A free medicine distribution scheme started by the Rajasthan government early this month is being viewed as a threat to the business of branded generic drugs in the state. Top domestic drug firms are also rattled at the prospect of other states replicating this model in the event of Rajasthan?s experiment being successful.
Rajasthan chief minister Ashok Gehlot launched a scheme in October, which entails doling out medicine free of cost at all government hospitals to people from every strata of the society. At the back end, medicine procurement is carried out through a tendering process that would involve inviting the lowest bidders to supply drugs. This, though, would translate into more business for local drug firms manufacturing unbranded generic drugs. The Rajasthan pharma market, the size of which is pegged at R2,500 crore at present risks shrinkage by R500-600 crore, if and when the scheme gathers full steam. This is because bulk purchase by hospitals could happen at a discounted rate of around 25-30% lower than the average retail drug price.
?The industry is concerned about the consequences of the Rajasthan scheme. Although noble from a social angle, it has already resulted in an immediate plunge in medicine sales from chemists around major government hospitals,? said Ameesh Masurekar, director, AIOCD AWACS, a pharma marketing research firm.
Once up and running, the scheme could change the dynamics of the regional pharma market, and the pharma companies selling branded generics would either have to perform by cutting profit margins or perish by losing business to their local counterparts in this part of the country.
?Armed with an annual budget of R200 crore, this scheme can cause a significant dent in the pharma market of Rajasthan. The average purchase price in the scheme would be around 25% lower compared to the normal branded-drug market price of major players. To observe the effect we shall have to wait for the October sales data,? added Masurekar.
A senior executive at a top drug firm admitted to FE that there are fears of other states emulating the Rajasthan model, if it becomes a hit with the people. ?Execution and sustainability of such schemes are the key challenges. Ensuring quality in bulk purchases of such size, overcoming hurdles in the supply chain to make drugs available at all points in space and time would not be easy. For instance, the Jan Aushadhi programme (retail points to make available quality low-cost unbranded drugs across the country), despite being conceptually brilliant on paper, is struggling in execution aspects,? the executive said.
?Rajasthan?s new procurement policy could have a negative impact for large drug firms. The law passed in Rajasthan to provide free medicine (around 402 drugs in two phases until January 2012) will increase medicine procurement by the hospitals from local generic players at lower rates. While the immediate impact could be minimal (given the lower contribution of such sales to large companies), over the long term, one may see a negative spill over of lost sales from secondary prescriptions,? notes Ravi Agrawal, analyst, Standard Chartered equity research.
?It may hurt profitability of branded drugmakers but it is bound to increase access to drugs and in turn raise demand for medicines translating into larger volumes. Branded drug makers would have to realign their strategies accordingly to stay put in the race,? a public health activist said.