The year 2025, which has come to a close, was extraordinary and brilliant. Many innovative pharmaceutical companies delivered impressive results to their investors. Established pharmaceutical giants such as Hengrui Medicine, CSPC Pharmaceutical Group, and Fosun Pharma have become the backbone of BD overseas, striking large‑scale BD deals with overseas partners. Biotech firms including BeiGene, Innovent Biologics, and Kintor Bio continued their momentum, developing a variety of new transaction models such as NewCo, co‑development, and royalty monetization on top of traditional license‑out arrangements, attracting attention from both primary and secondary market investors.
Of course, when it comes to going global, domestic API companies are the true pioneers. As early as the 1990s, many Chinese API manufacturers began their international expansion, exporting high‑quality APIs to European and American markets. After years of development, Chinese API products have consistently ranked among the top 3 globally in terms of international market share.
When people talk about innovative drugs, keywords such as "overseas expansion", "high gross margin", "me‑better", "first‑in‑class", and "best‑in‑class" often come to mind. For Chinese API companies, however, the key terms are "high added value", "multi‑sector layout", and "large‑scale production". For China's pharmaceutical industry as a whole, innovative drugs, generic drugs, and APIs each follow their own development logic and upgrading trends. The booming growth of the innovative drug sector would not have been possible without years of steady progress in the API and generic drug industries. The industrial upgrading of innovative drugs will gradually extend to the API sector in the future.
In 2026, Chinese API companies are set to face a new competitive landscape where the strong become stronger, and industry consolidation is quietly underway.
Like innovative drug companies, domestic API manufacturers have long embarked on a transformation journey and will soon undergo valuation re‑rating in the secondary market. The recent boom in BD transactions reflects the patent cliff anxiety among MNCs. The expiration of patents for many blockbuster drugs will continue to drive rigid demand for generic APIs. Meanwhile, active R&D in innovative drugs has boosted demand for complex, high‑value‑added APIs. The market will show a clear pattern of "volume and price divergence". Specialty APIs and patented APIs will become highly contested areas in the industry.
(I) API + Formulation + CDMO Integration
Many domestic API companies possess sufficient production capacity, and whether such capacity is fully utilized determines the upper limit of their corporate value. API companies represented by Apeloa Pharmaceutical and Jiuzhou Pharmaceutical have successfully achieved API + Formulation + CDMO integration, expanding their business portfolios.
The "API + Formulation" integrated model has evolved from an optional strategy into the mainstream trend of the industry. The core drivers behind this trend are the dual pressures from policies and the market: global drug cost-control policies (such as China's volume-based procurement) have put downward pressure on end-product drug prices. Mastery of upstream APIs has become a lifeline for formulation enterprises to control costs and ensure supply chain stability.
For API companies, extending downstream is an inevitable choice to achieve higher profit margins and smooth out market fluctuations. In the future, pure formulation enterprises without core API support will see a significant weakening in their competitiveness.
Apeloa Pharmaceutical and Jiuzhou Pharmaceutical laid out an API + Formulation + CDMO integrated business at an early stage, forming vertical linkage across the pharmaceutical industry chain and enhancing their ability to resist risks arising from industry cyclical changes.
Chinese CDMO companies have emerged as the contract manufacturers of the global pharmaceutical industry chain.Leading API enterprises, with their internationally certified GMP production capacity, mature EHS management systems, and strong chemical synthesis capabilities, have naturally expanded into CDMO services.
This has not only improved capacity utilization and return on assets but, more importantly, achieved an upgrading of the business model from "selling products" to "selling technology + services".With continuous growth in R&D investment in innovative drugs and the increasing trend of outsourcing among pharmaceutical companies, API enterprises with strong technical capabilities will achieve high-value-added growth in the CDMO sector.
(II) Business Diversification
At one time, Chinese API companies were misunderstood as "low-end manufacturing facilities". In fact, during the industrial upgrading process, Chinese API companies have long since shed this label.They started with traditional bulk API businesses in earlier years, and later shifted into high-barrier specialty APIs, patented APIs, and biopharmaceutical raw materials.This transformation has been driven by a combination of policy guidance, profit-seeking, and technological accumulation.Companies are no longer satisfied with being positioned as the "world's factory"; instead, they are integrating into the high-value global pharmaceutical industry chain by mastering more complex synthetic processes and meeting stricter regulatory standards.This marks a critical industry-wide leap from cost-based competition to technology and quality competition.
Representative enterprises include Hisun Pharmaceutical and Guobang Pharmaceutical.As a long-established pharmaceutical company in Zhejiang Province, Hisun Pharmaceutical has been actively transforming in recent years.In addition to its traditional API and generic drug businesses, it has aggressively expanded into new sectors such as general health, medical aesthetics, animal health, and innovative drugs,to avoid performance declines caused by industry cyclicality from relying solely on APIs and generics.After a painful transition period, Hisun Pharmaceutical has returned to a growth trajectory, and this established pharmaceutical firm is expected to embrace a new chapter of vitality.
(III) Strategic Layout in Innovative Drugs
After accumulating substantial operating profits, API companies have embarked on a second entrepreneurship in innovative drugs.Unlike many biotech firms that rely on public financing in the primary market, API companies can incubate innovative drug subsidiaries on their own.The initial startup capital is usually provided directly by the listed parent company.Once the team, pipeline and clinical development are established, the subsidiaries then pursue external financing and spin-off listings.
Typical examples include Huahai Pharmaceutical / Huaotaibio and Zhejiang Medicine / Newcodon Bio.These established generic and API companies started with small-molecule drugs, but their internally incubated subsidiaries have shifted to large-molecule therapies - including antibodies, ADCs and fusion proteins.While the parent companies focus on chronic diseases, the innovative drug subsidiaries target two high-potential sectors: oncology and autoimmune diseases.
Parents provide continuous funding for early-stage R&D.In the mid-to-late stage, external investors are introduced to strengthen cash flow and optimize the equity structure for future spin-off listings.
As a veteran API enterprise, Huahai Pharmaceutical was among the first Chinese companies to export APIs globally.Despite the impact of the valsartan incident, its strong foundation supported its subsequent development.Its subsidiary, Huaotaibio, focuses on oncology and autoimmune diseases.Its core product, recaticimab (HB0034), was filed for marketing approval in October 2025 for the treatment of generalized pustular psoriasis (GPP) flares in adults.Huahai Pharmaceutical / Huaotaibio is expected to achieve an early value breakthrough in the autoimmune field.
(IV) High-Value Raw Materials + Extended Synthetic Biology
Jiangxi-based Fujian Xiangyao Pharmaceutical has bravely stepped out of its comfort zone and actively expanded into new energy and synthetic biology.
In the new energy sector, the company has been engaged in R&D and production of lithium battery electrolyte additives since 2022, focusing on core products including VC (Vinylene Carbonate) and FEC (Fluoroethylene Carbonate). As an API enterprise, Fujian Xiangyao Pharmaceutical has achieved a latecomer advantage: it obtained environmental approval for VC and FEC in March 2022 and started production in June of the same year. By 2023, its VC shipment volume ranked among the top three in the industry, with cost competitiveness also at a leading level.
In synthetic biology, the company successfully developed Weiran Protein. As a natural, healthy and clean microbial protein, it features high protein content, high dietary fiber, low fat, zero cholesterol, and all 18 amino acids essential for the human body. The production process is controllable, with no residues of antibiotics, pesticides or hormones, highly matching contemporary consumers' core demand for healthy, clean and low-burden diets.
As the first enterprise in China to achieve kiloton-scale industrialization of filamentous fungal protein and simultaneously complete the application for new food raw material and production license, the company now has an annual capacity of 1,200 tons of Weiran Protein, enabling it to meet early-stage market demand and realize sales revenue. Meanwhile, the company is fully promoting the construction of projects with an annual output of 20,000 tons of Weiran Protein and 50,000 tons of amino acid water-soluble fertilizer, striving for early commissioning to fundamentally break through capacity bottlenecks and consolidate its leading position.
Compared with start-up synthetic biology companies, API companies enjoy unique advantages in expanding into synthetic biology: sufficient production capacity, highly reusable existing plants, and a large customer base for downstream extension. Many API companies started with B2B business, whose sales teams can extend to other downstream customers and form seamless connections. They conduct joint innovation with downstream enterprises to develop diversified end products, build industrial ecological alliances, integrate industry resources, and work with partners to promote market education, standard formulation and product incubation, accelerating public awareness and market acceptance of new products.
(V) Future Development Trends
China's API industry has entered the 3.0 era.
The 1.0 era was dominated by exports of basic products represented by bulk APIs (antibiotics, vitamins).
The 2.0 era featured deeper industrial chain upgrading driven by API + Formulation + CDMO integration.
The 3.0 era is marked by Chinese API companies reconstructing the ecological system of the global pharmaceutical industry chain and becoming leaders and pacesetters of the entire chain.
Chinese API companies now provide custom APIs for global pharmaceutical firms in early R&D, export advanced production processes through technology licensing, independently carry out high‑difficulty regulatory registrations in major markets such as Europe and the US, and set up R&D centers or production bases overseas to achieve real localized operations. This marks a profound shift of China's API industry from "integrating into the global industrial chain" to "playing an innovative and critical role in the global industrial chain".
For China's API industry, transformation has arrived and the sector is ready to surge forward.
References
[1] Top 10 Trends in the API Sector in 2026. Asia-Pacific Yihe
[2] Building on the Past, Embarking on a Second Entrepreneurship - Established Enterprises Regain New Vitality. Tongxieyi
