‘Pharmaceutical needs to be treated as an industry’

An interview with Ayesha Tammy Haq, Executive Director, Pharma Bureau

BR Research recently sat down with Ayesha Tammy Haq, who has been associated with Pharma Bureau for many years. She currently serves as the Bureau’s Executive Director. Below is an edited excerpt of the conversation that discussed Pakistan’s pharmaceutical industry’s state of affairs, the policy issues, recommendations and outlook.

BR Research: Pharma industry has forever been at loggerheads with the governments as regards the overly regulated status and the cap on pricing. How have the things changed under the new regime, if at all?

Ayesha Tammy Haq: The industry is no doubt in a much better place than it was before. We have a policy which came out last year. It was a policy where the industry and the government sat together, and the Supreme Court also got involved subsequently. We now have a very proactive and excellent Health Secretary, who understood the problem and also the fact that there are patients who cannot be hit with huge price increases.

There was also a realisation of the fact that prices had been frozen since 2001. The cheapest drugs were the ones being most impacted and the ones disappearing from the market. The Secretary got all the stakeholders to sit together and work out something whereby you would have a policy that could sustain not just the pharmaceutical industry but also access to quality medicines.

The key here should be access to quality medicines. According to the Special Advisor to the PM and the Minister of State for Health, Dr. Zafar Mirza, there are 900 companies registered in Pakistan with a total market size of $3.3 billion. About 95 percent are represented by less than 100 companies. The Minister was concerned about what the other 800 were doing.

BRR: Why the worry? Why can’t smaller companies coexist in the pharmaceutical industry?

ATH: The worry stems from the quality point of view. The entire pharma conversation in Pakistan has revolved around price, which should not be the case. It should be about quality.

BRR: But then the industry in general and Pharma Bureau in particular have been too critical about pricing too.

ATH: If you look at any place in the world, medicine prices are not controlled anywhere like they are controlled in Pakistan, especially in a country with manufacturing units. We need to deregulate the industry in Pakistan and let competition come into play. And the only area where the government should be regulating is the quality aspect.

BRR: Are you proposing a complete deregulated regime?

ATH: Yes, I think there should be deregulation because you are saying either you produce quality or you go out of the market. There are hundreds of companies registered to produce one product, and not more than a handful eventually produce. If you deregulate, you will have these companies competing with each other. When there is competition, companies would want to put the lowest possible selling price, and not the other way around.

BRR: Would that lowest possible price still be higher than the prevailing prices?

ATH: I do not know, but if you look at other countries, the prices always come down. Look at the telecom sector, from extremely high prices to what it is today, that is all because of encouraging competition and deregulation.

BRR: But you do understand that Pharma is a considerably more sensitive issue than telecom?

ATH: Yes, I understand but the principle stays the same. If you are a telecom company, and you are never connecting, you are not going to stay with that company, and make a switch. But the price has come down to nothing. Obviously, with medicines you will have some fixed costs, but if a company wants to compete, they will naturally set realistic prices.

BRR: How are things in neighbouring countries such as India and Bangladesh, in terms of pricing and overall sector deregulation?

ATH: We are cheaper than both India and Bangladesh, and they are barely regulated. In India it is about 300 and in Bangladesh about 120 products that are regulated. But in Pakistan, every single product is regulated. My suggestion is that you trim it down. You can have a list of essential drugs related to common diseases, and control the prices of those. But you have to allow some minimal increase in price in line with inflation.

BRR: How much increase has been allowed in lieu of inflation?

ATH: The industry, right now has been hammered in terms of inflation, currency devaluation and fuel prices. The costs have gone up exponentially, but the industry has only been allowed 7.3 percent in terms of CPI.

BRR: Are you suggesting a higher increase than the CPI?

ATH: Currency devaluation alone has been close to 40 percent in one year. The industry would prefer devaluation to be incorporated in price revisions, which is currently not the case.

BRR: To get a better sense of currency devaluation impact on overall costs, how much of the total is imported content in terms of input?

ATH: All the Active Pharmaceutical Ingredient (API) is imported, and it varies drug to drug. The thing is that the API goes into locally manufactured products, but a lot of products are also imported into Pakistan. If I am importing a product, and the rupee at the time of placing my import order was 110, and now it is 160 – I have to incur that loss, as I am not being factored in for that.

BRR: How have the big MNCs and local Pharma companies managed to stay afloat in times of such distress? The books do not look as bad.

ATH: But they are not that great either. Some of the companies are barely at breakeven. Some companies may look to be doing ok because of the consumer side of things, but the pharma business is still hurting. What I find problematic that it is not treated as an industry or a commercial venture. It does not even come under the Ministry of Industries.

In the Punjab, they had changed the whole manner in which the tenders worked, with all the emphasis put on quality. The whole ethos behind is to ensure quality medicines to those opting for public hospitals. The Government of Punjab bought medicines from prequalified companies, who meet all the quality and standard criteria. They had to send the products to England for testing, and the reports were then sent to the provincial government. And only then was the product accepted.

BRR: Does that practice continue?

ATH: No, it does not. The focus is not quality now.

BRR: Are you satisfied with the role of the Drug Regulatory Authority of Pakistan, especially in terms of receptiveness to the industry?

ATH: The fact that we now have a policy could be termed an improvement. There is a lot of work being done, in terms of more frequent board meetings. But you get past registration, and then pricing does not move at the same pace. They do not have enough pricing meetings, which should be every month, but the last one was held in February. The pricing meeting should always follow the registration meeting.

BRR: Are the foreign companies still quitting the scene or has that trend stopped for the while?

ATH: They are still quitting. The last one to go was Merck and now Wyeth is in the process. The MNCs were 80 percent of the market not so long ago, and now they are 40 percent.

BRR: Does that mean the quality is also coming down?

ATH: No, it is not. The MNCs in business along with the good local companies are producing good quality products. The quality is there, but a lot of products are disappearing from the market because they are not viable to manufacture.

BRR: Do we import them?

ATH: No, they get smuggled in. And when that is the case, you don’t know if it is genuine, you are unaware of its quality and whether the cold chain was maintained in the process.

BRR: The Pharma Bureau has previously highlighted the issue of lack of Ephedrine availability. Could you please elaborate on that?

ATH: Ephedrine is a controlled substance and it issued in cough and cold preparations. This is a perennial problem where the Narcotics Control Board delays the allocation of quota. For example, I am a company that needs to have the required Ephedrine quota by a certain date in order to get things ready and the product in the market before the cough and cold season starts. If they hold the meeting in August, and give it in September, and by the time the quota is allocated, it is already October, which puts us behind schedule. This kicks in shortages.

Every year the demand is increasing, but the quota is not increased, which is another reason for shortages.

BRR: Given that the neighboring counties have many USFDA compliant pharmaceutical companies, whereas Pakistan has none, what does it take to be compliant to the USFDA?

ATH: It takes a great deal of investment in systems, where you have to upgrade the plants to a certain level. Once you hit that quality standard in terms of systems, you can then export the products to the US and anywhere else in the world. The problem is that unless you are assured that you will be able to export, nobody is going to invest millions of dollars in the system upgrade.

The problem with export is that for exports at competitive rates, you need to have pricing close to the international prices, which is not the case here, as the current price will not cover the cost of USFDA certification.

BRR: Did the Supreme Court order allow the devaluation impact to be incorporated in prices?

ATH: The Supreme Court order said that the government should make an assessment and make room for the devaluation impact in prices. The relief was extended for a brief while, but they took it back. What we want for the government to do is to follow the law. Any business needs perceptibility to run efficiently. Massive fluctuations in currency and interest rates have disrupted all business plans.

BRR: But wasn’t it seen coming?

ATH: It was, but how much was seen coming is the question. We had asked in the drug pricing policy for an automatic trigger in case of devaluation of more than 5 percent, to adjust the prices by a certain percentage. There is nothing to suggest that the rupee will come down from where it is and that creates big holes. The provision to provide cushion for currency depreciation must be provided.

BRR: The pharmaceutical industry has been seen demanding preferential treatment on electricity and gas at tax-free rates. This does not sound right.

ATH: Why? Doesn’t the textile industry get the same benefits?

BRR: It does but then textile is an export oriented industry.

ATH: How much do they export?

BRR: Somewhere close to $13 billion per year.

ATH: How much are carpets exporting? Not even $80 million, whereas Pharma exports are over $200 million at the moment, which could go up to a billion dollars in four years. And we get no subsidy at all. If you are not being fair on pricing, give the industry some leeway elsewhere. The price of textile is not controlled, but ours is.

BRR: If preferential treatment on gas and power can make such a big difference, what percentage of the cost is fuel and power for pharma industry?

ATH: Everything makes a difference, when the price is so controlled as it is. Where you have all these industries that get subsidies, it does not seem fair that pharma gets none of it.

BRR: There has been a lot of talk about contract manufacturing and the continued refusal from the government to allow it. Tell us more about it.

ATH: Contract manufacturing is for instance, there is a local company or an MNC and your plant is under capacity, and a foreign company approaches you and is satisfied with your plant and is ready to transfer technology. In return, the local company in Pakistan manufactures the product on their behalf, which then gets exported or be sold in the local market.

BRR: What stops it?

ATH: The government has heavily restricted contract manufacturing business.

BRR: Why?

ATH: I can’t say why; these are existential questions. India’s contract manufacturing is $36 billion. It is all about control unfortunately, and the idle units and skilled labour go waste. We have been asking them to do it for years, for which the government needs to change its rules, which are currently extremely restrictive. Forget all subsidies for a moment, if they just fix the regulations that hamper contract manufacturing, they can earn a billion dollars within four to five years, without having to spend a rupee.

The only people spending money will be the parties involved where there will be additional economic activity, more investment flowing in, technology transfer and more employment. Pharma is the easiest fruit to pick from all the three industries that the famous McKenzie report highlighted as sunrise industries of Pakistan, all those years ago.

BRR: Where it should start from? Should deregulation be the first step?

ATH: I think there are two important aspects. One is to deregulate while maintaining an Essential Drugs List, because you cannot ignore the fact that we have a poor population. At the same time, rationalise the EDL prices, by allowing room for devaluation impact. Decontrol the rest of the market, and let the companies fight it out between themselves, without a compromise on quality. Those producing quality at reasonable price, will be the ones to stay.

Second thing is to allow contract manufacturing to raise exports, and generate massive employments. The pharma industry is the largest employer of university graduates, which could be doubled if contract manufacturing is allowed.