Details are still emerging. But the rescinding of agreements IDMA had with AIOCD means that some wholesalers and retailers would be free to set their own margins. And the grape wine indicates that the margins would be moving towards lower side. To the onlooker, there does seem to be high margins built in the distribution chain (refer the agreement between IDMA and AIOCD).
If there is any truth in the competition commission’s probe and the actions by IDMA to disassociate itself from any allegation of favoring AIOCD that could have harmed interest of other wholesalers and retailer, then we are ready for a shakeup in the market and distribution chain.
This is expected to make the marketplace flatter for several of members of OPPI, the IDMA and the AIOCD. Which means that the inefficiencies and lopsidedness in the distribution chain will be exposed. Would the consumers get benefited…. let us see… how things unfold. With GST just around the corner, do expect churning in prices and margins to take center stage in the marketplace. We must also remember that india has its own structure of distribution chain that is yet to innovate itself keeping in view the current reality of the market (why do we say so? look at Description of Industry Situation- Pharma @ Cross Roads).
In the meanwhile, the Pharma Industry is got into compilation of it wish list for the forthcoming union budget. As if it is bleeding because of high taxation, that range between 5-10%. It is too much scared of china (or is it an alibi for non competitive performance), and has put up its demand for tax discounts and rebates. And there is also a traditional cry for rebate on R&D related expenses. Sometimes one is surprised if the pattern of demands of Pharma industry is any different than those of other industries.
Every one knows that pharma companies operate in a high margin business. It is very intriguing, why industry associations always run into protective route than asking for something that would improve its contribution to the GDP. Surprisingly, there never comes an occasion when industry commits itself to solve the problem of consumers.
Look at the level of margins the industry operates into and then ask a few simple questions. 1. To manufacturers: what is the level of your inventory and the level of inefficiency in their plants and 2. To wholesalers and retailers: the level of returns and stock-outs.
You would be surprised to know that at an average pharma plants operate at around 30% utilization, which is the lowest amongst all other industries. Its supply chain too is not known for higher efficiecies. Now you wonder, why the drugs are so costly in india, even when manufacturers rebel agains the elongating list of drugs coming under price control. (just followup us on this to know the reality inside the supply chain of pharma industry.)
31 March 2014