Osman Waheed, President, Ferozsons Laboratories Limited for over a decade, established Pakistan''s first Biotech Pharmaceutical manufacturing company, and the first ever Joint Venture between Pakistan and Latin America by the name of BF Biosciences Limited in Lahore in 2008. An alumnus of the prestigious Harvard University, he has also served on the boards of various government organisations.
THE ISSUES BEHIND DRUG PRICING In this interview with BR Research, Osman Waheed laments the government for over regulating the pharma industry -- citing excessive regulation as the major reason for the industry''s problems. He is also critical of the below-average quality control by the government that is encouraging counterfeit business. Waheed is all for the establishment of a separate Drug Regulatory Authority to deal the industry''s issues in a better manner. Below are the edited transcripts:
BR Research: Even though there is a huge need for health care in Pakistan, investment in the sector has been very low. Can you tell why? Osman Waheed: There are two clear reasons for this. One is poor government health expenditure. The total pharmaceutical market in Pakistan is less than $2 billion, meaning a share of roughly $10 per person each year, of which only about $2 is the government''s contribution.
Besides that, we also have capacity constraints. For example, Shaukat Khanum Hospital, which consumes one-third of the total consumption of cancer medicines in Pakistan, has only 250 beds. Imagine the load on that hospital. BRR: Many pharma industries have wrapped up their business over the years, or are thinking of winding up from Pakistan. What are the reasons for this?
OW: There has to be a change in the way the industry is regulated. Presently, the price of all products - over 60,000 of them -- is determined by the ministry of health, which is an impossible task. Not only does the price adjustment for every drug have to be filed individually, but since 2001, no price appreciation has been given in lieu of inflation, depreciation, utility bills or any other economic issue.
If you look at thyroxin, a key drug, it''s sold for 30-35 paisas per tablet. Even chewing gums don''t cost that less these days. Obviously it gets short in the market and people often buy them in the black market for a much greater price. The government knows this but they aren''t willing to address it rationally.
If prices are not stabilised, MNCs will move out because Pakistan is a blip in the global pharma market network. Bristol Myers is one such company which has moved out. Now their medicines are being imported, definitely at a higher cost, amongst many other disadvantages.
BRR: Is the ministry equally focussed on quality?
OW: When you''re so focussed on pricing as our regulators are, quality does not get the same emphasis. Let me tell you with an example.
We had an inspector from Tanzania a few years ago. Their ministry sent their personnel to audit our facility. Both were M-Phils from the University of London, and they said they had a team of 72 highly qualified inspectors in Tanzania, which at the time had only 7 local manufacturers. These inspectors made sure that any drug sold in Tanzania, whether locally made or imported into the country, was of a certain minimum standard.
In contrast, Pakistan has 660 local factories and around 8-9 federal inspectors are tasked for overseeing the quality and licensing of pharma companies.
Quality is a very critical issue in Pharma; particularly when it comes to selling drugs in international markets. For example: Azerbaijan is currently not entertaining any applications of companies from Pakistan because of the perception of our quality. It doesn''t matter how strict the quality control of our manufacturers, it is the perception that has driven their policy.
BRR: Why do you think the government hasn''t been allowing price increases?
OW: Well for one, drug pricing is a very politically-sensitive issue. And second, unlike textiles, the pharma industry doesn''t have a strong lobby and the companies keep fighting with each other, so the government plays on that very well.
Also, the retail level traders retaliate vehemently to any increase in drug prices, however justified.
BRR: Why can''t there be co-operation between local companies and MNCs, so the industry can better influence the government?
OW: I think that''s very difficult to achieve in Pakistan. Health is going to become a very serious issue, especially after the 18th Amendment that makes it a provincial subject. You might have to go to four different provinces to get licenses and register your drugs.
The health ministry has proposed, and the pharma industry has been saying for some time, for the government to create a separate Drug Regulatory Authority (DRA) as is done in the US and several other countries. The DRA will deal with issues such as drug registration, pricing and plant licensing and the rest will be handled by provincial government.
They can actually raise more revenue through registration fees; our registration fee is still very low, about $200 per drug. Even small countries charge higher fee. So, the authorities will also have a source of funding and will be able to sustain its operating costs.
BRR: What role do such bodies play in the processing and manufacturing of drugs?
OW: As economic importance of the sector increases, quality control will have to become stricter.
The government also needs to better incorporate the quality aspect in their procurement rules in a better way.
For example, if they buy drugs for their Hepatitis programmes, they are bound to buy drugs from the lowest bidder. These drugs need to be manufactured in the strictest environmental conditions. Not only is the manufacturing costly, but the storage and transportation is a costly process, as these drugs need to be kept at between 2oand 8 oC.
In the end, however, what they end up buying may not be up to the mark because the prices do not reflect these costs.
BRR: What''s the impact of subsidy on imported drugs on local players?
OW: Well, there is a virtual subsidy policy on imported products, because the prevalent tax policy makes you better off importing than manufacturing your own drugs. In fact we were importers of biotech drugs. We had almost no tax liability then. The moment we switched to local manufacturing through our new subsidiary BF Biosciences Limited (a Pak-Argentine Joint Venture), the tax liabilities and our expenses on these products increased considerably.
Pakistan is an import-friendly country. Over 70 brands of some of the drugs we make, like interferon, are also being imported duty-free with only 1 percent withholding tax liability. In comparison, as manufacturers, we pay customs duty and GST on our inputs and a 35 percent corporate tax on our income, not to mention the additional cost of the energy crisis that the importer of course does not have to bear. So the government is actually subsidising the importers at the cost of local manufacturers.
BRR: Do lower drug prices prevent the counterfeit market from growing?
OW: The counterfeit market is not documented but it is definitely a growing problem. Again, because of the singular focus on drug pricing, issues such as unlicensed factories producing counterfeit medicine do not get the necessary attention from the government.
The herbal and ''Yunani'' drugs market, is also not regulated, either for price or quality.
The government should develop a standardised quality policy and apply it for all drugs.
BRR: We suppose energy shortage isn''t being very helpful either?
OW: Yes, we make some very sensitive biotech drugs with continuous manufacturing cycles. We cannot afford to switch off electricity for even a second during the cycle. To ensure our manufacturing quality and smooth operation, we had invested immensely in diesel-based power generation. We have a 1.2 MW of diesel generating capacity. Now, in the winters, while the energy situation has improved, the gas supply has been curtailed. Consequently, our boiler that used to work on gas now also runs on diesel. Electricity and steam are our two major inputs. Whatever we could have saved on improved electricity is now shifted to gas.
BRR: This is a huge problem. How much of your plant expenses come from power generation?
OW: Our variable costs have increased by about 30 percent. The fixed cost component has increased by about 20 percent.
BRR: And how is law and order treating the industry?
OW: Perhaps nothing could be a better example than the fact that even the Ivory Coast, in Africa, recently refused to send its inspectors here because of security concerns. The Ivory Coast itself is not the most stable country in the world, but such is Pakistan''s perception abroad.
FEROZONS PLANS BRR: What are you doing to boost your exports? OW: We have aggressive plans to expand into the international market for our products. To this end, our new venture BF Biosciences Limited which manufactures and exports biopharmaceuticals - the fastest growing group of drugs world-wide - has been designed and installed by a leading European engineering firm in compliance with USFDA requirements.
Unlike other sectors such as textiles, in the case of pharmaceutical products, each importing country has a regulatory process that has to be completed before exports to that country can commence. The more highly regulated the market, the greater is the time and effort required to enter it. In the initial stage, we will be entering the markets of Africa, Central and Southeast Asia, followed by more regulated markets like Indonesia, Malaysia, and Australia, which are high-value market. In the third phase, we plan to take our products to the EU and the US.
We are about to begin working with an international consultant, whereby, over an 18-month period, our documentation, systems and processes will be aligned with USFDA requirements. Our manufacturing facilities have already been set up to meet FDA standards
There is a lot of export potential in the pharmaceutical industry. Given the right encouragement, Pharma exports can cross $2 billion; they are at $150million right now, which is minimal.
BRR: Are there other areas of penetration?
OW: In the last few years we have partnered with an American company called Boston Scientific, the world''s largest producers of medical devices. This means that we market their devices along with the drugs we manufacture.
By partnering with a company like Boston Scientific, we are able to provide a portfolio of medical solutions to the doctors in the area of cardiology, cancer treatment and liver disease where they are able to use the best of medicine and device technology to save more lives and improve the standard of healthcare in their hospitals.
BRR: Don''t you think livestock drugs have a potential in Pakistan?
OW: Actually, animal vaccination is an area we are exploring in partnership with our Argentinean partner, the Bagó. Group. Pakistan is an agrarian economy, and livestock is a critical component of it. Halal meat carries tremendous export potential for Pakistan, and can drastically improve the economy of the farmer, providing greater rural employment and a route to sustained and equitable growth for the country as a whole. To make this happen, the government needs to initiate an effective vaccination programme against Foot & Mouth Disease, a requirement for nearly all major export markets.
We have plans of establishing the first foot and mouth disease vaccination plant in Pakistan with our Latin American partners. However, this would follow a government-enforced vaccination programme.
BRR: Does bio-technology have any scope in Pakistan?
OW: We have been pressing the government to promote bio-technology since 2007. At that time and even today, Pakistan is the only country in Asia that does not encourage investments in biotechnology through a specific policy containing a mixture of tax-breaks and incentives. The government should recognise that biotechnology is a new sector in Pakistan, and any company investing here would not only need to invest in new plant and equipment, but also invest heavily in human capital and human resource development.
At the same time, such projects are capital-intensive ventures. We only want the government to align us with other countries where these sectors are being promoted, though tax benefits, duty-free equipment, R&D support, etc.
In 2007, the commerce ministry announced biotech pharmaceuticals as an emerging sector, and in the annual Trade Policy of 2007-08 announced the intention to give pioneer status to biotech pharmaceutical companies. Unfortunately, four years later, this still hasn''t happened. Instead a generic pioneer industry policy has been announced under which it is not clear which type of industry would actually qualify.
Interview by Ali Khizar Aslam