Major price fluctuations on APIs and finished formulations

The global market for both finished products and APIs (Active Pharmaceutical Ingredients) has recently experienced significant price increases. The price alone of the most prominent API of those affected, Amoxicillin, has risen more than 106% since December 2006.

The prime reason for this is the increase in Penicillin G (Benzylpenicillin) prices from China due to a general shortage of the type of corn used in the production process as well as the closure of Pen G producing factories in China owing to strict pollution measures imposed by the Chinese government.

From July 1st 2007, another factor may have an immediate effect on the prices of both pharmaceuticals and consumables. The Chinese Government has announced that is going to reduce the VAT subsidies currently available to Chinese manufacturers upon the exportation of their products. This applies to all manufacturers of API's.

Furthermore, Indian manufacturers using Chinese API will also be affected. The general reduction is expected to be in the magnitude of 6-8% points, which will have a day-to-day market effect on prices.

Another major factor affecting the price level is the weakening of the US Dollar, which has been losing value at a considerable rate since February 2007.

The weak dollar has had a direct negative influence on manufacturers' cost structure. This effect has been most noticeable in India, where several manufacturers have already indicated that as a result of the weakening dollar, they will be forced to increase their prices 4-10%. The extent of the price increase is largely dependent on the origin of the API used.

Due to these significant price fluctuations, countries may experience great challenges in forecasting their budget needs for future purchases. Suppliers will be extremely careful in their quotes and find it increasingly difficult to guarantee the validity of their offers.

Missionpharma is closely monitoring the general price level over the coming months, and will keep you informed about the development.