Daybreak - Wake up, Neo. There’s a glitch in the pharma matrix

Episode Date: March 18, 2026

Every great Indian enterprise has a story worth telling in full.With The Intermission, The Ken's flagship long-form podcast, hosts Rohin Dharmakumar and Seetharaman G do exactly that—tracing the origins, turning points, and defining strategies of the companies that shaped modern India. Built on exhaustive research and proprietary interviews, each episode unfolds as a richly reported narrative. The first episode drops on March 23! Stay tuned!The next time you pick up a strip of tablets at your neighbourhood pharmacy, consider this: the drug you just bought for Rs 170 may have left the factory for Rs 14. That's a markup of over a 1000%. And, it's completely legal.In this piece, The Ken's Mutasim Khan traces how India's drug pricing system works, and why the pharmacist, the doctor, and the manufacturer are all optimising for something, while the patient simply pays.This is a read aloud of Mutasim's original story, by Snigdha Sharma, on Daybreak.📖 Read the full story on The Ken: Wake up, Neo. There’s a glitch in the pharma matrixDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories. 🚨The Ken's Zero Shot podcast is hosting a live event! This is a speculative yet realistic discussion built around one premise: what happens when AI agents take off in India? How will they rewire existing habits, business models and profit pools? Since nobody knows for sure, we won't pretend to have all the answers. Instead we are going to break the narrative. Click here for details. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio. episode, please follow intermission on Spotify and Apple podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. So here's something that's probably happened to all of us. You're not feeling so great.

You walk into a pharmacy. The pharmacist hands your strip of tablets. You pay and you leave. No questions asked. And why would you? You just want to feel better, right? But my colleague, the Ken reporter, Muthasim Khan, went and asked the questions. And what he found out is pretty wild.

We are talking about markups of over 1,000% on some of the most common drugs that you've ever taken. Acidity pills, allergy tablets, cough syrups, the everyday stuff. And here's the thing. It's not just about greed. The system is actually built this way. The pharmacist, the doctor, the manufacturer, everybody is optimized. for something and the patient, which is you, is the last one in the chain. Mathesim's story is called Wake Up Neo.

There is a glitch in the farmer matrix. And I'm reading it aloud for you today. And the matrix title is going to make sense in about 30 seconds from now. Here we go. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nagda Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghiz and I will come to you with one business story That is worth understanding and worth your time.

Today is Thursday, the 19th of March. You walk into a neighborhood pharmacy with a chest on fire and a prescription for acidity. Behind the counter stands Morpheus. White coat, slippers, reading glasses pushed on his nose. He holds out two pills, one in each hand. Aristo's necks form 40 on the left, Glenmark's Esomar 40 on the right. Both are Esomaprazol for TMG. The same compound, the same dosage.

Your stomach could not tell them apart even if it tried. Choose, says Mofus. You are in the Matrix, but the game is rigged. Both pills are the blue pill. Both keep the simulation funded. The Aristot Strip left the factory at 14 rupees and rode a 1,119% markup to a 170-rupes price tag. The Glenmark started at 25. an accumulated 622% worth of supply chain before landing at 180.

The red pill, the truth, exists. It is is isomaprazol at a Jan-a-a-a-shadhi-kendr for 30 rupees. Same drug, same dose, roughly one-sixth of the price. But Morpheus will not offer you that one. The red pill is bad for business. That 170-Rupeas price tag is a $170.000. singular data point in a vast national ledger, a ledger that according to the economic survey of financial year 25-26 is beginning to tell a much kinder story. India's out-of-pocket expenditure on health,

the money that you pay from your own pocket when you get sick fell from 64% of total health spending in 2013 to 14 to about 39% in 2021 to 22. The government spent more on health. The government spent more on health. Its insurance program, Ayushman-Bhart, covered hospitalization costs for crores of families, subsidized pharmacy chains like Jan Alshadi Kandr opened across the country. Real things happened and the number moved. But about 40 to 50% of what Indians still spend out of pocket on health goes towards one thing. Medicines. Not hospital stays, not doctor visits. The single largest drain on household health budgets is the thing that you pick up at a pharmacy counter. In December 2025, a standing committee released a report where the Department of Pharmaceuticals

was asked to explain markups of 600% to 3,000% on common medications. For context, the DOP is the Indian government body responsible for drug pricing policy and overseeing the pharmaceutical industry's development. They provided their reasons, but the committee did not buy them. The explanations were not found convincing and relied heavily on general explanation. The overall assessment was that the current landscape leaves the door open for widespread profiteering at the cost of patients. But the highlight was the DOP's response to a simple question. Has anyone actually crunched the numbers on the gap between what manufacturers charged stockists? and what you pay at the counter.

The representatives of DOP admitted with an admirable candor that no such study has been undertaken by the department. We'll get to the numbers, but first a quick primer on how a pill gets to you, because supply chain matters. A farmer company manufactures the drug and sells it to a stockist at what is called the price to stockist or PTS. Think of this as the factory gate price. The stockist sells it to distribute it.

The distributors supply pharmacists and the pharmacist hands it to you at MRP. The important bit here is that the MRP is set by the pharma company itself. Between PTS and MRP, every link in the chain takes a cut. The numbers are hard to read without rubbing your eyes. A calcium supplement from Aristo marked up 1,831%, an acidity pill from elaborate, at 1,322% a cough syrup at 600%, an allergy medication from Aristo at 1338%. These are not rare imported patented wonder drugs. These are generic molecules, easily mass-produced and prescribed so routinely that they are practically household staples. So why are the markups

this high? This is because the margins reflect the cost of distribution for a private pharma manufacturer. But the DOP did not have data to elaborate on that point. And so, the Indian Pharmaceutical Alliance or IPA, the lobby of the big national farmer manufacturers, defended their case. India is big. Last mile delivery is hot. Maintaining inventory is expensive

and reaching remote pharmacies with low volumes means high per unit costs. These are legitimate reasons. But do they explain a 1,000% markup on a drug that's been off patent for over two decades? The committee did not think so. The Ken reached out to the IPA for comment but received no response. Notice what kind of drugs top this list. Acidity, allergies, supplements, cough syrups, short treatment cycles, mild conditions,

low perceived stakes. So you're unlikely to comparison shop for cetrozin when your eyes are itching. You're unlikely to open three pharmacy apps to compare pantoprosol prices when your chest is burning. You buy what has handed to you and move on. This is price apathy, not price sensitivity, and the industry has learned to price accordingly. These drugs can carry such markups because legally nothing stops them. Most fall outside the government's price control net. The National Pharmaceutical Pricing Authority or NPPA or the Drug Price Control order, which regulates India's drug pricing framework, only fixes sealing prices for

scheduled drugs, those which are on the national list of essential medicines. Everything else is non-sheduled, which means that the company sets the MRP on day one with no regulatory input. After that, they cannot raise it by more than 10% a year. Which sounds like a meaningful check until you realize that a cap on the escalator is irrelevant if you're starting on the penthouse floor. Let's grant the industry its argument that distributing drugs across India is genuinely expensive

and that margins need to cover real costs. That still leaves a question the distribution cost story does not explain. If it is all about logistics, why does the same drug distributed across the same country carry a 3,7707% markup when Aristo makes it and 845% when Labarate makes it. Why do we see a 4x difference in margins for exactly the same compound? Salil Kalyanpur, former executive vice president of GSK and now the founder of ARCS Knowledge Consulting,

said that between identical of patent molecules manufactured by different companies, the difference in margins is not a cost anomaly or a quality signal. The drug is the same, the relief is the same. same. Two strips of cetrozin sit on the shelf. Strip A offers a profit margin of $19 and strip B, just $14. A customer walks in with analogy, the pharmacist does not think twice. Strip A moves first, not because it is better, but because that is where their cut is bigger. These products are not priced based on cost, but based on channel economics.

As Kalyanpur puts it, the real pricing unit in Indian pharma is the distribution incentives. stack. The MRP, in other words, is not a reflection of what the drug costs. It is a reflection of what the company is willing to pay the supply chain to move its brand ahead of a competitor. And the supply chain is not just the pharmacists or her dealers. A medical representative at a major pharma company speaking on condition of anonymity also added that the company directs its field force to pay doctors cash to prescribe its brands. So the chain of persuasion runs from the company through the doctor and through the pharmacist all the way to your wallet.

Kalyanpur elaborated and I'm quoting, in acute therapies, the payer, which is the patient, is different from the decision maker, which is the doctor, who is also different from the fulfiller, which is the pharmacist. Each optimizes for a different variable. The doctor optimises for what they trust and sometimes what they're paid to trust. The pharmacist optimizes for margin and the patient, the patient just pays. Now, how does a company actually widen that margin? Two ways.

It can lower the PTS to sell to the stockist at a cheaper rate, which fattenes the margin for everyone downstream without changing your MRP. or it can raise the MRP itself and charge you more, which also fattenes the margin. Both levers get pulled. This is why competition in Indian pharma looks upside down. In most markets, 10 companies selling the same product compete by undercutting each other. In Indian generics, 10 companies selling the same molecule compete by outbidding each other for the pharmacist's loyalty. The bid is the MRP and the person funding the bid is.

is you. Kalyanpur said, what appears as margin is largely a sales enablement mechanism. The MRP functions as budget headroom to fund trade margins, promotional schemes, large sales forces and sometimes doctor engagement. Aristo's 3,707% markup on syl denephyl is not just the cost of making or moving the drug. It is the cost of making sure its version of the drug is the one that the farm is. pharmacist reaches for when you walk in. And in acute therapy categories, where these markups are the highest, the pharmacist's influence is enormous.

Kalyanpur estimates that 40 to 50% of sales are pharmacist-influenced substitution with only 30 to 40% prescription dominant, which means that in nearly half of all transactions, the pharmacist is not just dispensing, the pharmacist is deciding. Like Kalyanpur says, doctors set the entry ticket by prescribing the brand, but pharmacists decide the winner. So is there a way out of this system? The Jan-Ashadi network has swelled to over 17,000 outlets, retailing generic molecules at a fraction of the branded price with no difference in quality. E-pharmacies are aggregating, comparing and discounting in ways that neighborhood chemists could never. The information asymmetry that powers the simulation is starting to leak.

I asked Kalyanpur if this visibility guarantees a price war. We are unlikely to see a clean FMCG style price war where everyone compresses MRPs to Jan-Oshadi levels, he said. That would immediately collapse trade economics and destroy field force ROI. Instead, he predicts a bifurcation. Company impact will depend on the. business model, not size he says. Some companies have built around the molecule itself, complex formulations, hospital supply chain, chronic therapies where the doctor-patient relationships

drive repeat purchases. For these forms, a compressed MRP means thinner margins on the same business. Other companies have built around the margin, large field forces pushing simple generics through pharmacist incentives on dozens of overlapping stockkeeping units. For these, These forms, a compressed MRP does not just shrink the margin. It removes the reason the business exists in its current form. What is dying is not the sales force, but the assumption that more reps equals to more growth and the idea that every molecule needs dozens of brands. The disruptors are not killing Indian pharma.

They are simply exposing the inefficiency. Then there is the blunt instrument of regulation. The Parliamentary Committee concluded the report with a concrete recommendation. Trade margin rationalization or TMR, that is, to cap the spread between the factory price and the retail price. And this is not just theoretical. The NPPA piloted TMR-owned 42 anti-cancer drugs, slashing MRPs to up to 90 percent, and saving patients an estimated $984 crore rupees. And it worked.

The committee asked why this approach has not been expanded to include other classes of medicines as well. The Department of Pharmaceuticals defends that TMR requires a policy change currently under active examination left the committee unimpressed. But the reckoning may not come from regulation. The market might do it first and arguably should. Offline pharmacies still move 93% of all pharmaceuticals. sales in India. But for the first time, that share is shrinking. E-pharmacies are projected to grow at nearly 10% a year. When a Jan-Oshadhi-Kendr or an e-pharmacy puts the same molecule on screen at a fifth of the price, competition kicks in and the high margins likely fund their own obsolescence.

And so, the simulation is glitching. When a 30-Rupes generic sits next to a $170-Rupes brand and a Elementary Committee puts the 1,000% markup on public record, there is a tear in the green ring. And the code bleeds through.