Indian Pharma Largely Unaffected by Proposed Caps on Trade Margin, Says Fitch Ratings
India's proposal to cap trade margins available to drug distributors will not significantly hurt the profitability of pharmaceutical companies, as the proposal does not restrict the margins at which pharma companies sell to distributors, says Fitch Ratings.
 
The National Pharmaceutical Pricing Authority (NPPA)—the regulatory body responsible for drug-pricing matters—is making progress in reaching a consensus with pharma companies and distributors to cap the trade margins for drugs that are not under explicit price control. 
 
The proposal builds on the regulator's success in cutting cancer drug prices by as much as 85% following a similar exercise to cap trade margins.
 
The proposal, which aims to make drugs more affordable, will cover an estimated 80% of generic formulations in India. 
 
"However," Fitch says, "we do not believe it will significantly disrupt pharma distribution, even if implemented in an all-encompassing way, as currently reported. This is because the existing trade margin for the bulk of generic drugs, which are sold under a 'branded generics' model, is already broadly consistent with the proposed 30% level, with wholesale distributors getting 10% and retail chemists 20% of the printed drug price."
 
India's is broadly a branded generics market in which pharma companies sell generic drugs under their own brands, unlike some larger markets globally. This business model, which accounts for 70%-80% of generic drugs, is mostly physician driven, as most prescriptions include the brand name rather than only the generic formula. 
 
The moderate level of trade margins under this business model reflect the direct involvement of pharma companies in engaging with physicians to promote their product.
 
Fitch says, "We believe the proposal is likely to have a greater effect on the 'generic-generic' segment, in which pharma companies sell their drugs in bulk to distributors who retain higher margins as they handle sales and marketing expenses. This may temporarily disrupt sales, especially in rural areas, but will also present opportunities for larger pharma companies to gradually establish a greater presence. The proposal is also likely to affect the margins of institutional buyers, such as hospital chains that procure in bulk directly from pharma companies, bargaining for higher margins because of direct access to patients in acute need for niche medicines."
 
Within Fitch's rated portfolio, Glenmark Pharmaceuticals Ltd derived a large 32% of its revenue from the domestic market in the first half of the financial year ending September 2019. Nonetheless, the ratings agency says, "the company's business is mostly focused on branded generics under the retail model, which accounted for more than 90% of its sales in India. Hence, we do not believe the proposal will significantly affect the company."
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    COMMENTS

    Nakul Kumar Reddy

    1 week ago

    Providing medicine at lowest price to public is the most appreciated thing,
    Please continue .....

    Finally, IRDAI Identifies Sensitive Posts in Compliance with CVC Guidelines
    The Insurance Regulatory and Development Authority of India (IRDAI) has finally decided to follow guidelines issued by the Central Vigilance Commission (CVC) and issued order identifying sensitive posts. IRDAI took more than a year to identify sensitive posts, despite a clear guidelines by CVC in August 2018. The circular too seems to have issued after a question was raised in the Rajya Sabha. 
     
    Anurag Thakur, minister of state for finance, while responding to a question in Rajya Sabha on Tuesday, says, "IRDAI...vide order dated 26 November 2019 has identified sensitive posts in the departments, which include positions handling registration and renewals of insurance intermediaries viz. corporate agents, insurance brokers, insurance marketing firms, surveyors and loss assessors and third party administrators, and those handling insurance product approvals."
     
    Member of Parliament (MO) Javed Ali Khan had asked the about identification of sensitive post by IRDAI to prevent corruption as per the guidelines of CVC issued on 23 August 2018.
     
    In its order, IRDAI has identified sensitive post and staff working on these posts for three years, would be rotated to avoid developing vested interests. However, all the posts identified by the insurance regulator are of the rank of deputy general manager (DGM) and below. This means all posts above the DGM level are not sensitive and staffer can continue to occupy it beyond three years. 
     
     
    "All the officer or employees working on the above mentioned sensitive posts are to be strictly rotated on completion of three years of holding the post. In case, officer or employees are handling company wise profile, then they should be allocated different companies every three years. In cases, where it is not possible to change the department of an officer or employee, then rotation of portfolio within the department should be done every three years. In all cases, rotation of officers or employees, who have completed five years in the existing position should be done," IRDAI says in its order.   
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    Thomas Cook India buys Thomas Cook brand for Rs 13.9 crore
    Travel services major Thomas Cook (India) Ltd has signed an agreement to acquire the Thomas Cook brand for Rs 13.9 crore for use in India, Sri Lanka and Mauritius markets, said a senior company official.
     
    The company signed an agreement with AlixPartners, Thomas Cook UK's appointed Special Managers, he added.
     
    "The brand valuation was done by our internal team and an external team. Both of them arrived at a similar value," Debasis Nandy, President & Group Chief Financial Officer told IANS over phone from Mumbai.
     
    Thomas Cook (India) was previously contracted to pay an annual brand licence fee of Rs 2 crore to Thomas Cook UK until 2024 for usage of the brand.
     
    The brand license agreement also gave TCIL the right of first refusal to acquire the brand in the event of the Thomas Cook UK Group going into liquidation before 2024.
     
    "I didn't think there was an option till 2024 to reduce the price further even though the right of first refusal was with our company. Waiting till 2024 would have resulted in uncertainty as the UK company was sold to a Chinese company. The assets of the UK company were being sold and cash realised to pay off its creditors. There was also the risk of the brand being sold of to somebody else, Nandy said.
     
    "It was a fairly decent valuation, seven times of times of the annual royalty," he added.
     
    According to him, Thomas Cook (India) now owns the brand and can change the look and feel of the brand.
     
    Refuting the view online companies are eating into Thomas Cook (India) business he pointed out the former largely sell airline tickets and hotel rooms whereas his company sells travel packages.
     
    "We get 30 per cent of our business or about Rs.500 crore from online sales, Nandy added.
     
    Ruling out extending the Thomas Cook brand to other group company's offerings Nandy said the plan now is to consolidate our business and then grow it further.
     
    Queried about resort subsidiary Sterling Holiday Resorts he said it will continue to add five/six resorts per year.
     
    "Sterling Holiday Resorts will largely into asset management and will not buy or build properties of its own. The idea is be light on assets and save on outlay," Nandy said.
     
    He said the travel market is expected to pick up in 2020.
     
    Speaking about the market trend he said, tourists are now opting for short haul trips than going for long haul ones.
     
    The Thomas Cook India Group continues to remain financially strong with cash and bank deposits balances of Rs. 1,088.3 crore of September 30, 2019. On a standalone basis Thomas Cook India is debt free. The Group generates an average annual free cash flow of around Rs. 200 crore.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Ramesh Poapt

    6 days ago

    company lost mkt price quickly. a value buy?!

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