Abhijeet Kelkar
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The Indian pharmaceutical industry is continuing its high growth rate at 13% for the last six years. From foreign control
to domestic grass-roots growth, the Indian pharmaceutical segment has evolved over the last three decades. According to BioPlan
Associate's recent report, Advances in Biopharmaceutical Technology in India, the Indian pharmaceutical industry has the potential to reach $25 billion by 2010.
Eric Langer
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This rapid growth has yet to translate into a modernization of the Indian distribution system. The main hurdles include the
highly fragmented nature of the distribution network, limited advancement in regulatory reforms, and the presence of strong
resistance from lobbies of traders involved in the supply chain of pharmaceutical products.
India's current distribution situation poses greater risks for biotech products, which require careful climate control throughout
its transit period. The relative lack of awareness toward the importance of these requirements makes biotherapeutics even
more vulnerable to spoilage during distribution. Moreover, the infrastructure for cold-chain management is still developing
in India. This situation has forced both pharmaceutical and biotech companies to consider alternate distribution systems.
These attempts, however, have faced severe resistance by the lobbies of traders involved in the channel.
INDIAN DISTRIBUTION SYSTEM: THE CURRENT STATE
India is a geographically diverse country with extreme climates that make distribution a critical function. The long channel
of distribution and high incidence of brand substitution makes it mandatory for a company to make all its stock keeping units
(SKUs) available at all levels at all times. In India, most brands have generic versions of drugs and retailers can usually
obtain higher margins with generics than for branded products. To reduce risks of substitution, innovator companies must make
sure their products are made available to the stockists and retail shops.
Drug distribution in India has witnessed a paradigm shift. Before 1990, pharmaceutical companies used a different distribution
system, in which they established their own depots and warehouses that now have been replaced by clearing and forwarding agents
(CFAs). These organizations are part of the distribution chain, and are primarily responsible for maintaining storage (stock)
of the company's products and forwarding SKUs to the stockist on request. Most companies keep one to three CFAs in each Indian
state. On an average, a company may work with a total of 25–35 CFAs. Unlike a CFA that can handle the stock of one company,
a stockist (a regional distributor) can simultaneously handle more than one company (usually, 5–15 depending on the city area),
and may go up to even 30–50 different manufacturers. The stockist, in turn, after 30–45 days (a typical credit or time limit)
pays for the products directly in the name of the pharmaceutical company. The CFAs are paid by the company yearly, once or
twice, on a basis of the percentage of total turnover of products.
Figure 1. Current distribution chain in India
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Figure 1 shows how a manufactured product passes through the company-owned central warehouse, which supplies it to the CFA
or super stockist. From the CFA the stocks are supplied either to the stockist, substockist, or hospitals. The retail pharmacy
obtains products from the stockist or substockist through whom it finally reaches the consumers (patients). Certain small
manufacturers directly supply the drugs to the super stockist.
In 2006, the market size of India's pharmaceutical logistics segment (distribution) was valued at around $200 million and
the logistics/distribution industry has been growing at an average annual growth rate of 4% since 2002. According to the Indian
Retail Druggists and Chemists Association, in 1978, there were roughly 10,000 distributors and 125,000 retail pharmacies in
India. Today, the total number of stockists in India is around 65,000 and the number of pharmacies is about 550,000, an increase
of around six- and four-fold, respectively.
Table 1. Margins at various levels of distribution system
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Despite the rapid increase in the number of stockists and pharmacies, there has not been a proportional increase in the volume
of prescriptions distributed. Thus, the efficiency of the current system has clearly not been demonstrated. Further, it is
estimated that more than three-fifths of Indians still do not have access to modern medicines. This clearly shows that the
rural market is largely unattended and untapped.
