Chinese APIs: Short-term price increases slightly, overseas orders surge

The change of short-term supply and demand relationship under the new crown epidemic has become a "hot" catalyst for the API industry.

"World Pharmacy" India, on April 7, decided to lift the ban on the export of 24 kinds of APIs and their finished preparations. Behind this, the global APIs are facing a crisis of "cut off supply". Prior to March 25th, India implemented a national blockade, which further exacerbated the tension in the global pharmaceutical supply chain.

European Union countries, the United States and other governments have begun to respond to the risk of drug shortages in the epidemic. In China, where the epidemic is gradually being controlled, more and more API manufacturers have resumed production, and a variety of APIs with the "Made in China" label have opened the global chain of industrial chains.

Continuous price increase

From the perspective of the industrial chain, the pharmaceutical industry involves three links: pharmaceutical raw materials, pharmaceutical R & D and manufacturing, and pharmaceutical circulation. The upstream of the western medicine industry chain is usually used as an API for the production of preparations. API is a chemical substance that has certain pharmacological activity and is used as a production preparation. The intermediate products in the process of producing APIs are called pharmaceutical intermediates (also known as chemical intermediates), and APIs can only be used as clinical medicines if they are processed into pharmaceutical preparations.

As the world's largest producer and exporter of APIs, China is facing the wave of market demand driven by the epidemic. A number of API manufacturers in Zhejiang, Shandong, Hebei and Anhui all indicated that their export orders have increased since the beginning of this year.

"China ’s experience in the prevention and control of new coronary pneumonia epidemics has been widely recognized globally. The" New Coronavirus Pneumonia Diagnosis and Treatment Program "will also increase the international market demand for related drugs, including raw materials, and the demand for other drugs directly related to pneumonia prevention will increase. China's export of related APIs may usher in a short period of outbreak. "Zhu Renzong, deputy secretary general of China Chamber of Commerce for Import and Export of Pharmaceuticals and Health Products, analyzed.

The popularity of APIs has continued in recent years. Despite the impact of the new crown epidemic, in recent years, the international market has experienced strong demand for APIs, and China's API exports have reached new highs. According to statistics from the China Chamber of Commerce for Import and Export of Medicines and Health Products, in 2019, China exported 10.1185 million tons of APIs to 189 countries and regions in Asia, Europe and North America.

"Our APIs are specific for the treatment of hypertension, and the product line is relatively fixed. The impact on the market depends on the release of the quarterly report." Huahai Pharmaceutical's Dong Mi Office told the 21st Century Business Herald reporter. A raw material pharmaceutical company in East China said that the market is changing drastically, and the concentration of this industry is further improving, so there is a logic of product price increase in the long run.

Market speculation

In anticipation of price increases for specific varieties, the API segment in the capital market continued to rise.

According to the statistics of the Shenwan Industry Index, the chemical raw material index has fluctuated from 6665.25 points on January 2, 2019 to 7999.38 points on March 26, 2020, an increase of 20.12%. The increase was 9.19%.

In addition to changes in supply and demand, affected by the new Coronary Pneumonia epidemic, the global travel expenses of the API industry chain have increased, which has also become a driving force for the increase in API prices.

Zhu Renzong analysis pointed out: "Due to the epidemic situation, flights between countries have decreased significantly, shipping companies have postponed or cancelled some of their shipping trips, land transportation quarantine and control measures have increased, resulting in limited international logistics, severely insufficient capacity, extended delivery times of APIs, freight rates The increase was marked by tight supply of raw materials and rising prices. "

Some Antibiotics, vitamins, hormones and other bulk API products are often sold for long-term orders, and the unit price of the order is often composed of the agreement's reserve price and the unit price flexibility clause. Both buyers and sellers can negotiate and adjust the unit price maneuvering range at any time according to market conditions and quantity of goods.

"Everyone is a long-term strategic partner. When the market is good, we will not ask the customer for high prices. When the market is not good, the customer will not let us lose too much.", An API company in Shijiazhuang, Hebei People interpret the unit price maneuver as such.

With the improvement of the epidemic situation in China, the resumption of production and production in various places have been carried out one after another, and the contradiction between the supply and demand of APIs has eased.

According to the latest survey report of the China Chamber of Commerce for Import and Export of Pharmaceuticals and Health Products, the current rate of resumption of work in China, including APIs and upstream chemical intermediate companies, is generally above 70%, domestic logistics is also gradually returning to normal, and there is a significant shortage of upstream chemical raw materials. Alleviated, the capacity utilization rate of API companies gradually increased, and delayed foreign trade orders were successively delivered for customs clearance and delivery.

China is the second largest API producer and the largest API exporter. The export of APIs is close to about 20% of the world API market share, with bulk APIs as the mainstay. China's antibiotic production level is leading in the world, and antibiotic raw materials occupy 30% of the international market; antipyretic and analgesic drugs such as paracetamol, Aspirin and anal are relatively high in production, of which paracetamol production is 50% of the world's total production; China's vitamin raw materials Among the medicines, except for a few varieties, most of the output is in the forefront of the world; corticosteroid treatment and market share are leading in the world.

However, some industry insiders pointed out that China's bulk API exports have experienced continuous negative growth, China's environmental protection pressure has increased the cost of API companies, the international economic situation is bad, and API companies have reduced prices for shipments, leading to a decline in the export price of APIs. Although the recent benefit from supply-side reforms superimposed on environmental protection inspection-related companies to stop production or reduce production capacity, raw material prices have risen, but it is still not optimistic for a long time.

The characteristic API industry is a technology-driven industry. Companies in the industry all have a high proportion of R & D personnel, R & D expense ratio, relatively stable net profit rate and other factors, reflecting the industry's own characteristics of technology-driven and high customer conversion costs. It also creates higher barriers to entry in the industry (safety, environmental protection, quality, cost control, cooperation reputation, etc.). Volume procurement reduces channel barriers and emphasizes cost control and stable supply. Compared with backward integration, the bulk drug industry is more competitive when it comes to integration.

Minsheng Securities Research pointed out that the long-term logic of the domestic characteristic API industry is the process from low-lying dividends to global profitability. The core premise is to establish the cost advantages of intermediates, raw materials and preparations in China's scale advantage of raw materials, thereby enhancing global competitiveness. During this process, the domestic market is being regulated and the low-end production capacity of the generic drug industry is cleared. The process is also the long-term core logic of this industry.

The technical strength of domestic APIs needs to be further improved. Compared with overseas mature generic drug companies, the horizontal expansion of products of domestic API companies is not rich enough, and product development is relatively concentrated. The basis of product layout may affect the realization of the above logic at a certain stage. Rhythm. There is continued investment value in the medium and long term, but the fundamentals of the realization of the rhythm may be relatively different due to the development stage of each company, the rhythm of the production capacity layout, the difference in the competitive environment facing the stock business, and the technical strength.