The top twenty pharma companies by domestic revenue would absorb 61% of the total envisaged loss of around R1,485 crore resulting from the new pharma pricing policy in a total domestic drug retail market worth R68,355 crore.
These firms together account for 58% of the R52,135-crore pharma industry, when the size is estimated from the perspective of companies? sales rather than retail market, concludes a detailed analysis by pharma marketing research firm Aiocd Awacs.
In fact, the top three firms by domestic revenue ? Cipla, Ranbaxy Labs and GSK Pharma ? along with a fourth drug firm Alkem Labs could bear a disproportionately high brunt by carrying on their shoulders close to 30% of total losses, that the industry is projected to incur. This when, their combined share in the total pharma industry doesn?t exceed 18%.
While the consumer may enjoy an average price reduction of 6.1% on the range of medicines that is proposed to get covered under the new price control regime, if the pharma pricing policy is implemented in its current form, traders in the pharma supply chain stand to lose R636 crore. For traders, this blow would come in addition to a proposed margin cut of 6% which could put their additional burden of losses at R2,035 crore.
?Trade is getting a double whammy. Traders stand to lose R636 crore, as a direct fall out of the pharma pricing policy. Further, there is a volume of R33,500 crore at MRP of the total pharma market, which would not get impacted by any price reduction under the new policy. Here the trade margins are proposed to be trimmed by 6% ? thereby causing a further loss of R2,035 crore to the traders? said Ameesh Masurekar, director, Aiocd Awacs.
These assessments flow from a calculation that assumes that when price of a drug is reduced by R100, companies lose R70 and trade loses R30.
Presently, while the margins of the stockists (which buy directly from the pharma companies) hover around 10%, retailers earn a margin of 20%, both of which add up to a 30%. It is this figure which is proposed to be slashed to 24%.
The current drug price control order covers R7,153 crore worth of drugs of the total pharma retail market under its ambit. This coverage of price net may increase to well over R35,000 crore worth of drugs, if the proposed pricing policy is implemented without any significant amendments and brings under its fold 60% of the pharma market.
?While traders are likely to pitch to the government to leave the margins unchanged, drug firms are likely to ask to government to reduce the scope of price control ? which will cumulatively reach 60% of the pharma market under current proposed policy. The government has to do a fine balancing act ? between trade, companies, consumers and the courts,? Masurekar said at a time when the government is inviting comments on the draft policy.
