By Sumeet Chatterjee
(Reuters) - GlaxoSmithKline's (LSE:GSK) Indian business has been hit by a drop in sales which two industry sources said was linked to a protest by bulk buyers against a cut in their profit margins under a new government drug pricing policy.
GlaxoSmithKline Pharmaceuticals Ltd (NSI:GLAXO) said on Monday bulk sellers in "major pockets" of India had stopped buying the company's drugs since September 15.
It did not give a further explanation in a statement and a Mumbai-based spokeswoman for the Indian unit of the UK-based pharmaceuticals company declined to elaborate.
However, the two sources said wholesalers and retailers in many parts of India had stopped buying medicines from some companies in protest against a reduction in their profit margins under a new government pricing policy. They declined to be identified due to the sensitivity of the matter.
Under the recent policy change, the prices of 348 drugs deemed essential are now being regulated, compared with 74 previously. The move has curbed prices of costly brands sold by drugmakers in a market that already has rock-bottom medicine prices thanks to a large generics industry.
To compensate drugmakers, the government has reduced margins for wholesalers to 8 percent from 10 percent and for retailers to 16 percent from 20 percent, the sources said.
"The retailers are using pressure tactics by not purchasing drugs from companies who have reduced their margins to comply with the new directive," said one of the sources, adding that sales of both multinational and domestic companies had been hit.
The All India Organisation of Chemists and Druggists (AIOCD), a lobby group for pharmaceutical retailers and wholesalers, was aware of some members not buying from companies that have reduced the margins, its president, J.S. Shinde said.
"There is information saying that because companies have reduced their margins some of the stockists are not buying," Shinde told Reuters.
"AIOCD has not declared any non-cooperation against Glaxo or anybody," he said.
(Editing by Tony Munroe and Mark Potter)