Jinan Zhuocheng Bio-Tech Co., Ltd.

As 2026 enters its second half, the competitive landscape of China’s veterinary pharmaceutical industry is becoming increasingly differentiated. On one hand, margins across the veterinary chemical pharmaceutical sector remain under pressure. On the other, leading companies are strengthening their competitive positions through greater integration of active pharmaceutical ingredients (APIs) and finished formulations.

From Luxi Pharmaceutical’s fermentation capabilities to Hubei HEC’s continued expansion into upstream APIs, and Jinhe Biotechnology’s globally oriented chlortetracycline business, control over the supply chain is becoming an increasingly important component of long-term competitiveness in the veterinary pharmaceutical industry.

Why Supply Chain Integration Matters in a Lower-Margin Environment

The domestic veterinary pharmaceutical market has continued to expand in recent years, but market growth has not translated directly into higher profitability.

The increasing scale of livestock farming has strengthened the bargaining power of large farming groups and intensified price competition among veterinary pharmaceutical companies. For products with relatively high levels of standardization and competition, simply increasing sales volume is becoming less effective as a strategy for sustainable profit growth.

At the same time, market concentration is increasing. In 2024, the top 10 companies in China's chemical veterinary formulation segment accounted for 28.71% of total sales, up from 2020. The concentration of the API segment was even higher.

Under these conditions, competition is gradually shifting from pure sales expansion toward a broader combination of cost efficiency, quality management, supply security and technical capabilities.

For companies operating across both APIs and formulations, upstream API production is not simply a source of raw materials. It can also influence manufacturing costs, supply stability, product quality and the development of new formulations.

Why Are API–Formulation Integration Strategies Becoming More Important?

Vertical integration is not a new concept, but its strategic value is becoming more significant under the current market conditions.

The most direct benefit is cost control.

APIs generally represent a significant component of the cost structure of chemical veterinary formulations. When manufacturers are able to produce key APIs internally, they can reduce dependence on external procurement and limit the impact of fluctuations in API prices on their formulation businesses.

This can be particularly valuable for products whose API prices are subject to pronounced market cycles.

The second benefit is quality control and supply security.

The manufacturing process, purity, impurity profile and batch consistency of veterinary APIs can directly affect the quality and performance of finished formulations. By extending quality management upstream, integrated manufacturers can gain greater control over critical raw materials while reducing the risks associated with external supply disruptions.

More importantly, vertical integration can create higher barriers to entry.

API manufacturing requires expertise in production processes, environmental compliance, occupational safety, quality systems and large-scale manufacturing. As regulatory and GMP requirements continue to develop, the capital and compliance requirements for API production are also increasing.

As a result, companies with established large-scale API manufacturing capabilities may have greater resilience throughout industry cycles.

Different Integration Paths Among Leading Companies

Leading veterinary pharmaceutical companies are adopting different approaches to vertical integration, but the underlying objective is similar: to improve resource efficiency and strengthen competitiveness across the value chain.

Luxi Pharmaceutical, for example, has placed significant emphasis on fermentation technology and manufacturing capabilities.

With long-term experience in microbial fermentation and antibiotic production, the company has developed capabilities in veterinary antibiotic APIs while continuing to expand toward formulations and higher-value products.

For fermentation-based veterinary APIs, strain performance, fermentation efficiency, extraction and purification processes all have a direct impact on production economics. Improving these capabilities can therefore create cost advantages at the API level while providing a stronger manufacturing foundation for downstream formulations.

Hubei HEC represents another model, with a stronger focus on vertical integration across macrolide APIs and veterinary formulations.

The company has established its position in swine veterinary pharmaceuticals and has continued to expand upstream into APIs such as tylvalosin and tylosin. By connecting API manufacturing with formulation production, the company can create greater coordination in raw material supply, cost management and product development.

The value of this model goes beyond procurement savings. Greater control over upstream manufacturing processes and raw material quality can provide more stable supply and technical support for downstream formulation businesses.

Jinhe Biotechnology provides a more globally oriented example of supply chain integration.

Built around its chlortetracycline business, the company has developed an integrated structure extending from upstream raw materials to premix products and further into related areas such as corn processing and vaccines.

This model enables greater coordination between different stages of the value chain while overseas production and sales capabilities can help reduce exposure to individual markets and changes in international trade policies.

From Cost Control to an Innovation Platform

The strategic value of vertical integration is not limited to cost reduction.

For veterinary pharmaceutical manufacturers, improvements in API manufacturing processes can directly support formulation innovation.

For example, higher fermentation yields, improved extraction and purification processes, and tighter impurity control can reduce API production costs while improving consistency and providing a stronger technical foundation for formulation development.

When a company controls both API manufacturing and formulation development, the potential for technical coordination between the two stages becomes greater.

This can support the development of differentiated products, including improved formulations, combination products, long-acting preparations and controlled-release products.

In this sense, vertical integration is gradually evolving from a traditional cost-control mechanism into a platform for technological development and product innovation.

Why the Bottom of the Cycle Can Also Be a Strategic Opportunity

During the first half of 2026, the livestock sector remained under pressure, with difficult operating conditions for some producers. This also constrained demand for veterinary pharmaceuticals.

However, from a long-term strategic perspective, a weak industry cycle does not necessarily mean that investment will stop. For companies with sufficient capital, technology and market resources, a period of weaker demand can also provide an opportunity to optimize production capacity and strengthen supply chain positioning.

API prices, livestock profitability and veterinary pharmaceutical demand are all influenced by cyclical factors. Companies relying heavily on a single formulation product or regional market may face greater pressure during industry downturns.

By contrast, companies with API manufacturing capabilities, formulation capacity and established distribution networks have more flexibility to balance different parts of the business during market fluctuations.

When downstream demand recovers, manufacturers with both scalable production capacity and established market channels may be better positioned to capture incremental demand.

Supply Chain Integration Is Becoming a New Dimension of Competition

The competitive logic of the veterinary pharmaceutical industry is changing.

In the past, companies could often build a sustainable market position through a strong individual product, regional distribution network or established sales channels. As livestock farming becomes more concentrated, procurement becomes more centralized and regulatory requirements continue to develop, however, it is becoming increasingly difficult to rely on a single competitive advantage.

Future competition is likely to focus increasingly on the ability to coordinate the entire value chain.

Upstream, companies need reliable API supply and continuous process optimization capabilities. In the middle of the chain, they need robust formulation manufacturing and quality management systems. Downstream, they need stable customer relationships and effective distribution networks.

The companies with the strongest long-term competitiveness may therefore not simply be those with the largest production capacity, but those capable of effectively connecting APIs, formulations, R&D, quality systems and market channels.

For this reason, API–formulation integration is becoming an increasingly important strategic direction in a lower-margin veterinary pharmaceutical market.

From cost control and supply security to technological innovation and product development, supply chain integration is gradually redefining the competitive boundaries of the veterinary pharmaceutical industry. As industry concentration continues to increase, companies with integrated manufacturing capabilities and sustained investment in technology and quality are likely to be better positioned for the next stage of market development.