APIs are classified into bulk APIs, specialty APIs and patented APIs. Among them, the demand for bulk APIs remains relatively stable, while specialty APIs and patented APIs enjoy a qualitative leap in growth attributes compared with bulk APIs.
In terms of industry barriers, there are substantial fundamental differences among the three types of API enterprises.
Bulk APIs: Low entry threshold and fierce market competition; by contrast, specialty APIs and patented APIs have relatively high entry barriers.
Specialty APIs: Core barriers lie in technology, heavy asset investment and customer stickiness. Technologically, continuous improvement of production processes and R&D capabilities is required.
Patented APIs: They have the highest industry barriers. Due to the characteristics of innovative drugs, their business mainly relies on customized services for long-term clients. Meanwhile, they stand at the top of the profit pyramid in terms of gross profit margin and other profitability indicators.
In terms of customer stickiness, specialty APIs and patented APIs maintain close ties with downstream clients and rely largely on long-term cooperative relationships. In terms of capital investment, specialty APIs require greater investment in specialized production lines. Overall, the industry barriers rise sequentially among the three categories.
From a global profitability perspective, China's scale advantage in the API sector has been basically established. The cost edge of the industrial chain covering intermediates-API-pharmaceutical preparations has been fully unleashed, driving a substantial upgrade in global competitiveness. The phase-out of low-end production capacity has also made high-barrier sub-sectors the core development trend of the future.
