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WRITE-UP

The Olympics: A Chinese tragedy for pharma?
The run up to the games of the XXIX Olympiad has stumped the global pharmaceutical industry with an unexpected 'Chinaman Delivery' - to use an analogy from a nonOlympic sport. While the world is waiting with bated breath for the games in Beijing to start, people from the pharmaceutical industry just cannot wait for the flame to go out.
Here is another instance where drugs and sports do not mix well. So what exactly has happened?
Beijing's air quality has always been a major concern for the games. In order to reduce pollution, the Chinese government embarked upon a $20 billion clean-up campaign, which in part entailed closing down factories in and around Beijing. Included in this list were coalmines, steel mills, coal-fired power plants, cement factories, and also producers of Active Pharmaceutical Ingredients (APIs) and Intermediates - the
key ingredients needed to produce APIs.
China is the one of the largest producers of APIs and Intermediates in the world. Therefore, any disruption in the supply from China has major repercussions on the overall cost of pharmaceutical raw materials.
The Bangladesh pharmaceutical industry first got an indication about developments in China sometime last year when the cost of feedgrade 'Calcium Pantothenate' used in animal feeds jumped from $9.5 a kg to $22.5 a kg. Next, came a gold-medal performance from feed-grade vitamin B2, which pole-vaulted from $14 per kg to $120 perkg.
It soon transpired that the cost increases were not limited to feed-grade vitamins. It was in fact, across the board. At present, the prices of almost all pharmaceutical raw materials from China have risen significantly.
India, a major global sup-
plier of APIs, has also been affected because the cost of intermediates used for producing bulk chemicals has sprinted at record-breaking speeds. Moreover, because of the non-availability of intermediates, some APIs might disappear altogether.
In essence, these major cost-shocks have cut profit margins of pharmaceutical industry all over the world. The repercussions have been particularly severe on companies that operate mainly in low-price markets.
So what are the implications for the Bangladeshi pharmaceutical industry? Will the situation get better after the Olympics?
There is likely to be some easing of price-rises, as factories that had been closed down simply because of their proximity to the Olympic games venue would be permitted to resume operations. However, it is a mistake to assume that the situation would change substantially.
Chinese suppliers are already under considerable pressure from regulatory authorities in Europe and America as well as their own government to upgrade manufacturing standards or risk losing business. So, it is unlikely that they would go back to their old polluting ways after the Olympics.
It thus appears that pharmaceutical companies in Bangladesh should brace themselves for a permanent and major rise in raw material costs. Moreover, as competition is strong, it is unlikely that these increased costs can be passed on to the consumer. In essence, profitability is likely to be significantly compromised.
Supply security of certain medicines should be a serious concern for the government. Shortage of APIs is one reason, but also the archaic system of price-control is likely to exacerbate the problem. At present, the government controls prices of 443 formu-
lations. The price ceilings were placed way back in 1994, and formost drugs not revised at all.
With the rise in raw material costs, it is no longer cost-effective to produce several of these medicines at the stipulated prices. Thus, the government should immediately revise the price ceilings, or better still, dispense with controls altogether. At a time raw material prices are rising fast imposing inflexible price controls on finished products would only threaten supply security.
Price control thus neither benefits producers nor consumers. In fact, it only succeeds in providing a false sense of satisfaction for bureaucrats that they have done something good for the nation, whereas in reality their well-intentioned actions have jeopardised supply security of essential lifesavingmedicines.
Thus, the government would be well advised to abandon this formulaic approach
to pricing medicines and rely on competition to keep prices low and supply stable.
It may appear that the Beijing Olympics has wreaked havoc on the pharmaceutical industry. But it is not the case. The Olympics have merely forced all of us to accept the truth that one cannot get low priced chemicals at a great cost to the environment. Pharmaceutical manufacturers all over the world, especially those operating in low-price markets such as Bangladesh must embrace this truth and learn to adjust to these new cost-shocks. At the same time, the Government of Bangladesh must accept the truth that in this new era of rising raw material costs, supply security of essential medicines is a serious concern, and that its approach to medicines pricing is contributing to this insecurity.
The writer is the chief executive officer of Renata Limited, a local pharmaceutical company