【 Industry News 】Current Situation Of Active Pharmaceutical Ingredients！
Background of API💊
📝API, usually referring to chemical raw materials, is the active ingredient in chemical drug formulations.
👉China is the world’s largest producer and exporter of active pharmaceutical ingredients. With the increasing environmental protection and product quality requirements for active pharmaceutical ingredient companies from the policy side, low-end production capacity continues to be cleared, and the concentration of the active pharmaceutical ingredient industry is increasing. The competition among high-quality active pharmaceutical ingredient companies is becoming increasingly fierce.
👉In this context, raw material pharmaceutical companies have embarked on the path of transformation and upgrading. Under the influence of pioneers such as Jiuzhou Pharmaceutical and Prolo Pharmaceutical who have transformed into CDMO (Contract Research and Development Organisation), in recent years, more and more raw material pharmaceutical companies have transformed into CDMO, and the market landscape has become more diversified.
Upgrading and transformation is the right time💊
📝In recent years, influenced by multiple factors from both the policy and demand sides, the business models of domestic raw material pharmaceutical companies have undergone significant and profound changes.
✅From a policy perspective, in the context of green development and improved product quality requirements, API companies are facing stricter environmental protection requirements and production standards, which significantly increases the entry threshold for the raw material pharmaceutical industry.
At the same time, as the quality of active pharmaceutical ingredients will directly affect the evaluation of the quality and efficacy consistency of generic drugs, formulation companies pay more attention to the quality control of active pharmaceutical ingredient suppliers, and the cooperation between formulation companies and related approved active pharmaceutical ingredient suppliers is gradually becoming more stable.
The customer orders of low-end raw material pharmaceutical companies continue to flow, and low-end production capacity is gradually being cleared. The concentration of the raw material pharmaceutical industry has further increased, and the product overlap of high-quality raw material pharmaceutical enterprises has risen, leading to fierce competition.
✅From the demand side, opportunities such as capacity transfer, localization of products by multinational corporations, normalization of centralized volume based procurement, and booming development of innovative drug markets provide different development strategies for raw material pharmaceutical companies👇
ℹ️ Continue to focus on the field of active pharmaceutical ingredients, expand product pipelines, increase production capacity, reduce costs and increase efficiency;
2️⃣ Entering the downstream formulation market, utilizing cost advantages and opportunities for volume based centralized procurement, and entering the local centralized procurement market;
3️⃣ By leveraging our experience in large-scale production and cost control capabilities, we aim to enhance our R&D capabilities and develop CDMO business.
✅Different business development paths have varying requirements and returns for raw material pharmaceutical companies. In the context of normalized bulk procurement, a group of characteristic raw material pharmaceutical companies represented by Huahai Pharmaceutical and Tianyu Pharmaceutical have expanded their ability to integrate formulations by leveraging their original layout and cost efficiency advantages in their respective fields, making them more competitive in drug prices compared to traditional pharmaceutical companies.
✅For raw material pharmaceutical companies, the transformation of CDMO business has obvious attractiveness in terms of profit margin, growth space, and capital market valuation. While releasing production capacity, it can also connect with the innovative pharmaceutical market and expand the growth space of the enterprise. Therefore, under the influence of pioneers such as Jiuzhou Pharmaceutical and Prolo Pharmaceutical, more and more raw material pharmaceutical companies have also begun to explore the development of CDMO business.
Is it a good business?💊
📝From the perspective of capital, there are three core points to determine whether a business is good:
ℹ️ The overall market size of the industry is large enough and has strong growth potential;
2️⃣There are successful cases that can be compared to others;
3️⃣There are sufficient barriers.
✅Moving on to the medical device CDMO industry, from the perspective of industry capacity, the overall size of the domestic medical device market currently exceeds 500 billion yuan. As a part of the industry chain, CDMO has been estimated by Arterial Network to have a market size of 10 billion yuan in China in 2019. It is expected that the compound annual growth rate will exceed 20% in the future, far exceeding the global average annual growth rate of 10%.
✅From a benchmarking perspective, CDMO has become a relatively mature business model in developed countries in Europe and America, such as the da Vinci surgical robot. It was initially developed as a model machine in university research institutes and implemented by some medical device companies in clinical applications. Later, it was acquired by large companies for large-scale market promotion and application. Multinational giants such as Medtronic and Johnson&Johnson have also chosen to commission CDMO production, with a total output value of over 1 billion US dollars for equipment outsourcing, such as Jabil, Telefex, Cregana, and Weichuangli.
✅From the perspective of barriers, compared to CRO instruments, CDMO not only relies on talent, but also essential resource elements such as funding, laboratory equipment, and production equipment. The industry threshold is often higher. But the above-mentioned key account manager questioned this, saying that the answer is that the market size of this industry is 5 billion yuan, which is not bad. Generally speaking, it is very good for a CDMO company to earn 50-1 billion yuan a year, not to mention that this circle is not large, and many people often come to compete for a customer. And it is usually charged according to the registration certificate, usually not exceeding 1 million yuan per certificate. ”
✅Behind the doubt is that the industry is still in its early stages of development: after all, “policies have only been introduced for less than 4 years, and companies need to invest money and spend time to establish factories and carry out CDMO business in the future, so we have to take it slowly”; In addition, the industry has obvious localization characteristics, which facilitate CDMO companies to serve customers nearby; Moreover, the phenomenon of industry dispersion is also very obvious, which is related to the special attributes of the medical device industry.
Feudal lords Vying For The Throne💯
📝The overall competitive landscape of the biopharmaceutical CDMO industry has been formed, and it is time for a real battle. However, in the context of the rapid decline of the general environment, the CDMO industry is just a temporary haven. The downsizing of customer projects and budget reduction soon led to the “more monks and less porridge”, which has become increasingly fierce and trapped in a price war.
👉From the demand side, there is a greater desire for high-quality services and a greater emphasis on cost-effectiveness. The healthy development of the industry will naturally find a balance point in the game between Party A and Party B. Whether we’re deep inside or just watching in a hurry, let’s walk and see.
