1. Industry Overview
The English name for active pharmaceutical ingredients is API (Active Pharmaceutical Ingredients), which literally translates to the active ingredient of a drug. It is the basic substance that constitutes the pharmacological action of a drug.Raw materials cannot be directly used by patients and need to be further processed into formulations through purification, addition of excipients, and other processes before they can be directly taken by patients. And intermediates are produced during the process steps of active pharmaceutical ingredients, which must undergo further molecular changes or refining to become a material of active pharmaceutical ingredients. The broad active pharmaceutical industry includes APIs and intermediates.
According to Mordor Intelligence data, the global API market size was 5 billion in 2020, and it is expected that global demand for APIs will continue to grow in the coming years. By 2026, the market size will rise to 5.9 billion, with a compound annual growth rate of over 5.8%.
2. Development Trends
(1) Partial heavyweight drug patents are gradually expiring, and the raw material pharmaceutical industry may experience rapid development
One of the important development trends in the global pharmaceutical market is that many heavyweight drug patents will expire one after another. The high risk and high return of new drug research and development determine the high profitability of new drugs during the patent protection period. However, once innovative drug patents lose their protection, their prices will significantly decline under the impact of low-priced generic drugs. At that time, the importance of raw material drug costs will begin to emerge, and their proportion in the final drug price will significantly increase, becoming one of the decisive factors affecting the profitability of original research and development pharmaceutical factories and generic drug factories.
Under financial pressure, original pharmaceutical companies tend to seek professional pharmaceutical outsourcing to achieve process optimization and cost reduction; Generic drug manufacturers hope to seize this opportunity to break the monopoly of traditional European and American pharmaceutical companies and rapidly expand their market share.
According to Evaluate Pharma's statistics, there will be a peak in the expiration of innovative drug patents in 2022, with billion worth of drugs affected and a potential revenue loss of billion. The total sales of drugs with expired patents are expected to reach 159 billion US dollars from 2020 to 2024. The expiration of a large number of patented drugs will drive the sustained growth of the international generic drug market, thereby driving the continuous increase in demand for active pharmaceutical ingredients.
At present, developed countries such as Europe, America, and Japan, with the advocacy and support of their governments, have achieved a market share of over 50% in generic drugs and maintained a rapid growth rate of around 10%, which is twice the growth rate of innovative drugs. The United States has the highest substitution rate for generic drugs, and the medical policies of various European countries“balance”Overall, there is a tendency towards the development of generic drugs.
Among them, the market share of generic drugs in France, Spain, Italy, and Portugal has increased significantly. Overall, the global generic drug market is expected to maintain double-digit compound growth, with the proportion of emerging countries such as China gradually increasing. The increase in the use of generic drugs will bring prosperity to the raw material drug market. Especially for developing countries with limited payment capacity, generic drugs will continue to be the main choice for clinical use in the foreseeable future.
(2) The raw material pharmaceutical industry is gradually shifting to emerging countries
In the past decade, global API production capacity has gradually shifted from Europe and America to emerging markets, with India and China becoming the main recipients. Currently, India is the biggest beneficiary of API production capacity transfer, but China is rapidly narrowing the gap with India based on its advantages in technology and quality.
On the one hand, due to high labor costs and enormous environmental pressures, the production capacity of active pharmaceutical ingredients in Europe and America is flowing towards China and India, which have policy advantages and a large number of DMF certificates. Currently, 80% of the generic drug production capacity in Europe and 70% in the Americas is provided by China and India. India has become the biggest beneficiary of API capacity transfer in the past decade due to its language and technological advantages.
From the perspective of development trajectory, with the expiration of patent protection for a large number of products in countries such as Europe, America, and Japan, as well as a significant increase in the number of DMFs in India, Indian APIs are gradually evolving from bulk active pharmaceutical ingredients to specialty active pharmaceutical ingredients with higher technological content and added value. The sales focus is shifting from non-standard markets to standardized markets, extending from simply making APIs to API+formulations, expanding market discourse power and gross profit. On the other hand, China is rapidly catching up with India in terms of technology, product quality system, and DMF certification, thanks to its more mature basic industrial system and cost advantages.
Firstly, the abundant supply of biochemical talent resources in China is conducive to domestic enterprises quickly mastering the engineering technology of global mainstream chemical drug production, and establishing a complete set of chemical drug research and development and production service systems; Secondly, according to Chemical Weekly's estimation, the production process accounts for about 30% of the total cost of the original drug. Outsourcing production in China, where the relative cost is only 1/2 to 1/3 of that of European and American CMO companies, is expected to reduce this part of the cost by more than 40% to 60%, resulting in a total cost reduction of about 15%. Thanks to the above advantages, China's position in the global API industry chain has rapidly increased.
(3) The domestic raw material pharmaceutical industry will gradually transform and upgrade
China is a major user of generic drugs, and generic drugs are the dominant force in China's pharmaceutical market. Driven by factors such as the increasing prevalence of chronic diseases in China, the continuous aging of the population, and the control of medical insurance costs, it is expected that the size of China's generic drug market will continue to grow rapidly in the future. In the past, due to the lack of early research and development capabilities in China's raw material pharmaceutical companies, the main advantages were some mature technology and long product chain bulk raw material pharmaceutical products, with varieties mainly concentrated in vitamins, antipyretic and analgesic drugs, antibiotics, and corticosteroids.
Among them, penicillin industrial salt and vitamin C are the two major varieties of chemical raw materials in China, but at the same time, overcapacity is caused by low barriers and a large influx of small production capacity. In recent years, due to the impact of environmental policies and regulations and the resulting cost increase, a large number of small and medium-sized raw material pharmaceutical factories have been squeezed out of the market, and the supply pattern of raw materials has been improved. At the same time, with the continuous expansion of global generic drug scale, the demand for new characteristic raw materials has also rapidly increased, greatly promoting the international production transfer process of characteristic raw materials, and the proportion of characteristic raw materials in export products has also increased rapidly.
Relying on the relatively complete support of basic chemical raw materials and a large-scale domestic market, China's raw material industry has expanded from traditional bulk raw materials to specialty raw materials and CMO fields, and continues to extend and upgrade downstream industrial chains. Chinese enterprises have gradually familiarized themselves with overseas pharmaceutical regulatory laws and policies, and actively applied for drugs
Product related certification, registration, and continuous improvement of international competitiveness. In the booming development of the global raw material pharmaceutical market, Chinese enterprises have gradually shifted from junior competitors to mid to senior competitors, deeply participating in the research and production of the global pharmaceutical industry.
(4) The domestic CDMO model is gradually developing to improve the R&D and production efficiency of pharmaceutical companies
① CDMO industry market size
In recent years, the global pharmaceutical CDMO market has steadily expanded. According to Frost&Sullivan's research report shows that the global pharmaceutical CDMO market has grown from 39.361 billion US dollars to 63.117 billion US dollars from 2017 to 2021, with a compound annual growth rate of 12.5% from 2017 to 2021; In the future, the market will continue to maintain a steady growth trend, expected to reach 1.2 billion by 2030, with a compound annual growth rate of 15.52% from 2021 to 2030.
Among them, the Chinese pharmaceutical CDMO market maintains rapid growth, with a growth rate higher than the global market. According to Frost&Sullivan's research report shows that the total volume of China's pharmaceutical CDMO market increased from 13.184 billion yuan to 47.292 billion yuan from 2017 to 2021, with a compound annual growth rate of 37.6% from 2017 to 2021; Driven by emerging pharmaceutical companies in the future, this market will maintain rapid growth and is expected to reach 358.3 billion yuan by 2030, with a compound annual growth rate of 25.23% from 2021 to 2030.
② Development of CDMO Model in China
The basic business model of traditional raw material medicine CMO is "technology transfer+customized production", which is just a simple capacity undertaking. On the basis of CMO business, pharmaceutical outsourcing enterprises provide high-tech value-added process research and development (Development) for pharmaceutical companies with their own technology, and participate in it from the early clinical stage of drug development, forming“Customized research and development+customized production”CDMO mode. Some high-quality CDMO enterprises can provide one-stop services for pharmaceutical companies in research and development and production, mainly including drug preparation and process research and development in clinical and commercial stages, involving clinical drug use, intermediate manufacturing, raw material production, formulation production and other services. As the difficulty of new drug development increases and the return on investment decreases, CDMO has gradually become one of the optimal solutions for pharmaceutical companies' research and production.
CDMO suppliers leverage their technological advantages and production capacity to undertake the process development and production of pharmaceutical companies, allowing them to focus more on drug research and development and post market sales. Internationally, European and American pharmaceutical companies are constrained by their high research and development costs, manufacturing costs, and environmental costs, and their CDMO business is gradually shifting towards emerging markets represented by China and India, which have cost advantages. In addition to stable manufacturing capabilities, large pharmaceutical companies also consider whether CDMO companies have advantages in new technology development, quality systems, and intellectual property protection when selecting suppliers. Due to the rapid development of the pharmaceutical industry in China in recent years, coupled with increasingly improved intellectual property protection, research and development, and production costs compared to traditional methods
Compared to the Indian market, the advantages of low cost service enterprises, more complete supply chains, and policy encouragement in Europe and America are more prominent, and are more recognized by large pharmaceutical companies around the world. The pharmaceutical outsourcing service market is accelerating its transfer to China, benefiting from this, the market size of China's CDMO industry continues to expand, with a significant growth rate.