The API industry benefits from the steady growth in demand for downstream pharmaceutical preparations. The global API market size is projected to reach USD 186.4 billion in 2020, representing a year-on-year increase of 6.1%, mainly driven by specialty and patented APIs.Industry insiders point out that the API sector is not simply a cyclical sector. Specialty and patented APIs feature growth attributes and relatively high industry barriers.
It is understood that APIs are classified into bulk APIs, specialty APIs, and patented APIs. Among them, demand for bulk APIs is relatively stable, while specialty APIs and patented APIs possess growth attributes.In terms of entry barriers, bulk APIs have low thresholds and face fierce competition, whereas specialty APIs and patented APIs have higher barriers. The core barriers of specialty APIs lie in technology, heavy assets, and customer stickiness:
Technically, production processes and R&D capabilities require continuous improvement;
In terms of customer stickiness, specialty APIs and patented APIs are closely bound to downstream clients;
In terms of heavy assets, specialized production lines for specialty APIs require substantial capital investment. In recent years, rising environmental protection costs have further raised industry barriers.Following capacity relocation in recent years, the global API market has formed a supply structure dominated by China, India, and Western Europe. In 2019, China exported APIs to 189 countries and regions.
According to data from the China Chamber of Commerce for Import & Export of Medicines & Health Products, China's API export volume rose 8.83% year on year to 10.1185 million tons in 2019. Among these, APIs exported to India accounted for nearly 17% of China's total API export value.
China's API sector has gained a stronger voice in the industrial chain. In the field of specialty APIs, China has gradually unlocked growth potential through three major pathways.
With the implementation of policies such as consistency evaluation, volume-based procurement, and associated reviews, APIs have become increasingly important in the pharmaceutical industrial chain, and high-quality specialty APIs are growing more critical to downstream preparations.
For instance, the implementation of consistency evaluation and volume-based procurement in China has greatly reduced added value in drug distribution. Future competition in the generic drug industry will depend more on cost control and product portfolios, where API enterprises enjoy inherent advantages.
At present, a number of domestic enterprises have begun transitioning into the preparation sector and are expected to enter a phase of rapid growth.
Industry insiders believe the growth potential of the specialty API industry will further expand in the future:
In terms of new product expansion, domestic specialty API enterprises are accelerating the enrichment of their product pipelines to enhance international competitiveness.Against the backdrop of volume-based procurement, specialty API enterprises are rapidly entering the downstream preparation market to achieve API-preparation integration, and some can also participate in profit sharing from downstream preparations.Some specialty API enterprises are gradually expanding into the CMO/CDMO sector.
In the long run, China's API industry is moving toward higher value-added segments. Currently positioned at the upper stream of the API chain, China's API industry is large in scale but not yet strong, with relatively low added value.Going forward, China's API industry is expected to accelerate its transformation into high-end markets and the CDMO sector, moving toward a more international and higher value-added direction.
The industry holds that China's API sector has entered a new prosperity cycle and is firmly optimistic about the future growth of Chinese API enterprises. It recommends focusing on API companies with established advantages in specialty areas and proactive transformation toward higher value-added industrial chains, such as Xianju Pharmaceutical, Menovo, Huahai Pharmaceutical, Tianyu Co., Ltd., etc.For example, Huahai Pharmaceutical's ongoing R&D projects mainly include API R&D, U.S. preparation R&D, domestic preparation R&D, as well as biologic and innovative drug R&D.
Public information shows that in the first half of 2019 alone, the company obtained 4 API registration approvals and filed 5 new registration applications; 3 preparation products were approved by the FDA, with 4 new product applications submitted; 8 new domestic preparation R&D projects were initiated; 4 biologics successfully launched Phase I clinical trials, and 2 small-molecule innovative drugs under research entered clinical stages.
Data indicates that in the first quarter of 2020, Huahai Pharmaceutical's net profit attributable to shareholders is expected to increase by RMB 61–88 million, representing a year-on-year rise of approximately 45%–65%.Net non-recurring profit attributable to shareholders is expected to increase by RMB 81–107 million, up about 80%–105% year on year.The company stated that the projected performance growth was mainly driven by a substantial increase in domestic preparation and API sales.
