The Rebirth of the Original Force in Pharmaceutical Internationalization (Part 2): Illuminate High Value-Added
In the early 21st century, China's API industry was increasingly plagued by cyclical overcapacity in bulk APIs and a deep-seated structural contradiction of low value-added. API manufacturers faced growing challenges in both domestic and international markets, and how to pursue transformation and upgrading became an urgent practical issue for the entire industry.
Bulk, low value-added products have been trapped in production reductions, restrictions and even shutdowns under mounting environmental pressures. As a result, high-quality specialized APIs driven by green manufacturing have become one of the core strategies for the transformation and upgrading of China's pharmaceutical industry.
In recent years, exports of specialized APIs such as statins, sartans and ACE inhibitors have increased year by year. The specialized API businesses of companies including Huahai Pharmaceutical, Hisun Pharmaceutical, Hengrui Medicine, Minova Pharmaceutical and Jiuzhou Pharmaceutical have grown rapidly.
In early 2020, four ministries including the Ministry of Industry and Information Technology jointly issued the . It set goals that by 2025, the industrial structure would be more rational, the proportion of APIs produced with green technologies would be further increased, and the market share of high-end specialized APIs would be significantly enhanced.
It is clear that China's high-end API sector is poised for a new round of growth.
Amid the COVID-19 pandemic, the Indian government approved a package of policies to boost the production of key APIs and intermediates. Coupled with the patent expirations or upcoming expirations of a number of blockbuster drugs, the global market for specialized APIs is set to thrive.
As overcapacity becomes increasingly prominent in bulk APIs such as vitamins, antibiotics, and antipyretic analgesics, a number of enterprises have targeted segmented sectors including specialty APIs to break through and achieve substantial profits.
Taking Hisun Pharmaceutical, a leading Chinese enterprise in specialty APIs, as an example, Hisun has built its core competitiveness over the years focusing on specialty APIs for oncology, cardiovascular diseases, and parasitic diseases.Back in 2003, Hisun seized the opportunity when the patent of simvastatin, a globally best-selling drug, expired in the EU, leading to a surge in demand from multinational pharmaceutical companies for its API. Hisun took the lead in completing the R&D of production technology and conditions for large-scale manufacturing of this API. Benefiting from large orders driven by international custom demand at that time, its output and sales volume grew explosively, making Hisun famous overnight in the international market for statin APIs.According to Clarivate data, Hisun Pharmaceutical has been actively building and enriching its product pipeline. To date, it has commercialized and confirmed supply for 102 API products.
Relevant research reports indicate that the profit margin of specialty APIs can reach around 50% in the early stage after patent expiration, more than ten times that of bulk APIs - this is exactly where its appeal lies.In recent years, the number of Chinese specialty APIs certified by authorities such as the U.S. and Europe has been increasing steadily.
Huahai Pharmaceutical is well aware of this logic, and its development path in specialty APIs shares striking similarities with Hisun.From 2011 to 2012, international patents for sartan drugs expired one after another. Huahai made an early layout and obtained the U.S. DMF number for sartan APIs as early as 2007.Huahai's sartan API business experienced explosive growth in 2011. By 2017, exports of sartan APIs accounted for more than 60% of Huahai's total API exports.According to Clarivate statistics, by 2019, Huahai held 80 U.S. DMF certificates, including 71 active U.S. DMF certificates, 43 European CEP certificates, and 19 Indian import registration certificates. In addition, it had obtained 87 GMP certificates issued by various regulatory authorities.
In fact, Huahai's development of specialty APIs was not easy. To go global, the company first needed to go international in philosophy and culture. Transformation is easy; changing mindsets is difficult.It is known that in the early stage, in addition to improving employees' awareness of compliance, Huahai required young employees to write work emails in English and mandatory English training for employees under 40 years old, bridging the language gap with international competitors in key links.
Looking further at the industry, Hengrui Medicine has set up another banner with specialty APIs.It has deeply cultivated specialty APIs in fields such as oncology. Since its oxaliplatin API first obtained the EU CEP certification in 2005, APIs such as ifosfamide, mesna, letrozole, irinotecan, and cyclophosphamide have successively obtained certifications in Europe and the United States."Relying on mature technology platforms and R&D advantages, positioning oncology APIs for regulated markets in Europe and the U.S. helps improve the enterprise's cost control capability," said a relevant person in charge of Hengrui Medicine. Its advantages in oncology API production have thus evolved into a secret weapon for Hengrui's later development in the field of oncology drugs.
A review of these enterprises deeply engaged in specialty APIs shows that those who master the large-scale production technology of APIs before blockbuster drug patents expire can often achieve substantial growth in sales and profits.This, of course, requires strong R&D capabilities and forward-looking product reserves.For example, sartans are antihypertensive drugs used clinically after ACE inhibitors. Demand for their APIs changes rapidly: enterprises must keep up with expiring patented drugs to support generic drug companies in registering products and seizing the market as soon as possible, while actively upgrading to cope with the emergence of new drugs that erode the generic drug market.The substitution of ACE inhibitors by sartans illustrates the life cycle characteristics of specialty APIs. The continuous iteration of high-end formulations is bound to drive changes in demand for specialty APIs.
A review of the transformation of the global pharmaceutical industry reveals a growing trend: the global pharmaceutical competition barrier has returned to the essence of "technology + manufacturing".Especially in the field of specialty APIs, cost reduction is increasingly moving toward globalization, and improving the specialized division of labor in the industrial chain has become a new task for us.
Jiuzhou Pharmaceutical specializes in specialty APIs for central nervous system disorders, non-steroidal anti-inflammatory drugs, anti-infectives, etc. Its core products, including carbamazepine, oxcarbazepine, and ketoprofen, rank first in global market share."By increasing R&D investment, we have strengthened our chemical synthesis and manufacturing capabilities in green synthesis, catalysis, chiral synthesis, membrane separation and concentration purification, molecular distillation, and other technologies," said a representative of Jiuzhou Pharmaceutical.With the accumulated synthesis processes, registration experience, and customer resources, the company has successfully transformed into a CDMO provider and established closer ties with international giants such as Novartis and Teva, as well as domestic enterprises.
An analysis of Jiuzhou Pharmaceutical shows that high-value-added specialty APIs and intermediates such as venlafaxine, duloxetine, and carbapenems generated revenue of1.013 billion yuan in 2019, with a gross profit margin of 34.22%.CDMO revenue surged 41.03% year-on-year, mainly driven by strong orders for Entresto intermediates.As orders for contracted products gradually ramp up, 38% of its revenue comes from contract customization business, reflecting a deep integration of process R&D and large-scale production capabilities.
Contract customization services are booming, and China's specialty API industry is taking this as an entry point to integrate into the global pharmaceutical value chain in a new way.Asymchem has quickly distinguished itself from peers by providing CDMO services to multinational pharmaceutical companies with core technologies such as continuous reaction and biocatalysis.The company mastered asymmetric synthesis technology and won large international orders.Several years ago, a multinational pharmaceutical company sought a cooperative supplier for a core product during Phase II clinical trials.A Japanese firm required one year for delivery, while Asymchem completed it in just 41 days using continuous reaction technology, successfully winning the bid.
The division of labor in China's pharmaceutical industry chain has truly become professional, allowing enterprises to focus on their strengths and build closer partnerships with multinational pharmaceutical companies.Minova Pharmaceutical is one of the largest Chinese exporters of specialty APIs to Europe.Its flagship products, including valsartan, rosuvastatin, clopidogrel and their intermediates, hold prominent positions internationally.Establishing early close cooperation with downstream manufacturers is its core strategy.
"We have built trust through long-term cooperation with KRKA, a well-known European pharmaceutical company, which has led to diverse models such as joint R&D, joint registration, and collaborative generic development.More importantly, such cooperation has gradually evolved from simple capacity output to high-value-added technology output. Being indispensable is the foundation for stable long-term upstream and downstream cooperation," Minova stated.In 2018, the company's API revenue reached848 million yuan, accounting for 90% of total business.The rapid growth of its API business is driven by an elite team with rich industry experience, strong expertise, and international vision, which excels at grasping global pharmaceutical trends and developing competitive projects, laying a solid foundation for the company's medium- and long-term sustainable development.
In summary:The core logic of the transformation toward specialty APIs lies in mastering advanced process technologies and building distinct differentiated advantages.The professional service outsourcing model will play an increasingly important role in promoting the globalization of China's pharmaceutical industry.
In recent years, costs of raw materials and energy have risen sharply, intensifying competition in the API market.From the perspective of the API supply landscape across continents, China and India focus on generic APIs, while Europe and the US dominate patented APIs.Against the backdrop of refined global industrial division and growing emphasis on cost factors, the globalization of new drug R&D has created conditions for the outsourcing of patented API production.
According to Frost & Sullivan data, the global prescription drug market reached $827 billion in 2018, of which patented drugs accounted for $752 billion, or 91%.If API enterprises can engage in the product strategies of multinational pharmaceutical companies at an early stage, patented APIs will enable better integration between upstream and downstream industries.
Compared with conventional and specialty APIs, patented APIs represent a higher-level potential market.Although few domestic enterprises are involved in patented APIs, the situation is changing positively.Take the antiviral drug remdesivir as an example during the exceptional period.Despite being still in clinical research, its API supply has attracted widespread attention.Botec Pharmaceutical announced that it had received an order confirmation for intermediates of remdesivir, an investigational antiviral drug from Gilead Sciences.However, Gilead has patented the N-3 intermediate, so domestic enterprises can only seek to become suppliers to Gilead.Gilead's partners in Italy and Canada also encountered production issues.In this sense, patented APIs present both opportunities and challenges.
Based on this reality, can we make a bold prediction: will the patented API sector achieve a breakthrough in the future?Probably, perhaps, possibly-but positive factors are gathering.Today, the vigorous development of innovative drugs has prompted upstream patented drug manufacturers to re-evaluate specialty APIs.With the internationalization of the domestic market and the localization of the international market, patented drugs are accelerating their entry into China.Against the backdrop of an increasingly perfected MAH system and patent system, the division of labor in the innovative drug industry will become more specialized.Under price pressure, patented drug manufacturers will pay more attention to API costs, giving rise to higher-level contract outsourcing services.
The closer to the top of the pyramid, the lower the proportion of API costs in patented drug costs, but the higher the technical barriers and the less substitutability.With the continuous development of global innovative drugs, the contract customization of high-value-added patented APIs will surely be promoted.Undoubtedly, there is great potential here, which also tests the wisdom of both suppliers and demanders.
In conclusion, the future competition in the global API market will be brilliant because of specialization.
