Analysis on the development status and trend of API industry in China under the supply side reform

By Xin Mingyu Based on the advantages of bulk production capacity, expand the characteristics of policy dividend & Patent API pipeline China is the world's largest producer and exporter of APIs According to the data of China Chemical Pharmaceutical Industry Association, in 2018, the main business income of China's API based enterprises was 384.33 billion yuan, a year-on-year increase of 10.4%; the export delivery value was 68.06 billion yuan, a year-on-year increase of 9.8% As the pillar of China's pharmaceutical industry, In 2019, China's chemical API output will reach 2.523 million tons, and the annual output will be stable at about 2.5 million tons Figure 1 Chemical API production in 2012-2019 Data source: National Bureau of Statistics China, India, Europe, Japan and North America are the world's major API production regions, benefiting from the continuous transfer of the global pharmaceutical industry chain China and India have the largest API suppliers in the world and are the world's major API export bases India has become the biggest beneficiary of API capacity transfer in the past decade due to its linguistic and technological advantages With more mature basic industrial system, cost advantage and fermentation product advantage, China is catching up with India in technology, product quality system and DMF certification Thanks to the continuous growth of global API Market and the continuous transfer of API capacity from European and American countries to developing countries, China's API export has continued to grow in recent years In 2018, China's export volume of APIs (including pharmaceutical intermediates) reached 9.2972 million tons, a year-on-year increase of 3.8%, and the export volume reached US $30.048 billion, a year-on-year increase of 3.1% Figure 2 export volume of APIs (including pharmaceutical intermediates) in China (10000 tons) Figure 3 export amount of APIs (including pharmaceutical intermediates) in China (US $100 million) Data source: China Chamber of Commerce for import and export of medical and health products Table 1 Comparison of three major API products in China Data source: public data sorting Due to the lack of research and development ability in the early stage, China's API enterprises have the advantages of mainly some bulk API products with mature technology and long product chain, mainly focusing on vitamins, antipyretics and analgesics, antibiotics and corticosteroids China has a wide range of antibiotic products, with comparative advantages of penicillin, tetracycline, chloramphenicol and other products; China is the world's largest producer and exporter of vitamin products, with the largest advantage of vitamin C; the second largest raw material drug next to vitamin C - antipyretic and analgesic drugs, including citric acid and dexamethasone, because the price is 30% - 40% lower than the international average price %It can occupy a certain market share in the international market In recent years, the policy dividend has expanded the scale of generic drug market, and the demand for new characteristic APIs has expanded rapidly, which has greatly promoted the international production transfer process of China's characteristic APIs, and the proportion of characteristic APIs in export products has also increased rapidly In this process, some domestic enterprises with strong technical strength gradually upgrade the product pipeline, and become increasingly important in the field of characteristic API and patent API The number of andas approved by FDA by domestic manufacturers has increased rapidly In 2002, there were only three anda approvals, and by 2019, there were 92 andas 11.1% of the 808 andas approved by FDA in 2019 It is expected that in the future, with the gradual integration of domestic drug audit policies with international standards, and the gradual globalization of national enterprises, Chinese pharmaceutical enterprises are expected to play an increasingly important role in the international API market Supply side reform of industrial chain On December 29, 2019, the joint procurement office for centralized procurement and use of drugs organized by the state issued a notice saying that the second batch of centralized procurement and use of drugs organized by the state will be carried out in order to establish a standardized and normalized mode of centralized procurement of drugs with volume, further reduce the burden of drug use on the masses It is understood that 33 varieties are included in the second batch of volume purchase, and the bidding will start in Shanghai on January 17, 2020 The principle of "4 + 7" quantity purchase requires that the price be determined through bidding is quantity price linkage The average price reduction of the first batch of volume procurement is more than 50% In 2019, volume procurement will expand nationwide, with an average decrease of 25% compared with the price level of "4 + 7" pilot cities at the end of last year Volume procurement will have a certain impact on the API Market: Volume procurement makes the survival rule of generic pharmaceutical enterprises turn to "cost control is the king" Enterprises integrating preparations and APIs can exchange volume with price based on their cost advantages, which will impact other manufacturers of the same variety who are unable to achieve high barrier API layout in the short term After volume purchase, the overall status of domestic APIs will also be improved Before volume purchase, most of the corresponding APIs in the domestic pharmaceutical preparation market are purchased globally After the implementation of the policy, it is expected that domestic APIs will be imported and replaced substantially In March 2016, the general office of the State Council issued the notice on the evaluation of quality and efficacy consistency of generic drugs Consistency evaluation is one of the drug quality requirements in the 12th Five Year Plan for national drug safety, that is, the country requires that the quality and efficacy of generic drugs should be consistent with that of the original drugs Specifically, it is required that the impurity spectrum is consistent, the stability is consistent, and the dissolution rule in vitro and in vivo is consistent As of February 17, 2020, the number of acceptance numbers of conformity assessment approved by CDE has reached 1884, and 632 have been approved Among them, the number of acceptance numbers in 2019 reached 233, more than twice the number of acceptance numbers in 2018 It can be seen that consistency evaluation is the key to participate in the market competition of centralized mining, and it is also the general trend Consistency evaluation puts forward higher requirements for quality and cost control of pharmaceutical enterprises API quality is directly related to preparation approval and API manufacturers cannot be replaced at will Consistency evaluation improves the position of API industry in the industrial chain, increases the demand for high-quality API enterprises, and continues to concentrate market share to the existing "high quality, low cost and stable supply" API enterprises The administrative measures for the joint review and approval of APIs, pharmaceutical excipients and drug packaging materials and pharmaceutical preparations (Draft for comments) issued by the State Food and drug administration Since the date of the announcement, the food and drug administration departments at all levels will no longer independently accept the registration application of APIs, pharmaceutical excipients and drug packaging materials, instead of the registration system After registration, the registration number will be obtained, and the related pharmaceutical preparations will be noted The application shall be reviewed together with the application In addition to strengthening the pace of China's drug supervision in line with the international standards, saving review resources, reducing administrative restrictions on the pharmaceutical industry, and strengthening technical requirements, the most important thing is to emphasize that the original, auxiliary and package enterprises and pharmaceutical enterprises should be interdependent and supervised each other in drug production, and dare to bear their own responsibilities in the pharmaceutical industry chain, so as to promote the healthy development of the industry Related review can effectively crack down on the phenomenon of monopoly and control of sales of API in domestic market API and preparation enterprises can select each other in advance, establish a firm and long-term cooperation relationship, and avoid monopoly behaviors such as unilateral breach of contract of API enterprises to a certain extent On the other hand, API enterprises can supply multiple pharmaceutical manufacturers, and pharmaceutical enterprises can also associate with multiple API suppliers, which improves the discourse power of API enterprises in the supply chain Recently, the Ministry of industry and information technology, the Ministry of ecological environment, the national health and Health Commission, the State Drug Administration and other four departments jointly issued the guiding opinions on promoting the green development of API industry, which clearly stated the future development objectives, implementation paths and basic requirements of API industry API industry is a heavy pollution industry The pollutants produced in the production process are difficult to deal with and expensive to deal with, which also makes many small and medium-sized enterprises hold back and forced to stop production or withdraw from the market Since the formal implementation of the environmental protection tax law in January 2018, Jiangsu, Zhejiang, Hebei and other major API production provinces have successively issued documents to strictly deal with enterprises with serious pollution, and a large number of API and intermediate enterprises that fail to meet the environmental protection standards have to stop production for rectification or shutdown In the context of current environmental protection tightening, China's chemical API production declined significantly after reaching a peak of 3.478 million tons in 2017 In 2018, China's API production reached 2.823 million tons, a year-on-year decrease of 18.83% In 2019, China's API production reached 2.523 million tons, a year-on-year decrease of 10.63% Global patent cliff and domestic import substitution will drive the expansion of API Market in China The expiration of patent drugs worldwide and the wide space of import substitution in China will promote the prosperity and development of API industry According to the data released by evaluate Pharma, there will be nearly 160 billion U.S dollars of patent drugs due in 2020-2024 However, the price of generic drugs is low, and the consumption of corresponding drugs will increase significantly Therefore, it is predicted that 46% of the market share of these expired patent drugs will be dominated by generic drugs At present, the global generic drug market has maintained a double-digit growth rate, among which China and other developing countries have gradually increased their share On the other hand, before the volume purchase, the corresponding APIs in the domestic pharmaceutical preparation market are mostly global procurement After the implementation of the policy, it is expected that the domestic APIs will be largely imported and replaced The above international and domestic trends will have a positive impact on the scale and pattern of characteristic API enterprises Figure 4 global patent expiration impact on drug sales (billion US dollars) Data source: FDA, evaluate Pharma, world preview 2019, outlook to 2024