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Govt reduces trade margins on drugs

Govt reduces trade margins on drugs
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First Published: Wed, Mar 28 2007. 12 55 AM IST
The government has decided to reduce the trade margins on 90 cancer and AIDS drugs in an attempt to make such medicines cheaper. A change in New Delhi-mandated margins—being reduced to 8% for distributors and 16% at the retail level from the current 10% and 20%, respectively—will squeeze traders of the medicines, whose sales rack up to Rs800 crore.
A second notification inthe offing will freeze the margins of “generic-generics” drugs—unbranded non-patented medicines that are promoted through chemists directly—at 15% at the wholesaler-level and 35% for retailers, down from as high as 10 times the cost at which the manufacturer sells it to retailers. The sales of such drugs are estimated at up to Rs1,500 crore.
Though the two decisions will impact distributors and retailers, a slowdown in the sales of the drugs is imminent because traders will have lesser incentive to sell these medicines. The names of the AIDS and cancer drugs, upon which trader margins are being reduced, were not immediately available. Dabur Pharma, Novartis AG and Roche are among the larger players in the cancer drugs market in India, while Cipla, Ranbaxy Laboratories, Strides Arcolab and Aurobindo Pharma dominate the anti-AIDS segment.
Government notifications on the decisions will be made in two months, said a department of chemicals and petrochemicals official, who didn’t want to be named. “The government has already reduced import and excise duties on (AIDS and cancer drugs) in the last few years, now it’s the industry’s chance to do its bit in reducing prices,” he said.
Notifying the 15-35% margin caps for generic-generics drugs will enable the government to legally enforce what Indian drug makers voluntarily agreed to last year. These drugs—such as the anti-allergic cetrizine—are sold cheap to distributors, who used to mark up margins of as much as 1,000%. These drugs make up for 5-7% of the Rs24,000 crore worth medicines retailed in India, excluding sales to hospitals and exports.
“We will amend the Drug Price Control Order (DPCO) to introduce a clause that gives the government power to prescribe trade margins on drugs. We are consulting the law ministry on this,” said the official.
On 16 March, the government had cracked its whip on companies to check abnormal increases in drug prices. The department of chemicals and petrochemicals has instructed the drug regulator, National Pharmaceutical Pricing Authority (NPPA), to monitor any drug whose price rises by more than 10% in a year—earlier, the threshold was 20%—and issue notices to inquire into reasons of the increase. The drug maker could also be asked to reduce prices.
An industry representative said the NPPA guideline could have been announced in a new pharmaceuticals policy that a group of cabinet ministers is finalizing. “There is a pharma policy on the anvil and to come out with such guidelines before the policy is announced is a bit surprising,” Ranjit Shahani, president of the Organization of Pharmaceutical Producers of India, a lobby of foreign drug makers, said.
Others said drug makers in the country would wait for the new pharmaceuticals policy. “Some of these policies may get overturned when the new pharma policy comes in with a new DPCO. We don’t want to sweat the small stuff and rake up these issues against the government at this crucial juncture,” said a second industry representative, who did not wish to be named.
The pharmaceutical industry has been citing for long the drug sales data from market researcher ORG IMS, contesting the notion that drug prices have been on the rise. According to ORG IMS, average drugs prices have gone up by just 1.4% in 2005 and 0.6% in 2006, much below the average inflation in those years.
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First Published: Wed, Mar 28 2007. 12 55 AM IST