Govt Proposes 30% Cap On Trade Margin On Medicines

The rationalisation of trade margin on the medicines which are not included in Drug Price Control Order (DPCO) would help to reduce the prices of about 80 per cent formulations in the country. According to a source in local pharmaceutical industry, “A meeting was held in Delhi on Friday during which Department of Pharmaceutical (DOP) Government of India and National Pharmaceutical Pricing Authority (NPPA) have proposed to cap trade margins for all medicines which are not included in DPCO at 30 per cent. The proposed move would reduce the prices of about 80 per cent medicines in the country.”

“Both the industry and traders have agreed the 30 per cent price cap during the meeting with the drug pricing regulator, pharma lobby groups and industry associations. The 30% cap on trade margins was preferred over other proposals such as imposing a flat 100% trade margin on all medicines, including those within price control,” a source said. The NPPA had first fixed trade margins of cancer drugs at 30 per cent and now it is planning to implement on other drugs.

Though the local pharmaceutical industry has welcomed the proposal, the members wished Government should try to implement this in a phased manner. “We are agreed to the 30 per cent cap as it is equivalent to 43% mark-up for the price to stockiest,” a source stated. Talking to The Hitavada, a health activist having generic drug stores in city said, “Many big pharmaceutical companies having generic divisions will have to reduce the Maximum Retail Price (MRP) on generic medicines.”

The proposed 30 cap on trade margin would also have a significant impact on the margins of wholesalers and retailers. Their associations may ask compensations of their proposed losses from manufacturers. One may recall, “In 2013, when many non- scheduled drugs were brought under price control, stockiest and retailers had forced manufacturers to continue to pay them a minimum 30% margin against the stipulated 24% for price-controlled drugs.” The proposed margin cap will have an impact on a wide range of pharmaceutical, ranging from vitamin D supplements to antibiotics. Non-scheduled drugs, or formulations outside price control, account for Rs 10,000 crore of sales in the Rs 1-lakh-crore Indian drug market.

The health activist described the proposal to restrict trade margins at 30% as pro-consumer, and said the move had the backing of the industry. “The national as well as state level association of manufacturers of pharmaceutical were supportive and willing to follow the cancer drugs model. There were a couple of reservations. The All India Chemists and Druggists Association sought higher margins of 12.5% (for stockiest) and 25% (for retailers),” a source stated.

A trader felt, “Medicines not under price control already have a 30% cap on trade margin (20% for retailers and 10% for wholesalers), and therefore there will not be any significant reduction in prices.” Trade margin is the difference between the price at which manufacturers/importers sell to stockiest and the price charged to consumers. Currently, the National Pharmaceutical Pricing Authority (NPPA) fixes prices of scheduled drugs (medicines under price control). The prices of non- scheduled drugs can be raised by up to 10% a year. For nonscheduled drugs, the industry norm has been to give 10% margin to stockiest and 20% to retailers.

However, there have been allegations that actual margins are far higher. “By making trade margins explicit, there will be less scope for exploitation by large institutions. Margins will go down for trade, making drugs cheaper,” he added. “We support the capping of trade margins across all non-scheduled medicines. Drugs priced less than Rs 5 per unit should not be excluded from this cap. A large population suffers from chronic diseases. Many of the medicines for managing these conditions could fall in this category. Ensuring affordable access is crucial where patients need medicines continuously,” said a member of All India Drug Action Network (AIDAN).-The Hitavada