Distributors' boycott threat looms over top pharmaceutical companies ET Bureau | Dec 13, 2013, 10.

25AM IST NEW DELHI: Pharmaceutical companies have failed to arrive at an agreement with drug distributors and retailers on the margins of price-controlled medicines, potentially jeopardising the smooth roll-out of the new pricing policy across the country. Domestic drug makers have alleged that distributors and retailers are planning to boycott three leading companies Sun Pharma, Cadila Healthcare and Abbott from Sunday. "All India Organisation of Chemists and Druggists (AIOCD) have threatened to boycott products of Sun Pharma, Cadila Healthcare and Abbott starting 15th of this month," said DG Shah, secretary general of Indian Pharma Alliance, a grouping of leading domestic drug-makers. These three companies collectively command 17 per cent market share in the highly fragmented Rs 72,000 crore domestic drug market. Similar threats of boycott have been hurled at Aristo Pharma, which gave into distributors' demands by raising their margins early this week, Shah told ET. He added that the distributors and retailers' association were using coercive means to extract higher margins by targeting individual companies. ET reviewed a copy of the letter in which Aristo Pharma on Tuesday agreed to hike margins for drugs till a 'final decision' was arrived at. The accusation came a day after the trade body was penalised by Competition Commission of India in another matter and asked not to indulge in unfair trade practices. An AIOCD representative, however, denied the allegation, saying there was no such national call to boycott select drug companies. "We have not given any national directive to boycott any company but every trader is an independent entity with business considerations and we cannot force them to sell something on which they are making losses," said Suresh Gupta, general secretary, AIOCD. Vaijanath Jagushte, a member of AIOCD Drug Pricing Control Order committee, added, "There are various agitations happening out there in the market as distributors and retailers are fighting for their survival." For every drug, there are several hundreds of formulations available and a national association cannot be expected to control or take responsibility for each of the lakhs of retailers, if they choose to promote a version which gives them better margins, he added. Another stockist and a key member of AIOCD told ET on the condition of anonymity, "Individual companies are coming forward and negotiating with us. We are putting forth our demands; they agree or disagree. You cannot dub it as threat or boycott." The crux of the issue is a sharp cut in margins of drug wholesalers and retailers from 10 per cent and 20 per cent on maximum retail price (MRP) to 8 per cent and 16 per cent on price to retailer (PTR) for new drug formulations which came under price net in the revised pricing policy.

Negotiations between the two sides began late October after top government officials mediated and asked the industry and trade channels to mutually resolve the tussle. It was decided that industry and trade channels would arrive at mutually agreeable 'loss figure', after which either margins for traders would be calibrated upwards for drugs under price net to compensate the losses of distributors or that amount would be offset by the pharma companies jointly. Four meetings have followed since then. In the last meeting, on November 21, drug manufacturers citing a commissioned study by IMS Health proposed that net loss for trade channels stood at Rs 490 crore (4 per cent of retail sales of new formulations under revised policy), those present in meeting told ET. AIOCD had earlier said that trade channels losses stood at Rs 2,600 crore. "We wanted to sort it through a dialogue but didn't get any response from retailers on the proposal," Shah said. Gupta contested this version, saying drug manufacturers had been conveyed that the proposal wasn't accepted by its members. AIOCD is seeking compensation for 6 per cent of retail sales of new formulations under revised policy, which is about Rs 750 crore according to an ET calculation

Pharma companies like Sun Pharma, Dr Reddy's likely to post 15% profit growth in Q3 FY'14 PTI Jan 5, 2014, 12.51PM IST MUMBAI: Pharmaceutical companies are expected to post core profit growth of over 15 per cent, year-on-year, for the quarter ended December 2013. "We expect core profit growth of over 15 per cent y-o-y across the pharmaceutical sector in Q3 FY'14. The US launches and currency benefit to be the key growth drivers," Kotak Institutional Equities said in its report. While the domestic growth stays subdued, the US launches remain strong, it said. It expects the US generic launches to be the key growth driver, offsetting weak growth in India. The improving US product mix and currency remain key margin drivers for Indian generics, according to the report. "The currency benefit is likely to sustain. In the current quarter, The Indian rupee has appreciated by 1 per cent sequentially on a quarter-end basis. Hence, we expect marginal impact due to translation impact of net balance-sheet items and MTM losses on foreign currency hedges," said Kotak Equities research analyst Krishna Prasad .

Among the leading pharma players, Sun Pharma and Dr Reddy's will lead the sector, while Lupin US generics growth is expected to remain strong, it said, adding that Kotak expects a stable growth for Glenmark and remains conservative on recovery in Cipla and Cadila in the third quarter of the 2013-14 fiscal (Q3 FY'14), the report said. "We expect core profit growth of over 15 per cent yoy across the sector except Cipla. Sun Pharma and Dr Reddy's will lead the pack--with 45 per cent and 33 per cent yoy net profit growth, respectively. In both cases, we expect US generics to be the primary growth driver along with currency," Prasad said. For Lupin, we estimate 13 per cent y-o-y growth in EBITDA, while PAT growth of 26 per cent is driven by lower tax rate. We expect strong margin expansion for Dr Reddy's (360 bps y-o-y) driven by US launches," the Kotak report said. A gradual recovery is expected in Cadila and Cipla it said, adding that it does not factor in significant improvement in operational performance for the current quarter. "We estimate sharp recovery in core EBITDA margin for Ranbaxy at 9 per cent driven by lower remediation expense. We expect stable earnings performance for Glenmark with 19 per cent y-oy growth in core net profit," the report said. For Lupin, the strong growth in US generics is partially offset by muted performance in India/Japan leading to marginal decline (40 bps) in EBITDA margin, Prasad said.