The price conundrum
AFP Photo
Medicine prices have gone berserk once again. There have been two earlier times this has happened over the last three decades. The first one was when the PML-N government “de-regulated” price control in 1993 and medicine prices as a result went through the ceiling – rising in some cases to more than 600 per cent. It happened again in 2000 under Musharaf’s regime and again the price increases knew no bound. This time it is the PPP government which raised prices beyond any rational and they have gone up to 600 per cent.
Is there anything more going on here than meets the eye? Oh yes. Every time this happened there was behind-the-scenes plotting and big bucks were made.
The prime beneficiaries of price de-regulation of 1993 were the 150 odd local manufacturing companies of pharmaceutical products. This new policy made so much money that the Ministry of Health insiders had alleged that the PML-N health minister bagged rupees 23 crores from these companies – from which the money went to fund the successful election campaign by the party.
The price de-regulation policy changed the pharmaceutical market’s composition and dynamics forever. The erstwhile multinational companies dominated the market where the multinational to local companies share of the market was 60:40 was turned around in favour of the local companies and in a couple of years time it became 40:60. Now local seths were calling the shots and had dominated the Ministry of Health policy. Over the years this ratio has further turned in favour of the local companies whose number has risen to more than 500.
Not that the multinational companies were the losers in the real sense and together with the locals they had made enough profits through price increase and hence did not make any serious attempt towards another increase for the next seven years.
Musharaf’s arrival in power, however, lead to flexing of the muscles again and this time the campaign was lead by the multinationals who were upset on having lost the market leadership. Huge price increases were allowed again in 2000 and along with it came the sales tax (15 per cent) on medicines. This lead to a massive civil society uprising against the increase and while the increase in prices was put on hold the sales tax was withdrawn. The prices continued to rise but in small number of medicines at a time so that there was no big civil society response against it.
Now with the change of the Musharaf’s government, pharmaceutical manufacturers started their act all over again and were crying themselves hoarse on their “huge losses” and threatening the government of massive medicine shortages, suspension of supply and reduction in investments if their demands for big price raise were not met. In the meanwhile, there was an almost complete breakdown in the pharmaceutical regulatory machinery.
There has been no drug regulation of any kind in the country now for the one year. A Drug Regulatory Authority was announced last year under a constitutional package but it has yet to see light of the day. Prices of some 350 medicines in Pakistan were increased recently up to 600 per cent in the wholesale and retail markets across the country.
While it would be difficult to tell who was at the helm of pharmaceutical industry affairs in the government, one thing is very clear – ‘they’ have succumbed to the industry’s threats and offers. Taking advantage of the expected increase in prices of medicines, majority of pharmaceutical companies had already stopped supply of their products to the markets – hoarder distributors made windfall profits overnight at the cost of helpless consumers.
The reality of the matter is that the pharmaceutical industry in Pakistan is far from making any losses – they have been reaping unprecedented profits with a very healthy 20 per cent growth in rupee terms last year. The Pakistani-owned component of the industry, which has been particularly active in the price increase campaign, has further consolidated its market share last year.
Table 1 shows the actual Rupee sales and increases over the last one rolling year in the leading therapeutic categories. These categories make bulk of the total turnover of the approximately USD 2 billion annual market.
Table 1:
Now compare this with the economic growth in the rest of the country as shown the Table 2 teetering at 2.4 per cent and it leaves no doubt in one’s mind that my pharmacy brethren are having the time of their lives reaping high yields and making money big time. But it is never enough and why not twist another arm and use your uncontested power to get more and more.
Table 2:
The economy figures and the industry complaints can’t both be true at the same time. Who is to be blamed for this: the industry which never misses an opportunity to make a quick buck, the ethereal regulator who is conspicuous by absence and collusion, or the consumer who does not even know how to properly complain? Perhaps all three of them?
Ayyaz Kiani is a public health specialist who travels widely to work on public sector health development.
The views expressed by this blogger and in the following reader comments do not necessarily reflect the views and policies of the Dawn Media Group.
A good description of the crisis and manipulation for profits. Who and how is anyone going to bell this cat? Eh:-)
very well written
Anybody can buy any medicine or any drugs they want/like.There is absolutely no prescription required by consumer to buy any drug or medicine in Pakistan…
Sorry. But pharmaceutical companies are new in this busisness, and they are not making any profit. Not only that should be permitted to charge higher prices, they should also be exempted from all taxes., just as our landlords are!
Yes all three of them but it does not end here. Who will do, how and when? There are similar grave loop holes equally in almost all sectors including education, agriculture and governance. Can we stand up for ourselves? I literary doubt because we have been corpses!
The US R&D Pharmaceutical industry has a had a long history of earning abnormal profits even in the periods of economic recession. The main source of such success is the various types of exclusivity granted by the government, on the pretext of encouraging development of new drugs. Such exclusivities allows the R&D industry to keep their prices quite high, which includes a high profit margin as well. However, generic pharma industry does not have any such exclusivities. But they also do not have a high R&D outlay. At least theoretically, the cost of making the first tablet may be hundreds of millions but that of making an additional pill is quite low, in some cases may be close to even zero.
Yes. This is the history.
The US R&D Pharmaceutical industry has a had a long history of earning abnormal profits even in the periods of economic recession. The main source of such success is the various types of exclusivity granted by the government, on the pretext of encouraging development of new drugs. Such exclusivities allows the R&D industry to keep their prices quite high, which includes a high profit margin as well. However, generic pharma industry does not have any such exclusivities. But they also do not have a high R&D outlay. At least theoretically, the cost of making the first tablet may be hundreds of millions but that of making an additional pill is quite low, in some cases may be close to even zero.
In a country, where consumers do not complain on escalating prices of milk, sugar, onions, potatoes and what not, which are sourced from an informal sector, what response can we expect against a somewhat powerful lobby of local and international pharma companies? The consumer associations in Pakistan have failed the consumers and the consumers have failed themselves.
It is a fair enough perspective. It will however help if data on 150 drugs’ price comparison is provided, that is pre and post price-increase to determine the comparison with international prices. On that note, prices in Pakistan are now incrementally reaching at par with global prices, such as meat, milk etc. – medicine is no different. If nothing else it should 1) encourage foreign investment; and 2) discourage loose consumption of the drugs. Nevertheless, a very clear policy and strategy is much needed in the sector that Kiani sahib you’ve well addressed!
Fantastic Kiani Sb, that's great to shed light on this important issue
How about opening markets to India ? That would scare them to bring the prices down. Prices are quite cheap in India due to competition.. The common man shouldn't suffer due to vested interests..
23 crores sounds like a peanut compared to India scandals of 2300 crores!!!
2300 crores only? Peanuts man. Add two more ciphers. add another one if you wish.
Well done in bring the issue to the lime light.
As it suggests PML (N), Musharraf (aka: PML Q) and PPP all have stained their hands with the blood of poor in the name of price hike in medicines. Obviously, i presume (though, the author has named PML-N only) that all of these parties had a lion's share out of the total loot money.
Think wise guys when you go for a ballot this time around!
A suggestion could be to for someone to unearth the scams in the car import duties in collaboration with multinational giants (but it worries me less as it does not affect the ones who are struggling to tie both ends together, yet a scam is a scam!)
Good one, Ayyaz. Media needs to listen to such voices and such focused public interest views instead of wasting energy on converting trivia into breaking news.