RESEARCH continues to top the list of things the pharmaceutical industry will need in order to produce cost-effective medicines while also being able to absorb shocks in the external front.

The government’s research fund, to which all pharmaceuticals are obligated to contribute, meanwhile remains a mystery with officials prevaricating when the issue is brought up. The successive depreciation of the rupee against the dollar has shifted focus towards the desperate need to cut imports in an attempt to control the ballooning trade deficit.

And no one is thinking about the rising value of the dollar more than pharmaceutical manufacturers, who are almost completely dependent on imported raw materials.

“A lot of drugs are so priced out of the market that companies find them impossible to produce … things will change if you encourage research and development”

The Pakistan Pharmaceuticals Manufacturers’ Association contends that around 95 per cent of the raw material used to manufacture drugs is imported. Unfortunately, the chemical industry in Pakistan does not have the capacity to develop the basic components required.

As the head of a local pharmaceutical company stated on the morning the rupee hit Rs124 per dollar, “I was just discussing with my chief financial officer that it’s time to go back to the drawing board. All the budgets we just finalised are now only useful as recycling paper.”

A casual conversation with a pharmacist working in one of Karachi’s most well-known pharmacies indicates that after the initial price increase allowed by the government last year, pharmacies at least, do not expect another hike.

Contrarily, Dr Kaiser Waheed, chairman of the Federation of Pakistan Chambers of Commerce and Industry’s standing committee on pharmaceutical industry and President Medisure Pharma, likens the situation to a “double jeopardy”.

“The cost of raw material has increased by 50-60pc internationally due to multiple factory closures in China, while our rupee seems to be depreciating continuously. People are upset about the shortage of essential drugs in the market but a company cannot operate at a loss.”

Ayesha Tammy Haq, Executive Director at Pharma Bureau agrees, but with a caveat. Stating that she was unaware of a shortage of essential drugs in the market at the moment, she nevertheless acknowledged a recent update to the pricing policy but agreed that shortages occur because “a lot of drugs are so priced out of the market that companies find them impossible to produce.”

A move by Zulfiqar Ali Bhutto’s government in the 1970’s to ensure cheaper drugs by introducing generic drugs as a replacement of branded medicines was welcomed as it meant a drastic reduction in prices. But, as was expected, it was strongly resisted by western pharmaceutical firms, states a Dawn report.

Generic drugs are “intended to be interchangeable with the originator brand product, manufactured without a licence from the originator manufacturer and marketed after the expiry of patent or other exclusivity rights.”

Pakistan currently produces “branded generics” which industry and regulatory sources believe, are a better option as it ensures the quality of the product. Currently, patients are prescribed medicines by a professional doctor and are not at the mercy of their pharmacist.

The drug pricing policy mentioning branded generics has, as recently as June 2018, been updated. Surprisingly, the move was undertaken after consultation with all relevant stakeholders and under the auspices of a highly regarded former secretary of the Ministry of National Health Services.

Director Costing and Pricing in DRAP, Mr Amanullah agrees that the rupee devaluation has been quite abrupt but he states that under the new pricing policy “the price of a medicine has now been linked to the CPI so that any devaluation or inflation is translated into the CPI in the medium to long term. The advantage of this is the patient won’t be over burdened by the price adjustment and the industry can also adjust to any financial shocks.”

Interestingly, DRAP uses the External Reference Pricing (ERP) mechanism to determine the price at which each drug will be distributed in the market. The ERP uses different countries with similar socioeconomic conditions as a benchmark, with India and Bangladesh being Pakistan’s benchmarks.

The issue with using India as a benchmark is that while there might be similarities in economic conditions, it is also able to benefit from the economies of scale of manufacturing its own Active Pharmaceutical Ingredients (APIs) - the part of a drug responsible for producing its effects.

But Ms Haq believes things will change “if you encourage research and development. India does that. It has 150-160 FDA-approved facilities and contract manufacturing to the tune of around $40 billion. Our contract manufacturing is zero.”

Which leads us to the question of the one per cent of profit pharmaceutical companies are obligated to pay the government for a research fund. Previously managed by the Ministry of Health, the fund is now controlled by DRAP, according to industry sources.

“But nobody knows what’s happened to it and where the money is. You need to ask the government because when we’ve brought it up everybody just tells us they don’t know where the money is,” she says.

Both Mr Amanullah and DRAP spokesperson Mr Sajid Shah claimed ignorance of the fate of the fund, citing it to be outside their purview; although the former did state that “If anyone brings a genuine proposal for research, it can be funded. Recently no such project has come our way.”

Attempts to reach the DRAP CEO were unsuccessful.

Published in Dawn, The Business and Finance Weekly, July 2nd, 2018