The pharmaceutical industry consists of 759 manufacturing units, including those operated by 25 multinational companies.

The last pharmaceutical company to be listed on the stock exchange was AGP Ltd — the eighth largest pharmaceutical group in the country — which offered 35 million shares or 12.5 per cent of the company’s capital to the public. It stood out as the first company in the pharmaceutical sector in 23 years to offer an initial public offering (IPO).

AGP Chairman Tariq Moinuddin Khan affirmed that the ratio of foreign to local companies in the country’s pharmaceutical sector was 70:30 a decade ago. “That has now changed to 70 locals against 30 foreign firms,” he said.

‘If drug companies are unable to cover costs, some of them may compromise on the quality and efficacy of medicines’

Industry sources say that local companies meet around 70pc of the country’s demand for finished medicine. The industry recorded a 22.6pc increase in value in 2017-18 and 17.8pc rise in volume. By 2020, the pharmaceutical market is expected to be valued at Rs312 billion.

The issue of maximum retail price (MRP) of medicine has forever been controversial. The simmering battle between the companies and the regulator came out in the open this year. Following the directives of the federal government, the Drug Regulatory Authority of Pakistan (Drap) launched a crackdown in mid-April on the unauthorised hike in drug prices by pharmaceutical companies and pharmacies.

According to Intermarket Securities Analyst Yusra Beg, the issue was about the price hike on aged inventory, 9-15pc increase in the rates of already overpriced drugs and the mislabelling of prices by pharmacies.

Drap had announced a revision in MRPs for over 800 hardship drug cases — downward revision in some cases — in December last year. It was followed by a 9pc increase in the prices in remaining hardship cases and a 15pc hike for all other drugs in January.

This was commensurate with the impact of the rupee devaluation. The price revision in hardship-case drugs was allowed after three to five years of wait in some cases. In order to remain competitive, pharmaceutical companies raised prices by seven to eight per cent on average on new batches. However, reports indicated that a much higher price increase was observed in MRPs on routine visits to pharmacies by Drap officials across the country in April 2019.

The Pakistan Pharmaceutical Manufacturers’ Association (PPMA) clarified on April 8 that the news about the overpricing of certain drugs was baseless and misleading. The PPMA affirmed that the government had allowed that prices could be increased by 15pc to neutralise the impact of the devaluation — a move that was also endorsed by the Supreme Court.

Moreover, the PPMA contended that the prices of around 450 products were increased by more than 15pc. Those were the hardship cases pending for the last 10 years and were approved by Drap under the Supreme Court directives. Ten days later (April 18), the manufacturers’ association announced a decrease in the prices of 395 essential medicines whose rates had been reduced by the regulator but the pharmaceutical industry had not implemented the decision. It also announced that the prices of 464 medicines would be voluntarily cut by 10-15pc.

Talking to Dawn, PPMA Chairman Zahid Saeed said the industry has suffered a crowning blow by the 38pc devaluation of the rupee since January 2018. He said it was impossible for the industry to make plans for the future while the rupee continued to tumble.

“All they can do is make speculative forecasts,” he said, adding that the volatility of the rupee had also forced companies to put the launch of new products on hold. Referring to the already notified 42pc hike in gas prices, he said the move would heavily increase the cost of production.

He said he expected an increase of around 40-45pc in the electricity tariff in the next budget besides a rise in the minimum wage, which would further burden the industry. He asked why the pharmaceutical industry did not receive subsidies if the same could be extended to cement, sugar and fertiliser industries.

The PPMA chairman also complained about the liquidity crunch as tax refunds of Rs350bn (across all industries) remain unpaid. “In the absence of refunds, the industry has to seek loans from banks, which have increased interest rates to 14pc-plus.”

Mr Saeed said that medicine prices were supposed to be adjusted in July every year in view of the consumer price index (CPI). But there were procedural issues.

Although Drap is an autonomous body, its role has been compromised of late. It seeks approval from the Ministry of National Health Services, which passes on every matter — however trivial — to the cabinet before implementation.

Urging the government to slash duties and taxes on the import of raw material, including packaging material, he said the pharmaceutical industry contributed Rs50bn annually to the national exchequer.

If pharmaceutical companies are unable to cover costs, some of them may compromise on ‘good manufacturing practices,’ which will inevitably impact the quality and efficacy of drugs, Mr Saeed stated.

In order to remain even marginally profitable, many companies that currently produce effective drugs may be forced to switch from expensive to cheaper molecules for protecting their gross margins, he added.

Published in Dawn, The Business and Finance Weekly, May 27th, 2019