Racing against the GST deadline

20170715ep02The May update on pharma channel sales was gloomy at best, according to AIOCD PharmaTrac. Unfortunately, sales in June, and possibly July too, are going to be as uncertain. With the Goods and Services Tax (GST) set to roll out by July 1, implementation is proving to be a bitter pill to swallow. But like most patients, the sector is hoping the bitter medicine will cure quite a few of its ills.

An indicator that growth is taking a hit is the sharp dip in inventory days across individual companies. For instance, industry-wide averaged figures indicate that by April end, it was 41.3 days, which reduced only marginally by May-end to 40 inventory days. But the next 11 days, from June 1 to June 11, saw a drastic dip of 13 days, to 27 inventory days, by June 11. Some companies were more affected than others. For instance, Biocon’s inventory days went from 55.3 (by end April), to 54.7 (end May) to 31.4 by June 11, a slash of 23.9 days.

Clearly, chemists as well as stockists are wary of placing orders. Hence, primary sales (company to stockists) has already been hit. Secondary sales might have shown a slight rise as patients with chronic conditions like diabetes, etc. tried to buy medicines to last them for the next two months. Most chemists were stocking up only against firm customer demand and patients too had to wait for a couple of days till their ordered medicines arrived.

Of course, pharma companies were anticipating this caution and there are reports that companies have tried to entice distributors to place orders by enhancing incentives. But, this might prove to be counterproductive, as their unsold stocks will be returned. AIOCD PharmaTrac’s monthly reflects this uncertainty, with growth sliding from 8.3 per cent in April to just 7.2 per cent in May. The agency is not ruling out a further slide in June, due to lower pick-up by distributors. Hence, uncertainty will most likely reduce, or stability will return only around August. Till then, growth may remain uncertain, according to PharmaTrac.

Pharma companies, at least the larger and more established ones, have anticipated this churn and have been working to ease this transition. The story, ‘Gearing up for GST’ in the July 1-15 issue of Express Pharma, charts out their strategies and the behind-the-scenes work done by consultancies like EY and KPMG as well as software vendors like Cygnet to prep up pharma companies.

But, trade channels seem unprepared. QuintilesIMS conducted a survey with distributors and chemists across India and found the on-ground readiness of distributors and chemists to implement GST by July 1, 2017 below par and pharma companies will need to leverage cross-functional participation within the organisations to ensure effective implementation. The survey is based on interviews with 25 distributors across key cities in India as well as 200 chemists. The chemist profile were 19 per cent across chain and 81 per cent independent pharmacies. Among chemists, 22 per cent were pharmacists, 42 per cent were pharmacy owners and 37 per cent were counter staff.

According to the QuintilesIMS survey, 50 -70 per cent of stockists/ chemists aren’t clear and haven’t initiated implementation of GST in their businesses; a significant number of distributors/ stockists are still to register themselves on the GST portal. The regulatory ambiguity regarding certain tactical aspects is expected to linger till July 1. For instance, one of the grey issues is that while a refund on tax for expired goods is permitted only up to six months, the average pharma product shelf life is 12 months. Similarly, there is lack of clarity around the accounting of inventory left on June 30. Other queries include working of the input tax credit process and processing of claims.

For pharma companies, there is no doubt that after the painful initial months, the implementation of GST will bring significant operational efficiency within the supply chain as they rationalise their warehouses across states. The QuintilesIMS survey predicts that the reduction in logistics related complexities and cost will add to margins. The long term impact on drug pricing is expected to be neutral, with the net tax increase on most finished formulations to be approximately 1.8 per cent. Pharma companies are likely to absorb this additional burden, as drug prices are already controlled by the NPPA, points out the QuintilesIMS survey.

But, even the best laid plans can go awry. To complicate matters, any shortage in medicines is bound to attract the ire of patients, consumer activists and the government. Hence, pharma companies cannot reduce production below a certain level. The next few months will be tough but hopes are high that the GST will be a temporary trough.

To end on a much more positive note, Express Pharma’s inaugural Formulation Development and Drug Delivery (FDD) Conclave, held from June 16-17 was a stupendous success. We were humbled by the humility of our 16 FDD Leadership Awardees; all stalwarts in their fields, who have steered their companies’ formulation research and development activities over the last few decades. The Conclave was our sincere efforts to shine a light on the untiring efforts of these hidden gems and we hope to uncover many more in the next edition. For a complete report, see pages, 28-51 in the July 1-15 issue.

Viveka Roychowdhury
Editor

viveka.r@expressindia.com

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