Big pharma companies, such as Sun Pharmaceuticals, Abbott Healthcare and Glenmark Pharmaceuticals, are yet to restore trade margins to drug distributors, who took a hit after a Government order in May cut essential medicine prices.
Distributors say they are operating a sizeable portion of the essential medicines market — estimated at Rs 774 crore in November — on compressed margins.
About 35 per cent of drug-makers in the Rs 72,000-crore Indian pharmaceutical market have not restored margins, clouding the business environment for distributors, who are already troubled by rising labour and transport costs, said J.S. Shinde, President, All India Organisation of Druggists and Chemists. The organisation represents 7.5 lakh businesses at varied points in the drug supply chain.
The National Pharmaceutical Pricing Authority fixed ceiling prices for 348 essential medicines in May this year, forcing manufacturers to pare the margins of wholesalers by 2 percentage points and that of retailers by 4 percentage points.
margin cut The notification also allowed for a 4 percentage point margin cut for retailers. Nearly 652 drug formulations were brought into the affordable fold, slashing the total revenue of wholesalers and retailers by an estimated Rs 2,600 crore, said Shinde.
After nearly seven months of negotiations that briefly disrupted the supply of drugs, most mid-segment firms have come around, but some big players are still negotiating.
Mumbai-based GlaxoSmithKline Pharmaceuticals Ltd, which holds 15.5 per cent of the Rs 3,940-crore dermatological medicines market, recently gave in to traders’ demand, but the actual revision of margins will take effect only by July 2014.
That comes a good eight months after the scheduled time of November 2013.
“Since GlaxoSmithKline voluntarily approached the trade to restore margins, we did not object. I think the others are also disposed to give us the margins,” Shinde added.
A key member of the Tamil Nadu Pharma Distributors Association, requesting anonymity, said the move by GlaxoSmithKline to postpone restoration ensures that it does not take a hit on its profit margins — the Drug (Pricing Control) Order 2013 allows companies to hike medicines prices after one year of affordable pricing.
The raise should be commensurate with the Wholesale Price Index at that time. “By the time GlaxoSmithKline rolls out old prices, it would have hiked drug rates,” he said.
Sun Pharma has shown no signs of relenting. A dominant player in the areas of psychiatry, neurology and anti-diabetic drugs, it sold essential medicines worth Rs 26 crore in November, said Hari Natarajan, Vice-President, Business Intelligence and Global Audit, AIOCS Pharma Softtech AWACS, a drug market research company. The size of the essential medicines market has been shrinking steadily after the pricing order kicked in, he added.
Discounts offered Nevertheless, companies such as Torrent Pharmaceuticals Ltd, Pfizer India Ltd and Ranbaxy Laboratories have struck middle ground with distributors. Instead of restoring margins, they are offering discounts on a slightly higher stockist selling price. This discount is meant to be shared with retailers.
C. Annamalai, President, Tamil Nadu Pharma Distributors Association (Chennai), said such terms leave little room for bargaining.
Sun Pharma and GlaxoSmithKline declined to comment, while mails sent to the others firms remain unanswered.