COLUMN:PHARMACEUTICALS AND BIOCHEMICALS
Slow Growth of the Erythromycin Thiocyanate Capacity
The export of erythromycin thiocyanate in China has maintained a sustained increase in the past three years. In 2008 and 2009, in particular, the export growth reached 18% and 25% respectively over the previous year. Erythromycin thiocyanate has become a variety of antibiotic intermediates with relatively high export growth. Its price has also presented a rising trend. In the first three months of 2010, in particular, the domestic price of erythromycin thiocyanate already increased from RMB380 per kilogram to RMB450 per kilogram. The export price also increased to US$67-68 per billion units. In spite of the price rise, there is still supply shortage in the market.
What makes people feel strange, however, is that although price of erythromycin thiocyanate has increased for several consecutive years not many pharmaceutical active ingredient makers have got involved and the capacity expansion is also very limited. What are the reasons?
Erythromycin thiocyanate was always an animal antibiotic in the past. Countries outside China usually used it as animal growth promoter. China's medical players started to make trial production of erythromycin thiocyanate in the late 1980s. With the constant demand increase in the international market in the 21st century, the output of erythromycin thiocyanate in China went up. Erythromycin thiocyanate, tylosin, tetracycline hydrochloride and oxytetracycline hydrochloride are four major export varieties of animal antibiotics for China.
China's production technology for erythromycin thiocyanate, however, has a considerable gap compared with international pharmaceutical giant DSM of the Netherlands. The export of erythromycin thiocyanate from China to EU is therefore relatively small. Major export markets for China-made erythromycin thiocyanate have always been India and Southeast Asian countries in the past few years. As the breeding sector in Brazil has developed fast in recent years, the demand for feed additives including tetracycline hydrochloride, tylosin and erythromycin thiocyanate has increased constantly there. Brazil has become another important export market for China-made erythromycin thiocyanate.
Erythromycin thiocyanate is not just an animal antibiotic. It is also a key intermediate for three major semi-synthesized erythromycins - azithromycin, roxithromycin and clarithromycin. With the rapid sales amount increase of azithromycin, roxithromycin and clarithromycin in the Chinese market, erythromycin thiocyanate makers have gradually shifted from export to domestic sales. The export amount is still increasing, but its proportion in the output has reduced rapidly. In other words, the growth of demand for erythromycin thiocyanate both animal grade and human grade has become major driving force for the market briskness
It is reported that China's market volume of anti-infectives was around RMB50.0 billion a year in 2008 and 2009 and macrolide drugs accounted for around 4% of the total.
There are around 17 macrolide drugs made in China. Around 10 of them have a capacity of over 100 t/a. The combined output of macrolide drugs (including intermediates) is estimated to be more than 9 500 tons in 2009. The output growth mainly came from roxithromycin, azithromycin and clarithromycin. These three varieties already hold a market share of around 90% in macrolide drugs in China today. Azithromycin was included in the National Essential Drugs Catalogue in 2009.
Erythromycin thiocyanate as a nuclear parent for the production of macrolide drugs plays an irreplaceable role. It is mainly used to synthesize erythromycin and its derivatives such as erythromycin ethylsuccinate, azithromycin, roxithromycin and clarithromycin. China has five major erythromycin thiocyanate producers, Ningxia Qiyuan Pharmaceutical Co Ltd, Yidu HEC Biochemical Pharmaceutical Co Ltd, Sichuan Shanshan Pharmaceutical Co Ltd, Tianfang Pharmaceutical Co Ltd and Henan Xinxiang Huaxing Pharmaceutical Factory. These five producers together hold a market share of over 90% domestically. The capacity of the first three producers is more than 2 000 t/a each. The combined capacity of the erythromycin thiocyanate sector has already reached more than 10 000 t/a and should be able to meet the domestic demand.
The reality is however not so. According to the Health Net, the actual output of erythromycin thiocyanate in 2009 was less than a half of the capacity. In other words, the operating rate in producers was low.
The domestic market price of erythromycin thiocyanate once increased drastically at the beginning of 2008 and reached RMB400 per kilogram in April that year. The main reason for the price rise was that the production idle for rectification in one major producer due to problems in environmental protection caused supply shortage in market. A main reason for the low capacity utilization rate is that toxic thiocyanic acid generated in the production can hardly be effectively treated and needed great quantities of water for dilution. Since the Chinese issuance of the Methods for the Sewage Treatment in the Pharmaceutical Industry in 2008, various indexes of environmental protection have become more stringent and the cost of environmental protection is very high. With the stricter control of water resources by the state, erythromycin thiocyanate producers have to organize production according to their own status of environmental protection. Before indexes of environmental protection are up to standard, no company dare to make full-capacity production.
Another reason is the technical index. Except Ningxia Qiyuan Pharmaceutical Co Ltd and Yidu HEC Biochemical Pharmaceutical Co Ltd whose product quality is quite good, the quality of products in other producers still has a gap compared with standards for human grade and such products can only be used as animal applications. There is a price difference of several dozen RMB per kilogram between human grade and animal grade. The quality of erythromycin thiocyanate has therefore also constrained the demand from downstream formulations.
Erythromycin thiocyanate is a fermented product. The output of a single fermentation tank is several hundred tons a year. It also takes time for the product quality to become stable. Although the demand for erythromycin thiocyanate in the formulation market has increased constantly in recent years and the demand in downstream products is brisk, compared with large-volume fermented drugs such as penicillin industrial salt that have extensive downstream product lines, however, the extension and the demand for erythromycin thiocyanate downstream formulations is still limited. In terms of total demand, erythromycin thiocyanate is still a minor variety. The average growth of macrolide drugs in the hospital market of China is 10.36%, being much lower than the 25.94% average growth of cephalosporin drugs and the 25.77% average growth of penicillin drugs.
As is known to all, the technical threshold for fermented products is not high, but a considerable input is needed. In case scale benefits can not be produced quickly, the input and the output would have seriously imbalance. It is because of this that despite the rising trend of the market demand and the product price in recent years among more than 30 erythromycin thiocyanate producers five majors have always dominated the market and the degree of production concentration has always been high.no credit loans