In a bid to counter slowing sales, drug majors like Cipla, Mankind Pharma and Torrent decided to give in to traders’ demands for higher margins. All three have increased trade margins for stockists and retailers to 10% and 20%, respectively, on the price-controlled basket of drugs, against the DPCO offered 8% and 16%, respectively, analysts said.
The move could impact their profit margins.According to Edelweiss Securities, the loss — on account of price control — can increase from anywhere between 10% and 24% if margins are paid on the retail price rather than on the purchase price.
The disruption in trade channels has hurt the sector with stockists and chemists bargaining with pharma companies to protect their margins. While distributors and retailers have asked that their margins be calculated, as earlier, on the maximum retail price, the DPCO has mandated that it should be calculated on purchase price.
Together with the slowdown in the economy, the price controls effected recently and the tussle between companies and traders over margins, have pulled down the R76,000 crore domestic pharmaceutical sector in September, with sales growing by just 1.8% — the lowest in last nine months, according to market research agency IMS Health.
However, research agency AIOCD AWACS painted a grimmer picture with its data analysis pointing to negative growth in September. While sales of drugs under price control shrank by 14% in September, the rest of the market grew by a mere 0.4%, revealed AIOCD AWACS.
While the industry has been growing at 12-13% for the past three-four years, demand began slowing in January this year with average growth remaining around 8%. Analysts said other issues such as competition from unbranded generics, slower rate of approvals and slower gross domestic product growth, too, may be contributing factors.
Glenmark Pharmaceuticals chairman & MD Glenn Saldanha said there is much uncertainty resulting to the present slowdown in the sector. “While these uncertainties should get resolved within the next two quarters, the industry growth rate should sustain between the 8% and 10%,” Saldanha said adding that would nevertheless be a substantial drop in growth rates compared to a