Streamlining trade margins on drugs priced Rs 100 and above likely

With the government moving to rationalise trade margins on widely used medicines in an effort to bring down prices, people in the know say the same may be applicable to drugs priced Rs 100 and above. Moreover, drugs beyond the pale of price control are likely to be included in the first phase of trade margin rationalisation, according to people in the know.

“This is because drugs under the National List of Essential Medicines (NLEM) have their ceiling prices capped. The chances of companies offering arbitrary trade margins is remote,” said a person, who was part of the stakeholder meeting held with government departments this week.

Another industry source said that discussions are ongoing with the Department of Pharmaceuticals and the National Pharmaceutical Pricing Authority (NPPA) to include drugs priced above Rs 100 in the first phase.

Drugs for ailments like chronic kidney disease, some high-end antibiotics, antivirals (anti-infectives), as well as some cancer drugs, are likely to be brought under trade margin rationalisation first.

The idea is to cap the margins earned by wholesalers and retailers.

Trade margin refers to the price difference between what the manufacturer sells to a wholesaler, who, in turn, sells to stockists and retailers, and the maximum retail price a consumer pays. The government may cap trade margins at 33-50 per cent, claimed sources.

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  Trade margin rationalisation likely to be done in phases
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  First phase is likely to include drugs that are priced Rs 100 and above
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  Drugs outside of price control likely to be part of TMR
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  Cancer drugs, chronic kidney disease drugs, anti-infectives likely to be included

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Viranchi Shah, president, Indian Drug Manufacturers’ Association, said if the government considers bringing in trade margin rationalisation, it should be done phase-wise.

“This should be applicable to high-value drugs, which will protect micro, small, and medium enterprises (MSMEs) and lead to tangible consumer benefit,” said Shah.

MSME pharmaceutical (pharma) companies often do not employ medical representatives or a salesforce — they tie up with a channel partner and offer them discounts or a higher margin to sell drugs. These companies typically deal with low-value drugs. Their turnover is not more than 10 per cent of the Rs 1.6-trillion Indian pharma market.

“For high-value drugs, companies often offer high trade margins, which can go up to 200 per cent. This typically happens through a hospital channel and not so much through the retail chemist,” said a pharma industry veteran.

“In this case, pharma companies choose to operate through a specific stockist who typically gets up to 5 per cent margins. This is done to make drugs affordable,” he added.

Meanwhile, trade bodies have urged the government and the NPPA to consider a revision of existing trade margins on NLEM drugs.

In May, the industry body of chemists — the All India Organization of Chemists & Druggists (AIOCD) —had written to the NPPA asking for a minimum trade margin of 10 per cent for wholesalers and 20 per cent for retailers.

Currently, the margins are 8 per cent and 16 per cent, respectively, and have been the same since 1997, said Rajiv Singhal, general secretary of AIOCD, adding that the cost of drug distribution has gone up significantly during this period.

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