Drug shortages likely during tax transition

Shortages are likely as the pharmaceutical industry gears up for transitioning to the GST from July 1. The stockist-level inventory at the end of May was lower than that in April as most companies drew down stocks at the distributor level. 

According to the All India Organisation of Chemists and Druggists (AIOCD), May saw a marginal reduction in Day 1 inventory carried by distributors. Nationwide, there is a reduction of 1.3 days’ inventory. 

Dr Reddy’s Laboratories’ inventory days have declined from 43.9 days in April to 39 days in May. For Torrent Pharma these have declined from 32.5 days to 31.1 days and for Novo Nordisk from 37.7 days to 25.8 days. Analysts claim apart from stockist inventory, in-transit stocks have declined. 

Drugs will attract a 12 per cent GST compared to nine per cent levies now, which include excise and VAT paid by manufacturers. From July 1, the price of a drug will include GST, instead of excise. 

“Retailers are worried whether they will be reimbursed. Manufacturers have assured retailers that some mechanism will be worked out for reimbursement, and there is no reason to under-stock,” said Daara Patel, secretary-general of the Indian Drug Manufacturers’ Association (IDMA). For drugs under price control, the National Pharmaceutical Pricing Authority (NPPA) is expected to release a fresh list of prices that contains the GST component. 

Industry sources said the authority was okay in principle with allowing a 3 per cent rise in prices when fresh stocks came in. However, no written communication has been issued on this.

An executive with a pharmaceutical company in Gujarat said retailers were refusing to take additional stocks fearing they would have to return them. “This has created a temporary slowdown in channel movement. This, however, is likely to be solved as clarity emerges,” the executive added.

A report by HDFC Securities said, “Companies like Alkem, Torrent Pharma and Cipla will experience difficulties owing to the GST and resultant channel disruption.”