Upgrading of chemical raw material drug industry in China

Chemical raw materials are an important part of China’s pharmaceutical industry. At present, the development of China’s chemical raw material drug industry is facing many challenges. Accelerating the transformation and upgrading of the industry and improving the international competitiveness of the industry is a major issue facing the development of China’s chemical API industry in the new period.
Analysis on the development status of chemical API industry in China
In recent years, affected by the economic weakness in Europe and the United States, the growth of China’s chemical raw material drug export is weak, and the industry profit has declined significantly. At the same time, with the increasing pressure of environmental protection at home and abroad and the continuous improvement of technical standards, the production and export of chemical raw materials in China are facing great challenges. Various contradictions accumulated in extensive development over the years have become increasingly prominent, and the industry development is in a dilemma.
First, the scale of the industry has grown steadily, and the economic benefits have been declining. From 2003 to 2011, the number of Enterprises above Designated Size in the chemical API industry increased from 750 to 1075, accounting for about 19% of the total pharmaceutical manufacturing industry. During the same period, the main business income of the chemical API industry increased three times, but the proportion of the main business income in the pharmaceutical manufacturing industry decreased from 27.6% to 21%, and the proportion of the total profit in the whole industry also decreased year by year. The profit margin of chemical API industry is only 6.9%, which is the largest among the seven sub industries.
Second, the low price of products is mainly excess capacity. Most of the chemical raw materials in China have been in the dilemma of “increasing quantity and falling price” for a long time. In 2010, the average prices of seven of the top 10 varieties in China’s API export volume decreased year-on-year, among which the price of cardiovascular drugs with fast growth in export volume dropped by 96%. Vitamin C, another dominant product, is no exception. From 2010 to 2012, China’s export volume of vitamin C has been maintained at 5000-13000 tons, but the price has dropped from 10000 US dollars / ton to 3500 US dollars / ton, with a decrease rate of 65%.
Third, the pollution in the production process is large and the energy consumption is high. According to the data of the Ministry of environmental protection, in 2010, China’s chemical raw materials and chemical products manufacturing industry accounted for 14.6% of the total emissions of all industries, second only to the paper and paper products industry. In particular, synthetic raw materials, because of the variety of raw materials used and most of them are organic solvents, it is difficult to treat pollutants, and the workload is 5-8 times as much as that of textile and paper industries. In addition, chemical API industry has many production processes, low utilization of raw materials and high energy consumption. Taking penicillin production as an example, it needs about 200 tons of water to produce 5 tons of penicillin industrial salt.
As a large-scale producer and exporter of chemical raw materials in the world, the annual output value of China’s chemical raw material drug industry accounts for nearly 20% of the whole pharmaceutical manufacturing industry, and the export accounts for more than 50%. In terms of product types, at present, there are rich types of chemical raw materials produced in China, such as anti infective drugs, vitamins, antipyretic analgesics, hormones and other bulk raw materials, and characteristic raw materials such as statins, pril and sartan, occupy a large share in the international pharmaceutical market. In recent years, China’s labor costs, energy prices, logistics costs continue to rise, driving the cost of the chemical API industry to rise sharply. The long-term comparative advantage of chemical API enterprises will no longer exist, and the export price advantage will obviously decline. In addition, the state has increased energy conservation and emission reduction, and chemical API enterprises are facing increasing pressure on environmental protection, increasing environmental protection costs and increasing pressure on industrial upgrading.

At present, the accelerated integration of global pharmaceutical industry has brought unprecedented opportunities for industrial upgrading. On the one hand, pharmaceutical enterprises in Europe and the United States have implemented cost control and actively outsourced production and R & D to developing countries in response to a series of problems caused by patent expiration and low R & D efficiency. On the other hand, in order to avoid price competition and deal with patent disputes, generic drug manufacturers have developed biological generic drugs and enhanced their competitiveness through contract production. China’s chemical APIs have attracted the attention of multinational pharmaceutical companies in the world due to its good industrial foundation, perfect industrial supporting level and huge market potential. At present, 35% of global pharmaceutical enterprises use Asia as outsourcing. Some developing countries, including China, with rich clinical resources, good R & D and manufacturing foundation and low comprehensive cost, are becoming important bases for global contract R & D (CRO) and contract production (CMO). From 2006 to 2010, the market size of global cro industry increased from US $19.6 billion to US $36 billion, with an average annual compound growth rate of 16.42%, exceeding the annual growth rate of global pharmaceutical companies. In China, the market size of cro industry has increased from 3 billion yuan to 9.8 billion yuan, with an average annual compound growth rate of 34.44%. Among them, the market scale of clinical trial cro increased from 1.7 billion yuan to 5.6 billion yuan, with an average annual compound growth rate of 34.72%.
Path selection of upgrading chemical API industry
Industrial upgrading means moving towards the high end of the value chain of industrial division. However, from the perspective of reality, the path of industrial upgrading of enterprises with different sizes and strengths is still different.
One path: bulk API → optimization of variety structure → diversified development
For most of the small and medium-sized bulk chemical API enterprises, the basic path of industrial upgrading is to optimize the variety structure and realize diversified development. In view of the variety of chemical raw materials, enterprises should consider not only the yield rate of varieties, but also their own resource capacity when optimizing the variety structure. In practice, the dominant power and advantage of an enterprise to a certain variety is expressed by “barrier point ownership degree” (CPH). The factors that constitute CPH can be the core proprietary knowledge or technology of the variety, government regulation and customer interface, unique and efficient business model, brand, quality, scale, etc. The enterprise must consider the yield of the variety and the CPH of the variety. When the yield of a variety and the CPH of the enterprise are both high, the resources can be concentrated on the development of the variety; when the yield of the variety is high but the CPH is low, the company can choose to form a higher CPH by means of merger and acquisition or cooperation, so as to avoid the disadvantage of low CPH of the enterprise; when the yield of the variety is low but the CPH is high, the business can be decomposed again to excavate and create high income When the yield of the product is low and the CPH of the enterprise is low, the enterprise must give up the variety or outsource the product to other enterprises.
The second path: OEM production → preparation transfer production → cooperative development
For some chemical API enterprises with rich production experience but insufficient R & D and innovation ability, undertaking R & D and production outsourcing is the way to upgrade under the existing technology level. In practice, the strategy of * * is to actively seek extensive cooperation with large international enterprises. With the help of the partner’s technology, government relations, sales network and other resources, domestic enterprises can seek the partner’s knowledge in certification, management ability and operation specification, so as to prepare for the independent export of preparations. Specifically, there are three levels of cooperation mode: first, OEM, in which the entrusted enterprise provides the API and preparation production technology, while the domestic enterprise is responsible for the preparation processing to earn relatively less processing fee; the second is the preparation transfer production, that is, relying on the domestic API foundation, the foreign party provides the preparation research and development, and the domestic enterprise carries out the API and preparation production according to the specification The third is cooperative development, that is, the two sides jointly research and develop raw materials and preparations, carry out joint declaration, domestic enterprises provide production, foreign enterprises are responsible for sales, domestic enterprises earn profits and preparation processing fees brought by standardized market price, and realize sales profit sharing at the same time.

Route 3: independent export of preparations → overseas listing of generic drugs
For some API enterprises with strong capital, strong R & D ability and rich preparation production experience, it is the appropriate path to achieve upgrading by taking the independent export of preparations as a breakthrough and actively striving for overseas listing of generic drugs. The first is patent challenge, that is, to find out the loopholes in the pharmaceutical patents of multinational enterprises and sue them for invalidation, or synthesize drugs by avoiding the scope of patent protection; the second is to speed up the simplification of new drug application (anda) registration application, that is, to synthesize drug molecules by different synthetic methods before the patent drug expires, and the compound patent will be listed on the market as soon as the patent expires The third is to obtain the “authorized first generic drug” of the original research drug manufacturer, that is, to obtain the patent pharmaceutical enterprise’s authorization to produce and sell the first generic drug of the patent drug in the form of contract before the expiration of the patent, and obtain the market monopoly right of 180 days.
Path 4: innovative drug research and development → new drug overseas listing
For a small number of large API enterprises, relying on their strong technology and talent advantages in the industry, they can make full use of the national support policies, realize the overseas listing of innovative drugs through the research and development, production and sales of innovative drugs, and enhance the competitiveness of the international market. Compared with other upgrade paths, this path has higher requirements for enterprises. For example, in the United States, innovative drugs (patent drugs) must be approved by FDA for entering the market. The approval process is very complicated, which takes a long time (usually 10 years) and costs more than one billion US dollars. However, once successful, the profits are very good.
Policy suggestions on upgrading of chemical API industry in China
One is to strictly curb overcapacity. For the first time produced in China, we will implement an incentive policy, and give the market monopoly right for more than one year (similar to the 180 day market monopoly right of the first generic drug in Europe and the United States), tax preference within a certain period of time, higher export tax rebate rate and other relevant preferential policies. For the varieties with excess capacity, the annual elimination target and plan of excess capacity should be formulated and implemented. For some varieties with serious excess capacity, production quota system can even be considered.
Second, increase investment in scientific research. From the perspective of industrial upgrading of API industry in India and Japan, high government investment in science and technology has played a crucial role. From the reality of our country, the government’s investment in API research is insufficient, so it is necessary to increase the investment in the future. We should increase financial subsidies and preferential tax policies for enterprises to introduce new technologies, new processes and new equipment, promote enterprises to develop, introduce and use new technologies, and actively encourage social capital and venture capital funds to invest in scientific and technological innovation of chemical raw materials.
Third, encourage enterprise merger and reorganization. Encourage and support API and pharmaceutical enterprises to achieve resource integration through mutual shareholding, merger and acquisition, strategic cooperation, so as to avoid vicious competition and achieve common development. Further liberalize the industry M & A loans, on the basis of controllable risks, to provide financial support for enterprises’m & A. For the products that conform to the national industrial policy, are listed in the key development of the industry, and have obvious scale effect, we should encourage commercial banks to provide support for M & A loans. At the same time, we should further implement tax incentives and increase financial support.
Fourth, enhance the strategic position of API. We should formulate a catalogue of industrial development guidance, establish a system of industry standards and technical standards for important products, and improve the market access system and industrial layout. We will build an industrial innovation support system and promote the industrialization and industrial agglomeration of major scientific and technological achievements. We should guide foreign investment in the R & D and production of high-tech API, actively encourage the undertaking of international pharmaceutical R & D outsourcing business and production transfer with high-tech content and high added value, and support qualified enterprises to carry out overseas investment. We should establish a national strategic reserve mechanism of API and strengthen the strategic reserve of APIs related to national security and emergency response.
Fifth, strengthen industry management and guidance. Establish and improve the intermediary service system for the development of chemical API industry, including consulting service, financial service, product registration and certification service, product R & D service outsourcing, education and training, product registration, etc. Give full play to the role of the association as a bridge and link between the government and enterprises, and timely reflect the situation and problems of the industry and the demands of enterprises. To cooperate with the development of API industry information and database construction, industry statistics and economic operation monitoring and analysis, and provide information consulting services for enterprise product registration and certification.

Post time: Nov-11-2020