Drug firms get China treatment

Chinese bulk drug suppliers have raised their prices steeply, taking a toll on the profit margins of Indian pharmaceutical companies. Indian companies had shut their own bulk drug plants to take advantage of low Chinese prices.

For instance, penicillin G intermediate, which used to cost $5.5 a BoU (billions of unit) two months ago, now costs $19.5 a BoU. Erythromycin prices have shot up from $38 BoU to $46 BoU in recent months.

The other important bulk drugs that have seen a sharp escalation in prices are azithromicin, clarithromycin, ciprofloxacin, norfloxacin and cephalosporins.

India, to be sure, has its own thriving bulk drugs industry worth Rs 15,000 crore a year. Though the top-ten firms account for about 44 per cent of the total production, there are another 700 firms in the industry. Nearly 70 per cent of the bulk drugs produced in the country are exported.

Some two years ago, Chinese imports started eating into the bottom end of the bulk drugs market with extremely low prices. For instance, a leading pharma company stopped the production of roxycomycin and arithromycin last year, when it started getting Chinese products at 10 per cent lower than its own prices.

Working on wafer-thin margins (India has over 20,000 registered pharmaceutical companies), local companies started placing huge orders with Chinese suppliers. As a result, bulk drug imports from China have now touched Rs 5,000 crore "" a third of the output of the local manufacturers.

Industry estimates show that 70-80 bulk drug units had to shut down because of cheaper imports from China. The entire penicillin G intermediate requirement of the country is now met by Chinese imports.

But, in the last two months, Chinese suppliers have hiked their prices sharply. "The price increase began after Chinese authorities reduced the export incentives offered to their manufacturers. Further, they have decided to cut down the production size of polluting industries such as bulk drugs," said a Bulk Drugs Manufacturers Association functionary.

Though the appreciation of the rupee vis-à-vis the dollar has cushioned the impact, Indian companies are unable to raise prices because 35 per cent of the drugs sold in the country come under the government's price control order.

"We are caught between increasing raw material prices and the government's price regulation," said Narayana Reddy, managing director, Virchow Laboratories, and president, Bulk Drugs Manufacturers Association.

While some companies are planning to re-start their bulk drug facilities, it will be an uphill task. "The bulk drug units that have stopped functioning will find it extremely difficult to resume production within a short notice. It takes six months to one year and a lot of capital investment to start afresh. If the prices come down again, the whole investment will be a waste," said Nipun Jain, managing partner, Pharmchem.

But there still may be a ray of hope. Officials at the National Pharmaceutical Pricing Authority said that they would allow an increase in medicine price only if the companies made individual applications for price hike sighting valid reasons.