Shahid Mehmood explains the crisis in Pakistan’s pharmaceutical industry created by Government regulations
Let me ask you a simple question: how many times has it happened that you go to a chemist and ask for a medicine, and the reply you get is that it is not available? Chances are that you have experienced this quiet a few times. That’s because even ordinary, inexpensive, lifesaving medicines tend to disappear off the shelves. And this happens every year. In other words, Pakistan experiences persistent medicine shortages.
Now here’s the perplexing part: there are more than 700 drug production units all over Pakistan, and more than 70,000 drugs are officially registered for production. Of these, hardly 10,000 are being produced, and even these experience supply shortages. All this, in the end, endangers the lives of those who need medicines for survival. Let us examine the root causes behind this worrying situation.
Pakistan’s pharmaceutical industry was once a very vibrant industry. In the 1990s, more than 40 international pharmaceutical firms of repute (multinationals) were operating in Pakistan, producing not only quality medicine but also contributing towards setting standards and providing employment opportunities. These years also saw the tremendous growth of domestic pharma firms. A study by McKinsey concluded that Pakistan’s pharmaceutical industry could be a ‘sunshine’ industry, meaning that it had tremendous future potential. By now, all those predictions have bitten dust. There are only a handful of multinationals operating in Pakistan, while others have wound up their businesses and left for greener pastures. Domestic manufacturers are also facing difficulties in their operations.
The main responsibility for this dismal state of affairs falls upon the government, especially the way it regulates the pharma industry. Particularly damaging is its ‘price control’ fallacy, whereby producers are prevented from raising prices of medicines. For example, between 2001 and 2013, prices remained ‘frozen’ as no price increase was granted. In 2013, after finally realising how destructive this policy was, a decision was taken to grant price increases in line with Consumer Price Index. One such price increase was granted in the previous years, only to be taken back under directions of the prime minister, stating that ‘welfare’ of the masses will be reduced!
How ridiculous is this policy can be easily gauged by available statistics. Between 2001 and 2012, the productive base and quality of the pharma industry were dealt a severe blow as the prices remained frozen. As costs of production skyrocketed in this time, industry found it increasingly difficult to operate as its operating expenses (relative to its profits) kept increasing while its profits gradually vanished. Resultantly, production of quality medicines kept declining as top quality firms (mostly multinationals) took flight to other countries like Bangladesh. By the time the Health Ministry and the Drug Regulatory Authority of Pakistan (DRAP) realised how counterproductive and devastating this policy was, the damage had already been done and persistent medicine shortages became a regular feature. Attempts to assuage the industry through granting one-time price increases (which largely remain non-implemented) will unlikely be helpful in bringing back investors who’ve wrapped up their business from Pakistan.
The policy of not granting price increases is the major detriment that has resulted in a plethora of debilitating problems for the industry. Other regulations (both at federal and provincial level) are equally illogical and counterintuitive. Take, for example, the case of toll manufacturing. The global standard is to grant manufacturing licenses for at least two years. But DRAP issues license for only three months, thus hampering production and investment prospects. Similarly, the DRA Act of 1976 introduced a draconian tax (a jugga tax) in the form of extracting two percent of gross income from pharma firms in the name of conducting research and development. Since that time, this tax has been collected regularly, but the fact is that not a single R&D lab of the FDA or WHO level exists in Pakistan.
Where does the income from this jugga tax go? During my research on pharma sector, the government officials were honest enough to admit that almost zero percent of all this income since 1976 has been spent on R&D. But they were tight lipped about where this money goes. The provincial regulations can also stump logic and common sense. For example, a particular regulation requires medicine shops to have qualified pharmacists and refrigerators at their shops. The illogicality of this regulation can be gauged from the fact that Pakistan has one of the lowest percentages of qualified pharmacists (relative to its population). So where will so many pharmacists come from? Also, while asking shops to keep refrigerators, the fact that electricity supply is unstable and uncertain is conveniently set aside (load shedding is particularly nightmarish in the countryside). When there is little or no electricity, and persistent fluctuations in voltage is a norm, why does the government expect shops to keep fridges, which will also increase their cost of doing business?
Simply put, government regulations are squarely aimed at wrong outcomes.Its main job should be to ensure quality and consistent supply of medicines, eradicating counterfeit medicines and black market activities, and to facilitate business. Yet it has failed at all of these. If it is so worried about price increases, it should look towards bringing in more competition, a policy that is absent. The below par performance of the government is ably complemented by the media, whose appetite for sensationalism does little to help the cause of industry and medicine availability. Every time there is a slight increase in medicine prices, the media raises an unnecessary harangue, leading policymakers to take back price increases in ‘larger interest of masses’. For example, a price increase from Rs5 to Rs10 is by no means excessive. But the media presents this in percentages to curry sensationalism and ratings, decrying “100 percent rise in medicine prices.”
In terms of the pharmaceutical industry, the main problem is of an ethical nature. The collusion between medical practitioners and pharma firms is as prevalent in Pakistan as in other nations around the world. But its failings are minor compare to the failings of regulations, which explains the predicament of the industry and the persistent medicine shortages. What we see is an abject failure of imagination at the political and policymaking level in realising that pharma industry does not run on charitable principles, but on corporate interests just like any other business. Despite having commercial interests, top pharma firms in Pakistan are major contributors to national kitty (taxes) and run an impressive array of charitable work across Pakistan. Unfortunately, media never reports this. Also, the impressive net returns (profits) of some pharma firms leads people to believe that the industry is doing very well. Again, the profits are a function of increasing population, rising per capita incomes and spread of media, which means increased in demand for the same medicines. Quality or innovative medicines are still hard to find, and are easily available in the black market at exorbitant rates.
In short, medicine shortages primarily owe to government regulations. There is little incentive for the firms to keep the supply lines operational. Illogical regulations are complemented by a general attitude that fails to appreciate the fact that a price rise is nothing compared to saving lives,which should the top priority of any government.
Source: https://www.thefridaytimes.com
Let me ask you a simple question: how many times has it happened that you go to a chemist and ask for a medicine, and the reply you get is that it is not available? Chances are that you have experienced this quiet a few times. That’s because even ordinary, inexpensive, lifesaving medicines tend to disappear off the shelves. And this happens every year. In other words, Pakistan experiences persistent medicine shortages.
Now here’s the perplexing part: there are more than 700 drug production units all over Pakistan, and more than 70,000 drugs are officially registered for production. Of these, hardly 10,000 are being produced, and even these experience supply shortages. All this, in the end, endangers the lives of those who need medicines for survival. Let us examine the root causes behind this worrying situation.
Pakistan’s pharmaceutical industry was once a very vibrant industry. In the 1990s, more than 40 international pharmaceutical firms of repute (multinationals) were operating in Pakistan, producing not only quality medicine but also contributing towards setting standards and providing employment opportunities. These years also saw the tremendous growth of domestic pharma firms. A study by McKinsey concluded that Pakistan’s pharmaceutical industry could be a ‘sunshine’ industry, meaning that it had tremendous future potential. By now, all those predictions have bitten dust. There are only a handful of multinationals operating in Pakistan, while others have wound up their businesses and left for greener pastures. Domestic manufacturers are also facing difficulties in their operations.
"The main responsibility for this dismal state of affairs falls upon the government, especially the way it regulates the pharma industry"
The main responsibility for this dismal state of affairs falls upon the government, especially the way it regulates the pharma industry. Particularly damaging is its ‘price control’ fallacy, whereby producers are prevented from raising prices of medicines. For example, between 2001 and 2013, prices remained ‘frozen’ as no price increase was granted. In 2013, after finally realising how destructive this policy was, a decision was taken to grant price increases in line with Consumer Price Index. One such price increase was granted in the previous years, only to be taken back under directions of the prime minister, stating that ‘welfare’ of the masses will be reduced!
How ridiculous is this policy can be easily gauged by available statistics. Between 2001 and 2012, the productive base and quality of the pharma industry were dealt a severe blow as the prices remained frozen. As costs of production skyrocketed in this time, industry found it increasingly difficult to operate as its operating expenses (relative to its profits) kept increasing while its profits gradually vanished. Resultantly, production of quality medicines kept declining as top quality firms (mostly multinationals) took flight to other countries like Bangladesh. By the time the Health Ministry and the Drug Regulatory Authority of Pakistan (DRAP) realised how counterproductive and devastating this policy was, the damage had already been done and persistent medicine shortages became a regular feature. Attempts to assuage the industry through granting one-time price increases (which largely remain non-implemented) will unlikely be helpful in bringing back investors who’ve wrapped up their business from Pakistan.
The policy of not granting price increases is the major detriment that has resulted in a plethora of debilitating problems for the industry. Other regulations (both at federal and provincial level) are equally illogical and counterintuitive. Take, for example, the case of toll manufacturing. The global standard is to grant manufacturing licenses for at least two years. But DRAP issues license for only three months, thus hampering production and investment prospects. Similarly, the DRA Act of 1976 introduced a draconian tax (a jugga tax) in the form of extracting two percent of gross income from pharma firms in the name of conducting research and development. Since that time, this tax has been collected regularly, but the fact is that not a single R&D lab of the FDA or WHO level exists in Pakistan.
Where does the income from this jugga tax go? During my research on pharma sector, the government officials were honest enough to admit that almost zero percent of all this income since 1976 has been spent on R&D. But they were tight lipped about where this money goes. The provincial regulations can also stump logic and common sense. For example, a particular regulation requires medicine shops to have qualified pharmacists and refrigerators at their shops. The illogicality of this regulation can be gauged from the fact that Pakistan has one of the lowest percentages of qualified pharmacists (relative to its population). So where will so many pharmacists come from? Also, while asking shops to keep refrigerators, the fact that electricity supply is unstable and uncertain is conveniently set aside (load shedding is particularly nightmarish in the countryside). When there is little or no electricity, and persistent fluctuations in voltage is a norm, why does the government expect shops to keep fridges, which will also increase their cost of doing business?
Simply put, government regulations are squarely aimed at wrong outcomes.
In terms of the pharmaceutical industry, the main problem is of an ethical nature. The collusion between medical practitioners and pharma firms is as prevalent in Pakistan as in other nations around the world. But its failings are minor compare to the failings of regulations, which explains the predicament of the industry and the persistent medicine shortages. What we see is an abject failure of imagination at the political and policymaking level in realising that pharma industry does not run on charitable principles, but on corporate interests just like any other business. Despite having commercial interests, top pharma firms in Pakistan are major contributors to national kitty (taxes) and run an impressive array of charitable work across Pakistan. Unfortunately, media never reports this. Also, the impressive net returns (profits) of some pharma firms leads people to believe that the industry is doing very well. Again, the profits are a function of increasing population, rising per capita incomes and spread of media, which means increased in demand for the same medicines. Quality or innovative medicines are still hard to find, and are easily available in the black market at exorbitant rates.
In short, medicine shortages primarily owe to government regulations. There is little incentive for the firms to keep the supply lines operational. Illogical regulations are complemented by a general attitude that fails to appreciate the fact that a price rise is nothing compared to saving lives,
Source: https://www.thefridaytimes.com
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