The Covid-19 pandemic and the Ukraine war have disrupted the global supply chain. This supply chain disruption led to stagnant production and increasing transportation costs on all possible routes. Consequently, the cost of importing raw materials rose. And Active Pharmaceutical Ingredients (APIs), excipients and packaging materials were no exceptions.
Global pharmaceutical raw materials and excipients business is mostly centred in Asia. India and China are the key players in this market. For example, more than 50% of paracetamol, almost 90% of penicillin and half of the total ibuprofen marketed across the world are produced in India and China. China and India jointly supply 60% to 80% of the total pharmaceutical raw materials requirements of European Union countries.
The United States imports a majority of its APIs and a significant portion of generic drugs from China or from other countries that use (APIs/chemical intermediates) sourced from China. More specifically, 36% of antibiotic APIs used in the US come from China.
Bangladesh is a very successful model in finished pharmaceutical products; however, for more than 95% of the APIs, Bangladesh is dependent on imports from China and India which supply 60% and 30% of all API imports to Bangladesh, respectively.
APIs and chemical intermediates from China are usually 35% to 40% cheaper than the rivals. India also offers price advantages compared to so many other countries due to their cheap labour, less expensive utilities, the economy of scale etc. However, due to Covid-19, these two countries were obstructed seriously in the production of APIs and now they are trying to come back and adapt to so many new strategies.
According to a report by the Times of India, API prices of certain drugs like paracetamol, meropenem and metformin (an anti-diabetic agent) have increased by 139%, 127% and 124%, respectively.
They also published that in some cases, the cost of shipping per kilogram freights has increased by 360% and 233% for 40ft and 20ft containers, respectively.
A global report on April 18 2022, published that Russia is the biggest exporter of aluminium foil which is used as the primary packaging material for medicines. Unfortunately, the Russian invasion of Ukraine disrupted the supply of aluminium foil or sheets.
As a result, medicine prices are going up sharply. It needs to be mentioned that within the last 45 days the price of aluminium foil or sheet has gone up three times.
The cost increment will seriously impact the small and medium-sized companies as their inventory management is little different than the larger ones. Usually, big companies maintain a long and regular inventory cycle which gives them an extra advantage to absorb the price change effect.
However, this notion applies if the price decreases after a certain time. Given the recent price trend of APIs over the last eighteen months, the chances of price reduction are very low in the coming days and companies of all sizes will be impacted due to this price escalation.
Moreover, the final price of a drug is determined by several components, one of which is the manufacturer's selling price. The manufacturer's selling price is based on procurement costs (APIs and other ingredients), freight costs, tariffs and taxes (where applicable), factory overhead costs, distribution costs, promotional costs, administration costs and additional expenses.
Furthermore, the manufacturer's selling price, each level of the supply chain has its costs which eventually accumulate in the price of the medicine. In these regards, every component overlaps with the base price on which the subsequent costs are imposed. Even a small price component can contribute to a significant price change.
Therefore, price increment of APIs, freight, excipients and packaging materials will seriously impact overall medicine pricing and there is very little scope to avoid it. Consequently, if medicine price changes it will be a great concern for easy access to healthcare as around 65% of the total healthcare costs depend on medicines.
Dr Md Abu Zafor Sadek is a pharmacist, currently working as Assistant General Manager at UniMed UniHealth Pharmaceuticals Limited.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.