AIOCD is seeking compensation for 6 per cent of retail sales of new formulations under revised policy, which is about Rs 750 crore
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.
“All India Organisation of Chemists and Druggists (AIOCD) has threatened to boycott products of Sun Pharma, Cadila Healthcare and Abbott starting 15th of this month,” said DG Shah, secretary general of Indian Pharma Alliance, a grouping of leading domestic drug-makers. These three companies collectively command 17 per cent market share in the highly fragmented Rs 72,000 crore domestic drug market.
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 Competition Commission of India in another matter and asked not to indulge in unfair trade practices.
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 per cent and 20 per cent on maximum retail price (MRP) to 8 per cent and 16 per cent 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.
Four meetings have followed since then. In the last meeting, on November 21, drug manufacturers citing a commissioned study by IMS Health proposed that net loss for trade channels stood at Rs 490 crore (4 per cent of retail sales of new formulations under revised policy), those present in meeting told ET. AIOCD had earlier said that trade channels losses stood at Rs 2,600 crore.
“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 per cent of retail sales of new formulations under revised policy, which is about Rs 750 crore according to an ET calculation.
