Important opportunity for Chinese raw material drugs to enter the high-end value chain

In recent years, a growing number of U.S. pharmaceutical companies have started to explore outsourcing opportunities in China, driven by the continuous improvement of the country’s business environment. On April 17th, Beijing Oriental Bit Technology Co., Ltd. (Health Network) and Agno Pharmaceutical Co., Ltd. from the U.S. jointly hosted the Fourth China Pharmaceutical International Forum and Global Pharmaceutical Outsourcing Conference. Dr. Simon Sellers, CEO of Bioavailability Systems LLC, shared exciting insights about the evolving landscape for the Chinese pharmaceutical industry. Beyond traditional R&D and production outsourcing—areas where Chinese firms are already active—there is another critical segment that has not received enough attention: the supply of drug substances during clinical trials. This area represents a new frontier with significant potential for growth. The global pharmaceutical outsourcing market has been expanding rapidly, fueled by the rising costs of drug development and the need for cost-effective solutions. Major players like Pfizer have been restructuring their operations, shifting more of their manufacturing and R&D to developing countries. Over the past three years, Pfizer has reduced its global factory count from 93 to 45, while increasing its outsourcing percentage from 10% to 17%. By 2010, this figure is expected to reach 30%. This trend reflects a broader shift in the pharmaceutical industry, where outsourcing is no longer just a cost-cutting measure but a strategic move to enhance efficiency and innovation. According to industry data, the global pharmaceutical outsourcing market is growing at an annual rate of 30%, with the contracted R&D outsourcing (CRO) sector alone projected to exceed $30 billion by 2010. For Chinese pharmaceutical companies, participating in international certifications and securing foreign R&D and production contracts has become a common strategy. However, many are still unfamiliar with the challenges and opportunities of supplying raw materials during the clinical phase. Dr. James J. Chen from Agno Pharmaceuticals explained that the drug substance used in clinical trials varies significantly in volume and timing. During preclinical stages, only grams are needed, while Phase 3 trials require kilograms, and commercialization demands tons. The profit margin for these raw materials can exceed 50%, making them highly attractive. The high profitability of clinical-stage APIs is largely due to the demand for new drugs, especially as patent expirations and declining R&D productivity push pharmaceutical companies to seek external partners. Dr. Kerry Spear from Sepracor highlighted that the U.S. pharmaceutical market, which once grew steadily, now faces stagnation, partly due to patent losses and safety issues. As a result, companies are increasingly turning to outsourcing to maintain competitiveness. China is well-positioned to enter this high-end market. While most global API production during clinical trials is currently concentrated in North America, Europe, and India, Chinese companies are beginning to show capabilities in producing non-proprietary and even patented APIs. Improved intellectual property protection and a growing pool of skilled professionals make China an appealing partner for Western firms. Despite the challenges, the outsourcing landscape is evolving. Small biotech firms and academic institutions are driving much of the innovation, and they often rely on outsourcing to manage costs and timelines. Large CROs such as Quintiles and Corvins have established a presence in China, recognizing the country's competitive edge in clinical research and development. As the demand for APIs during clinical trials grows, so does the need for quality suppliers. Companies must meet strict standards in terms of production capacity, technical expertise, and regulatory compliance. While large outsourcing firms may prefer larger manufacturers, many also look for smaller, agile companies that can deliver quickly and adapt to changing needs. For Chinese firms, entering this market requires a deep understanding of international standards and customer expectations. Those that can align their capabilities with the requirements of global pharmaceutical companies stand to gain significant market share. As one company, Chifeng Ai Ke Pharmaceutical, noted, even small orders can be profitable and offer valuable experience in handling complex projects. Ultimately, pharmaceutical outsourcing is more than just a financial opportunity—it’s a pathway to global integration. By participating in this ecosystem, Chinese companies can not only expand their markets but also build long-term relationships with leading pharmaceutical firms. This shift could position China as a key player in the next phase of the global drug development chain.

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