Economic Factors Influencing Global Pharmaceuticals & API Export-Import Trends
Life expectancy has skyrocketed over the last century. Much of this can be attributed to modern medicine and the widespread availability of pharmaceutical products. The crucial role that they play in the global economy is literally a matter of life and death.
The latest pharmaceutical import export data shows that this industry had a worldwide revenue of $1.48 trillion in 2022. A majority of this came from pharmaceutical drugs. Let’s find out how these drugs are made and where they come from to understand the economic factors that shape the industry.
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The Pharma Drug Manufacturing Process
A typical drug’s production starts with simple chemicals called Key Starting Materials (KSM). Intermediates and Active Pharmaceutical Ingredients (API) are then added to these KSM to take the process further.
Here, Intermediates act as catalysts or mediators, and the APIs are the components that actually treat illnesses. Excipients are substances like starch and lactose that are then added to the finished drug formula. These allow people to ingest the drugs orally.
Barriers To Production
Medicines are seen as a basic necessity rather than a consumer product, which puts a lot of pressure on companies to limit costs. Drugs sold at highly competitive prices are called Generic Drugs. These are affordable counterparts of branded treatments and make up a majority of global trade.
No matter the industry, a majority of the work is always done by a human being. So, affordable labor becomes the first necessity.
Then there’s the issue of procuring KSM. They tend to have a straightforward production method, but very few companies make their own. That’s because producing KSM can be harmful to the environment unless made in controlled environments.
That’s why it can be impossible for these drugs to be made within the borders of developed nations in a profitable way. Developed nations have strict environmental protection laws, and labor tends to be expensive as well. Hence, it’s very rare for a pharma corporation to make its pills from scratch.
A Questionable Solution
Countries like India and China have massive labor resources and used to have slack environmental protection laws. This made them the ideal location for big pharma to set up factories.
This brings us to the single most important economic factor that weighs heavily on global pharmaceuticals: the economies of scale. Simply put, it’s more profitable to produce KSM and APIs in bulk. That’s why almost all roads tend to lead back to China. The country has positioned itself as a major player from early on.
For instance, India produces about 20% of the global generic drug supply but imports around 70% of its API from China. It’s also a major worldwide API supplier but imports most of its KSM and Intermediates from China.
The Current Picture
With time, the massive vulnerabilities of this unilateral supply chain started coming to light. Questions arose about the quality of Chinese pharmaceutical products, and the country’s own environmental conditions started to deteriorate.
China’s legislature has been focused on more sustainable production for the past decade. Unfortunately, the producers are quite spread out, and the process of improvement has proved slow and challenging.
The country’s severe pandemic restrictions and zero-Covid policy were the final nails in the coffin. The massive strain it put on the global supply chain was alarming to everyone. Companies all over the world are responding by diversifying their operations. India has emerged as the key alternative.