E-drug: Drug Prices in Pakistan (cont)
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I would very much like to enter the debate on pharmaceutical pricing in
Pakistan. Let me introduce myself.....I am the Managing Director of Eli
Lilly & Co. in Pakistan, and therefore I suppose, from your perspective,
one of the "enemy". Nevertheless, I step into the proverbial (E-Mail)
"lion's den" because I think it's important that your groups be given the
opportunity to decide upon your lobbying activities based upon a truthful
and factual analysis of the situation here. I regret to say that what you
read in the Pakistani newspapers about drug pricing is a mixture of rumour,
inuendo, half-truths and downright lies. I am prepared to share with you
the facts, backed up by validated data, as someone who has been involved in
the pharmaceutical industry in Pakistan for more than five years and as a
current member of the Steering Committee of the Pharma Bureau - the
association of the Multi-National Companies. Whatever I say here can be
supported by actual data, unlike the newspaper articles which will print
the most outrageous accusations from word of mouth, and usually without
checking the validity of the source data.
Let me, first of all, make some bold, factual, general statements about the
drug industry in Pakistan:
1)The 1976 Drug Act gives the Government the authority to set the prices of
pharmaceuticals
2)In June 1993 the Government introduced the concept of a group of
"Controlled" drugs, some 345 drugs, representing about 70% of the value of
the market, the so-called essential drugs, the prices of which the
Government wanted to control. By definition, therefore, any drug not on
this list would be "De-controlled" and market forces would be the
instrument to control the prices - at least this was the concept.
3)In February 1994 the new government of Benazir Bhutto requested the
Industry to voluntarily freeze the prices of the "de-controlled" category.
Since that date the prices of "de-controlled" as well as the prices of
"controlled" drugs has been totally under Government control. All price
increases since July 1993 for "Controlled", and since February 1994 for
"de-controlled" have been with the express approval and authority of the
Government.
4)For the "controlled" category, the across-the-board increases since July
1993 have been:
November 1994 - 7.5%
January 1996 - 6.5%
November 1996 - 6%
This makes a total of 21% cumulatively in 5 years, with no increase since
November 1996 - a period of 2 years in which the Pakistani rupee has
devalued more than 25%, and local inflation has been around 24%.
5)For the "de-controlled" category, the across-the-board increases since
February 1994 have been:
July 1995 - 15%
November 1996 - 12%
This makes a total of 29% cumulatively in nearly 5 years
6)The prices of high quality, multi-national products in Pakistan are, on
average, lower than in India. Yes, you will site Zantac as being higher
priced in Pakistan, and I will agree with you, and there are several more
that you could quote. But what about the equal number that are much lower
priced in Pakistan ? I have a validated survey that proves my point.
Talking of India, why would you even expect drug prices to be lower in
Pakistan, because no other commodities are, from newspapers to motor cars,
and T.V.'s to pizzas?
Why, because India has nearly 1 billion people, significant economies of
scale and very much lower manufacturing costs. As far as drugs are
concerned, India has 28000 small, local companies competing for the cheap,
generic business, but the Indian people have far less choice of quality
drugs from the multi-nationals than does Pakistan - of the top 120 branded
products in Pakistan, only 44 of them are also available from the
multi-national company in India. The Pakistan people enjoy the widest
choice of high quality medicines in the whole South Asian region.
To summarise the situation............the stringent pricing controls by the
Government of Pakistan is unfair, discriminatory and unconstitutional. It
is quite wrong to control the end price of a commodity while having no
control over the increasing costs of inputs. Costs have risen by more than
90% in the last 5 years, while prices have gone up overall, on average by
about 25%.
No-one in the Industry wants to raise prices just for the sake of it,
because it inevitably affects volume, however price increases are necessary
as a consequence of escalating costs. In a society where inflation is quite
high, and the currency is regularly devaluing, the local rupee prices of
all necessary items will inevitably rise - note the increases in recent
times of lamb, wheat, rice, lentils, chicken, petrol etc. etc. - why should
the prices of drugs be excluded from this cycle ? Anyone who has visited
Pakistan will be well aware that the price of quality branded
pharmaceuticals here are among the lowest in the World, and here's the
crucial point.......for how long can this Industry be expected to maintain
the supply of these quality medicines when the profit margins have been
eroded so dramatically in the last few years ? Mr.Asma Siddiqi makes the
point in his message that the people might have to
fall back on the "cheaper substandard or fake drugs." This might well
happen, not because the quality drugs become too expensive, but because the
companies will, inevitably begin to withdraw from the market the loss
making products.
Of course the Government of Pakistan can force down the prices of drugs if
they wish, but they should consider the possible consequences......the
quality brands will disappear from the market, as the cost of quality
becomes too much to bear, and the people will end up with an ever
diminishing choice of quality drugs.
I am happy to research and answer any specific queries that anyone might
have about specific products and their price changes over recent years,
indeed I have a database containing the prices of ALL pharmaceuticals in
Pakistan, both from multi-national and national companies, since 1992. I
can also share with you our data regarding price comparisons with India.
Please bear in mind that no price can be increased without the approval and
authority of the Ministry of Health.......so what you read in the
newspapers about illegal price increases of huge proportions is simply
untrue, and I am happy to prove it if you wish. I know that I have gone on
at some length here, but it is in the belief that your motives are genuine
and that you really do want to know the facts about the industry here. Our
goals are the same, I'm sure, and that is better and better health care for
the Pakistani people, which includes the consistent supply of high quality,
cost effective medicines. I happen to believe that this goal will be best
achieved by Pakistan retaining a strong, profitable, high quality
manufacturing industry. The current Government's policies, however, are
damaging this industry, leading to reduced investment, downsizing and,
ultimately the withdrawal of many quality brands, if not the companies
themselves. The field will then be clear for the cheap, low quality, even
spurious, companies to drag Pakistan backwards in terms of improving
health care. I believe that groups such as yours should be supporting the
companies that are committed to quality, both National and Multi-national,
to be granted fair and reasonable price increases so that we can continue
to provide a wide range of quality products for the people of Pakistan.
For your information, I include below the summary which we have submitted
to the PhRMA. This, and what I have written above is the truth, and I would
be happy to clarify any points, and back up my statements as required.
Keith Watson, Eli Lilly, Pakistan (Pvt.) Ltd.
Summary to the PhRMA:
Price Controls and Forced Price Reductions
Although the government had committed itself to allowing annual
price increases, utilising a formula which considered currency devaluation
and local inflation, the last price increase was allowed in November
1996. Even when price increases were allowed they were substantially
below the indexed figure which represented the true cost increases which
the industry had to bear. It is now two years since the last increase
and we are seeking your support to ensure that the Government allows price
increases immediately, and at a level which will be sufficient to stem
the dramatically declining profitability of our industry during recent
years.
This dramatic decline in profitability is driven by:
- a cost increase of 90% over the last five years generated by three
factors
- an inflation of 76%, a devaluation of 85% in relation to the USD,
and an introduction of customs duties of 10% beginning July 1996.
- Insufficient price increases which do not compensate for the cost
increases:
For Controlled drugs, the price increase was only 21% in the last five
years
For Decontrolled drugs, the price increase only 29% in the last five
years.
� The government imposed compulsory price reductions on targeted
products which were based on an unjustified price comparison with India.
Two other recent developments which harm the industry significantly
and have enormous impact on pricing decisions include:
� Show Cause Notices : with political pressure for cost containment,
many multinational companies received Notices with orders to reduce prices
of products by 30%. After negotiation, the industry agreed on reductions
ranging from 5-28% on 21 packs of 17 products. (Double that number were on
the original list). The drive behind this move is political and the reason
given is the prices which prevail, for the same products, in India.
Utilization of prices applicable to the Indian market are inappropriate
when applied to pricing of pharmaceuticals in the Pakistani market. India
has significantly lower cost base for all materials, utilities and employee
costs; and the purchasing power of the average Indian is significantly
below a Pakistani. In addition, all prices have, in any case, been
approved by the MoH.
Furthermore, they ignore all those products where there is much lower price
in Pakistan than in India.
� 119 High Price Products : Apparently the MoH has a list of 119 packs
of 56 products, including those already targeted, they consider to have
high prices (again the rationale is that price of these particular products
in India). The likely outcome is that when prices are increased, these 119
presentations will not be allowed any increase.
This data clearly demonstrates the serious difficulty facing
the pharmaceutical industry. No other industry has been put under such
stringent price control; and no other industry has been forced to reduce
prices. Given the significant level of foreign investment and
international quality of locally produced products, it is only fair
that the government seriously consider the negative impacts of the
current economic environment upon the industry when making decisions
regarding the price increases which are now due. In order to return to
the profitability level of four years ago (i.e. 1993) 1038(I)94 formula.
However, the industry understands that such a large increase cannot be
approved by the government for political reasons.
Furthermore, the industry would not wish to burden the people for
humanitarian reasons.
In order to return to an acceptable minimum profitability level, we
propose:
1. Immediate implementation of price increases for controlled products
recognising that the increase due now is for a two year period from
November 1996 to November 1998. A figure in excess of 20% will in no way
compensate for the historical shortfall but will allow the industry to
maintain supply of high quality products.
2. The government must commit to honouring annual price increases for
controlled products in future, according to an acceptable formula, which
will enable the industry to plan for the future with some confidence.
3. Either remove Customs Duty or allow a compensation in price increase.
Note the increase must be to maintain margin not simply to pay the duty.
Hence, since approximately 65% of industry cost base is imported material,
the extra increase must be 6.5%.
4. Withdraw all notion of a high priced group products on which no
increases will be allowed and stop selective comparisons with India.
5. Introduce free market driven pricing for the price decontrolled
products (i.e. abolish any control over these prices.
Keith Watson, Eli Lilly, Pakistan (Pvt.) Ltd.
Email: WATSON_KEITH@Lilly.com
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