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In order to de-risk their businesses from the impact of the Drug Price Control Order (DPCO) which caps the prices of essential medicines based on a formula decided by the government, Gujarat based drug makers are making a shift towards nutraceutical and ayurvedic segments to protect overall margins.
Chirag Doshi, chairman of the Gujarat State Board of the Indian Drug Manufacturers Association said that several manufacturers in the state who were making allopathic medicines have recently started making products in the nutraceutical and even ayurvedic range. At least 25-30 companies including small and mid-sized pharmaceutical firms have either started making such products or are in the process of developing them. "The turnover from the DPCO segment has been reduced in the range of 25-75 per cent depending on each company's portfolio. Margins too are under pressure," he said.
The DPCO 2013 brought the prices of 348 essential medicines under control, imposing a cap on prices based on the average of the prices of brands with at least one per cent share in a category. At the same time, the order also recommended margins for wholesalers and retailers be brought down for drugs falling under the DPCO segment. A crisis arose when wholesalers and retailers pushed for margins to be maintained at the old levels, which, in turn, meant that companies would need to take a further cut in their margins to offer higher margins to trade.
Margins in nutraceutical and ayurvedic segments are around 30-35 per cent, said Kamlesh Patel, chairman and managing director of West Coast Pharmaceuticals, and also the vice-president of the Indian Drug Manufacturers' Association (IDMA) western region. His company has launched at least 45-50 products in the nutraceutical space in the last six months, mainly in the areas of women care, child care apart from hair care and skin care products.
Industry insiders claim that as these products are mainly in the over-the-counter (OTC) category they do not require to meet stringent approval norms from the Drug Controller General of India (DCGI) and hence the gestation period from developing the product to launching it is comparatively short. Even big pharma like Torrent Pharmaceuticals has been cautious to select a product portfolio that was not under DPCO when acquiring the domestic business of Elder Pharma recently.
However, with many small and mid-sized companies trying to launch products in the same category, this niche segment is also likely to get crowded in the long run. Doshi points out that,"Competition is not an issue. Companies would be able ti increase the prices by 10 per cent every year, and that would take care of the margin pressure."
On the other hand, the ayurvedic industry in the state has been clocking a 10-12 per cent compounded annual growth rate. There are around 681 registered ayurvedic manufacturers in the state, as against 2047 allopathic units, informed the Gujarat Food and Drug Control Administration (FDCA). Jaman Malviya, vice president of Gujarat Ayurved Aushadh Manufacturers Association (GAAMA) and also owner of Sunrise Remedies, a Gandhinagar-based manufacturer of ayurvedic drugs, said that ayurvedic manufacturers in the state are increasingly looking at tapping the exports market to fast-track growth.
