The pharmaceutical industry is involved in the research, development, production, and distribution of drugs, medicines, medical devices, surgical, nutraceuticals and much more.
As of end-2020, the total global pharmaceutical market was valued at about 1.27 trillion U.S. dollar. This is a significant increase from 2001 when the market was valued at just 390 billion U.S. dollars.
Most of person want to enter into pharmaceutical business through Pharma wholesale but not everyone has the knowledge of how pharmaceutical distribution channel works, how you earn in it, challenges, future, profit margin and medicines reaches from manufacturer to local pharmacies etc.
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What is wholesale business?
Wholesale business is an activity in the distribution channel where product is procured in bulk and then sold to resellers/retailers rather than to consumers.
What is a Pharma Wholesale?
If pharmaceutical products i.e., medicines, medical devices, surgical and other related products are procured in bulk from manufacturer, marketer or CnF and then sold to resellers/retailers i.e., chemists and pharmacies then it is come under Pharma wholesale or wholesale drug distribution and persons involved in this work is known as Pharma Wholesalers or Wholesale Drug Distributors.
Wholesale business in pharmaceutical industry is regulated through drug and cosmetic act & rules. Each state drug department is responsible for wholesale drug license through district drug control administration.
Conducting pharma wholesale business without license is an offence.
Kind of Pharma Wholesale
There are basically two main business model that categorize wholesale drug distributor i.e. Full Line wholesaler and others.
A full-line wholesalers purchase a company’s complete product line. In contracts between manufacturers and distributors, certain medications may be excluded. And other types of wholesale drug distributors may be specialized in particular range or marketing or segment etc.
Pharma wholesale may be of different types depend at nature of medicine marketing i.e., branded, generic, branded generic, pcd and franchise etc or nature of dispensing i.e., prescription drugs or non-prescription drugs. Check out: Drug-medicine types and their classifications here
By size, we can categorise pharma wholesale into following basis
- Full-Line Wholesalers
- Short-Line Wholesalers
- Direct-to-Pharmacy
- Hospitals
- Clinics & Others
By distributor type, we can categorise pharma wholesale into following basis:
- Ethical/Branded Pharma Products Distributors
- Generic Pharma Products Distributors
- Propaganda Cum Distribution (PCD) Franchise
- OTC/Institutional Supply Pharma Distributors
- Medical Devices and Surgical wholesale
- Other Distributor Type
By product type, we can categorise pharma wholesale into following basis:
- Prescription Drugs Wholesaling & Distribution
- OTC Products Wholesaling & Distribution
- Antibiotics wholesaling & Distribution
- Antiseptics Wholesaling & Distribution
- Supplement Products Wholesaling & Distribution
- Other Product Types
A wholesaler may be involved in single or more than one or all type of wholesaling. A wholesaler is not restricted or bounded to do any single type of medicines wholesale. They free to work at any type of medicines i.e., branded or generic or wholesale if they have proper licensing and requirements as per drug and cosmetic act & rules.
How does Pharma wholesale work?
The function of pharma wholesalers is to act as an intermediary between the pharmaceutical companies and their customers (e.g., chemists, hospital and community pharmacies) by purchasing and distributing medicines to their customers.
How does Pharma wholesaler make money?
Chemists and Pharmacies are the key customers for pharma wholesaler but some time wholesaler may supply to small distributors or appoint further distributor for adequate supply. Pharma wholesalers also supply to hospitals, clinics and doctors.
If we talk about in simple terms – One, the Pharma wholesaler’s make money simply by purchasing medications at low rates from pharmaceutical companies or CnF and supply to customers or pharmacies at increased market price.
Second, Pharmaceutical distributors make money by charging pharmaceutical companies a percentage of profit margin at their product’s wholesale acquisition cost or list price, for distribution to pharmacies, hospitals etc.
The pharma wholesaler’s income come from difference between price at which they sold medications verses they purchased medications.
Profit Margin of Pharma wholesaler or Wholesale Drug Distributor
A pharma wholesaler margin varies company to company and their distribution type. Ethical/Branded medicines may have different profit of margin whereas generic medicines may have different type of profit of margin and PCD franchise has different sort of all distribution and margin structure.
Big pharma may have different profit of margins whereas small pharma players may offer higher profit of margin.
A wholesaler may approximately get 8-12% margins at branded medicines and approximately 10-20% in generic medicines. PCD/franchise distributor may get margin accordingly whether they are marketing at ethical basis or generic basis. Drug Distributors may also enjoy some benefits schemes and offers. At distributor level credit facility could be enjoyed. Medicine wholesale business profit margin is good in pharmaceutical industry.
Check for profit margin in whole pharma industry here
Why Pharmaceutical companies need Wholesaler/drug distributor rather supply directly to pharmacies?
While some might argue wholesale providers aren’t needed anymore, and, it may seem attractive and higher profit of margin for pharmaceutical companies to directly supply to retailer and prevent wholesaler’ margin but actually there are lot of factors that justify the wholesaler’s mediator role between pharmaceutical companies and pharmacies/hospitals.
A pharmaceutical wholesaler maintains high inventory with very low margin and helps retailer to take less quantity and maintain a wide variety at their retail counter. In absence of wholesaler, pharmaceutical companies may have to appoint own distribution team or have to give their sales team an additional work to distribute also along with sales. Other than this, a pharmaceutical wholesaler provides credit to retailer and collect tiny amount at daily, weekly or monthly basis that may be headache for a pharmaceutical company.
Now a pharmaceutical company has to collect payment from a single source rather than suppose 1000 retailers available at any location.
A pharmacy store or hospital also get benefits from wholesalers. Suppose a retailer keep 100 companies’ brands. If there wouldn’t be wholesalers in between then retailer has to order all companies individually and waited for certain time period to receive goods even for very little quantity.
That will disrupt their daily working and will require additional workforce to maintain variety of products. This cost may be more than the percentage a wholesaler keeps for their services.
Wholesaler helps to keep better services and maintain wide variety of products at retailer without additional cost or burden to them.
Why Pharma wholesalers are Important?
According to a report from the Healthcare Distributors Alliance (HDA), distributors save the US healthcare system $33-53 billion annually. Distributors are one of the only players that consistently take cost out of the system.
A wholesaler is act like banker. It purchased products, supply goods and collect payments, and take certain percentage of profit of margin (like bank charges interest).
- Take Financial Ownership of Products
- Assuming the risk of collecting payments from market
- Allowing pharmaceutical companies to invest at innovation
Take Financial ownership of products
A pharma wholesaler purchases products from manufacturer and pay them as per agreed basis i.e., advance, 30 days credit, 60 days credit or any other term. By this mean, pharmaceutical companies become free from any financial burden and can work more freely at their services, products and innovation.
After purchasing products, they take financial ownership of products and supply to customers i.e. pharmacies etc at credit.
Assuming Risk of collecting payments from market
A pharma wholesaler pays to pharmaceutical companies on time irrespective of when they will get their money back from market. Most of pharma wholesalers supply goods at credit basis to their customers. So, there is always a risk involved while collecting payment from market.
Allowing pharma companies to invest at innovation
Wholesalers handle complete distribution and collection part. They help to reduce man power and resources expenditures that may cost to companies if wholesaler don’t handle distribution and payment collection part.
It allows companies to concentrate more at innovation rather than supply chain.
Challenges and problems faced in Pharma wholesale or Wholesale Drug Distribution Business
Credit
A pharmaceutical wholesaler has to pay to company on time i.e., advance or at agreed term e.g., 30 days, 60 days irrespective of how much payment they collect from market.
If we talk about Indian drug retail market, payment collection is one of the major factors for pharmaceutical wholesaler or drug distributors. One of the main traditions to collect payment from retailers at weekly or monthly basis at particular day.
If you have to survive in Indian wholesale market then you need to know have to manage credit and to whom to give credit and to whom to give at advance payment, to whom to work with and to whom to avoid to work with.
There is hug scope in pharmaceutical wholesale market but payment collection may overshadow your dream to enter into wholesale and distribution business.
Profit of margin
As we discussed above, you need to give lot of credit in market but most of big pharma companies don’t provide much margin to wholesalers. 8 to 12% margin is not enough if we consider the amount has to be invested in market through providing credit. But big pharma companies have high turnovers and repeatability so less chances of poor return of payment from market.
Most of pharma wholesalers keep all size of companies i.e., big pharma companies for turnover and reputation, small pharma companies for higher margin.
Inventory
Inventory is strength of any wholesaler. Whole business plan of wholesaler is based upon purchasing stock in bulk and sell in small quantities. So, one of the main challenges faced by wholesalers that they have to invest in market as well as in inventory, they have to keep adequate stock as well as keep check on non-moving and expiry stock.
Some inventory related issued are expiry collection, return of expiry to company (depend at company policy), non-moving goods selling or adjustment and much more.
Man power
If you are starting at small level then you can work solo and handle all works like placing orders to company, collecting orders from pharmacies/hospitals, distributing products, collecting payment and all other activities.
But if you are covering a large or slightly large area then you require to have man power to handle your pharma wholesale business.
Maintaining man power in pharma wholesale is tricky work. You require persons having somewhat knowledge of English as all pharmaceutical products as English a primary language but you can’t recruit high educated persons as you have limited budget.
So, you need to keep less salaried staff having good knowledge which is itself a challenging work.
Regulatory requirements
Pharmaceutical sector is one of the most regulated sectors in world. Fulfilling regulatory requirements and maintaining growth & profit is also a big challenge for pharmaceutical wholesale distributors.
Rising competition
As more pharmaceutical companies are launching and they require more persons for wholesale and distribution for their products. It is increasing competition in pharma wholesale.
It is for good and bad both. For good side, as new opportunities are arising for new persons, they are breaking monopoly of old big pharma wholesalers and helping them to establish their business. For bad, it is creating price war and pressurizing pharma wholesalers to push their limits to get business.
Rising Transportation Cost
Wholesalers are the persons who involved in transportation of pharmaceutical products. They purchase products from company or CFA which is far away from them. This process will involve transportation. Further wholesaler has to deliver products to their customers which also require some sort of transportation, own or public.
Rising cost of transportation is affecting adversely to wholesale business as it directly affecting it’s cost and margin.
Technology disruption and E-Pharmacies
Trends are changing, technology is changing and pharma market is also changing. E-pharmacies are challenging traditional distribution system in pharmaceutical industry. Wholesale business is no longer unaffected by impact of e-pharmacies emergence.
Adoption of new technologies and acceptance of new challenges arise due to this is crucial for pharma wholesalers for future prospective.
Future of pharma wholesale in India
According to the Indian Economic Survey 2021, the Indian pharma market is estimated to grow 3x in next decade and estimated at US$42 bn in 2021 and is likely to reach US$65 bn by 2024. Further, it’s projected to expand to reach around US$120-130 bn by 2030. To reach this milestone, companies are upping their R&D expense.
As pharma wholesale is an important part of pharma market, the pharma wholesale market is also going to be great in future.
Requirements for starting Pharma Wholesale Business
According to Drugs & Cosmetics Act 1940 and Drugs & Cosmetic Rules 1945, Rules 64 and 65 specify the conditions to be fulfilled to sell, stock, exhibit or offer for sale or distribute the drugs.
- One or more Pharmaceutical Companies Distribution
- Registered Pharmacist or Experienced Person
- Premises having minimum of 10 square meter space having wall and floors cemented and concrete roof
- Documents required for licenses and registrations
- Premises interior requirements like refrigerator, racks, accessories etc
- Storage areas shall be maintained or designed to ensure good storage practices (GSP)
- Wholesale Drug License
- Goods and Service Tax Number
- FSSAI license (For Food products) if required
- Shop and Establishment Act registration if required
Licenses required for pharma wholesale
- Wholesale Drug License (You need to apply for wholesale drug license at district drug control office. You need to visit or submit your documents online for applying for wholesale drug license. Check here how to apply for pharma wholesale distribution license?
- Goods and Service Tax number (For applying GST number – Go to official GST portal – https://www.gst.gov.in/ and under the services tab, choose Services > Registration > New Registration. On the Registration page, enter all the requested details (including your PAN number), email address and mobile number. After entering the details, click proceed.)
- FSSAI license (If dealing in Nutraceuticals and Food Supplements also). (Application is filled up online through FSSAI online Portal i.e., FoSCoS (Food Safety Compliance System) website. visit: https://foscos.fssai.gov.in/ . The user – Food Business Operator (FBO) can log-in or sign up from homepage at top right corner of the portal)
Pharma Wholesale Business Plan
Business plan is important for any business start, growth and survival. For pharma wholesale, you should also have business plan, if you want to succeed in business.
A business plan is a written document describing a business’s core business activities, objectives, and how it plans to achieve its goals.
You should keep your business plan as short and easily understandable as you can. A business plan is a live documents and if you feel any modification as you learn more about business, you can alter or update it.
Survival Strategy
A business requires certain time period for reaching its odd even point where a business expenses become equal to its income. So, during this period what will be your strategy for your personnel survival and business survival. From where you will get money for business and personal expenses during this period other than your initial investment. You should have this in your business plan.
Financial Planning
You need money for your business. From where you get your initial investment. From where you get money for your business survival. How you much you will invest initially and how much you will save. How much money you are going to spend at products procurement and how much at office and other things.
Your financial plan should include the points though which you can minimize your expenses and lead your business to generate revenue. Other than this your financial planning includes Initial investment, running cost, finance required to stay in market till business start to produce profit
Marketing Strategy
Marketing strategy includes how you will start meeting and attracting your customers. Who will be your prime customers i.e., pharmacies, hospitals, individual practitioners etc.? How you will promote your business so your customer prefers you instead of your competitors.
It will describe who is your competition and how it factors in the industry, along with its strengths and weaknesses. It will also describe the expected consumer demand for what the business is selling and how easy or difficult it may be to grab market share from incumbents.
Distribution Strategy
Once you have entered into market then you need to decide how you want to start distributing products. By own vehicle or public transport depend at distance of customer to you or by self or through staff. How you want to make tour program from your business. Which area you will cover at which day of week or month etc.
Collection strategy
Collecting payment from customers in pharma wholesale is one of the crucial steps. If payment collection were easy in drug distribution, then it would be world’s best profitable and easiest work to do. But unfortunately, most of pharma wholesale businesses close because they were unable to collect their due from market and has to shut down their business because they wouldn’t have any money left for running their business.
So, make a payment collection strategy included payment terms day limits.
Investment Required to Start a pharma Wholesale Business
Starting a pharma distribution business with large brand costs around 3 to 5 lakhs, and for the small pharmaceutical organization, it cost nearly 1 to 2 lakh investment.
Investment in pharma wholesale depend at type of products distribution and company size i.e., big, small, well known or new etc, for taking branded/ethical products distribution or generic drugs of big pharma company, you may have to invest a large amount i.e., 30 lakh, 40 lakh or any other amount whereas small pharma company may provide distribution only at amount equal to what you purchase at first order.
In case of pharmaceutical franchise company, your investment will also be low. Most of companies will provide you distribution at investment of 20000/-, 50000/- or 1 Lakh etc.
Other than this you will need a staff. Calculate the monthly expenses too like electricity, rents, salary, commission etc. Keep saving money for future use. Initial investment includes the following besides buying medicines on a regular basis which depends on you.
Other expenses includes
- Computer system: Rs30,000
- Documentation and License: Approx. Rs 25OOO/- including Rs 3000 as registration fee
- Furniture: Shelves and cupboards, refrigerator, air conditioner, etc 2 lakhs
- Premises (Rodent-free, spacious, well ventilated, hygienic etc)
How to become pharma wholesaler?
For becoming pharma wholesaler, you first need to have experience in pharma distribution. Once you get experience in pharma distribution, you can complete all licenses and registration processes and take distribution of pharmaceutical company.
Now you can start purchasing products from companies and start distributing.
Flow chart/Steps
- Find out a premises (Rented/Owned).
- Make a rent agreement (In case of Rented premises)
- Contact pharmaceutical companies or CFA for wholesale business in your area
- Make an agreement
- Apply for wholesale drug license to district drug control office and Goods and Service Tax Registration.
- Purchase office accessories like Furniture, computer, Freeze etc.
- Drug Inspector or Concerned person will personally inspect premises. If he finds premises conditions satisfactory then he will approve your application for issuing license.
- After some time, you will receive your drug licence copy and number
- Start purchasing, stocking and selling drug and medicines to retailers and pharmacies
Conclusion
Every business is conducted through a supply chain, same in case of pharmaceutical Industry. Pharma wholesaler is very important for pharmaceutical industry to work efficiently. There is some challenge in near future but pharma wholesale will be major key element for pharma supply chain for long time.
Pharma wholesale Business in India is one of the most profitable businesses in India that will not be affected by any pandemic situation. As per government record, India has spent 1.15 % of its GDP on healthcare facilities and the government has targeted to increase this to 2.5 % by 2025.
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