certificates, and China has obtained 1,186 valid CEP certificates, accounting for about 18.0%.

United States

The United States is the world's largest pharmaceutical market, and accordingly has a huge demand for APIs. Since downstream pharmaceutical companies in the United States have high quality requirements for APIs, the unit price of APIs is more expensive, making it an ideal market for API sales.

American APIs are highly dependent on imports. A report released by the FDA showed that in 2019, only 12% of APIs in the United States were produced domestically, and 88% of APIs came from overseas; as many as 83% of the top 100 drugs in the country had no domestic raw material supply sources. At the same time, the supply of generic drugs in the United States is also heavily dependent on the global supply chain. According to Clarivate's Cortellis Generics Intelligence database, from 2020 to 2021, generic APIs in the U.S. market came from 565 factories in 42 countries and regions, with a total of 1,379 APIs.

Chinese APIs occupy an important position in the U.S. market, and the United States implements a drug master file (DMF) management system for APIs. As of the first quarter of 2024, China has 3,539 products that have obtained DMF, accounting for about 13.4% of the total number of DMFs in the United States.

ASEAN

Most ASEAN countries have a weak foundation for the development of the local pharmaceutical industry, are highly dependent on imported APIs, and the demand for APIs is in a sustained growth stage. According to the data from the Medical Insurance Chamber of Commerce, the compound growth rate of ASEAN's imports of APIs and intermediates was 6.5% from 2019 to 2023.

China is an important source of APIs for ASEAN, with exports to ASEAN of US$4.3 billion in 2023, and the relationship between China and ASEAN's pharmaceutical supply chain is becoming increasingly close. In 2023, ASEAN's pharmaceutical imports from India and the United States showed a downward trend, but China's exports to ASEAN increased by 8%. In the environment of lower API prices, the market share continued to expand.

India

India is both a major exporter of specialty APIs and a major importer of bulk APIs. According to the data from the Medical Insurance Chamber of Commerce, India ranks third in the world in terms of API imports, while China is the largest source of APIs and intermediates for India. In 2023, India's imports of APIs and intermediates from China will reach US$10.15 billion, accounting for 68.8% of the total imports. In 2020, the Indian Pharmaceutical Administration issued a draft guidance on encouraging localization plans to reduce dependence on API imports and promote the localization of key pharmaceutical intermediates and APIs required by the Indian pharmaceutical industry. This move will have an impact on China's API exports to India.

Industrial upgrading reshapes the supply chain

Faced with the rapid changes and fierce competition in the global pharmaceutical market, domestic API companies are further strengthening technological innovation and industrial upgrading.

Carry out CXO-related pharmaceutical business and optimize and upgrade business models

As the cornerstone of drug research and development, API manufacturers provide standard APIs for pharmacology and toxicology research, formulation research and development, clinical trials and other links in the drug research and development production process, and are in the upstream position of the pharmaceutical industry chain. Faced with challenges such as centralized procurement policies and environmental protection policies in recent years, my country's API companies rely on their deep technical accumulation and the cost advantages brought by a self-sufficient API supply chain to seek opportunities to transform from production companies to comprehensive service companies. Many companies have begun to expand along the entire industry chain of drug research and development and production to the downstream links with higher added value, and have been involved in CXO businesses such as CMO and CDMO.

Transformation often faces challenges. For example, compared with the API production business, the service model of CDMO business is relatively complex, covering multiple key links such as drug research and development, formulation development, clinical trials and commercial production. API companies need to consolidate their comprehensive service capabilities in terms of technology platforms, compliant production capabilities and project management levels. More CDMO companies that adopt the "API+CXO" development path, have global competitiveness and are of considerable scale are emerging in my country. They further absorb orders from home and abroad, expand the international market, and accelerate the pace of global expansion. The practices of typical pharmaceutical companies are worthy of attention.

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