Pakistan's pharmaceutical industry is one of the largest industries of the country, exporting drugs to 60 countries all over the world and providing direct and indirect employment to 5 million people. The industry comprises of multinational companies (MNCs) as well as national companies, with the market-share ratio between them almost evenly spread, being 46 percent for MNCs and 54 percent for national companies.
Research-driven pharmaceutical companies play an extremely crucial role in the industry, by bringing in the latest technological advancements in the field of medicine and ensuring the supply of research-based products, which have an R&D expenditure of billions of dollars. The industry, however, is faced with various challenges, limiting growth and the potential for R&D foreign investment in the country.
TOWARDS FAIR PRICING Central to the host of issues faced by Pakistan's pharma industry is the lack of investment-friendly pricing policy, which is seriously impacting growth and redirecting foreign investment to many other potentially viable countries.
Most trade bodies also highlight the need to create a pricing policy to make the environment more viable for the growth of the industry and its contribution to the country's exports potential. In this scenario, one formula presented by the industry experts is termed the 'three-tier pricing formula'.
The implementation of a viable pricing policy will stabilise the industry and will win the trust of investors who are looking for markets with favourable policies to do business. Most developing markets in Asia follow this strategy for various industries including the pharmaceutical industry. China is one neighbouring example where emphasis is on drug pricing policy; in other markets a free market pricing mechanism is also followed with certain drugs under pricing controls.
Here, some life-saving drugs are controlled whilst market forces determine the price of the rest of the products. One such market is India, which works with this combination. Most markets following a stable pricing policy, boast of a thriving industry, and contribute greatly to the exports of the country. Considering Pakistan has a high potential for exports, foreign investment is a factor that can greatly help the exports and the overall economic sector.
When we talk about the local pricing of pharmaceuticals, the last across-the-board price increase was awarded in December 2001 - at a calculated average rate of 3-4 percent on all products. The dollar-rupee exchange rate in 2000 was 51.64, which has now climbed up to around 85. The rapid depreciation of the rupee against major currencies of the world, has made imported raw materials very expensive.
The cost of other components including manpower and energy (both natural gas and electricity) has also increased manifolds since 2001. These are a few factors which are limiting the growth and the potential for investment.
Good and practical business-friendly practices and policies in the pharmaceutical industry will greatly help create an environment conducive for attracting foreign investment and employment in the country.
If there is stability in the pharmaceutical business environment, companies will invest more, giving birth to fresh employment opportunities. It will help the balance of trade as foreign direct investment will flow in Pakistan. Up to $1 billion worth of annual pharma FDI is expected to pour in if the price distortions are removed - an inflow much needed in the wake of falling FDI inflows. Further, it will help bring the latest technological advancement - bringing innovation in the field of medicine and improving the quality of life for our citizens.
In most developing countries, a part of the health budget allows for subsidy -- providing drugs to the public at a low cost. These are called the partial or fully reimbursement markets, where the country health authority is an equal or partial payer of the health expenditure of its citizens. That is how the responsibility of supplying low-cost medicines to the entire community is a shared one.
The need is to create a formula by way of which all stakeholders are winners - the government, pharmaceutical industry and more importantly, the public. Implementation of this policy will allow the industry to maintain supply of quality products.
The 3-tier framework has been suggested by the industry and provides a relief from the increasing cost of doing business in the wake of the depreciation of rupee, inflation and costs and inputs, such as utility prices. This is just one way of tackling this issue but continued dialogue with the relevant stakeholders may also help in coming up with more effective formulas for the prosperity and future of this industry.
PROTECTING INTELLECTUAL PROPERTY RIGHTS Intellectual Property Rights Laws is another area that needs to be looked into to further enhance the potential of the pharmaceutical industry. Pakistan is a signatory to Trade Related Aspects of Intellectual Property Rights (TRIPS) and it is now a documented fact that those industries which have effectively implemented and enforced Intellectual Property Rights (IPR) laws have seen significant growth in the industry especially through foreign investment.
The right of the patentee is protected in Pakistani law; however, there is a need to further strengthen this regimen. Violations of IPRs are one of the key reasons for potential negative impacts in any research based industry.
The IPR regime broadly covers, trademarks, copyrights and data exclusivity. A general tendency to ignore piracy (mainly due to lack of awareness and importance of copyrights) makes it difficult to protect these rights. When proprietary data is accessed, it can be used for fraudulent commercial use as well.
Low compliance and violation of the Intellectual Property Rights are a major cost to the business. Looking deeply into these issues can have positive impacts on the business environment for companies operating in the country. Pakistan now boasts of the Intellectual Property Organisation of Pakistan (IPO), a step the authorities took in the right direction, the next step obviously is to actively work to address and assess IPR issues in Pakistan.
Openness of the country to trade in a global environment is often judged by treatment to intellectual property, human rights and other fair practices. Countries often shy away from doing business in economies where piracy is an issue and there is weak implementation of law for such violations.
A lesson can be learnt from Jordan, where strong reforms in the IPR regime have greatly benefited their economy and the pharmaceutical industry in particular. According to the International Intellectual Property Institute (IIPI), a non-profit economic development organisation and think tank based in Washington, D.C., Bristol-Myers Squibb (a company that wound up operations in Pakistan) initiated a three-year, 5,000-patient cardiovascular risk factor study in Jordan in 2001.
In 2004, pharma companies carried out 19 clinical trials in Jordan for conditions such as cancer, osteoporosis, diabetes, and cardiovascular diseases. This indicates foreign direct investment made in the field of research and development.
Health-service contributions to the Jordanian gross domestic product (GDP) grew from 2.8 percent in 1997 to 3.5 percent in 2001, and health-services employment has grown 52 percent since 1997. The international research-based pharmaceutical industry has greatly increased direct employment in Jordan since 2000.
The IIPI report found that Jordan's generic pharmaceutical companies also benefited from stronger intellectual property laws, with drug exports from local Jordanian firms growing 30 percent from 1999 to 2002. Jordan's exports in pharmaceuticals in 2004 topped $200 million - the same report carried. The pharmaceutical exports soared to $353 million in 2008, according to Jordanian Association of Pharmaceutical Manufacturers (JAPM). Imagine the potential of a country like Pakistan which is ten times the size of Jordan on pharmaceutical exports and the contribution to the economy through foreign direct investment in the area of research and development.
To strengthen IPR regime, a close monitor of enforcement and implementation are key components. Severe punishment and penalties for violators will help broaden the scope of regulation. Pakistan is blessed to have a dedicated government office for intellectual property and this is a ray of light for all research-based companies.
ARRESTING COUNTERFEIT GROWTH Counterfeiting is a huge cost to businesses and is a major patient safety threat. All pharmaceutical companies have a responsibility for patient safety and well-being through the use of their products. Research-based companies put great emphasis on this; Pakistan is featured as one of the sources of counterfeit and piratical goods seized by the US Customs and Border Protection. The vast majority of these goods were either apparel or pharmaceuticals with counterfeit trademarks or, optical media products (USTR 2004).
There is a need to enhance the levels of awareness about the counterfeit medicines and it is everyone's responsibility to share and educate patients on genuine products. Education and awareness can play a great role in the right identification of counterfeit medicines and help save lives and save businesses from bearing this menacing cost.
Reputable multinational and local companies ensure adherence to the highest levels of quality and reliability in every product they produce. The supply of quality, reliable medicine to the market inevitably lowers the impact of counterfeit medicines.
CONTRACT MANUFACTURING Encouraging contract or toll manufacturing and creating policies to help the industry tread in this direction guarantees significant help to pharmaceutical businesses in the country. Most forward-looking economies in the world have successfully implemented this practice in their countries and have reaped great economic benefits. In India and China, a number of firms are involved in toll or contract manufacturing.
The two most important benefits of contract or toll manufacturing are (for the company) achieving economies of scale and bringing the costs of production down, which will have an ultimate impact on the price of medicine and (for the local industry) creating contract jobs and employment for a lot of small operations to stay in the business. Apart from this, other benefits of transfer of technology, increasing the quality of production for the small units, and adherence to the highest standards through contract manufacturing cannot be ignored.
Globally the trend of contract manufacturing has increased tremendously during last few years and has significantly helped economies grow, especially in India and China - two of the biggest producers of pharmaceutical products in Asia. Home-grown companies may work as subsidiaries of large scale companies, local employment flourishes and business is given often to these companies to manufacture, helping the local economy.
These are few of the proposals that can help Pakistan's pharmaceutical industry grow and expand its borders. These are also the practices that most successful economies have followed to strengthen the pharmaceutical industry. The need of the day for all relevant stakeholders is to ponder on these issues so we can all start working together for a healthier Pakistan.
Iqbal Bengali has more than 20 years of pharmaceutical industry experience. He has served as Country Manager Pakistan and Indonesia in his career and is currently looking after both markets in the capacity of Country Manager. He is a Fellow Chartered Accountant from the Institute of Chartered Accountants in England & Wales. He can be reached at [email protected]. *statistical information has been taken from sources which include, Pharma Bureau (OICCI), the US State Government website, Jordanian Association of Pharmaceutical Manufacturers website.
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