The Price War Continues as Retailers, Pharma companies fail to agree over margins of price-controlled medicines

NEW DELHI: Pharmaceutical companies have failed to arrive at an agreement with drug distributors and retailers on the margins of price-controlled medicines, potentially jeopardising the smooth roll-out of the new pricing policy across the country.

Domestic drugmakers have alleged that distributors and retailers are planning to boycott three leading companies —Sun Pharma, Cadila Healthcare and Abbott — from Sunday.

Similar threats of boycott have been hurled at Aristo Pharma, which gave into distributors’ demands by raising their margins early this week, Shah told ET. He added that the distributors and retailers’ association were using coercive means to extract higher margins by targeting individual companies.

ET reviewed a copy of the letter in which Aristo Pharma on Tuesday agreed to hike margins for drugs till a ‘final decision’ was arrived at. The accusation came a day after the trade body was penalised by CompetitionCommission of India in another matter and asked not to indulge in unfair trade practices.

An AIOCD representative, however, denied the allegation, saying there was no such national call to boycott select drug companies.

“We have not given any national directive to boycott any company but every trader is an independent entity with business considerations and we cannot force them to sell something on which they are making losses,” said Suresh Gupta, general secretary, AIOCD.

Vaijanath Jagushte, a member of AIOCD Drug Pricing Control Order committee, added, “There are various agitations happening out there in the market as distributors and retailers are fighting for their survival.”

For every drug, there are several hundreds of formulations available and a national association cannot be expected to control or take responsibility for each of the lakhs of retailers, if they choose to promote a version which gives them better margins, he added.

Another stockist and a key member of AIOCD told ET on the condition of anonymity, “Individual companies are coming forward and negotiating with us. We are putting forth our demands; they agree or disagree. You cannot dub it as threat or boycott.”

The crux of the issue is a sharp cut in margins of drug wholesalers and retailers from 10% and 20% on maximum retail price (MRP) to 8% and 16% on price to retailer (PTR) for new drug formulations which came under price net in the revised pricing policy.

Negotiations between the two sides began late October after top government officials mediated and asked the industry and trade channels to mutually resolve the tussle. It was decided that industry and trade channels would arrive at mutually agreeable ‘loss figure’, after which either margins for traders would be calibrated upwards for drugs under price net to compensate the losses of distributors or that amount would be offset by the pharma companies jointly.

“We wanted to sort it through a dialogue but didn’t get any response from retailers on the proposal,” Shah said. Gupta contested this version, saying drug manufacturers had been conveyed that the proposal wasn’t accepted by its members.

AIOCD is seeking compensation for 6% of retail sales of new formulations under revised policy, which is about Rs 750 crore according to an ET calculation