The Market Of API Is Rising Again, And Domestic Enterprises Are Speeding Up The Upgrading And Expansion

With the policy support, the business model of API enterprises is changing.

Since the beginning of March, India has restricted the export of some API in order to ensure the domestic drug supply. As a major producer of API, many listed companies have opened up the mode of increasing production and capacity in the face of the market offered by India.

According to the reporter's incomplete statistics of the 21st century economic report, up to now, nearly 10 API enterprises have increased capital and expanded production. On July 29, Shisi Pharmaceutical Group (02005. HK) disclosed that the company was considering the possibility of splitting its API and medical materials integration platform and listing on an approved stock exchange in mainland China. On July 28, Hunan Jingfeng Pharmaceutical (000908. SZ) also approved the investment of 282 million yuan in Changde economic development zone and Hunan Changde Deyuan to build "Changde API and preparation" Earlier, AoXiang Pharmaceutical (603229. SH), anglikang (002940. SZ), guangshengtang (300436. SZ) and Fuxiang Pharmaceutical (300497. SZ) also announced refinancing to expand the production of API.

On August 6, Li Tao (pseudonym), head of the API board of a listed company in Hebei Province, said in an interview with the reporter of 21st century economic report: "the epidemic situation makes preparation enterprises realize that without API, they can not complete normal production. Under the background of high dependence on raw materials in other countries, it is easy to concentrate on the production of raw materials in other countries. Therefore, making drugs from scratch, or having the technology and production conditions to do API, has become the key layout direction of many large pharmaceutical enterprises. "API + Preparation integration" will become an inevitable way for Chinese enterprises to survive, which will also have a profound impact on the future development of API. "

Epidemic stimulation

Under the stimulation of the epidemic situation, the importance of manufacturing API has been highlighted, whether it is the split listing of enterprises or the non-public issuance and refinancing.

As one of the major producers and exporters of API, India issued a notice on March 3 this year to ensure that domestic supply is given priority during the epidemic period. On March 3, India's foreign trade administration limited the export of 26 kinds of raw materials and their preparations, including paracetamol, tinidazole, erythromycin and clindamycin.

If the global drug supply of 24% and 26% of the drugs in Europe continue to depend on India, it will have a significant impact on the global drug supply.

According to the Research Report of Orient Securities, at present, China and India have played an important role in the global API supply, and together they account for about 21% of the global regulated market supply. From the perspective of structure, about 70% of API in India is chemical pharmaceutical, and most of them are in the field of characteristic API; from the production side, India's standardized market export concentration is relatively high, mainly including several large pharmaceutical enterprises, such as sunpharma, aurobindopharma, Lupin, etc. If India's epidemic situation leads to a certain gap in the supply of global API industry, China is the region with the most capacity to undertake the relevant capacity.

According to the data of Mordor intelligence, the market scale of global API industry (including patent API) in 2018 reached US $165.7 billion, with a year-on-year growth of 6.9%. It is estimated that the market size will be increased to $236.7 billion by 2024, with a compound growth rate of 6.1% from 2018 to 2024, and the market scale will maintain a steady growth.

As a matter of fact, China is also a big producer of API, so it is imperative for pharmaceutical enterprises to speed up the distribution of API market. Li Tao pointed out: "with the intensification of market-oriented competition and the superposition of macro-control policies, the impact on the field of API will be more and more significant with the third round of national centralized procurement. Centralized purchase needs to reduce the cost of medical insurance payment by reducing the drug price, so reducing the price of finished products should be carried out in two directions: reducing the cost of API and management cost. That is to say, the reduction of preparation cost needs to be supported by API manufacturing optimization. "

Taking Shijiazhuang No.4 Pharmaceutical Group as an example, since 2016, the company has increased efforts to layout the API market, and now has 2 API related subsidiaries. In view of the spin off and listing, a person close to Shijiazhuang No.4 Pharmaceutical Co., Ltd. told the 21st century economic report that "the divestiture of API assets will be carried out separately. As the high P / E value will promote the financing demand of enterprises, the internal equity distribution is also an incentive. At the same time, enterprises can focus more on the high-end pharmaceutical products, such as drug products with high-end characteristics and high-value-added products

Reconstruction of business model

Foreign epidemic situation superimposes domestic policy, and the business model of domestic API industry is undergoing reconstruction.

In November 2017, the announcement on adjusting the review and approval of API, pharmaceutical excipients and drug packaging materials came out, which opened the prelude to the reform of API enterprises. Since then, in December 2019, the drug administration law was implemented, and the four-year pilot drug marketing license holder system (hereinafter referred to as "MAH system") was officially established. So far, the marketing license and production license of drugs are separated, and domestic R & D institutions and small pharmaceutical enterprises have more choices for cooperative R & D and production.

The stimulus of this policy is also reflected in the application review data, with a significant increase in the number of APIs approved for use in marketed preparations in 2019. Among them, the newly added associated review and registration are mainly preparation leaders. Forward integrated companies, represented by Huahai pharmaceutical and Xianju pharmaceutical, have a significant increase in API filing in 2019, and the number of API related review and registration increases by 35 in 2019.

Sun Jian, a researcher at Minsheng securities, said that the core growth logic of API head enterprises in the next 3-5 years is due to the continuous improvement of return on net assets brought about by capacity expansion and product upgrading. In the past 5-10 years, the accumulated quality management and cost control advantages accumulated by tou intermediates and API companies in the process of developing and standardizing the market will help relevant companies to enrich their product structure in the medium term, To achieve forward integration and business model development along the industrial chain.

Under the joint promotion of MAH and joint evaluation system, the cooperation between API enterprises and generic pharmaceutical enterprises will become more flexible and more targeted. For pharmaceutical enterprises, cost and quality control will be further improved. For API enterprises, product upgrading and business model will undergo more profound changes.

Taking the cooperation between Hengrui pharmaceutical and stili as an example, on May 13, this year, both steli and Hengrui pharmaceutical announced the signing of the drug cooperation agreement. As partners in the field of iodine contrast agent, steli and its wholly-owned subsidiary Shanghai steli and Hengrui pharmaceutical will cooperate on the production, supply and commercial operation of iohexol injection and iopalol injection. According to the agreement, Hengrui should pay 5 million yuan to steli within 20 working days from the date of marketing of each cooperative product, that is to say, API enterprises should give full play to their advantages in production process optimization and cost management, and create incremental profits with the channel advantages of pharmaceutical enterprises.

On the other hand, the implementation of MAH system has also stimulated the growth of domestic cdmo orders and promoted the division of labor in the pharmaceutical industry to be more refined. After 2019, when the API related to innovative drugs is registered, there will be no subordinate relationship between the original research enterprises and production enterprises to register at the same time. More and more class 1 innovative drugs research and development choose mature cdmo companies to supply API and provide corresponding services.

Take the example of Huawei Meinuo, a characteristic API enterprise, which released the semi annual report for 2020 on the evening of July 30. According to the results, from January to June this year, the operating revenue reached 651 million yuan, an increase of 16.01% over the same period of last year; the net profit attributable to shareholders of listed companies was 107 million yuan, an increase of 24.57% over the same period of last year. In the first half of this year, the sales of losartan, valsartan and other core products in South East Asia, South Korea and the Middle East continued to increase. In particular, the global supply of sartan products is in short supply. At the same time, the demand of downstream customers for clopidogrel and other products has increased. The volume and price of antihypertensive and antithrombotic products have risen simultaneously, which has improved the overall gross margin of the plate. In the first half of the year, Manulife's comprehensive gross margin was 38.39%, an increase of 2.01 percentage points over the previous year.

Sun Jian predicted that with the transfer of pharmaceutical outsourcing industry chain and the dividend of Chinese market, the demand side of innovative drug R & D will drive the growth of the outsourcing market of innovative pharmaceutical raw materials. At the same time, pharmaceutical enterprises are expected to play a more and more important role in the R & D and cost management of API industry.

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