Saturday, August 31, 2013

Drug shortage looms as pharma policy hurts margins - India

MUMBAI: A shortage of essential medicines is looming across major parts of the country, with drug companies reporting lower orders from wholesalers, mainly on account of reduction in trade margins due to the new pharma policy. Drug companies say that wholesalers have stopped the purchase of widely prescribed medication like painkillers, anti-infectives, cardiac and antibiotics — part of the national list of essential medicines — mainly in states including Gujarat, Karnataka, Tamil Nadu, West Bengal and Jharkhand, but other states may also be impacted.

While seeking the help of drug regulatory authorities across states to prevent such a shortage, the industry says that consumers may soon be hit by the lack of availability of these medicines.

Interestingly, the government has not clearly specified margins to wholesalers as per the new Drug Price Control Order 2013 while it mentions that retailers will get a 16% mark-up on the notified ceiling price, down from 20% which they received earlier. According to the DPCO 1995, margin to wholesalers was 10% of the maximum retail price, which now has been interpreted by companies to reduce it to 8%.

"We are witnessing a reduction in orders (from trade)", an executive with a pharma company said, adding "there is panic in the market, but it may not lead to a shortage of medicines".

The three industry associations — Indian Pharmaceutical Alliance, Organisation of Pharmaceutical Producers of India and Indian Drug Manufacturers Association — have in a recent communication to state drug regulatory authorities of the states concerned, saying that there may be a potential shortage of essential medicines on account of lower orders placed by distributors.

"Wholesalers and retailers have stopped purchases of NLEM products citing various issues, including the margin specified under Para 7 of the DPCO 13," the letter says.

The impact was visible in July, with the basket of products where ceiling prices were announced showing a drop of 2.2% as against a 10.8% growth for the balance drugs, according to research firm AIOCD Awacs.

Sources in retail trade said that they have started keeping a lower inventory as a strategy to rationalize costs. As against an inventory of 45 days, now we keep stocks for 14 to 21 days, said a chemist, who is part of AIOCD, an organization which represents over seven lakh chemists.

Experts termed this as a "mere tussle" between pharma companies and trade, with both trying to get the better of the other.

The industry bodies have asked the state drug commissioners to determine availability of medicines in their states so as to prevent a shortage.

An AIOCD official had earlier told TOI: "The industry should maintain margins at the existing level, especially for drugs in which ceiling prices are unchanged. There are 100-odd formulations in which the prices have not gone up."

There may be a little disruption in certain medicines or chemists may also shift to keeping brands and companies which offer high margins, if not resolved soon. Fearing that their drugs may not be picked up by trade, certain companies like Blue Cross and Win Medicare have said that they would maintain status quo in margins, which is 20% to retailers and 10% to wholesales, sources said.

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