Antibiotics set to be costlier as key ingredient price shoots up

Antibiotics set to be costlier as key ingredient price shoots up
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First Published: Thu, Jun 14 2007. 12 26 AM IST
Updated: Thu, Jun 14 2007. 12 26 AM IST
Hyderabad/New Delhi: The prices of antibiotics in the country could go up by a quarter in the next few months because the prices of penicillin G or pen G, the key raw material for making antibiotics, have more than doubled in six months.
The price spike has been induced by the dipping production of Chinese pen G drug makers, say experts.
Pen G, or benzylpenicillin, is currently at an all-time high of $19 (nearly Rs780) per billion units (bu) or 635gm, up from $8 per bu in December 2006. Since early 2003, the prices had been hovering between $5.5-8 per bu. Pen G-based drugs are used to treat ailments ranging from pneumonia to syphilis, meningitis to septicaemia.
The reason for the supply squeeze are twofold: While India’s own manufacturers have succumbed to the pressure of cheaper imports from China— creating excessive reliance on the pen G producers there —the Chinese themselves have now begun shutting units and reducing capacities, in part because of stringent environmental standards imposed following a recent scare that China-made foods and medicines contained a chemical used in anti-freeze compounds. The use of industrial-grade diethylene alcohol in cold medicine imported from China was blamed for at least 50 deaths in Panama last year and the chemical was found in Chinese toothpaste brands recently.
Further, Italian drug major SES Dobfer closed its UK plant recently and GlaxoSmithKline Plc. had expressed its intention to also shut its UK pen G manufacturing facility.
“In the last 20 years, I did not see the prices of penicillin G products shooting up so high,” said P.V. Rama Prasad Reddy, chairman of Aurobindo Pharmaceuticals Ltd, a Hyderabad firm that gets a significant portion of its revenues from cephalosporins made from pen G.
In India, Alembic Ltd, JK Pharmachem, Hindustan Max GB and Torrent Pharmaceuticals Ltd have shut their pen G units in the last few years, leaving just one player, Chennai-based Spic Pharamceuticals, in the market.
The ripples have been felt all across the products that use pen G as the basic ingredient. Amoxicillin, for instance, has shot up in the last three-four months to $52 per bu, up from $26 per bu until recently. Some pen G derivatives likely to feel the heat of rising prices are drugs such as ampicillin, amoxycillin, cephalexin and cloxacillin.
“The input price rise will have to be passed on to the consumers finally, but it will be three-four months later. The bulk drug companies work on margins of 5-10% and cannot take on this price rise. While some part of it will be borne by formulation companies and distribution, final consumers may fork out 20-25% more,” said Sanjiv Goyal, managing director of Chandigarh-based Nectar LifeSciences Ltd, a maker of cephalosporins.
Narayan Reddy, president of trade body Bulk Drug Manufacturers’ Association, concurs and sees an imminent increase in antibiotic prices.
The rise in prices of pen G and related products is set to benefit drug makers, which have captive pen G manufacturing capacities. Aurobindo’s share of pen G-related revenues, for instance, will rise to 46% this financial year, up from 30% in fiscal 2007. Other beneficiaries will be Lupin Ltd and Kopran Ltd. While some, such as Alembic, are even considering reopening their closed units to meet surging demand, Aurobindo is set to expand its production capacity in a Chinese unit by 40% from the current 340 tonnes a month.
Some of the global majors in the pen G segment are Dutch company DSM, GlaxoSmithKline, NCPC and Shiyao Group of China, and Bristol Myers Squibb.
Chinese makers captured the pen G market in the last five years, making the drug available for as low as $6 a bu. Cheaper power and labour, zero customs duty on naphtha —a key ingredient for making pen G—and a 13% cash incentive on exports helped Chinese drug makers to capture more than a third of the global market share of the drug, dubbed as oldest antibiotic.
The dynamics in the walled country is fast changing now. “Chinese drug companies typically lose out when it comes to reliability of supplies. They are scale-focused, but have an opportunistic outlook to manufacturing where they enter and exit production of a drug very quickly. This leads to cyclical spurts in supply of that particular drug,” said Sujay Shetty, associate director with consultant PricewaterhouseCoopers, adding that pen G, being an extremely commoditized product, it suffers from business cycles too.
Others predicted the current boom in pen G prices would not last beyond March 2008. “Overall, the Chinese pen G production has come down by around 30%. A good number of these units are likely to resume production by the end of current fiscal, reducing the pen G prices from the existing $19 bu levels,” Aurobindo director M. Sivakumaran said. But he said that the prices are unlikely to revert to the $8 per bu range.
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First Published: Thu, Jun 14 2007. 12 26 AM IST
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