Pharma in India scrambles to appease wholesalers, chemists

Nobody making or selling drugs in India was happy when the government this year expanded price caps to nearly 350 drugs, but there seemed little for anyone to do. When wholesalers and retailers began holding off on new orders to protest their pared-back margins, a move that led to GlaxoSmithKline ($GSK) making public note of a sales drop, players decided they best put their heads together and hash out an agreement.

"We have no objection to prices of drugs getting reduced, as consumers will benefit. But our margins, which remained unchanged for the last two decades despite inflation, were slashed by pharma companies without any notice," JS Shinde, president of the All India Organization of Chemists and Druggists, told The Economic Times.

Sources tell the newspaper that each side is getting experts to help calculate the true cost to each channel in the supply chain. When numbers can been agreed upon, some adjustments will happen. They said it is likely either the margins for traders will be "calibrated upwards for drugs under price net to compensate the losses of distributors or that amount could be offset by the pharma companies jointly."

The new prices kicked in last summer on 652 medications, 348 of which are classified "essential drugs." The new pricing, which is the average price of any drug with a market share of 1%, was expected to lead to price cuts of up to 80% for some cancer drugs and HIV drugs. The new policy replaces a nearly 20-year-old price ceiling that only included 74 bulk drugs and their formulations. Hemant Bakhru, an analyst with brokerage CLSA, figured the cuts would most "adversely impact" GSK and Sanofi ($SNY), but that Indian drugmakers, such as Cipla and Cadila, "would also take a hit." He said generic drugmakers like Sun Pharma and Lupin would be least affected.

Last month, GlaxoSmithKline acknowledged that its sales in India had taken a hit from the protest. The action by wholesalers and retailers is being pointed to as the reason India's domestic drug market actually contracted by 1.8% in September after growing by 12% to 14% for years. The newspaper says things kicked into gear as distributors threatened to boycott some of the big drugmakers if they refused to restore margins starting in November.

"It is for our survival that we are fighting now and it is in the best interest of drugmakers and distributors to resolve the issue," Shinde explained.  

- read the Economic Times story