Chinese API Industry in Change (I)

API is an important part of the Chinese pharmaceutical industry. After years of rapid growth, China has become the world’s largest producer and exporter of APIs. In 2017, the main business income of API manufacturing reached 499.1 billion yuan, up by 14.68% from the last year, and the export value of APIs grew 13.7% to US$29.1 billion, indicating a slight recovery. However, the fact is that the growth rate of the main business income of bulk API manufacturing has gradually declined since 2012, and the growth of API exports has also slowed down significantly and even lapsed into negative growth, showing the sluggish development of Chinese API industry. It is undeniable that the long-term extensive development mode of Chinese API industry has brought about favorable development advantages for the pharmaceutical industry such as capital and technology accumulations, but drawbacks of overcapacity and environmental pressures as well, which have become the shackles that hinder the development of Chinese API industry.


Chinese pharmaceutical industry is now in change. The release, pilot, and implementation of a series of new regulatory policies, such as the Marketing Authorization Holder (MAH) system, the quality and e?cacy consistency evaluation of generic drugs, and the new review and approval system have introduced new ideas and international standards to the pharmaceutical industry. Chinese API industry is also in the change. With stricter domestic and international supervisions and deepening of transformation and upgrading, a new development pattern of Chinese API industry under the new situation can be detected. How to seize the opportunity of industrial change to realize continuous and leap-forward development is a topic worth exploring.


Frequent changes in domestic regulatory policies, and the end of disordered competition


Due to the long shelf time, low technical threshold and great demands for bulk APIs, domestic enterprises have introduced more and more production lines in the past decade. For example, the production capacity of amoxicillin in China was estimated to have exceeded 20,000 tons in 2017, which doubled from the last decade, while the global demand for amoxicillin standing at only 15,000 tons. The production of special APIs have also seen a “bulkization” trend in recent years. As for atorvastatin calcium, a star product of special API in the past few years, there are currently as many as 14 companies holding its production approvals, and the expansion of production capacity has taken the high profits away. The problem of overcapacity has long plagued Chinese API industry. Enterprises continue to squeeze the profit margins in the competition for market. Take amoxicillin mentioned above as an example, the export price has dropped from US$37/kg at the peak to US$20/kg today, a decrease of 46%. Worse still, the malicious monopoly and soaring price of some small-variety APIs due to scarce manufacturers, low production, stock up, channel maniplation by distributors, and buy-outs by manufacturers, forced domestic manufacturers to buy at high prices, even made them out of stock, which in turn a?ected the domestic pharmaceutical supply and the export of formulations.


In order to cope with the problem of disordered competition in domestic API industry, the state has vigorously promoted supply-side structural reforms in recent years, including phasing out backward production capacity gradually by mainly relying on supervision and guidance, encouraging the transformation and upgrading of API companies, and enhancing the management and regulations on the API market to combat illegal price increases and malicious sales manipulation. On the one hand, the reasonable improvement of environmental standards guides leading enterprises to upgrade their technological levels to enhance their competitiveness and force high-pollution and non-compliant enterprises to withdraw from the market to reduce low-cost competitors in the API market; On the other hand, the release of the Guide for Pricing Behaviors of Distributors of Drugs and APIs in Shorage contributes to the investigation and punishment of malicious price manipulation behaviors in the APIs industry. The integration of production capacity, the improvement of technology, the recti?cation of the market and the maintenance of reasonable pro?ts will lay a more solid foundation for the sustainable and healthy development of Chinese API industry in the future and the era of market grabbing via low price will come to an end.


New thinkings on API industry regulation have come up lately. In November 2017, the Announcement on Adjusting the Examination and Approval Items for APIs, Pharmaceutical Excipients and Pharmaceutical Packaging Materials was issued and implemented, and the registration system for APIs was replaced by the API ?ling system, marking the o?cial end of the era of approval numbers of APIs and the arrival of Chinese version of the DMF system. The long-awaited cancellation of GMP certi?cation is also expected to be implemented this year. After the cancellation, the certi?cation will be replaced by unannounced inspection. As the supervision department continues to strengthen the construction of the full-time inspector team, stricter supervision will be conducted in the industry. In addition, the former CFDA joined ICH last year and is considering to join the PIC/S. These all indicate that demostic regulation of APIs is gradually aligning with the international standards, the changes of relevant regulations will be more frequent, and the pace of industry reshu?e will also accelerate. An era full of both opportunities and challenges is coming.




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