Import of raw material for medicines manufacture

Govt refrains multinationals from importing high-priced raw material from their parent companies abroad

From Shamim Ahmed Rizvi, Islamabad
July 12-18, 1999

The latest decision of the government barring a large number of multinational pharmaceutical companies, and a few local ones as well from importing raw material to manufacture medicines exclusively from their parent companies at abnormally high prices has sent a wave of shock amongst the multinational pharma companies. The decision which has enabled the government to roll back the prices of about 50 most commonly used drugs by over 10 per cent has been widely hailed by the general public. However, the decision is being strongly opposed and resisted by some powerful multinationals. According to them, the decision was shocking as it was taken at a time when they were seeking permission to raise the prices of their products.

An official of the Ministry of Health said, "We would certainly examine their demand for a raise in prices of general medicines, but first we would tackle the issue of unjustified high priced medicines. For us people's accessibility to medicines is important, which we believe is presently less than 50 per cent. An increase at this stage would make medicines further out of people's reach," the official explained.

According to him, the basic reason for high drug prices in Pakistan is 'lack of facilities, for local manufacturing, of basic raw materials. "Most raw material is imported, which reflects in the prices," he said.

Health Ministry has identified over 24 local and multinational pharmaceutical manufacturers which are causing about Rs. 1 billion loss of foreign exchange by over-invoicing in the import of raw material.

The committee set up by Federal Health Minister Makhdoom Javed Hashmi and headed by Director General Health Ghayyur H. Ayub including the representative of Pakistan Pharmaceutical Manufacturers Association (PPMA) and Pharma Bureau, met and discussed in detail the misuse of raw material import, used in manufacturing of more than 60 to 80 drugs causing loss of about Rs 1 billion.

It is pertinent to note that Health Ministry's committee twice met internally during the last month and identified more than 26 local and multinational drug manufacturing companies causing loss to the national exchequer and found them violating law of the land.

Ministry sources said that about 26 MNCs and local companies were identified which were allegedly involved in over-invoicing of raw material import. These companies include Ali Gohar, Highnoon, Highmount, Searle, Ciba, Squibb, MSD, Park Davis, Johnson and Johnson, Rosche, Pfizer, Glaxo, Hoecst, SK&F, Bristol Myers and some others. The source observed that the same quality raw material is available at a very cheaper rate but these companies were allegedly indulged in capital flight.

Health Ministry discussed in detail in the meeting that Carbamazepino, Cimetidone, Ceftriaxone, Diclofenac, Cyancobalamine, Atenmol, Amlodipine, Amiloride, Ampicline, Astemezole, Bromazepam, Doxcycline, Omeparzole, Amoxilline sodium, Captropril, Famolidine and Fluconazole and dozens other raw material is being imported in flagrant violation of raw by over-in-voicing. The ministry vowed to take appropriate steps to check manipulation and misuse in the import of raw material used in drug manufacturing.

With medicine prices already much higher than the prices in other countries in the region like India and Bangladesh, the Pakistan Government has been badgered for more than a year by importers to increase prices by 20 per cent and more. The Health Ministry and the Planning Commission have approved the case for a nine to 15 per cent increase, but the embattled Nawaz Sharif government, afraid of a public outcry at a time of a particularly severe economic crisis, has not given its approval.

Multinational manufacturers argue that prices were supposed to be raised annually following an agreement in 1993 but that has not happened even though cost of production has gone up by 90 per cent over the last six years. This is "due to 76 per cent inflation, 85 per cent devaluation of rupee and 10 per cent customs duty imposed on all imports in 1996," said a spokesperson for the Pharma Bureau, which represents 23 of the 33 MNCs in the country.

In this period the government has only allowed 21 per cent increase on 821 controlled compounds and 29 per cent on 2,700 or so decontrolled compounds, the spokesperson claimed. If prices are not raised, MNCs say, they will begin downsize operations in Pakistan. All together they have a workforce of about 16,000 people and have already postponed multi-million dollar plans to modernize and expand projects in Pakistan over the next five years.

Although they control 61 per cent of the roughly $ 900 million drug market, MNCs claim that "inconsistent government policies" and "punitive price controls since 1993" have "dramatically eroded profitability and brought the industry to its knees", according to a Fact Book published by Pharma Bureau.

It may be recalled here that the thorny issue of raw material imports by the foreign pharmaceutical companies at a substantially higher cost from their parent firms abroad, holding patents of these drugs despite the availability of similar raw materials from other sources in the international market at much lower prices, has long remained a subject of public debate. But, so far, no official directives were issued to ban imports of costlier raw materials from patent sources. It is for the first time that such a controversial step has been taken. It is true that even after the expiry of the period of patent, the foreign pharmaceutical companies have continued to import their raw materials specifically from their parent companies instead of using lower priced similar raw materials from the international market.

However, since the principles of deregulation of investment activity are strictly in practice in the government's economic policies, so far, no official interference on this issue is noticed. At the same time since the prices of medicines were controlled over a long period with the exception of about two years in 1996-97 when the prices of the large number of drugs were decontrolled, the question of the cost of imported raw materials was understood to be taken care by the authorities concerned when giving approval to the pricing of different drugs.

The latest official decision with regard to the imports of raw materials, has implicitly accused the foreign pharmaceutical companies of indulgence in over-invoicing. At the same time a list of the names of the erring companies was also released to the press thereby purporting to claim that a new racket was discovered and nipped. Such an action by the Health Ministry has come at a time when Pakistan's reputation in respect of its treatment of foreign investors has fallen low as a result of the continued tussle with the Independent Power Projects (IPPs) on the question of power tariff already agreed under agreements by the previous government.

Similar differences are also reported to have arisen on the question of price fixation of newly discovered gas and oil reserves by the foreign investors. If seen in this context besides the undeniable fact that Pakistan is badly in need of private foreign investment, the Health Ministry's publicized action against the foreign pharmaceutical companies could well be seen as ill-timed and undesirable.