Options for API Makers: R&D Outsourcing and Extending Production Chain to High End   

The delegations are negotiating in Copenhagen for cutting carbon dioxide emissions while the domestic active pharmaceutical ingredients (API) sector that was publicly identified to be energy intensive and high pollution sector became the highly concern once again. China has issued new emission standards for the API manufacture sector in August 2008, which will increase the cost of API makers by 20%. In addition, this sector is also facing plunged demand worldwide and overcapacity locally.
   China's API imports in the first eight months of 2009 declined 31% year over year and the exports decreased by 4%, reported by China Chamber of Commerce for Import & Export of Medicines and Health Products. The double declines took place for the first time in the past five years.
   Around 16.5% of China's API exports were delivered to India in 2008. In the API sector, the relation between India and China is very interesting. On one hand, Indian pharmaceutical companies need to import China made APIs and intermediates in order to cut cost. On the other hand, Indian pharmaceutical companies do not want to help Chinese API sector grow rapidly and do not expect China made APIs to control the Indian market. Their final decision is to cut and control the API imports from China. The export decline in Indian market was thought as the main cause for the all exports decline.
   The sharp drop of exports price also contributed to the drop of exports value. Even if the export prices of vitamins increased annually, the exports for this family did not witnessed a positive growth due to plummeted export quantity, taking vitamin C and vitamin E for instance.
   Amid difficulties and pressures, market insiders still advise many options for China's API makers.

R&D Outsourcing

With the patent expiration, the innovated drugs have been decreasing year by year. Given the pressure of cutting medical cost worldwide, non patented drugs (generic drugs) can also treat many diseases today, while their prices are well below the innovated drugs in the patent term. Many factors force the global drug makers to seek for cheaper APIs, particular in the situation of weak purchasing power worldwide. Therefore the opportunity descends upon Chinese API makers.  
    Owing to the tight cash chain, global medicine giants may pay more attention to developing market, cutting cost and M&A. It is predicted that the outsourcing market in medicine manufacture sector will expand therefore. Chinese API makers shall grasp the good opportunity to develop themselves. R&D outsourcing will also be accelerated by this financial turmoil. An expert projected that the global R&D outsourcing market may be valued at US$30 billion in 2010.

Extending Production Chain to High End

Chinese API makers began to shift their business to the high end, represented by the penicillin production chain. This shifting trend can also help API makers to avoid risks from RMB appreciation, environmental protection pressure and unstable demand in the global market.
   According to statistics in 2008, 74% of China's penicillin-G exports were delivered to India. In the first ten months of 2009, China's penicillin-G exports declined by 43% year over year. Of that the exports to India plunged by 36%. In replacement, the exports of penicillin-G derivatives such as 6APA, amoxylillin, ampicillin and 7-ADCA soared. It states that the demand is shifting into the high end. This trend can be evidenced by the domestic output changes.