Trade Protectionism Rises, Global API Localization Competition Is On The Verge

A few days ago, the Ministry of industry and information technology mentioned in the reply to No. 9883 proposal of the third session of the 13th National People's Congress that the Ministry of industry and information technology will work with relevant departments to formulate the standards and working procedures for the identification of API production bases, and support the construction of centralized production bases for APIs in regions with independent regional space and strong environmental carrying capacity.

With the ebb of globalization trend in recent years, the events of trade protection and industrial localization emerge in endlessly. The events such as the loan granted by the United States to Kodak to transform the production of API, and India's plan to invest 100 billion rupees to build the API Industrial Park have all demonstrated the determination of overseas pharmaceutical production and export countries for the localization of API.

A few days ago, the Ministry of industry and information technology mentioned in the reply to No. 9883 proposal of the third session of the 13th National People's Congress that the Ministry of industry and information technology will work with relevant departments to formulate the standards and working procedures for the identification of API production bases, and support the construction of centralized production bases for APIs in regions with independent regional space and strong environmental carrying capacity.

As the world's second largest producer of API and the largest exporter of API, although China has comparative advantages in terms of product price and industrial base, factors other than market competition will still have a long-term impact on China's API industry.

"At this stage, China has great advantages over other global competitors in the field of basic chemical industry. Even if the United States and India can complete the self-production of many APIs, bulk APIs or basic chemical materials for the production of such APIs may still need to be imported from China, while countries such as India need to continue to develop chemical industry upstream if they want to complete the self-production of API. There is still a long way to go for other third world countries to establish a sound industrial system and catch up with China. " On September 22, Wang Jun, investment manager of a medical industry fund in Beijing, said in an interview with 21st century economic report.

In Wang Jun's view, based on the existing advantages of China's API industry, in the face of external shocks, Chinese api enterprises still have enough time to transform, focus on products with higher technical threshold and better profit level, and deeply bind excellent pharmaceutical enterprises at home and abroad, which may be the best choice for Chinese api enterprises.

The ebb of Globalization

In 2019, the size of the global API market will reach nearly 170 billion US dollars, and it is expected to maintain a compound annual growth rate of 7% in the future. The API market is a huge market that can not be ignored by the world's leading economic entities.

Thirty years ago, Europe and the United States were the world's major API production regions, with production scale and technical level at the world's leading level. However, with the problems of local human resources, environmental protection and basic industrial support in Europe and the United States, the market share of API in Europe and the United States gradually decreased, and the products with higher technical threshold and added value were gradually left for local development, and the products with lower technical threshold were left, Purchase from comprehensive low-cost third world countries, including China, India, etc.

According to the statistics of the total output of API in the world, more than 1500 tons of API were exported from China in the last time, accounting for only 30% of the total output of API in the world, accounting for more than 30% of China's total exports.

However, compared with the increase of production capacity and export volume, China, India and other developing countries are still dominated by low technology products and bulk products, such as antibiotics and steroidal raw materials. China accounts for about 50% of the global output, while Indian manufacturers dominate the market for antiviral raw materials such as darunavir.

Although India also contributes about 10% of the world's API export volume every year, compared with India's status as the world's largest exporter of generic drugs, the development scale of its API is far less than that of preparations. Moreover, 70% of the API required by Indian enterprises to produce generic drugs depends on China's import. Therefore, the supply capacity of India's domestic API is far from meeting the domestic demand Production needs.

"After the wild growth of preparations is over, India's pharmaceutical companies are bound to seek a new direction of development. Similar to the logic of domestic enterprises seeking for the integration of preparation and API, it is an inevitable trend for Indian generic pharmaceutical enterprises to choose local API suppliers or produce their own API For the current development trend of API, Wang Jun said.

In fact, India has also begun to localize its API. As early as 2017, Indian Prime Minister modi launched a policy to promote local employment and reduce the cost of bulk raw materials and essential medicines.

Li Xiang, director of the Research Institute of a listed API company in Zhejiang Province, said: "other third world countries have certain cost advantages compared with China in terms of human cost and environmental protection requirements. In the field of API, India has the same technical strength and downstream demand as China. India focuses on the development of API industry and will be an important competitor of China in the future. "

On the other hand, the global new crown pneumonia epidemic also catalyzes the development trend of global API localization. Due to the impact of the epidemic, the supply of raw materials in the upstream is short, and the preparation producing countries such as the United States and India are affected to varying degrees.

In this case, the development of localized API suppliers to improve the stability of drug supply and provide job opportunities for the national people has become a key link in breaking the situation. The Indian government has planned to invest 100 billion rupees to establish API Industrial Park, and provide financial subsidies and tax incentives to relevant enterprises in the park, so as to build sufficient domestic capacity in the shortest time. The U.S. government intends to provide Kodak pharmaceutical company with a loan of US $765 million to support its development of API business. It is expected that Kodak pharmaceutical will be able to produce about a quarter of the raw materials of non patented drugs in the United States after all production equipment is put into operation.

domestic trouble and foreign invasion

In 2016, in the wave of strict inspection of environmental compliance, Chinese api enterprises were affected to varying degrees, among which the most direct impact was the production decline caused by forced shutdown due to substandard environmental protection. According to the data, China's total production of API was 282 tons in 2018, which was nearly 20% lower than that in 2017.

Although environmental compliance eliminated some domestic backward production capacity with high pollution and low energy efficiency, and improved the profit level of high-quality enterprises in the short term, it also increased the environmental protection cost of compliance enterprises. After the Xiangshui explosion in Jiangsu Province in 2019, China's control over chemical enterprises has become more and more strict.

"At present, the approved products and plants can continue to be produced at the original site, but new products and production lines are not allowed to be declared and constructed at the existing site. If enterprises want to expand their production capacity, they must move to the Industrial Park designated by the government. " The director of an API production enterprise in Hubei Province introduced to the reporter that the relocation or construction of a new plant will have a great impact on the enterprise. In addition to the huge investment, it will take at least three years to adjust the process flow of the new plant to the optimal state from the planning and construction of the plant to the installation and commissioning of the equipment. If we can expand the existing plant directly, it can be put into production and sales within one year at most.

On the one hand, the development of domestic API is restricted, and on the other hand, overseas enterprises are vigorously encouraging the localization of API. Chinese api enterprises are facing the situation of internal and external troubles.

"Although the API industry is gradually developing overseas, we are not worried about the competition of similar products overseas. Because China's leading API enterprises have corresponding advantages in terms of scale, cost and quality. " Li Xiang said so.

In Li Xiang's view, if the United States, India and other countries want to promote the localization of API, they will probably choose to start with bulk API with greater demand, which will make it easier to achieve scale effect and solve the basic supply of drug production. In the long run, facing the competition of overseas API enterprises, local API enterprises should first better bind downstream pharmaceutical enterprises to form a stable supply chain; at the same time, they should develop new products and focus on characteristic API varieties with better competitive environment.

Compared with the global demand of bulk API in 10000 tons, the global market demand of characteristic API is generally about hundreds to thousands of tons, and there are many kinds. Compared with bulk drug companies, the net profit rate of bulk drug companies is significantly higher than that of bulk drug companies with a net profit rate of 10% - 10%.

Although in the short and medium term, domestic API enterprises do not have to worry too much about the industry problems brought about by external competition, but in the long run, the intensification of global competition is an inevitable trend. Traditional API enterprises must constantly develop new characteristic API varieties to improve their competitiveness in the global competition of middle class products, and then make China's API industry maintain a global competitive advantage.

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