'Regulating quality is more important than regulating drug prices,' Executive Director Pharma Bureau

Pharmaceutical industry of Pakistan has been previously identified as a sunrise industry by international firms. The industry continues to complain about the working environment, especially the regulatory regime, which it believes is too strict and unhealthy for the sector.
BR Research recently sat down with Ayesha Tammy Haq, Executive Director Pharma Bureau Pakistan, to discuss matter related to the industry and possible solutions. Below are key takeaways of the conversation.
BR Research: Give us a brief introduction about Pharma Bureau.
Ayesha Tammy Haq: The Pharma Bureau is a subcommittee of the Overseas Investors Chamber of Commerce and Industry. The OICCI has around 186 members, of which 26 are pharmaceutical companies. All OICCI members are multinational companies.
The pharma sector is probably one of the largest groups within the chamber and this sector has its own specific set of issues. As a result the Pharma Bureau was formed somewhere in the '80s and at that time there were 36 pharmaceutical MNCs.
BRR: Why these companies have walked out of Pakistan?
ATH: The key reason is the overregulated environment and an unpredictable price structure. This is quite unfortunate as Pakistan enjoyed a strategic advantage and was positioned to be the regional 'hub' for medicines.
In fact, the first vaccine plant was set up in Pakistan in the 1960s. The idea was that Pakistan would be the leader in the region but today the big regional player is India. Although Pakistan's market is huge, it has a population close to 200 million people but the total size of the pharmaceutical industry is just around 2 billion dollars. India, however, is many multiples of that. On the exports front, our exports are around$190 million while India's are$15.5 billion and expected to grow to $25 billion by 2015.
Even if you don't want to compare yourself with India, go to Bangladesh, it was parted in December 1971 but Bangladesh today has 4 FDA approved plants and their exports are growing at 26% a year. Look at Jordan, 17 million people and around 20 pharmaceutical companies, it has 3 FDA approved plants and exports are over $1 billion dollars.
BRR: So, why everyone else is doing so well and Pakistan is not?
ATH: Pricing evokes all kinds of emotions. There is this whole argument about poor patients. We absolutely agree that it's an issue and there are no government safety nets for poor patients. What patients need is access to quality medicines. Government is failing to provide that as well.
If you look at the pharmaceutical industry, there are 1,600 molecules, which are all controlled in Pakistan: Every single molecule is price controlled!
The point here is that the government needs to make an essential drug list for Pakistan to control the prices of those essential drugs and leave the rest to market forces.
What is happening in Pakistan is that our regulator, the DRAP, is more focused on regulating economic activity and not quality. Quality has been compromised in the past-cough syrup contaminated with sub-standard raw material, mixing of anti-malarial API into a cardiac drug are examples of this leading to tragic loss of lives.
So, you really need to regulate quality not economic activity and you need to ensure that patients have access to quality drugs.
BRR: How do you see the medicines getting cheaper in a free market?
ATH: It comes from a healthy competitive market encouraging economies of scale and scope. If you have a quality plant, you become more economically viable considering that there is free competition in the market. We will be able to export more and we can even invest in better quality plants.
A free market will ensure a healthy competition and a level playing field for all operators. At present all pharma companies are set a price with no incentive to innovate. Originators of molecules are given the leader price and generics are by law given a price up to 15% lower than the leader price.
By removing price constraints, companies would then, in order to compete, be required to distinguish their medicines pre-dominantly through means of pricing. Looking at the Indian Pharma Market today there is a wide price range per each molecule. So, therefore, patients wanting to pay for MNC brand have the option to do so; similarly patients with little means can opt to buy a lower priced generic. Therefore, a free market shall also ensure efficiency in terms of manufacturing.
At the moment, the plants in Pakistan are GMP (Good Manufacturing Practices) compliant. We produce quality medicines; the best quality possible. But there are many other things that we still can't do because we can't afford to do that as the price regime is so skewed and hence we don't manufacture a lot of things.
Imagine you had a price regime that worked; you would be able to manufacture everything, you would have put in a vaccine facility, there are hundreds and hundreds of things that you can do as long as your regulatory framework or price regime makes sense.
BRR: How is the price compared to other companies in the region?
ATH: We are amongst the most controlled in the world. In the '60s, we had a liberal framework, encouraging growth and innovation and were putting up a vaccine facility and were well placed as leaders of the region. By comparison India had nothing as they were overly controlled, nowhere near the pharma space that Pakistan was. India soon realised that it can't overly control the markets and required a more liberalised approach which they then adopted.
Today, India has its own R&D and is home to some of the biggest companies in the world. In essence, India has allowed the industry to grow by deregulating and as a result can produce very cheap generics. It comes as no surprise that local Indian manufacturers by comparison to Pakistani manufacturers have cheaper medicines, a direct result of a liberalised pricing policy.
Resultantly, India is getting innovative drugs with new therapies being introduced. Sadly, nothing new has come into Pakistan, as there is no patent protection and no proper pricing regime. In short, we are actually losing in every respect.
BRR: Can we say that it's due to DRAP's inefficiency?
ATH: I am not sure if its inefficiency or the lack of understanding. If you talk to anyone, they will say that we have to protect the patients. But, they are not thinking about access to quality drugs.
There are certain medicines that are produced in Pakistan that are so cheap that the moment these are produced and brought to the market, the entire stock is bought up and smuggled out of the country. In such cases Pakistani patients are compelled to buy medicines that are smuggled into Pakistan. There are two keys issues with smuggled drugs. First, its origin is unknown; there is no guarantee of its authenticity. Second, it causes huge loss to the exchequer.
And the worst thing is that patients who say would be paying Rs100 for a box of tablets, if it is smuggled the nit is most likely to pay Rs400-500 for it. So, does it make sense to pay Rs500 or does it make more sense to have a rational pricing regime where you say pay a realistic price and get a better quality medicine.
A fair and transparent pricing regime would enable companies will be able to expand, build more plants, provide more jobs, etc. So the government should consider if it wants jobs or medicines smuggled into the country!
This has to be taken holistically. Medicines are less than 10 percent of the total health care cost. You pay more for doctors, hospitalisation, tests, etc; their prices have gone up and up. The only thing that has remained static since 2001 is the prices of medicines.
Prior to 2001, every year, the government would adjust the prices of medicines based on a formula taking into account annual inflation and other factors. This formula would be applied across the board. In effect, 2001 was the last time this was done. Since then there has been no across-the-board price adjustment, where prices for the most have remained stagnant, barring a few hardship cases.
In November last year SRO 1002 came out, which the Prime Minister pulled back a day later. The local companies, then, went to court and got the stay order. So under that SRO, companies are allowed to increase the prices of certain drugs in which some 60 percent of all products are excluded. So you could increase prices by 1.25 percent per year from 2001 to last year. So it worked out to about 15 percent maximum for some companies, some got less. But that is only on 40 percent of the products. This was a small breathing room given to the industry.
India's vision is to grow their pharma exports to $25 billion by 2015. Their exports in 2013 stood at $15.5 billion. So in a nutshell, there needs to be a vision. Unfortunately, Pakistan does not share a clear vision, in fact at present there is none. In a study done by McKinsey Consultants in 2010, commissioned by the ADB and Planning Commission of Pakistan, the pharmaceutical industry was identified as a sunrise industry for Pakistan. The report said that within five years, the pharma industry is capable of growing from $2 billion to$4 billion of which exports will be$1 billion (at present $190 million). It has been 4 years since the report has been published--the state of the industry remains the same.
BRR: Is overregulation the only impediment?
ATH: It's overregulated. The price control mechanism needs to be reviewed. Being pharma bureau, we work with government and try to convince them to develop policies. We would like to see a fair and transparent pricing policy and don't want anything ad hoc. A clear policy and a formula determine the price each year. So by start of every year companies know what the price is going to be for the year and based on that as a company you can make provision for expansion and make a business plan. Unless you have that you can't grow. It's quite difficult!
BRR: Then what makes these MNCs stay in this over-regulated country?
ATH: MNCs haven't stuck into Pakistan. Over 10 of them have left. There are some emotional issues as well. Lots of companies have been here for quite a long term but they are not expanding, they are not providing more jobs
BRR: Are they making decent enough margins to continue operating?
ATH: They are not making decent enough margins. Some of them have divested into consumer products. The consumer health care line is different from medicines and is not regulated hence companies are diversifying into those product lines to boost their margins.
BRR: What policy do you have in mind that DRAP should implement?
ATH: First, a pricing policy that gives predictability and allows businesses to plan.
Second, we would like to see effective policies with SOPs in place. We need a vitamin policy, an OTC (over-the-counter drugs) policy, a better Contract Manufacturing policy, etc.
Finally, we would like to see a more liberal regulatory framework in Pakistan.