Pharma firms for legal action against govt

A section of the Indian pharmaceuticals industry favours going to the courts against the government's clampdown on trade margins on generic drugs.

While legal action is being favoured by companies that derive a substantial part of their turnover from generic drugs sales in India, others are learnt to be cold towards the proposal.

"The government can fix parameters for the control of drugs under the Essential Commodities Act. But for drugs not under control, how can the government fix margins? I don't think the government will go ahead with something like this. If, however, it does, then the associations will have to examine various options, including legal recourse," Cipla joint managing director Amar Lulla told Business Standard.

He, however, did not clarify if Cipla had suggested legal action when leading pharmaceutical companies met on last Thursday to discuss the import of the government's decision to cut trade margins.

Over the past few years, a number of Indian pharmaceutical companies like Ranbaxy and Dr Reddy's has been targeting the overseas pharmaceutical markets for growth as India accounts for less than two per cent of the world market.

These companies have particularly been targeting the generics market in the US. Such companies are not in favour of moving the courts as the impact of the cut in trade margins on their business will not be much.

"Most firms felt that this was too minor an issue to get involved with. since there were larger impending issues such as the amendments to the  Patents Bill," an industry insider said.

According to estimates, unbranded generic drugs account for about seven per cent or Rs 1,700 crore (Rs 17 billion) of the industry's retail sales.

After carrying out investigations into the prices of three drugs, the government had arrived at the conclusion that the industry was giving huge margins often in excess of 1,000 per cent to retailers in order to push sales.

As this was pushing up prices of medicines, the government has come out with a set of guidelines on retail margins that can be given by companies.