Controlling raw materials into the key to success for pharmaceutical companies

Recently, the plaintiff Yangtze River Pharmaceutical Group Co., Ltd. (hereinafter referred to as "Yangtze River"), Yangtze River Group Guangzhou Hairui Pharmaceutical Co., Ltd. and the defendant Hefei Medical Industry and Pharmaceutical Co., Ltd. (hereinafter referred to as "Hefei Medical Engineering"), Hefei The case of Enruit Pharmaceutical Co., Ltd.'s monopoly dispute was concluded in the first instance. The court ruled that the plaintiff won the case and Yangtze River is expected to receive nearly 70 million yuan in economic compensation. Behind this case, it reflects the wrestling between preparation companies and upstream API companies. In fact, the preparation companies that are trapped in the monopoly of upstream APIs or even cut off the supply are far more than the Yangzijiang family. Many preparation companies dare not speak. Since the outbreak of the new crown epidemic this year, due to the pressing of the "pause button" in production and supply, the prices of some APIs have increased sharply, causing preparation companies to complain. In the downstream of the industrial chain, preparation companies are facing a cliff-like decline in the price of terminal products brought about by mass procurement and national price linkage. In this context, industry insiders pointed out that in the future, controlling the supply of upstream raw materials will become one of the keys for preparation companies to gain a foothold in the market.

Fighting the monopoly of APIs will never be soft

It is understood that Yang Zijiang sued Hefei Medical Engineering and Hefei Enruit Pharmaceutical, which originated from a large variety with annual sales of over 1 billion yuan-desloratadine citrate. Currently, only one manufacturer of this product has an API approval (Hefei Medical Engineering). Yangtze River Group Guangzhou Hairui Pharmaceutical Co., Ltd., as a downstream preparation company of desloratadine citrate, needs to purchase raw materials from Hefei Enruit Pharmaceutical Co., Ltd., a subsidiary of Hefei Medical Industry, for production. In this case, the plaintiff Yang Zijiang stated that the defendant took advantage of the monopoly power to sign an overlord contract with Yang Zijiang: to purchase the output specified by them for five years, otherwise he would pay huge liquidated damages; he would also pay the so-called "additional fees" for the purchase of raw materials; Increase prices year by year; compulsorily terminate the original R&D project.

Regarding the monopoly of desloratadine citrate raw materials reflected in this case, Li Shiqiao, general manager of Bengbu Fengyuan Pharmaceutical Technology Development Co., Ltd., analyzed: "This monopoly case is actually different from the monopoly of raw materials in common sense. Many monopolistic behaviors are behaviors of API companies relying on their superior position to eliminate and restrict competition. In this case, the plaintiff and the defendant were originally very good partners, and the final court was due to disputes of interest. '."

Li Shiqiao also said that Yang Zijiang’s victory in the first instance of the case reflects the importance of the legal aspect of the monopoly of APIs and is in line with the national anti-monopoly policy. It also reflects that downstream preparation companies dare to take legal weapons to protect their legitimate rights and interests. . In fact, the monopoly of APIs is an old problem, but it has not been effectively resolved. The first-instance judgment of this case also gave a signal: to combat monopolistic behavior, the law is by no means a bystander, and the relevant departments will never be soft.

Li Shiqiao also analyzed the crux of the old problem of monopoly of raw materials that has been difficult to solve. He believes that there are mainly the following factors. The first is that the entry barriers for the API market are relatively high. Although the total amount of domestic API approvals is large, many companies cannot produce due to environmental protection, safety, quality and other factors. However, companies with production conditions have high input and cycle time for API registration. Long-term factors, it is impossible to enter the market in the short term; secondly, the market capacity of some API varieties is not very large, and only a few companies have the production qualifications, thus planting the seeds of monopoly; in addition, the competition in China’s generic drug industry is fierce. Distributors can control the prices of downstream preparations by controlling the raw materials to maximize their benefits. Finally, the Chinese pharmaceutical industry has ended its fifteen-year period of rapid development and entered the stage of industrial integration. The pharmaceutical industry has not yet fully embarked on a healthy and benign state. On the development track, the upstream and downstream have not yet achieved real and efficient linkage.

Regarding how to fundamentally solve the monopoly of APIs, Li Shiqiao said: “In May 2017, when Wang Chen, Vice Chairman and Secretary-General of the Standing Committee of the National People’s Congress, led an inspection team to Anhui to conduct inspections of the Drug Administration Law, we proposed Recommendations for accelerating the implementation of API filing management. The current API filing management policy has been implemented. It is believed that with the deepening of my country’s drug review and approval system reform and the gradual advancement of the API filing system, API monopoly will be greatly reduced. "

In fact, under the background that the system has not yet been perfected, the state has never stopped cracking down on monopolistic behavior of APIs. Recently, the State Administration of Market Supervision announced that it had imposed a monopoly on three calcium gluconate API distributors (Shandong Kanghui Pharmaceutical Co., Ltd., Weifang Puyunhui Pharmaceutical Co., Ltd. and Weifang Taiyangshen Pharmaceutical Co., Ltd.). Administrative penalties, fines and confiscated totaling 325.5 million yuan. This is the API monopoly case with the highest amount of fines and confiscated since the establishment of the State Administration of Market Supervision.

How to get rid of the constraints caused by rising prices and monopoly of APIs?

In addition to monopoly, the news of repeated price increases of APIs in recent years has been exposed. Especially since the new crown epidemic this year, due to the "pause button" pressed on production and supply, the prices of some APIs, such as vitamin D3, have increased significantly. 268%.

Regarding the recent increase in the price of raw materials, Li Shiqiao said that there are many reasons. First, of course, it is affected by the epidemic, production is suspended, and market supply is reduced; second, some bulk raw materials, such as vitamins, have price fluctuation cycles. Two years have just happened to be in the down cycle. Last year, it can be said that it fell to the bottom. This year may just enter the up cycle, and the price rebound is understandable.

Regarding the follow-up trend of raw material drug prices, Li Shiqiao analyzed that although since March, the resumption rate of raw material drug companies and the production rate of main products have exceeded 80%, and the output of some varieties has exceeded the level of the same period last year, but , India and other major API countries are still not optimistic about the epidemic situation, and the entire market supply is still in a tight state; in addition, as mentioned earlier, the prices of some bulk APIs are in an upward cycle. On the whole, in the short term, the prices of raw materials will not drop significantly, and it is difficult to return to normal levels. In the future, most of the prices of raw materials will continue to maintain a high level.

Obviously, this wave of price hikes will have an impact on preparation companies, especially those companies that are selected in the national procurement with a large amount of product prices. If the price of raw materials continues to rise, it will be unsustainable, and subsequent disruptions may occur. For risk. Therefore, in the context of continuously falling prices of downstream products, controlling the increase in the cost of raw materials has become a top priority for many pharmaceutical companies.

How can preparation companies get rid of the constraints caused by rising prices and monopoly of raw materials? Li Shiqiao said that this requires the joint efforts of the industry and relevant state departments. First, preparation companies should establish good partnerships with upstream API companies to form an upstream-downstream linkage mechanism; secondly, they must spend energy to expand and enrich the sources of APIs, such as increasing imports from India and other countries; secondly, the country should take further steps Optimize the record management of APIs, and give priority to review and approval of APIs that are included in the national shortage drug list; in addition, qualified preparation companies can actively deploy APIs and adopt cooperation, mergers, and self-construction methods to create API supply channel.

In fact, one of the reasons Yangtze River dared to go to court with the API supplier this time was that "the relevant conditions for API production are about to be met, so he dared to file a lawsuit, because he was afraid of being cut off." It is understood that Yangzijiang submitted a registration application for the bulk drug of desloratadine citrate as early as 2015. It was accepted by the National Food and Drug Administration in 2016 and passed in 2018, allowing production.

In addition to Yangtze River, there have also been media reports recently that Jingxin Pharmaceutical plans to build an API production base to improve market competitiveness.

Regarding the latest actions of these leading companies, Li Shiqiao said that it is likely that preparation companies' self-built API production bases will become a trend. This is not only a helpless move to deal with monopoly, but also a strategic move to extend the industrial chain. It will become one of the keys for preparation companies to win the market in the future.

Of course, as an upstream industry in the pharmaceutical industry chain, the API sector itself has many problems, such as serious product homogeneity, low industrial concentration, relatively backward production technology, and high environmental costs. The API industry should start transformation and upgrading as soon as possible , In order to adapt to the new situation of the development of modern pharmaceutical industry. Li Shiqiao said that at present, the API industry can be said to have entered a time node of transformation and upgrading. First of all, the consistency evaluation of preparations forces relevant companies to put forward higher quality requirements for APIs. Under this circumstance, the re-evaluation of APIs is also urgent; secondly, this year has entered the sprint stage of "three tough battles". The central government requires "fighting the battle for pollution prevention and control, sticking to the same direction, undiminished efforts, highlighting precise pollution control, scientific pollution control, and pollution control according to law, and promoting the continuous improvement of ecological environment quality." API companies must be determined to address safety and environmental protection Furthermore, in 2019, China’s import volume of APIs reached 10.751 billion U.S. dollars, a year-on-year increase of 24.7%, a record high. With the enrichment of import channels and the surge in imports, domestic preparation companies are actively deploying raw materials. In the future, API companies can no longer rely on monopoly to obtain high profits. Therefore, API companies should recognize the reality as soon as possible, grasp the opportunities brought by the upgrading of the pharmaceutical industry, proactively adapt to the new situation, focus on the future, and take a path of innovation and development.