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THERE is little hope that chasing and knocking down businesses found violating the drug pricing policy alone will ameliorate the pain of wounds inflicted on financially distressed Pakistanis by the mismanagement of the health sector. It will take nothing less than a major surgery to fix the problem of drug availability and accessibility in the country.

The good news is that after decades of neglect the current government has shown some interest in making necessary corrections in the framework. It seems to want to provide the private sector with a business-friendly environment without compromising on the citizens’ right to affordable health care.

There is a realisation that as long as Pakistan continues to be a net importer of chemicals used as raw material by the pharmaceutical sector, and lacks the infrastructure to enforce standards, the foundation of the health sector will continue to be rickety and unstable. An exposure to exchange rate risks makes erratic price movements sometimes unavoidable.

Amir Kiani, federal health minister pleasantly surprised this writer. In a detailed conversation over phone he came across as a well informed person keen to administer change. The value of sifting the good from bad and winning the drug makers over to implement the agenda of universal health care was not evident in his approach.

Aware of the pressing issues confronting the industry Mr Kiani did not shy away from sharing information and his views with Dawn. He started with the current update on the crackdown underway to nab people responsible for the illegal hike in medicine prices, but did not stop there.

The minister supported leaving market forces to decide the price of non-essential items produced by pharmaceuticals

“We can’t turn the sad situation in the health sector around overnight, but we are working on it. We are determined to make as many corrections as we can, as soon as possible,” he said.

The minister was in full agreement with the perspective of the industry regarding limiting the scope of the pricing control policy to that of basic drugs in the post-patent era. He supported leaving market forces to decide the price of non-essential items produced by pharmaceuticals.

Mr Kiani disclosed that the government is already in negotiations with Japanese and Chinese companies for setting up Naphtha hydrocracker plants. This will allow the local production of chemicals for the drug industry.

“Pakistan is the sixth most populous country of the world. It has a massive and ever-expanding market for medicines, particularly with the introduction of health cards. The country will have a Naphtha hydrocracker plant sooner than anyone expects as it is too risky to be totally import-dependent, particularly in a hostile neighbourhood,” he commented.

The minister said that he is also actively pursuing setting up World Health Organisation certified labs in two cities. “The certification is important as, besides quality control, it will open up the global medicine market for drug exporters.”

Zahid Saeed, president Pakistan Pharma­ceutical Manufacturers Association (PPMA), was not impressed. He expressed concern for the future of the pharmaceutical industry in Pakistan that he thought was unfairly harassed and unjustly penalised.

“No one can force us to carry-on if our ventures are made commercially unviable. The treatment meted out to us is demeaning. Yes, it is highly frustrating and I am waiting for an opportunity to exit the sector myself.

“The market is abuzz with many others working on an exit strategy. The pressure on industrialists is becoming unbearable with margins narrowing in this country. Trading is comparatively less demanding and a lot more rewarding,” he reacted.

With respect to the government’s ultimatum where it obligated drug companies to revise down the prices or deal with sealing of plants and confiscation of inventories, Mr Saeed said he was not given a choice to contest the decision and is, therefore, asking PPMA members (approximately 700) to comply with the court order in letter and in spirit. He warned of plant closures and a possible medicine shortages in the market going forward.

The pharmaceutical companies’ case regarding the increase in drug prices rests primarily on one argument. That a hike in raw material cost, with a rupee devaluation of around 33pc since December 2017, has rendered production of several medicines commercially unviable at the controlled price. This has necessitated an increase in prices to keep the business afloat.

Giving the background of the current turmoil in the sector, a member of the health hierarchy informed that this situation has been building up since 2008. For political reasons the successive governments had been indecisive on the medicine pricing issue despite rising inflation and massive rupee depreciation. In 2013 the PML-N government allowed a 15 per cent increase but took it back within a day owing to public backlash.

Nevertheless, drug companies raised the prices and got a stay order from the Sindh High Court in 2016 when the government initiated a case against the upward price revision.

In early 2018 the Supreme Court of Pakistan intervened and directed the Drug Regulatory Control Authority to respond to 1,400 hardship cases of under-priced medicines. In November the same year, on the basis of a detailed hearing on 889 drugs, the Supreme Court permitted a 15pc increase in 463 drugs and a downward revision of prices of 395 essential medicines.

After the ruling, the industry instantly raised prices in the categories allowed but did not comply with the order that obligates them to revise the prices down as they say it is not viable. The current government campaign is to implement said order.

In its second quarterly report, the State Bank has marked the growing pressure on this industry. “A broad-based decline of 10pc in pharmaceutical production was witnessed during H1FY19, compared to 5.1pc growth during the same period last year.”

It acknowledged that “… the industry is dependent on imported raw materials (about 95pc), and amid frequent episodes of currency depreciation, the cost of their product has increased.

“The escalated costs made production of some products unfeasible at prevailing prices and thus badly hit their production … Extensive delay in adjustment of prices has made investors, foreign and domestic, wary in investing in the pharmaceutical sector.”

The central bank sided with the industry and critiqued the drug pricing policy 2018. It commented on the lack of government support to the industry.

Commenting on the crackdown, a former PPMA president said: “To create the political optics of defending public interest the government has decided to go hard and push the drug industry to centre stage; portraying it as a key culprit, out to squeeze the public dry.

“People afraid of powerful lobbies behind the increase in price of utilities and items of daily use found an easy target in pharmaceutical companies to vent their anger over the growing financial stress.

“We worked well in the framework available. If the framework is flawed how can the industry be blamed? It is up to the government to align the sector with the demands of public health,” he concluded.

Published in Dawn, The Business and Finance Weekly, April 15th, 2019