Karnataka drug industry is upset over the Central Government decision to fix trade margins on generics ranging from 25 to 35 per cent. The industry claims that the low trade margin on generics would result in low sales at the retail counters and in turn would discourage pharma companies to produce less of generic products.

Industry sources point out that a 30 percent cut in generic production was likely because of margin fixation. Under the circumstances, the trade in the state is of the view that the impact of the margin would result in only 30 per cent loss in sales.

North Karnataka Drugs and Pharmaceutical Manufacturers Association (NKDPMA) is of the view that the likely notification of a cap on trade margins could be a disaster to the small-scale sector in the country. NKDPMA considers the imposition of trade margin as an extremely harsh step in the drugs marketing and distribution business for the small pharma units.

The enforcement of the trade margins for generics at 25 to 35 per cent is self-defeating. However, the small drug units in the northern districts of Karnataka have taken a decision to voluntarily reduce their margins by 25 per cent, Ramanand Hegde, president, North Karnataka drugs and Pharmaceutical Manufacturers Association told Pharmabiz.com.

The medium and large scale units in Karnataka think the move will have a major negative impact on the industry. The contract manufacture business will stand to lose as leading companies like Ranbaxy and Cipla outsource production of generics.

"Once the government notifies the new trade margin for generics, many units in the state may have to wind up their operations. Under new fixation, the companies will incur losses and may not be in a viable position to continue operations, stated Sunil Mundra, member Karnataka Drugs & Pharmaceutical Manufacturers Association (KDPMA) and managing director, Natural Capsules.

The generic production will no longer be a lucrative proposal for units in the state, stated N Jatish Seth, secretary, Karnataka Drugs and Pharmaceuticals Manufacturers Association.

The industry sources in the state stated that main culprits in this margin issue was the ethically promoted generic manufactures who are allowing the small scale sector to survive in the business. Although the Union Ministry of Chemicals and Fertilisers had asked the industry to self regulate, the failure on part of the pharma sector has now put the small scale sector in a tight spot.

According to V Harikrishnan, president, Bangalore District Chemists &Druggists Association, the fixation of trade margins on the generics is a welcome move because "we can now generate earnings with the prescription based drugs." "Generics form only 30 per cent of the sales for the trade and 70 per cent are from the ethically promoted drugs," he said.

According to Arun Mehta, member, BDCDA, "It is a practise that most of the leading drug manufacturers get the generics produced by loan licensees which are the small scale industry only to claim the price benefit. The generic drugs available in the market are taking advantage of the ceiling prices. Prices of generics are equivalent to branded drugs. The selling prices are fixed at the whims and fancies of the industry and not according to Drugs Price Control Order's Form V."

The present available trade margins under the DPCO for Scheduled drugs is 16 per cent for retail and 8 per cent for wholesale minus the excise duty. For the non-Scheduled drugs, it is 10 per cent (wholesale) and 20 per cent (retail), excluding excise duty. "All along the trade advocated margins including excise duty. We now contend with the present proposal of 25-35 per cent as it is all inclusive. Under the proposed trade margins, the trade sector will be methodical," informed Mehta.