Drug firms lose millions due to rupee depreciation
View(s):A galloping US dollar against the rupee has severely hurt the bottom lines of pharmaceutical companies to the extent of an exchange loss of around Rs. 3.2 billion in 2017/2018 in addition to lower revenues arising out of the government’s drug pricing policy.
Well-informed industry sources said the first quarter 2018/2019 (April-June) loss to two major (manufacturers and importers) alone is around Rs. 1 billion after the dollar surged to Rs.160 some weeks ago.
“Cost and affordability should not be the only consideration when reducing prices, the quality is also important and when it comes to generics we don’t have proper quality assurance,” one industry official said. Industry officials agreed to speak to the Business Times on the basis of anonymity. Nearly two years ago, the government reduced the price of 48 drugs and this week Health Minister Dr. Rajitha Senaratne announced that a further 15 drugs would be reduced. Medicinal drugs are essential items and are often subject to price control.
Officials said apart from the direct exchange loss, all importers are bearing huge losses on settlement of bills. “Since pharmaceuticals are essential items and since Sri Lanka cannot command priority in the global supply chain of manufacturers (due to low purchase volumes), we are compelled to hold a minimum of 3 -6 months inventory which means the losses on bill settlements are extremely high when the rupee continues to devalue,” the official said. The dollar in end 2016 was pegged at Rs. 145.60, at Rs. 155.15 by end 2017 and currently is at around Rs. 160.
The worst slide of the rupee was seen in August 2015 when it rose to Rs. 145 from Rs. 130. When price control was enforced on 48 drugs, two years ago, the prices of these drugs fell sharply and then in December 2017, they were increased by 5 per cent.
“This is a free market and we need to compete. The patient has a choice because doctors consider income levels of patients and give them options on drugs,” the official said, adding that the 3,000 retailers in the market are struggling with the current pricing policy. The Sri Lanka Chamber of the Pharmaceutical Industry (SLCPI), representing the industry, has been having discussions with the Government on a proper pricing policy which would take into consideration all the concerns of stakeholders – producers, dealers and consumers, without much success.
The industry says that India went through a pricing formula but it is also a manufacturing country and has a population of 1 billion to generate economies of scale production. “In spite of this they also have a mechanism which allows the manufacturers to take an annual price increase for price controlled drugs,” the official explained.