What impact does drug centralized procurement have on API companies?
In recent years, "drug centralized procurement" has become one of the most influential policies in China's pharmaceutical industry. It has rapidly changed the pharmaceutical market structure, leaving many pharmaceutical companies facing the dual pressure of price and profit. But many people don't know that this price reform, with finished drugs as the protagonist, actually deeply affects the lifeblood of the upstream API industry.
What exactly is drug centralized procurement? What specific impacts does it have on API companies? How will it evolve in the future? This article will systematically analyze it for you.
1. What is drug centralized procurement?
In layman's terms, centralized procurement of drugs means "unified bargaining and volume procurement" by national or provincial medical insurance departments, in which bulk orders are exchanged for drug price reductions, thereby reducing the burden on patients and alleviating the pressure on medical insurance expenditures.
In 2018, the country piloted the "4+7" volume procurement for the first time; afterwards, the national level implemented multiple rounds of "national centralized procurement", and the coverage range expanded from chemical drugs to traditional Chinese medicines, consumables, and biological drugs. The price of centralized procurement drugs often drops by 50% or even more than 90%, which is called an "industry earthquake".
The core impact chain of centralized procurement is as follows:
Reducing drug prices → reducing the profits of preparation companies → forcing them to reduce raw material costs → compressing the bargaining space for raw materials → affecting the income and profits of raw material companies
II. Five core impacts of drug centralized procurement on raw material companies
Although raw materials are not the direct objects of centralized procurement, centralized procurement transmits pressure on downstream preparation companies upward, profoundly affecting the survival and competition pattern of the raw material industry.
1. Price transmission pressure squeezes the profit space of raw materials
After centralized procurement, the price of winning preparations has been greatly reduced. In order to maintain profit margins, preparation companies must lower prices to upstream raw material suppliers. Especially for raw material companies with a high dependence on a single variety, the bargaining power has dropped sharply.
For example, the original price of a cardiovascular drug was 30 yuan/box, but it was reduced to 5 yuan after winning the centralized procurement. The net profit space of the preparation company is almost gone, and the procurement cost of raw materials will inevitably be compressed to the limit, forcing the raw material factory to "exchange quantity for price" or even "survive with small profits".
2. Market concentration increases, API production capacity is cleared
Winning the bid in centralized procurement means "exclusive volume release", only a few preparation companies win the bid, and most pharmaceutical companies are out and no longer produce related drugs. This "winner takes all" model has led to a rapid concentration of demand for APIs, non-winning companies no longer purchase, some API companies lose orders, and production capacity is forced to clear.
The result is:
The concentration of the API industry has increased;
Small and miscellaneous factories have been eliminated;
Large factories with production capacity and bargaining power have become the core of the supply chain.
3. Forcing API companies to turn to high-end and differentiated products
In order to get rid of the fate of being "price-cut", more and more API companies have begun to layout:
APIs supporting high-end preparations (such as innovative drug APIs);
Higher-difficulty patented generic drug raw materials;
Biological APIs, biological intermediates;
Intermediates and preparations are integrated.
Only APIs with high technical barriers and poor substitutability can gain a foothold in the "price-cutting tide". For example, it is difficult to simply reduce the price of raw materials for tumor-targeted drugs and immunomodulatory drugs through centralized procurement, and companies have more bargaining space.
4. Promote the trend of integration, and the linkage between raw materials and preparations is closer
Centralized procurement accelerates the industrial pattern of "API+preparation integration".
The reason is simple: if preparation companies want to ensure supply and price, the safest way is to master the production of raw materials themselves. And raw material companies also hope to increase the added value of products by building or cooperating with preparation companies.
For example, Huahai Pharmaceutical, Shijiazhuang Pharmaceutical Group, Qilu Pharmaceutical, etc. have completed the full chain layout from API to preparations early, and have gained greater advantages in the era of centralized procurement.
This model will become mainstream in the future: raw material companies without preparation business will be marginalized; preparation companies without raw material support will lack bargaining power.
5. Raise the threshold of supervision and compliance, and inferior raw materials will be eliminated
Centralized procurement emphasizes "quality first, reasonable price". The winning products must not only have low prices, but also pass consistency evaluation or have high quality standards. This in turn forces API suppliers to have:
High-standard GMP certification;
Low impurity control capabilities;
Complete DMF registration documents;
Stable supply capabilities.
This means that small-scale, low-level, non-compliant API companies will find it difficult to win the favor of the winning companies and will be gradually eliminated in the future.
3. Differences in the impact on different types of API companies
✅Large API companies with technical accumulation
Such as Hengrui, Shijiazhuang Pharmaceutical, Qilu, etc.:
Have preparation exports and innovative drug layout;
Have an integrated industrial chain;
Not only did they not suffer in the centralized procurement, but they expanded rapidly through "large volume and low price".
⚠️Small and micro API factories focusing on basic varieties
Lack of downstream supporting customers;
No brand, no technical barriers;
Facing survival crisis, gradually withdrawing.
