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Pharma industry perturbed over move to change pricing system

RECORDER REPORT

KARACHI: The pharmaceutical industry has expressed concern over the reported move that the Ministry of Health (MOH), is thinking of changing the mechanism for price adjustment finalised after years of negotiations between the government and the industry and notified in SRO 1038 (I) 94.

According to a well-placed industry source, the present system of across the board price adjustment, which is simple and transparent, is proposed to be replaced by case-by-case review which is liable to open flood gates of corruption and unfair practices as it vests too much arbitrary and discretionary powers in the hands of bureaucracy.

The proposed mechanism, source said, would also result in increased departmental work at all levels leading to delays, accumulation of cases and further erosion of confidence in getting fair treatment from the government. A case-by-case review means receiving applications from 300 companies, involving over 16,000 registered products - a workload which will only create a nightmare in red-tapes.

The proposal also militates against the present regime's declared policy of simplifying bureaucratic procedure to attract foreign investment. At a time when New Delhi is deregulating its pharmaceutical industry to promote its growth and attract foreign investment (India controls the prices of only 76 medicines as against Pakistan's 2000), Islamabad is planning to take retrogressive steps which will only increase the industry's problems and send wrong signals to foreign investors.

The source said that inconsistent government policies and procrastination in providing relief to offset the effects of devaluation, inflation and higher taxes have broguht the pharmaceutical industry in Pakistan to its knees.

Three Multi-National Companies (MNCs) have already packed up and moved out of Pakistan and four MNCs have either closed down their plants or are in the process of rolling back their operations to minimize their losses. The rest of the industry, national as well as multi-national, has been forced to resort to downsizing thereby swelling the ranks of unemployed in the country.

Three multi-national companies, Searl, Sterling Winthrop and Allergen Pharmaceuticals have already moved out of Pakistan. Recently, U.K. based giant, Glaxo-Wellcome has closed down its raw material plant in Lahore and the U.S. based Wyeth Laboratories are on the verge of closing down their manufacturing facilities in Lahore in order to cut losses. German based Schering AG has reportedly decided to shelve its production plant in Lahore and divert it to Indonesia. Another U.S. multi-national Johnson & Johnson's suture plant at Karachi, which meets 100% of Pakistan's needs, is about to close down as the company cannot bear any more losses due to punitive price freeze.

While the government has not allowed any price increase in the past three years, there has been a cost increase of over 40% during this period, based on statistics released by the government, the source said and added that there has been 37% devaluation of rupee against U.S. dollar since 1997 and cumulative inflation of 44.28%. The government imposed with effect from June 1996, 10% custom duty and 15% sales tax on packaging material of medicines during 1999. All these factors have enormously increased the cost of inputs for the industry in the past 3 years, without any corresponding relief in the form of price adjustment.