Consolidation in the pharmaceuticals supply chain in the US will weigh on the bargaining power of Indian drug firms in that market, top Indian players apprehend. A spate of acquisitions and joint ventures — 16 in 2012 and 10 in 2013 — has resulted in fewer suppliers of prescription drugs, which might work against the interests of Indian firms.
Lupin CEO Vinita Gupta acknowledged there will be pricing pressure because of the mergers in the supply chain space. Speaking to analysts after the Q3FY14 results announcement, Gupta observed, “The challenges arising from the consolidation of our customers are significant and there is a lot of pressure on pricing. But the Walgreen consolidation happened well before the CVS-Cardinal (deal) and so far, we have survived it. We’ve been able to manage pretty well.”
Abhijit Mukherjee, president and head of global generics segment, Dr Reddy’s Laboratories, also agreed, on a call with analysts, that there could be some impact of the changes in the US supply chain environment. “There have been some mergers between wholesalers and retailers and depending on how many customers a company has in each segment, there will be an impact,” Mukherjee said, adding that his firm had factored the changes into its plans. “While there will be an impact, it’s a part of the erosion in the generics business,” he said.
Sun Pharmaceutical Industries CEO Dilip Shanghvi recently said it was clearly becoming increasingly difficult to find a way to negotiate effectively. “There would be increasing pressure on manufacturers,” Shanghvi noted.
In a recent report, HSBC Global Research said the CVS-Caremark, Medco-Express Scripts and Walgreen-Alliance Boots mergers have increased the purchasing power of distributors and retailers.
“The higher power of PBMs (pharmacy benefit managers) may result in downward pressure on drug prices and consequently hurt margins of most drug companies in the US market,” the HSBC Global Research note highlighted.
“Indian companies have indicated some volume-price trade-off given the product mix and given that they are the top suppliers of several products. Large generics players believe they are better placed given their relationships with global supply chains and the capacity to meet large volumes,” JPMorgan analyst Neha Manpuria said.
The pharma supply space has seen a fair bit of consolidation in 2012 with 16 deals in the drug supply chain. In 2013, there were 10 acquisitions and in November. CVS Caremark — the largest supplier of prescription drugs in the US —