LHC’s decision to help boost Pakistan’s pharma sector: brokerage house

The Lahore High Court’s (LHC) decision to nullify the stayorder against the deregulation of Maximum Retail Prices (MRPs) of non-essential drugs bodes well for the country’s pharmaceutical sector, stated a brokerage house on Thursday.

“It is expected that the deregulation will have a positive impact on the profitability of pharmaceutical companies, especially companies with a significant proportion (+50%) of their revenue from non-essential medicines i.e. HALEON, ABOT, AGP, and HINOON,” said Arif Habib Limited (AHL), in a report on Thursday.

In February, the outgoing government, on the recommendation of the then Ministry of Health to overcome supply-side issues, approved deregulation of non-essential drugs, allowing the industry to raise prices independently.

“Under these proposals, prices of medicines other than essential medicines in the national list will be exempted from the Drugs Act, 1976 and necessary amendments will be made in the Drug Pricing Policy 2018,” AHL’s report read.

“As per the Drug Policy 2018, the market retail price of pharmaceutical products became linked to the Consumer Price Index (CPI) on July 1, 2018. This pricing mechanism enables pharmaceutical companies to notify the Drug Regulatory Authority of Pakistan (DRAP) of price increases 30 days in advance without the need for prior approval,” it added.

As per the report, the DRAP pricing policy 2018 classifies drugs into two categories: essential and nonessential.

“Essential drug prices can be increased by up to 70% of the annual CPI or a maximum of 7%. On the other hand, for non-essential drugs, prices can be increased by the full annual CPI, with a maximum allowable limit of 10%,” read the report.

Last week, Topline Securities, in a report, said that the earnings of Pakistan’s listed pharmaceutical sector were down 42% YoY to Rs7.9 billion in calendar year 2023.

“This decline is primarily attributed to a decrease in gross margins and increase in finance cost,” it added.

The report said despite higher revenue (up 17%) that clocked in at Rs274.5 billion in 2023, mainly on account of increase in drug prices, companies were “unable to sustain gross margins”.