A concern for access to care

The cost of sourcing pharmaceutical raw materials is steadily rising due to continued supply chain disruptions

June 18, 2022, 12:20 p.m.

Last modification: June 18, 2022, 12:29 p.m.

Sketch: TBS


Sketch: TBS

The Covid-19 pandemic and the war in Ukraine have disrupted the global supply chain. This supply chain disruption has resulted in stagnant production and increased transportation costs on all possible routes. Therefore, the cost of importing raw materials has increased. And active pharmaceutical ingredients (APIs), excipients and packaging materials were no exception.

Global pharmaceutical raw materials and excipients activities are mainly focused on Asia. India and China are the main players in this market. For example, more than 50% of paracetamol, nearly 90% of penicillin and half of all ibuprofen marketed worldwide are produced in India and China. China and India jointly supply 60 to 80% of the total pharmaceutical raw material needs of the countries of the European Union.

The United States imports the majority of its APIs and a significant portion of generic drugs from China or other countries that use (APIs/chemical intermediates) from China. Specifically, 36% of antibiotic APIs used in the United States come from China.

Bangladesh is a very successful model in finished pharmaceuticals; however, for more than 95% of APIs, Bangladesh depends on imports from China and India which respectively provide 60% and 30% of all API imports in Bangladesh.

APIs and chemical intermediates from China are typically 35% to 40% cheaper than competitors. India also offers price advantages over so many other countries due to their cheap labor, cheaper utilities, economy of scale, etc. However, due to Covid-19, these two countries have been seriously hampered in producing APIs and now they are trying to come back and adapt to so many new strategies.

According to a Times of India report, 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 shipping cost per kilogram of freight increased by 360% and 233% for 40ft and 20ft containers, respectively.

A global report from April 18, 2022 published that Russia is the largest exporter of aluminum foil used as the main packaging material for medicines. Unfortunately, the Russian invasion of Ukraine interrupted the supply of foil or foil.

API prices of essential medicines like paracetamol, meropenem and metformin increased by 139%, 127% and 124% respectively. Photo: Mumit M

API prices of essential medicines like paracetamol, meropenem and metformin increased by 139%, 127% and 124% respectively.  Photo: Mumit M

API prices of essential medicines like paracetamol, meropenem and metformin increased by 139%, 127% and 124% respectively. Photo: Mumit M

As a result, drug prices are rising sharply. It should be mentioned that in the last 45 days the price of paper or aluminum foil has tripled.

The increase in costs will have a serious impact on small and medium-sized businesses because their inventory management is little different from that of larger ones. Usually, large companies maintain a long and regular inventory cycle, which gives them an extra edge in absorbing the effect of price changes.

However, this notion applies if the price decreases after a certain time. Considering the recent trend in API prices over the past eighteen months, the chances of price cuts are very low in the coming days and businesses of all sizes will be impacted due to this price escalation.

In addition, the final price of a drug is determined by several components, one of which is the manufacturer’s selling price. Manufacturer’s selling price is based on supply costs (IPA and other ingredients), freight, tariffs and taxes (if applicable), factory overhead, distribution costs, promotional costs, administrative costs and additional expenses.

In addition, the manufacturer’s selling price, each level of the supply chain has its costs that eventually accumulate in the price of the drug. In this respect, each element overlaps the base price on which subsequent costs are imposed. Even a small price component can contribute to a significant price change.

Therefore, the increase in prices of APIs, freight, excipients and packaging materials will have a serious impact on the overall drug price and there are very few opportunities to avoid it. Therefore, if the price of drugs changes, it will be of great concern to facilitate access to health care, because about 65% of total health care costs depend on drugs.

Dr. Md Abu Zafor Sadek is a Pharmacist currently working as Deputy Managing Director 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.