Drug prices may rise as China cuts sops

New Delhi: China’s recent slashing of export incentives for reducing its trade surplus, has sent Indian pharma manufacturers in a tizzy, with some manufacturers planning to increase prices on drug formulations. Sources say the impact of slashing tax incentives will affect exports of intermediates and raw materials from China to India.

Most domestic drug manufacturers import bulk drugs and intermediates from China as it is cost feasible. Now after the changes come into effect, the imported bulk drugs are expected to get more expensive.

Cipla joint MD, Amar Lulla told the Times of India, “The move is upsetting, and will affect imports of intermediates and bulk drugs into the country. Drug costs are expected to rise”. Though companies are still trying to work out the exact fall out of the development, industry sources say that there would be an across the board increase by 8-15% on input costs.

The finance ministry in China announced last month that it will remove or reduce tax rebates on nearly 3,000 export categories including metal products, textiles, shoes and other manufactured goods, to help slash its trade surplus.

The changes, the ministry believes, will stem a flood of exports that helped to widen China’s trade surplus to $216 billion in 12 months through May, news reports say. The changes came into effect from July 1.

Satish Reddy, MD and COO, Dr Reddy’s Laboratories says “The slash in incentives for exports is going to impact active pharmaceutical ingredient (API) manufacturers worldwide. Those operating out of China will obviously find the going tougher, as there would be a clear-cut 8% increase in the prices they would be offering, thereby reducing the gap between prices offered by China and those by competition from, say, India.”

“At the same time, this slash also applies to basic chemicals and intermediate exports out of China, so it would result in an increase in input costs for API manufacturers relying on these raw materials from Chinese sources. This would lead to spiral in costs of APIs worldwide. Since China is very strong on high volume APIs, this would also affect the costs for the finished dosage forms for these products, no matter where they are formulated in the world,” he added.

Most companies are expected to absorb a part of the increase in input costs, while some will be passed on to the consumer. Besides generic manufactures, analysts say API producers will be hit the hardest, as against those which manufacture formulations.

Sujay Shetty, associate director, PricewaterhouseCoopers said: “China is a very important source of API and fine chemicals to our industry. Any price hike will have an impact on landed costs. How much that impact is, remains to be seen, due to severe competition and downward pressure on generics prices, the ability of converters to pass this on to consumer is limited at present”.