News & Analysis

A Chinese Hand in Higher Medical Bills

And this time we cannot actually blame the pharma companies as the fault lies with the higher cost of input materials in the market

In case you observed those monthly medical bills going up in recent times, do not blame the pharma companies. There’s more to this mess than these companies wanting to grow their profits as this time the problem rests with growing costs of raw material. And the one country that’s making this happen is our neighbor China. 

Industry insiders tell us that price increases have been as steep as over a 100 percent compared to the pre-pandemic levels of some specific raw material used in essential drugs. These active pharmaceutical ingredients or APIs are controlled by the Chinese manufacturers, who apparently seem to be reducing their exposure to the market. 

First signs were available in December itself 

Media reports as early as December had warned of such an event with an article published in the ET stating that India’s dependence on China for APIs, intermediates and bulk drugs could get hit due to the renewed Covid-19 surge. They had warned that prices of key APIs could go up, having risen about 25% in barely two weeks back then. 

While the pharma industry considered the hike to be a transitory phenomenon governed by the supply chain and productivity challenges of Chinese pharma companies facing a third Covid-19 wave, they are not so sure anymore. “We see supply chains improving and logistics not being a challenge anymore, yet the prices aren’t coming down,” says a Mumbai-based manufacturer. 

High-volume antibiotics such as amoxicillin and azithromycin imported from China are witnessing steep hikes in prices, given that most of India’s consumption comes from across the eastern border. What’s intriguing is that the cost of vitamins such as Vitamin B and Vitamin D are actually dropping. Even these are imported from China. 

But there are other reasons as well

Some part of blame for higher prices of essential drugs is also being apportioned to the Russia-Ukraine conflict that resulted in supply chain disruptions. Besides the APIs for antibiotics, prices of anti-TB and anti-diabetes medicines have also zoomed to levels unseen before. In fact, they’ve doubled from what it was in 2019-2020.

There are also reports that prices are being pushed up artificially through efforts of a cartel of sorts. Agents who are controlling the import of certain products also could be playing a role, says the owner of a formulations company who feels the government should step in and prevent these agents from controlling the market.

Does it require yet another PLI scheme?

However, another theory that finds more takers is that the Chinese companies were responsible for this, given India’s near total dependence on them. Of course, registration agents are also adding to the mess by nudging them into cartelization to reap their own rewards. “It’s easy to see that the Chinese are playing the market as prices of only those drugs for which raw material comes from that country, is showing an increase,” says a Mumbai-based pharmacist. 

A report published in the ET quotes Sujay Shetty, global health industries advisory leader for PwC India as stating that API prices remained high due to the lockdown in China for nearly three years with higher logistics and energy costs adding to the challenge. Things remained under the radar for some time as companies coped with API prices through higher efficiencies.

By the look of things, it appears as though the central government would soon be considering a PLI scheme for bulk drugs too. 

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