API Market Analysis

API is at the upstream of the pharmaceutical industry chain, which is the basis of guaranteeing the downstream preparations production and meeting the clinical drugs demand. China is a large producer of API. Up to now, there are more than 2,000 enterprises producing about 1600 kinds of API, with an annual output of over 1 million tons. In 2017, API enterprises above designated size realized the main business revenue of 499.1 billion yuan, accounting for 16% of the total revenue of the pharmaceutical industry.

China's API is sold to the international market in large quantities while effectively satisfied the domestic demand. China's API is an industry with certain comparative advantages in the international competition. In 2017, China's API exports reached us $29.117 billion, up 13.71 percent year on year. Major markets such as the United States, the European Union and India grew by 23.84%, 9.79% and 13.52% respectively.

The development of China's API industry faces many challenges and problems. Especially in the past two years, due to the influence of policies, environment and other factors, the supply of some varieties is in short supply and the price rises sharply, which is not conducive to the effective supply of drugs and the sustainable development of the industry.

Environmental Problems Lead to the Short Supply of Some Varieties

China's API industry has many environmental problems in general. With the changes of environmental protection situation and the intensification of supervision in recent years , API enterprises are under increasing environmental protection pressure. Strong enterprises need to invest a lot of money to strengthen environmental management, relocation and transformation, while some small businesses that fail to meet environmental standards or have poor management are facing production limits or production halts. Besides, the closure of some small factories has also affected the production and supply of downstream API because a large number of medical intermediates are produced by small and medium-sized chemical plants.

Monopoly Sales and Malicious Sales Increased
Among the 1600 kinds of API produced in China, only some enterprises have the production approval number. In addition, although some varieties have many approval numbers, there are few enterprises have real production conditions, mainly because of the uneconomic production, substandard environmental protection and some other reasons. In recent years, some manufacturers or middlemen have increased the price of a product by controlling the supply of all the API of a certain variety. Some of the price increases are as high as several times or dozens of times, causing some pharmaceutical manufacturers have no raw materials to use. The highest price increase was nearly a hundred times the original price due to the cost of the API has risen sharply.

Urbanization and Regional Environmental Capacity Restrict the Development of API

Under the overall situation of national environmental governance, all regions are faced with the problem of insufficient environmental capacity, and there are few places that can accept API projects. Many regional plans  (such as the Yangtze river economic belt plan) put chemical API into restrictive projects. A large number of API companies have been forced to relocate by urban planning (such as Beijing). Many traditional API production bases (like Taizhou) are under the pressure of rectification, strict restrictions on new and expanded projects. As the production of some bulk API has started to shift to the central and western regions, and due to the restrictions of land, environment and other factors, the number of cross-provincial construction projects of enterprises in some areas where bulk API is concentrated has increased. Besides,a large number of materials drugs have been transferred and moved out in regions with high urbanization level, the cross-regional division of labor in the industrial chain has increased, the regional layout has shown a trend of decentralization, and environmental protection and other problems are not conducive to the centralized solution.

New Regulations Lead to the Rise of the Comprehensive Cost of Enterprises
The reform of China's pharmaceutical supervision system has been comprehensively upgraded, and policies such as the two-ticket system and replace business tax with value-added tax have been implemented since 2015. The fixed cost, R&D cost, environmental protection cost and financial compliance cost of Chinese pharmaceutical enterprises have increased significantly. In addition, the compliance requirements of clinical, production, marketing, finance, supplier audit and other factors, as well as the change of some admittance from examination and approval to filing system, the emphasis is placed on in-and-out supervision and the improvement of internal control requirements of enterprises, which also lead to the rise of relevant costs of enterprises.

The Level of Internationalization Needs to be Further Improved

Currently, there are five major regions of API production in the world: China, India, Japan, North America and Western Europe. Western Europe is the pure export region of API, North America is the main import region, Japan is basically self-sufficient, China and India are the main production bases of API. About 90% of India's total production of API is used for international sales, mainly exporting to European, American, Japanese and other regulatory markets. India is China's largest export destination for API, accounting for 15% of the total export volume of API.

China is also the largest source of imports for India, 70% of India's pharmaceutical raw materials come from China, while the import proportion of key starting materials and intermediates is higher. China has a large export volume of API, but its products have low added value, and there are many pharmaceutical intermediates and non-pharmaceutical grade products with serious environmental pollution and high resource consumption problems. The export scale of specialty API is small. According to statistics, 1,550 DMF had been registered by Chinese companies in the U.S. FDA by the end of 2017, compared with 4,620 DMF registered by in India companies.