——The case for a transparent pharma pricing policy

There is a long-held belief among the general public that the prices of essential medicines in Pakistan are higher than other countries in the region, including India and Bangladesh. There is a simple way of testing this theory and separating myth from reality: introduce a pharmaceutical pricing policy for essential medicines that directly compares prices in Pakistan with those of the region and ensures that Pakistani patients are not paying more.

The pharmaceutical industry in Pakistan is at a crossroads. The absence of a clear regulatory framework and a supportive pricing policy has meant that the evolution of this industry, both in terms of economic scale and international quality standards, has been stunted. The importance of such a policy framework becomes immediately evident when one takes a look across the border at India’s flourishing pharma industry:

At the time of Independence in 1947, Pakistan and India stood at more or less the same starting line in terms of pharmaceutical production. Even a decade ago, the Indian Pharma industry stood at a mere US $6 billion, compared to $1.2 billion for Pakistan. Today, Pakistan’s industry has crept forward to a mere $2.3 billion in domestic sales with exports of $200 million, while Indian Pharma has grown into a giant with domestic sales of over $20 billion and exports of $15 billion in 2013. McKinsey has projected that India will become the 6th largest market globally by 2020, with domestic sales alone of over $45 billion.

So where are we going wrong? It’s certainly not a lack of investment or a shortage of pharmaceutical companies -there are currently over 600 pharmaceutical manufacturing units and 28 multinational companies in Pakistan. It’s also not a lack of competitiveness – despite having almost no raw material manufacturing base to speak of, pharmaceuticals in Pakistan are competitively priced, and by and large of good quality. The major hurdle faced by the Pakistani Pharma industry – and possibly the biggest challenge to growth – is the absence of an effective, transparent, and efficient policy framework, developed with the input of all relevant stakeholders, including the pharmaceutical sector.

Prior to the devolution process of 2011, the Federal Ministry of Health and its Drugs Control Office held the mandate for licensing, registration, pricing and quality regulation for the pharmaceutical industry. A transparent drug pricing formula was evolved for the industry in 1993, which placed price controls on approximately 300 essential drug formulations, and gave a formula for any increases linked to annual inflation. The prices of non-essential drugs were to be determined by competitive forces. Unfortunately, this progressive policy was soon reversed, as is often the case in Pakistan, and was replaced by an ad hoc pricing mechanism shortly thereafter. India, by comparison, followed Pakistan’s policy two years later by introducing the Drugs Pricing Control Order II of 1995, placing price controls on 76 essential drug molecules, and freeing up the rest to market competition. This policy remained in place for over two decades, and is directly responsible for transforming the Indian pharma sector into a globally competitive giant. While there have been variations to this policy in recent years, the newly-elected Modi Government has once again instituted a policy that controls essential drug prices, and deregulates non-essential drugs to serve as an engine of growth for the pharmaceutical sector in India. As a consequence, India, which already boasts over 100 FDA-approved manufacturing units, is poised to become the leading player in the global pharmaceutical industry over the coming decade.

Meanwhile in Pakistan, since all drugs – whether essential or non-essential – are subject to ad hoc price fixation by the government – there is little incentive or room for industry to invest in upgrading its standards. The regulatory authority’s primary role, too, has been restricted to exercising price control at the expense of encouraging quality enhancements. Coupled with the rising costs of raw materials, this disconnect between DRAP and the country’s pharma manufacturers is throttling the industry’s growth, and diminishing its investment. Johnson & Johnson is the latest among the big pharma companies to exit the Pakistan pharmaceutical manufacturing space.

The fact is that there is great potential for Pakistan’s pharma industry, which has the capacity to cater to 30 million through employment opportunities. Currently (and despite misconceptions to the contrary), most Pakistani-manufactured drugs remain not only affordable, but competitively priced when compared with international prices. Ironically, this has led to another issue, where drugs such as thyroxine are smuggled out of the country to be sold at significantly higher international price points, and then smuggled back in, due to the consequent shortages. The ‘re-smuggled’ drugs often carry price points several times higher than the maximum price fixed by the government.

There is news that the Policy Board of the DRAP, which like many other government bodies is understaffed and desperately in need of a permanent Chief Executive Officer, is due to convene meeting shortly to discuss a possible drug pricing policy. This is a welcome move. To ensure that the resulting policy is a fair and sustainable one, it must possess the elements of fairness (to all stakeholders including the public), transparency, and verifiability. A reference-price-based pricing policy, which directly links the maximum prices of essential drugs to other countries in the Saarc region, and allows for a deregulation of non-essential drugs, as already the case in India, Bangladesh and other major economies, provides the following key benefits:

— It ensures that patients in Pakistan do not pay higher prices for essential drugs than patients in the region.

— It ensures a transparent and easily verifiable pricing mechanism that would allow any third party, whether members of the public, policy advocates, or even the courts to confirm the veracity of the pricing process by themselves.

— Since it is based on a publicly verifiable reference pricing system, such a policy can help avoid any impression or accusation of bias, and thus circumvent the slew of litigations and accusations that have unfortunately become a part of our social landscape.

— Through deregulation of non-essential drugs, it provides the pharmaceutical industry the necessary space to grow, invest and expand in terms of both quality and scale. The long-held dream of FDA-approved units being set up in Pakistan can become an imminent reality if such an enabling environment is provided. In order to ensure that prices of even non-essential drugs do not spiral out of control, the PPMA itself has proposed to the DRAP an annual formula for any price increase that is capped by the annual inflation rate.

According to Hippocrates (widely considered to be the father of modern medicine and the author of the Hippocratic Oath), “Wherever the art of Medicine is loved, there is also a love of Humanity.” Effective and affordable healthcare is the right of every Pakistani citizen. However, it is essential that the powers governing the regulation of Pakistan’s pharma industry understand that we can only achieve this aim if our local pharma industry is allowed to grow and flourish. Only by encouraging local industry to grow while providing a policy framework that is supportive, transparent and fair, will we achieve the dream of affordable, quality healthcare for all.

(The writer is outgoing Chairman Pakistan Pharmaceutical Manufacturers Association. He is also the Vice President of the Marketing Association of Pakistan. The views expressed in this article are not necessarily those of the newspaper)