Osman Khalid Waheed has been president/CEO of Ferozsons Laboratories since 1999. Under him, the company has expanded its portfolio of medical solutions for critical diseases by forging alliances with a number of leading international partners, including the US’s Boston Scientific, Argentina’s Bagó Group and Gilead Sciences. His partnership with Gilead has helped him bring its treatment for Hepatitis C, Sovaldi, to millions of patients in Pakistan at a fraction of its international price.

In a joint venture with Bagó, he has set up BF Biosciences Ltd, the country’s first biotech pharmaceutical manufacturing company. Currently, his company is establishing an export-oriented vaccination manufacturing plant at the cost of $25 million. It will complete by November and can produce 750mn doses of Covid vaccination annually, three times more than the country’s needs. Besides Covid vaccination, it can also manufacture insulin and flu shots.

Recently, he sat with Dawn for an interview on a wide range of issues from drug quality assurance to pricing to undersized markets to export, which have long affected the growth of Pakistan’s pharmaceutical industry and forced many foreign companies to exit this market. Following are the excerpts of the interview:

Q: What are the most pressing issues facing the pharmaceutical industry?

A: Currently, Pakistan is facing many existential challenges. The perpetual liquidity crisis or dollar shortages are the most critical because, as a nation, we do not export enough and whatever we sell to the world are low value-added products.

Our exports are less than 10 per cent of our GDP; hence, we always end up with a large trade deficit, putting pressure on our reserves and current account. For India, this ratio is more than double. Even Bangladesh exports far more than ours.

Many studies have shown that the pharmaceutical sector is one of the industries that can help boost Pakistan’s value-added exports and narrow the trade gap. But we need a supportive environment for that.

Our industry is in a crisis due to unprecedented high raw material prices and the massive devaluation of the rupee over the last several months. The industry’s earnings are squeezing, as is evident from the shrinking balance sheets of listed pharma firms. Eventually, it’s becoming impossible for most manufacturers to import expensive raw materials and sell medicines at their current prices, far below the producers’ cost of production. This crisis often shows up in periodic shortages of medicines.

Going forward, I can say that the shortages may worsen once the raw material inventories are exhausted unless the prices of medicines are increased to reflect the higher production costs. The industry needs strong political support for deregulating the drug pricing mechanism.

A ‘managed’ deregulation process with a 2pc levy on turnover to set up a medicine fund for the poor may be a solution to appease all parties

Q: But drug price deregulation will put most, especially life-saving, medicines out of reach of the vast majority of people, no?

A: The poor should get free medicines. It is the state’s responsibility to take care of its poor. If the government fears that drug price deregulation will hurt them or the low-income people, it can start with ‘managed’ deregulation but enough for the companies to recover their cost and earn decent margins to sustain and re-invest in technological upgradation and quality improvement.

If the government deregulates prices of certain salts and imposes a 2pc levy on the industry’s turnover to finance a fund to supply free medicines for the poor through public-sector hospitals, this will double the federal health budget and help the industry survive, grow and export. That would be a ‘win-win’ situation for all, with the poor getting free medicines rather than subsidised purchases. It’s high time to take an innovative approach.

Q: How has India become a major player in the global supply chain?

A: It’s a source of shame for us as an industry. But ultimately, there is a difference in how this sector was approached in India and Pakistan. They adopted and pursued the right policies; we didn’t.

The problem here is that policymakers assume that we’re all thieves who want to maximise their profit. No investor — foreign or local — thinks on such lines. They don’t invest to make a quick buck and run away with the loot.

In the early 1990s, the government deregulated drug prices but reversed the decision after a couple of months, owing to political noise. India deregulated this industry much later. Yet, today it alone can meet nearly 70pc of the world’s vaccine demand and is a major supplier of the raw materials for the industry worldwide. On the other hand, we totally depend on imported vaccines and active pharmaceutical ingredients.

Drug prices in India are by and large regulated through market competition except in a few cases. Their drug control authority works to improve quality as drug pricing is left to the ministry of chemicals.

India has, thus, strengthened its quality controls, and its pharmaceutical industry has grown as a big exporter along with China.

This strategy gives clarity to investors that they can recover their costs in case of an abnormal price increase due to any factor like rising global commodity rates, currency devaluation and so on.

Unfortunately, it never happened in Pakistan as pricing and quality assurance come under the same ministry. That’s a challenge. This means drug pricing is being over-regulated, quality is under-regulated and hence, we lag far behind India.

Q: Why is the separation of these two functions necessary?

A: It is important because we cannot enter the international markets unless we can ensure quality. Adherence to quality standards helps exports.

Our regulator, the Drug Regulatory Authority of Pakistan, is completely occupied with price-fixing. It has lost focus on quality. Our regulations are limited to controlling drug pricing instead of ensuring the medicines’ quality or encouraging competition.

Pakistan is not even a member of the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme, which basically carries out a standard inspection for quality assurance. Pakistan needs to become its member to thrive.

A company can make quality standards but cannot enforce them. This is where the regulators must step in. It should set minimum quality standards for any manufacturer that wants to operate here, standardise drug laws according to the WHO guidelines, and diligently enforce those standards.

Even Bangladesh has much more flexible pricing when it comes to medication. They don’t compromise on quality. Their manufacturers are US Food and Drug Administration and World Health organisation approved, which Pakistan still doesn’t have. For this to happen, you need a health system that recognises quality first and comes up with severe consequences for non-compliance.

Q: If prices are unsustainable, how has this industry steadily grown and prospered over the years?

A: If you take a closer look at any listed company, it will become clear that there are suffering huge losses or are on the verge of collapse. It’s all documented. The industry’s depressed and undersized because of low healthcare spending.

Pakistan is the world’s fifth most populous country, but its healthcare market is a mere $3 billion. How can 600 plus firms survive in this market? Even though this industry isn’t falling apart yet, if you look at its current revenues, you would know it is barely surviving and not prospering.

We can grow and make inroads into export markets by taking advantage of our expertise in the finished goods industry. But that first requires a stable pricing environment for the industry within the country.

Providing a stable and predictable price regime for the industry will trigger new investment and growth and position the industry for improved exports.

Published in Dawn, The Business and Finance Weekly, September 12th, 2022