THE DRUG PRICING TUSSLE

The consumers are being crushed between the government & industry

By SYED M. ASLAM
Aug 10 - 16, 1996

While the pharmaceutical companies, both local and multinationals, which have reportedly increased the prices of drugs by upto 35 per cent after budget have withdrawn the increase this week, the situation remains still far from clear for the consumers.

The end of the deadlock between the government and the companies, particularly the multinationals which enjoy immense influence in the corridors of power, is a welcome sign, but the price increase of a minimum of 5 per cent will remain as 5 per cent sales tax will now be levied on pharmaceutical raw materials and all locally manufactured and imported drugs.

While the companies have stated that they have been allowed by the government to add the sales tax to the ex-factory prices, they remain silent on the effect of the regulatory duty, enhanced by 5 per cent to 10, on raw materials and finished products introduced in th '96-97 budget. Also, no mention has been made of the effect of imposition of 5 per cent excise duty on packaging material. Obviously as usual that, too, will be passed on to the consumers.

Out of some 19000 products available in Pakistan, some 2500-3000 are categorized as 'essential' while the rest are treated as non-essential. While the former represent some 850 drugs manufactured by a number of companies, the latter represent some 2000 drugs.

Lack of interest on the part of the health ministry to educate consumers, the majority of which is illiterate, and the aggressive and at times unethical promotional methods adopted by the manufacturers have resulted in the consumer paying the inflated price for a better known product of a certain company than a lesser known but equally effective alternative. The trend, has thus created the monopoly of a few products of certain specific companies.

Consumers could therefore hardly benefit from the cheaper but equally effective substitutes of such products as Septron, Ponstan, and various other such better known drugs. The silence on the part of the government to educate people about the cheaper substitutes keeps on increasing the profits of the manufacturers of better known products.

The situation is further worsened by the multinationals' strategy to provide individual physician prescription pads to monitor products prescribed in exchange for either monetary compensation or a variety of other perks. The physicians also sell prescription drugs directly to the patients for the favours described above to prescribe specific brand names over competitive products.

With the withdrawal of price increase by the pharmaceuticals companies it is hoped the supply of drugs which according to wholesalers came to a trickle due to the ongoing dispute will resume for the convenience of the end-users.

Talking to PAGE a couple of days prior to the news of increase withdrawal which appeared in a section of the press on Tuesday, August 6 the president of Wholesale Chemists Association and the chairman of Wholesale Chemists Council of Pakistan, Hanif Billoo claimed that the manufacturers had increased the prices of drugs by 20-25 per cent, and in some cases even 38 per cent after the budget.

He also claimed that, faced by the government's warning to withdrawal the increase within 48 hours, the companies have kept supplies to the wholesalers suspended for the last one month.

Market leaders like Wellcome, Glaxo, Abbot, SKF, Lederle, Beecham, Maerck, Sandoz, Reckitt & Colman, and Parke Davis totally stopped the supply which resulted in a drug shortage, he added.

In addition, he alleged, the stoppage created a shortage in the whoesale market which resulted in the blackmarketing of drugs to the retailers, the effects of which were to be passed on to the end-users. PAGE witnessed retailers buying the drugs at over 20 per cent premium; a pack of 25 Neurobion ampoules priced at Rs 195 was bought for Rs 240, a Rs 5 tube of Polyfax Eye Ointment for Rs 20, and the Rs 78 Solcoseryly Eye Gel for Rs 94.

It was also claimed that supply of such life-saving drugs as Nicholas' New Maercazol Tablets for thyroid, Parke Davis' Dilantin Capsules for epilepsy, etc., also came to a trickle about for last one month back.

But to understand the question of pricing in its enntirely involves lots more than the recent confrontation between the government and the companies, particularly the multinationals.

While in 1990 the value of pharmaceutical sales was $ 455 million, it is safe to assume that with an annual growth rate of 20 per cent the value in '96 should be in the vicinity of $ 1.35 billion in Pakistan. This growth oriented-industry, heavily dependent on the import of raw materials, more than doubled from $ 73 million in '84-85 to $ 150 million in '88-89. With such heavy dependence on imported raw material, the transfer pricing practices adopted by the multinationals are resulting in the production of high-costly products.

This could best be illustrated by the following few cases:

*** Pfizer paid $ 1700/kg for doxycycline though the same material was available from Italy at $ 333.94/kg and from China for $ 200/kg. They agreed to bring the price down to $ 850 after '92.

*** Wellcome charged $ 239/kg for trimethropin when the international price was $ 38. They agreed to establish a plant at Karachi when the issue became public.

*** Ciba-Geigy charged $ 750/kg for anti-TB rifampricin available from Italy for $ 330 and from China for $ 130. Though the company agreed to buy from Italy at $ 300, it is obvious that it could have sourced the material from China at a still better rate.

*** The Tax Department in '89 added $ 54,596 to the tax bill of Pfizer being the difference between the price charged by the company and the international price for penicillin. The company appealed the decision.

With a massive 19000 plus products avaialble in Pakistan compared to just 2500 in a developed country like Norway, it is ironic that 80 out of a total of 250 drugs on WHO's Essential Drug List remain either totally unavailable or in shortt supply in Pakistan including niclosamide used in treating tapeworm and thiazide for treating hypersensitivity. The valid question that arises here is why the said essential products are not available here in Pakistan.

An answer could well be derived from the fact that multinationals are more inclined to produce products that sell. For instance, there are 275 cough syrups registered in the country by 140 comapnies, both local and foreign, and there are 64 pediatric antidiarrheal formulations by 48 companies.

The trade's emphasis on holding the multinationals responsible for drug price spiral is intentional as 32 multinationals claim 75 per cent of the market while over 170 local companies share the rest of the 25 per cent of the market.

The situation is also worsened as multinationals tend to exert strong political pressures, whenever the need arises, to cut off various aid programmes including food aid to the Third World countries. The US threats against Bangladesh and Sri Lanka as well as those of Germany to Tanzania are just a few of the examples.

The end sufferer of this ongoing tussle between the multinationals and the government here in Pakistan is the consumer who is forced to cough up the money to buy the drugs.

With only 1.7 per cent of the GNP spent on health in Pakistan, compared to a minimum of 7 recommended by the WHO, the common man is hard pressed to bear the load of the health care burden personally which keeps on costing him an arm and a leg.