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April 10, 2015



New drug policy

The recently approved drug policy has been hailed as a positive step towards fixing the shortcomings of the earlier policy. However, the chances of success of the new policy seem rather slim. This scepticism stems mainly from this writer’s research on the pharmaceutical sector, carried out with the generous help of Prime Institute and FNF.
There was little or no mention in the policy of protecting patents or copyrights of the manufacturers. This is as important an aspect of the pharma industry as the pricing of drugs. And the reason for that is not hard to understand. The development of a new drug or a new chemical entity (NCE) requires considerable financial investment. This represents a fixed cost, a cost that the manufacturer intends to recoup over time with the help of market price and a patent.
A patent essentially protects the drug from being copied and produced by others, and sold for a lower price than the original drug (the originator brand). In the absence of patent and copyright laws, there remains little incentive for research into new drugs and investing billions in financial resources.
Anyone with even a rudimentary understanding of the pharmaceutical sector in Pakistan knows that patent or copyright laws are either nonexistent, or exist only on paper. Hence, there is no incentive to do research, innovate and invest financial resources. Unlike other products (like technological gadgets), a drug is relatively easy to copy and produce once the formula is known. The job of those who produce counterfeits is made easier by the dosage information printed on the pack. In a country where an estimated 40-50 percent of the drugs sold are counterfeits of the originals, there is an urgent and critical need to enforce patent and copyrights.
Yet the new drug policy remains largely silent on this, especially on the ways and means to implement copyright laws. The only mention of a patent, as far as one could tell, was the outlined relations between

an originator brand and its generics (substitutes). Yet again, the emphasis was all upon pricing and reduction in prices of original brands after a certain period of time. What this implies is that counterfeits will remain ever present in the future. It is pertinent to remind the reader here that counterfeit medicines, in extreme cases, can lead to death.
The prevalence of counterfeit medicines is also an indication of the lack of quality of medicines. In a country where policymakers have traditionally laid emphasis on quantity rather than quality, this reality should not be surprising. There is not a single FDA-approved testing laboratory in Pakistan, only one fifth of the drug selling outlets are certified, and counterfeit medicines are produced in large amounts without any checks and balances. This has important repercussions.
For example, in the US generic medicines are only allowed to be sold after a bioequivalence test is passed by the generic drug, proving its attribute as a viable substitute. Almost fifty years after the introduction of the bioequivalence test, the USFDA is still making efforts to improve these tests since newer forms of differences continue to emerge that require even more complex proof of similarity. There is no internationally recognisable lab in Pakistan that can certify the bioequivalence of a generic drug. In other words, there is no guarantee whatsoever that the purported substitutes for original brands sold in the market are good – and safe – substitutes of the original.
There is also scepticism over the pricing methodology. The first thing to notice is the intention to stick with the price ‘freeze’ till June 2016 despite the overwhelming evidence that the price of drugs rarely remains frozen. For example, official price caps on medicines had been in place since early 2000 till 2012. However, even official statistics during that time suggest that drug prices kept increasing.
Similarly, it’s irrational to assume that prices will remain frozen till June 2016. The only thing that the official policy of price caps has done is to cause persistent shortages of essential medicines and the expansion of black market in drugs. Medicines not available on official rates at drug outlets can be found in the black market for almost double the price. So instead of working in favour of the public, the policy of prize freezes proved to be detrimental to the people. Yet policymakers seem not to have learned any lesson from it.
Second, why have drug prices been linked to the Consumer Price Index? It makes little sense, even if prices are slated to increase by half of the CPI increase. To understand why take, for example, the time just before a new budget is announced. As hoarding of daily essentials hits top gear, the CPI registers a marked increase. Going by the formula outlined in the drug policy, this kind of increase will be figured in the increase of drug prices. But as readers can gauge, these are two unconnected events.
However, given the pricing formula, the users of medicines will end up paying for the shenanigans of the hoarders. Perhaps a better way would have been to use core inflation statistics in the proposed formula, since that would measure energy prices – and energy is a direct input in the production of drugs.
Last but not the least, while the pricing may now be based upon the CPI, the nature of the problem will remain the same: pricing remains in the hands of the government. After all, who calculates the CPI? What if the pharmaceutical sector finds that CPI calculations have been tampered to make inflation look lower?
And what is the guarantee that decision-makers, always sensitive to public sentiment, will not renege upon the agreed-upon pricing formula in case of public ire over drug price increase? That is why I feel that the real bone of contention (pricing of drugs) will not go away even after moving to the new formula.
Are the above arguments proposing that the government has no role to play in this sector? No. The government has an extremely important role to play. It’s not related to pricing, but to ensuring quality and regulation. That is where the government’s efforts should be concentrated. In this regard, China represents a good example for our policymakers.
From $26 billion in 2007, the pharmaceutical market has grown to $107 billion in 2015. This was made possible by ensuring quality through better regulation, establishment of world standard labs and market pricing. Those steps made investors take notice, who poured their investment into this sector.
Tailpiece: A research paper by this writer on the pharma sector is available for free on PRIME institute’s website.
The writer is a researcher and has taught at Bahria University and Iqra University.
Email: [email protected]