5% of pharma sales go into freebies spend

Domestic pharmaceutical companies spend around 5 per cent of their net sales on medical discounts, marketing, distribution expenses and commissions on sales.

Annual reports show that pharma companies have spent around Rs 1,760 crore "� of net sales worth Rs 36,000 crore "� under these heads during 2005-06.

The study looks into these companies' spending on sales promotion. In fact, two-thirds of sales promotion expenses were on discount and distribution of medicines. While commissions on sales accounted for 25.6 per cent, marketing expenditure was 8.8 per cent of the promotional spending.

The 148 pharma companies studied posted an aggregate net profit of Rs 4,800 crore, while they spent Rs 931 crore on distribution, Rs 450 crore on commission, Rs 225 crore on sales discount and Rs 154 crore on marketing expenses.

These companies have equity capital of Rs 2,288 crore, and if they can cut down these expenditures, their earnings per share, on an average, can go up to Rs 7.50 a share of Rs 10 each.

If pharma companies refrain from influencing doctors' prescriptions, they can stop sponsoring jaunts of doctors and their families to exotic locations overseas. Spending on gifts, in cash or kind, to doctors could also be saved if they decide to stop freebies.

These curbs flow from a code of conduct drug companies have agreed to apply on them. The code, drawn up by Organisation of Pharmaceutical Producers of India that represents companies that control nearly two-thirds of the drug market, comes into effect from this month. The organisation said the curbs were in line with international standards and support self-regulation through compliance.

Multinational companies with shares sales of Rs 5,200 crore spend Rs 207 crore on sales promotion or almost 4 per cent of their net sales. Domestic pharma firms spent around Rs 1,550 crore, accounting for 5 per cent of their net sales of Rs 31,000 crore.

The top 25 pharma firms accounted for 82 per cent of sales promotion expenditure, which is 5.52 per cent of their net sales. Ranbaxy Lab topped the promotional spend chart with Rs 340.6 crore or 9.5 per cent of net sales. Cipla came No. 2 in aggregate spending with Rs 145 crore, followed by Cadila Healthcare with Rs 110 crore. Next come Dr Reddy's Lab with Rs 94 crore and Sun Pharma with Rs 80 crore.

Among multinational companies, Abbott spent Rs 50 crore "� almost 10 per cent of its net sales for 2005-06. This was followed by Glaxo Pharma which spent Rs 48 crore or 3.27 per cent of sales, Aventis Rs 25 crore or 3.15 per cent of sales and Pfizer Rs 21 crore or 3.16 per cent of sales.