What is the profit margin in pharma?

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WHAT IS THE PROFIT MARGIN IN PHARMA?
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WHAT CONSTITUTES THE PROFIT MARGIN WITHIN THE
PHARMACEUTICAL INDUSTRY?
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You run a business to earn money and not for
charity. Therefore, profit margin is something
that you are always interested in. Whether it is
a pharma manufacturing company, a distribution
business, or a pharma franchise company, you need
a good return for every penny spent by you.
But, experts say that the calculation of profit
margin is not straightforward. It varies from
company to company. One has to deeply dive into
the business strategy of the company to calculate
the margin in the pharma sector. The margin also
depends on factors, such as whether there are
branded medicines or generic ones, what is the
brand value, the status of the company, the use
of ethical or unethical practices, and so
on. Lets understand the basics of calculating
the profit margin of pharma business models.
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ASPECTS THAT AFFECT PROFITABILITY
One has to know about the distribution channel in
the pharmaceutical sector through which the
profit share is divided. Typically, a
distribution channel could be the company, CF
Agent, Stockiest, Distributor, Retail, Chemist,
Pharmacy, and so on. As far as the division of
the profit margin is concerned, it is divided
between these firms or individuals. Other than
these entities, there could be some other
entities as well.
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As we mentioned, ethical or unethical practices
also determine profitability. It is because if
unethical practices are used, then the profit
margin may be many times greater than actual
profit margins.
Unethical practice means selling medicines at a
much higher price than its actual cost and after
adding all types of profits. In this case, the
price mentioned in the pcd pharma product list is
exorbitant. So if such a thing is done, then the
company will have a much higher profit margin. It
is needless to mention that such a profit margin
is not a realistic one. Another aspect that
determines the profitability of a pharma business
is its operating expense. When there is a big
sales team, staff members, and executives, the
cost will be much higher. Not just that, the
company has to invest in maintaining stock,
machines and plant, marketing and promotion,
advertising, and so on. The bigger the expense
is, the lesser the profit margins.
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Sales turnover is also an aspect. However, there
is not a direct proportion of it. If the company
is taking low margins, then it will earn lesser
profits despite selling large volumes.
Competition is another vital element that impacts
profitability. This is because trade rate
fixation and MRP, etc. will impact the profit
margin. The profit margin of a retailer or
pharmacy will be around 16-22 percent if the
medicines are medicines. In generic medicines, it
can be 20- 50.
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A distributors margin is around 8 to 12 percent
on branded medicines and 10 to 20 percent on
generic medicines.

• A Stockiest margin is approximately 6 to 10 for
  branded medicines and 8 to 15 for generic
  medicines.
• If it is a Carrying and Forwarding Agent, then
  the profit margin is approximately 4 to 8
  percent.
• These are various pharma business models and
  their profit margins.

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