China's API Sector Accelerates Shift to Innovative Drug Portfolio

The Active Pharmaceutical Ingredients (API) sector in China is undergoing a significant transformation, driven by shifting raw material costs, currency movements, and a strategic pivot towards innovative drugs.

Recent macroeconomic conditions have provided a mixed backdrop. A decline in crude oil prices and a stabilisation in industrial raw material costs have eased upstream cost pressures for the chemical API industry. Concurrently, the depreciation of the Renminbi is anticipated to bolster the competitiveness of China's API exports, with the sector's Producer Price Index (PPI) showing a recovery from previous lows.

However, the market exhibits divergent trends across different product categories. Prices for certain common APIs, such as sartans, have faced downward pressure due to post-pandemic economic conditions and intense competition, squeezing profits for some manufacturers.

The antibiotic segment has been particularly affected. Prices for key intermediates like 6-APA and penicillin salt have fallen significantly, leading to continued price declines for downstream antibiotics including amoxicillin. In contrast, prices for sulfadiazine remain high due to supply constraints, while cost pressures and solid demand are supporting elevated prices for azithromycin and clarithromycin APIs.

The veterinary API market has experienced a pronounced downturn. An industry oversupply and weak demand have caused prices for products like florfenicol and doxycycline to plummet to historic lows, triggering industry consolidation. Recent data, however, suggests this consolidation may be nearing completion, with some prices showing tentative signs of stabilisation.

The heparin API market, after a period of oversupply and peak prices between 2019 and 2021, saw a sharp correction in late 2023. Prices have since largely stabilised. Separately, iodine raw material prices, which surged to a cyclical peak in 2022-2023 following supply disruptions, are projected to recover by 2025, driven by demand from other industrial sectors.

Financially, the API sector has maintained gross margins around 38-39%, but net profits have shown volatility due to non-recurring factors like asset impairments. After a sustained decline, sector valuations reached a low in early 2024 but have since begun to recover, partly driven by the strategic shift towards innovative drugs.

Strategic Pivot to Innovation

Several leading Chinese API companies are now actively transitioning into the innovative drug space. Key developments include:

* Huahai Pharmaceutical is focusing on oncology and autoimmune diseases, with drug candidate HB0034 in the marketing authorisation application stage, and others in Phase II and III trials.

* Borui Pharmaceutical has its BGM0504 in Phase III clinical trials.

* Anleicons and Federal Pharmaceutical also have multiple candidates in various stages of clinical and preclinical development.

Blood Products Sector Faces Headwinds

In a separate segment of the pharmaceutical industry, the blood products sector continues to face performance challenges. High inventory levels have led to price declines for some products outside hospitals, while demand within hospitals remains constrained by medical insurance policies. This has resulted in reduced revenue and profitability for the sector.

Consequently, valuations have seen a sustained decline, falling from over 90 times earnings in 2020 to around 25 times by September 2025. This is also attributed to competition from imported albumin and progress in China's domestic recombinant albumin development.

Despite these challenges, plasma collection volumes saw steady growth in the first half of 2025. Companies like Pailin Biotech reported an 11% year-on-year increase, as listed firms expanded their plasma station networks through mergers and acquisitions.

Vaccine Sector Deploys New Technologies

The vaccine sector experienced a significant performance decline in 2025, largely due to weaker sales of HPV vaccines. A shrinking newborn population in mainland China and increased competition in the paediatric vaccine market have also contributed to a market contraction.

Sector valuations, which were above 200 times earnings in 2020, fell to around 24 times in 2024, rising only slightly in 2025 due to losses incurred by some companies.

In response to the declining birth rate, Chinese vaccine firms are accelerating the development of new technologies and products. Olin Biotech expects to complete clinical unblinding for its Staphylococcus aureus vaccine in early 2026, potentially making it the first globally to seek marketing approval. CanSino Biologics is advancing its pneumococcal portfolio and exploring novel cancer vaccines, while Kangtai Biological Products recently announced plans to develop vaccines targeting drug-resistant bacteria.