Drugmakers in India trapped between price caps and shortage rules

New price caps instigated by India have some drugmakers anxious to dump products for which they think the margins are too thin. But they are having to think again. A different government policy to avoid shortages for "essential drugs" prevents any drugmaker with a 1% share of the market from simply stopping production.

There have been requests by some manufacturers since last year when the government extended price caps to nearly 350 "essential drugs" from the 74 that had been on the list for sometime, sources tell the Economic Times. But so far, they have been turned if the company's production meets the 1% threshold.

"If we allowed one such player with a significant market share to withdraw, we cannot stop other such players from doing it," an Indian official, speaking anonymously, tells Economic Times. "This may create an exodus of many players from essential drugs, change the market dynamics drastically and even create a shortage."

According to the newspaper, the rule requires drugmakers make a public notice and to give the government 6 months advance warning if they want to stop making a drug they believe is no longer worth the investment. Even then the government can ask the company maintain their production. There are 348 drugs on the National List of Essential Medicine but sources also tell the publication that a panel is looking at extending that number.

The impact of price caps, opposed by both domestic and foreign-based drugmakers in India, have trickled throughout the drug manufacturing industry. GlaxoSmithKline ($GSK) last year reported a sales hit in India when wholesalers balked at the margin cuts they were asked to take to soften the blow of price caps on drugmakers. Some stopped buying in protest. GSK reported that bulk sellers in "major pockets" of India ceased buying its drugs on Sept.15. Under the new policy, wholesalers' margins were cut to 8% from 10%, and retailers' to 16% from 20%.

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