REGULATING DRUG PRICES

TANVIR ZAHID
Oct 01 - 07, 2007

The Federal Government for quite some time has been taking measures through legislation and providing administrative machinery to regulate the working of various sectors. Regulating an industry or a sector of the national economy may have some many benefits, but de-regulation of an industry like telecommunications has established that a policy of deregulation opens up enormous opportunities and renders positive results within a short span of time. Drug pricing is indeed a complex issue, be it Pakistan or any other country, but here it has been made even more complex and complicated by the Federal Government's policy of monitoring and supervision of pharmaceutical prices in the country.

A cursory look at the pharmaceutical industry in the country and its contribution to the national economy and health care of the people reveals interesting data. According to facts and figures available from the Health Ministry and other official sources, Pakistan's total pharma market is about Rs 83 billion. In 1993, there were 256 national pharmaceutical units and 38 multinational companies. However, since 1999, the Federal Government has made an estimated investment of more than US $ 133 million in the pharmaceutical industry. Currently there are 411 local companies and 30 multi-national companies engaged in manufacturing a large number of medicines to look after the health of millions of people. There are about 63000 pharmacies selling medicines to patients in the urban as well as rural areas of the country.

There has been no price increase of medicines since 2001. Pakistan's per capita spending on medicines is Rs. 500, which amounts to about 1% of per capita income. Even then, over 42 % products are priced below Rs. 5, owing to regulatory measures adopted by the Federal Government whereby prices of all medicines manufactured locally are fixed officially. Thus while research and development costs have risen over the years estimates indicate that a single product R&D may take anywhere between 8-10 years and costs US$ 800 million, the price regulation has led to industry and market malpractices. Compared to this, in India only 74 products are price-controlled and the rest are free to compete and set prices based on market realities. In Pakistan, this price embargo without taking into account all the relevant factors has led to large scale smuggling leading in turn to domestic shortages with critically needed medicines not available for ailing patients, forced industry to cut costs by resorting to cheaper, money-saving packaging and worse, counterfeit trade with its damaging fallout. The pharmaceutical manufacturers, according to the information gathered from the open market, are trying their level best to keep the prices level and within easy reach of the common man but it is a difficult task, easier said than done.

The media as well as different consumer groups frequently draw comparisons between drug prices in Pakistan and India, with the commonly held perception being that the medicines are much cheaper in India. The truth is that in Pakistan 60% of the top 30 brands are cheaper than India, despite the fact that raw material is locally available to the manufacturers in India whereas in Pakistan, almost all raw materials used in the drugs production is imported from other countries. There is also the question of scale. The Indian market is huge and the benchmarks are therefore very different.

To establish the veracity of this, a small comparison with India is in order. Popular brands such as Panadol 500mg tablets sell for PKR 1.19 in India but PKR 0.66 here. Augmentin 375mg tablets in India retail for PKR 52 and cost just Rs. 7.49 in Pakistan. Amoxil 500mg capsules cost PKR 28.75 in India but only Rs. 7.49 here. It is also pertinent to mention here that during the last six years, the prescription trend is gradually leaning towards local companies as compared to the multinational companies. In 2002, MNCs accounted for 61% of the pharma market, whereas last year this share was below 57% with a corresponding increase in local industry share.

In terms of overall position, there is no new investment coming into the market because of strict regulatory policies of the government. In vivid contrast, the Indian pharma industry has witnessed a boom period ever since deregulation and Bangladesh has followed suit. We have seen the huge strides made in the telecom sector the moment the government gave industry the freedom to strike out on its own. The pharma industry needs the same policy change. As a large provider of jobs to over 70,000 personnel and twice as many in the marketing, distribution and allied fields, it can become a major player in the national economic development. The pharmaceutical industry has long been advocating and arguing at all available forums that the best way to ensure competitive pricing is through deregulation. This carries weight indeed and deserves due consideration by the authorities concerned. When manufacturers know that they can adjust products pricing with the increase in the cost of production, they would certainly revert to a competitive price rather than a protective cost.

It has been proved and established time and time again that the medicines prices are best controlled and determined when market forces are allowed to come into full play. But, somehow, in Pakistan the government still insists on subjecting the entire pharmaceutical industry to an artificial control that has nothing to do with economic realities. The result is negative and not conducive for the pharmaceutical industry or the national economy. As a matter of fact, an appropriate and correct regulatory mechanism can create a favourable situation both for the people and the pharmaceutical industry in a win-win manner with more competitive pricing structures resulting from a more transparent and a fair, regulatory environment.

In particular, taking into account the benefits so accruing, the local pharmaceutical industry can flourish and in the process benefit the consumers and at the same time create a large export base. If the remaining numbers of products are deregulated by the government, then a rather fair and transparent system will emerge and will greatly promote healthy competition in the pharmaceutical industry and contribute considerably in bringing down the costs further in the long term. Due to strict regularization policy of the Federal Government, no new investment is forthcoming in the pharmaceutical industry. Due to absence of pricing formula, the companies intending to invest more are unable to forecast ratio of return on their investment. As such, they prefer to maintain the status quo in terms of investment while trying to produce quality medicines with already invested money. Furthermore, in case the pharmaceutical industry is given a free hand to fix product prices in a competitive manner then the Federal Government and its administrative machinery would be able to attach greater attention and priority to ensure uniformity in drug manufacturing and more importantly to eliminate spurious and counterfeit drugs, which have become a menace in the country.

Poor packaging of the medicines is increasing the menace of counterfeits in the country. The World Health Organization (WHO) conservative estimates put penetration of counterfeit and spurious drugs in the local market in the ratio of 20 to 25 per cent which is alarming. While the pharmaceutical companies are ensuring provision of the maximum number of cheaper but quality medicines to the people at large, it is in all fairness for the government to ensure that the people in particular the poor ones are given adequate health coverage and free medicines by evolving a feasible system taking into account the ground realities. At the same time the government would be well-advised to gradually keep increasing the allocations in the Health Sector budget so that more and more funds are utilized on the provision of medicines to the needy people. No doubt, the drugs prices in Pakistan are amongst the lowest in the region. But still how many poor people with very meager resources can afford to buy the cheaper medicines from the open market if they are unable to secure the same from the government hospitals and dispensaries free. The answer to this pertinent query is certainly not very encouraging.