Jump out of the low price cycle, the four major upgrade paths of the API industry

Accelerated production capacity

On the whole, many factors are driving the concentration of production capacity in the API industry.

The most important factor is the increase in environmental protection costs, forcing small capacity enterprises to withdraw from the market. As the country pays more attention to environmental protection, relevant environmental protection policies have been accelerated in recent years. Under the environmental protection and high pressure, the environmental protection costs of API companies continue to increase. And the environmental protection investment of the API companies is not one-off, such as incinerators, which require continuous investment after the start of construction. Under the large environmental protection expenditure, small-capacity enterprises can't afford to continually withdraw from the market, and the closure of enterprises that fail to meet the standards has also accelerated the industrial concentration.

Second, due to the rapid expansion in the early days, some API products are now being restricted. Taking vitamin C as an example, China produces about 90% of the world's VCs. Due to the serious expansion of production capacity, the VC industry was included in the restricted industry project in the 2005 Industrial Structure Adjustment Guidance Catalogue, and was listed as a prohibited land in 2006. The Project Record and the 2008 Industrial Structure Adjustment Guidance Catalogue are listed as restricted investment projects.

Third, due to high technical thresholds and low profits, some raw materials have been withdrawn from continuous losses or are not willing to reproduce. At the same time, with the internationalization trend of domestic pharmaceutical companies, many companies are transforming into higher-margin businesses. At present, most of the raw material medicine companies' preparation business accounts for more than 40%, supporting the development of related enterprises.

The prices of various APIs have risen sharply, and the high boom cycle is expected to continue. The author believes that the competition pattern of bulk APIs is facing major changes. In the short to medium term, there will be more price increases for raw materials. In the long run, the profitability of API companies will return to a reasonable profit range (except in the field of blind expansion). It is expected that with the advancement of consistency evaluation, the concentration of chemical and pharmaceutical industry will increase rapidly. Enterprises with raw material medicine and preparation business are expected to obtain a new round of development opportunities and build a number of leading enterprises in various segments with cost advantage. .

On the whole, domestic APIs show a good trend of rising prices. In the general situation of structural reform on the supply side, concentrating production capacity in medium and large enterprises is the trend of the entire pharmaceutical industry. For the API industry, the industrial environment is also accelerating the concentration of production through the survival of the fittest, forcing companies to improve their core competitiveness.