News reports suggest that Johnson & Johnson Pakistan (Pvt) Limited (J&J) is about to wind up its pharmaceutical business in Pakistan. Just when a new – and purportedly an investment-friendly and pro-business – government is about to take charge in Islamabad, this negative development brings into sharp focus the repressive pricing regime in the industry that is reportedly behind J&J’s decision.
Industry sources say that J&J was not making money from its pharmaceutical division – so it’s shutting it down, but it will keep its consumer division running. J&J is not the first among multinationals in recent history who quit on their pharmaceutical business, and probably not the last, sources say, if there is no change in government’s drug pricing policy.
Talking to executives in pharmaceuticals-focused multinationals, one is hard pressed to not dispel their claim that the government’s pricing regime is the root cause behind all that’s ailing the local pharmaceutical industry. The current pricing policy doesn’t yield optimal returns to invest in Research and Development, or even attract the best human capital to the industry, they lament.
Besides, the overwhelming policy focus on keeping prices low inadvertently compromises production quality, and leads to smuggling-induced medicine shortages and rampant counterfeiting – which ultimately hurt supposed beneficiaries, the patients. Barely breaking even, manufacturers have to forego investments in production plants, approved by the US’ Food and Drug Administration, for export purposes.
Similar concerns were raised last month by Pharma Bureau, a representative body of multinational pharmaceuticals in Pakistan. Reportedly, the bureau claimed that the prices of about 70 percent of top 100 medicines were higher in India than in Pakistan, and it demanded the federal government to match the medicines’ prices in Pakistan with those in India.
It also deplored the price adjustment freeze since 2001, which had compounded the situations for MNCs in the wake of rising raw materials cost and rupee depreciation.
The bottom line is that the pharmaceutical multinationals are producing high quality medicine in strict compliance with international, not just local standards, but they are not being adequately compensated through a just increase in prices. Ahmer Ashraf, the Regional Public Affairs Lead, Asia-Pacific markets for Pfizer’s Consumer Healthcare business, told BR Research in an interview last month that:
“Prices across the board have not been increased for 12 years. Consequently, more than 30 percent of Pfizer’s entire portfolio in Pakistan is in loss right now. The government needs to understand that an unfavourable price regime would eventually force out the multinationals that would otherwise have to contend with making losses.”
Losing multinational pharmas like J&J is going to hurt. For instance, disinvestment from a company, whose medicines are in great demand by the patients, would force a country to import the same medicines, most likely at higher costs. But there is more.
“Local industry needs the multinational pharmaceutical companies because they promote adherence to quality standards, invest in research and development, and commit significant resources to continuing medical education (CME) of professionals working in the field. With restrictive pricing regime, which especially hurts the MNCs, government is losing out on a whole lot while gaining very little,” said an industry executive.
It has to be understood that pharmaceutical companies are not running charities. The next government is advised to balance the need for quality and affordable provision of medicines with the commercial viability of the industry. Since most of the pharmaceutical industry issues go back to pricing, a transparent and predictable pricing mechanism is thus needed, with an emphasis on quality and standards.