The Hindu Business Line : Spike in Pen-G prices to hit bulk drug makers

The 100 per cent spike in prices of Penicillin G (used in making antibiotics) over the last month could pose significant problems for domestic bulk drug makers. Bulk drug makers, who operate on wafer-thin margins already squeezed by rupee appreciation, will be dealt a hefty blow as they are not expected to be able to pass on the price hike swiftly. This spurt for the input costs has come on the back of tight supplies. Pure-play Indian bulk drug companies, mostly small and medium enterprises, who lack presence in formulation, may be the worst hit.

Formulation players

From Pen-G, intermediates such as 6-APA, 7-ADCA, 7-ACCA are derived, which are, in turn, converted into semi-synthetic penicillin/semi-synthetic cephalosporin bulk drugs. These bulk drugs such as ampicillin, amoxicillin, cephalexin, and cloxacillin are used to make antibiotics formulations, which consumers use (finished dosages). Penicillin and cloxacillin already fall in the list of 74 price-controlled drugs.

Only formulation-based players with some captive capacities for Pen-G may have some protection. These include companies such as Aurobindo Pharma, Alembic, and Nectar Lifesciences.

With the rise in prices, previously shut down Indian facilities could be opened up to cash in on the demand, if the high prices persist. The major portion of demand is currently met by imports.

High Volatility

Pen-G prices tend to display high volatility and formulation players have usually found it difficult to capitalise on short-term spikes in prices, as contracts are usually negotiated for the medium-term at a fixed price. The financial impact of the rise in Pen-G prices would be captured to some extent in March quarter results.

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