PHARMACEUTICAL companies and the Drug Regulatory Authority of Pakistan have been at loggerheads for a long time now. While there is a consensus on raising drug prices — which have remained frozen for many years — the dispute rests over the pricing methodology.

The secretary of the Ministry of National Health Services Regulations and Coordination, Ayub Shaikh, says he has put forward three proposals: reference pricing, cost-plus pricing system and average pricing.

While the Drug Regulatory Authority of Pakistan (DRAP) is bent upon imposing the average pricing method, the stakeholders — including representative bodies like the Pakistan Pharmaceutical Manufacturers Association (PPMA), the Pharma Bureau (PB) and the Pakistan Chemists and Druggists Association (PCDA) — have rejected the mechanism, terming it ‘arbitrary’.

The pharmaceutical sector stakeholders are vying for the reference pricing system, which they believe is transparent and justified. However, DRAP has expressed reservations over the reference pricing formula for want of availability of reliable data and the absence of an industrial base in the Saarc region, with the exception of India and Bangladesh.

The third option of ‘cost plus basis’ is believed to have been put aside as being too complicated, as it would have involved a ‘one-on-one’ engagement between the industry and DRAP.

The industry also complains that the average pricing formula does not take into account the quality standards of each player. Pharma sector analyst Ahmed Lakhani at Arif Habib Limited admits that of the three methodologies, the average pricing method is the least favourable for the sector.

The members of the policy board understand that price reduction is not the answer during the making of the pricing policy, and that the policy should be a visionary document for the future growth of the pharmaceutical industry — PPMA Chairman Saeed Allawala

“It stipulates, for instance, that if Panadol and Dispirin were the only two available brands of Aspirin and are sold at Rs15 and Rs10 per pack respectively, the average fixed price would be Rs12.5 per pack,” explains the analyst.

The head of a major pharmaceutical company stated on the condition of anonymity that larger companies and multinational firms would go out of business given their substantial overhead costs and the supply of quality raw material by their parent companies. On the other hand, smaller companies with least quality control and push illegal or counterfeit drugs would jump with joy as they would reap huge benefits.

According to industry sources, there are 564 pharmaceutical producers in the country. “The 50 leading producers command 85pc of the market share, while the top 100 companies enjoy as much as 96pc of the market share,” disclosed the CEO of a multinational pharmaceutical company.

He said the rest of the 464 companies — which have just a 4pc market share — can scarcely muster Rs50m in annual sales on average. “The price of the same drug made by the top 10 would necessarily be much higher than that made by the smaller players, which is why the industry believes the average price mechanism is unjustified,” he said.

The tangled case of the pricing methodology has been dragged to the courts. The Sindh High Court gave numerous deadlines to finalise the drug policy. Yet the deadlock has persisted.

But now hope seems to be in the air. PPMA Chairman Saeed Allawala told Dawn on Thursday that in the policy board meeting on December 16, good sense had prevailed among the board members, who understood the need for the industry to grow and expand and become an international player, like its peers in India and the upcoming Bangladesh.

He asserted that the members responded well to the need of rational price adjustments, which would foster growth of the national industry without compromising on quality assurance. “The members understand that price reduction is not the answer during the making of the pricing policy, and that the policy should be a visionary document for the future of the pharmaceutical industry,” the PPMA chief said.

There are nine listed pharmaceutical companies, with a market capitalisation of Rs207bn. They account for 3pc of the aggregate market capitalisation of over Rs7trn of the 557 or so companies listed on the stock exchange.

Meanwhile, the State Bank of Pakistan has also continued to express its concerns over the prevalent affairs in the pharmaceutical sector. A week ago, a SBP spokesman said the pricing of medicines had become a contentious issue, leading either a severe shortage or annulment of many important drugs.

And in its annual report for 2013-14, the SBP wondered ‘what can be done?’ and then listed its recommendations. They included the formulation of a formal drug policy, prioritisation of life saving medicines in the list of drugs awaiting registration (and renewal of licences), to curb the influx of illegal medicines. It also recommended that DRAP effectively handle issues related to the manufacturing, export, import, storage, distribution and sale of medicines in the country.

Published in Dawn, Economic & Business, December 22th , 2014