Cipla Realigns Domestic Generics Distribution To Eliminate Supply Chain Issues

Drug maker Cipla, which draws a large portion of sales from domestic formulation business, is trying to streamline its distribution and looking for new ways to engage customers.

The company has undertaken a major realignment of its generics distribution in India, where it had terminated supplies to over 100 existing distributors, even as it looks to sign up with new ones.

The realignment also meant that Cipla had stopped supplies, and allowed existing stocks liquidated so as to start the distribution afresh.

Cipla indicated the disruption may impact the domestic formulation business in the second quarter of FY20 as well.

The company domestic formulation sales dropped 8 percent YoY to Rs 1355 crore.

Around 50 percent of Cipla’s domestic business constitute sales of generic drugs to the trade.

Cipla says that its current distribution model of generic drugs, especially to tier-3 and tier-4 towns, is fraught with concentration risks, where some distributors are stockpiling medicines at discounted price points, and were then trading at higher margins, causing instability of supply chain.

The new GST regime is also helping the secondary trading, as it removed friction cost, allowing stocks to move interstate.

“Some of the distributors have resorted to concentrated buying. And then we become vulnerable to things like stocking, de-stocking, re-stocking and discounts. Instead of that what we are doing is we are spreading to larger number of distributors to avoid concentration. What that does is, it ensures discipline and gives us better control of the distribution channel,” said Kedar Upadhye, Global Chief Financial Officer of Cipla in an interview to Moneycontrol.

Evaluation e-pharamcies

Upadhye said Cipla is also studying e-commerce models like e-pharmacies, but added that the recent reports on the company buying stake in online pharmacy Medlife is speculative.

As per Frost and Sullivan, the e-pharmacy market is estimated to be about Rs 3,500 crore in 2018, and is expected to grow at 63 percent annually to reach Rs 25,000 crore by 2022. The growth is largely led by deep discounts, convenience and the growing adoption of technology.

Indian pharma companies are seeing the emergence of large buying groups in form of e-pharmacies and government’s Jana Aushadi scheme to sell low cost generic medicines, pushing prices further downwards.

Pharma companies like Cipla, are evaluating ways to stay relevant and get a pie of this model, where a lot of action is taking place. – Moneycontrol