Drugmakers weren't exactly thrilled last year when Indian ministers nearly quintupled the list of drugs subject to government price controls. As it turns out, neither were bulk buyers of those products. GlaxoSmithKline ($GSK) is now feeling the effects of their discontent, with buyers' protests reportedly hurting the British drugmaker's sales.
GSK says bulk sellers in "major pockets" of India ceased buying its drugs on Sept.15, telling the Hindu Business Line that "sales of the company continue to be affected." Reuters sources linked the sales decline to wholesalers and retailers balking at new provisions that reduce their profit margins: To soften the impact of price caps on pharma, the government reduced margins downstream. Under the new policy, wholesalers' margins were cut to 8% from 10%, and retailers' to 16% from 20%.
It all started in September of last year, when Indian officials announced new price controls for almost 300 products. The government expanded its list of "essential drugs" to 348--almost 5 times as many as the 74 previously subject to price caps. And the newcomers boasted a value of $5.42 billion wholesale, or about 60% of the domestic market.
"The retailers are using pressure tactics by not purchasing drugs from companies who have reduced their margins to comply with the new directive," one source told Reuters. And as Angel Broking analyst Sarabjit Kour Nangra told the Hindu Business Line, those tactics dragged GSK's sales down by nearly 2.3% in the second quarter.
Price caps make up just one part of the country's strategy to make meds available to its poor. Indian officials have revoked a host of Big Pharma patents, opening their products up for copy by a ready-and-waiting pool of domestic generics makers.
But as the Reuters piece notes, it's not just multinational companies that have felt the sting. The new price cuts have also hurt domestic players, forcing many to turn to markets like the U.S. for growth.
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