SUNS 4383 - Pakistan: TNCs push for pharmaceutical price hikes

[James Love <love@cptech.org>]

Thanks to Kathleen Hiltsley for forwarding this message.  Jamie



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Subject:  SUNS 4383 - Pakistan: TNCs push for pharmaceutical price hikes
   Date:  Mon, 01 Mar 1999 09:16:29 -0600
  From:  "Kathleen Hiltsley" <khiltsley@iatp.org>
    To: love@cptech.org


SUNS #4383 Friday 26 February 1999

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nineteenth year   4383   friday   26   february   1999

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Pakistan: TNCs push for pharmaceutical price hikes

Islamabad, Feb 24 (IPS/Muddassir Rizvi) -- At a time when global
pharmaceutical giants are demanding Pakistan must raise drug prices,
the government has rolled back prices of 46 most commonly used drugs by
10 percent.

"We will allow increase in drug prices but first we should tackle the
issue of high-priced medicines," said Azhar Hussain, head of the Cost
Accountant Cell in the Health Ministry.

"For us people's accessibility to medicines is important, which we
believe is less than 50 percent. An increase at this stage will make
medicines further out of people's economic reach," the official
explained.

According to Hussain, the basic reason for high drug prices in Pakistan
is the lack of facilities for local manufacturing of the basic raw
materials. "Most raw material is imported, which reflects in the
prices," he said.

However, the price slash has set consumer groups thinking. Dr Zafar
Mirza of 'The Network', a watchdog on the pharmaceutical industry, said
he feared "this reduction will follow an across- 
the-board increase in medicine prices."

According to him, the price rollback was a "quick fix solution which
would only affect less than 20 per cent of the total drug market and
give relief to consumers who have purchasing power."

With medicine prices already much higher than other countries in the
region like India and Bangladesh, the Pakistan government has been
badgered for more than a year by importers to increase prices by 20
percent and more.

The Health Ministry and the Planning Commission have approved the case
for a nine to 15 percent increase, but the embattled Nawaz Sharif
government, afraid of a public outcry at a time of a particularly
severe economic crisis, has not given its approval.

Transnational (TNC) manufacturers argue that prices were supposed to be
raised annually following an agreement in 1993 but that has not
happened even though cost of production has gone up 90% over the last
six years.

This is "due to 76% inflation, 85% devaluation of the rupee and 10%
customs duty imposed on all imports in 1996," said a spokesperson for
the Pharma Bureau, which represents 23 of the 33 drug TNCs in the
country.

In this period the government has only allowed 21% increase on 821
controlled compounds and 29 percent on 2,700 or so decontrolled
compounds, the spokesperson declared.

If prices are not raised, TNCs say, they will downsize operations in
Pakistan. Together they employ some 16,000 people and have already
postponed multimillion dollar plans to modernise and expand projects in
Pakistan over the next five years.

Though they control 61 percent of the roughly 900 million dollar drug
market, TNCs claim that "inconsistent government policies" and
"punitive price controls since 1993" have "dramatically eroded
profitability and brought the industry to its knees", according to a
Fact Book published by Pharma Bureau.

The Fact Book released to plead the case for an increase in prices,
states that in 1997, the TNCs posted an accumulative 2.6% after-tax
profit, which had declined to 1.8% by November last year.

But the veracity of the claims is challenged by 'The Network'. "Despite
the phenomenal rise in the cost of production as they (industry) claim,
how could they post a 2.6% profit in 1997. One wonders how much profit
they were making six years ago," said Dr Mirza, executive coordinator.

He said that it was well-known that TNCs import raw materials from
their parent companies at exorbitant rates which are many times higher
than the international competitive rates. They do this to show in books
a high cost of production and evade taxes.

Dr Mirza demanded that "the government must check this practice of over
invoicing not only to save precious foreign exchange but also to save
consumers from unjustifiably high prices."
He cited the case of the German Hoechst which imported Diclofenac for
$2,350 per kilogram, while a local company, Star Lahore, imports the
same raw material at $19.50 per kg. "Who pays for this difference -
consumers," he said. "The government should rather focus on promoting
essential drugs concept, formulate a pro-people drug pricing policy,
check transfer pricing and implement the National Drug Policy, rather
than going for cosmetic changes," he said. 
 
It appears that the government is moving in this direction. The
December 1998 amendments to the Drug Act 1976 have empowered the Health
Ministry to set the prices of raw materials. However, the ministry has
so far not used its new powers. "It's not an easy job. The MNCs are too
powerful," commented another ministry official, not wishing to be
identified.

"Ambassadors of four Western governments have already met the Federal
Health Minister Javed Hashmi and pleaded the case for the increase. In
this era of free market economy, we cannot do much to regulate the
multinationals because it will scare away investors in other sectors of
economy," the official opined.

But in this instance the government has the support of the Association
of Chemists and Drug Retailers, who believe a price hike will adversely
affect sales. "Although our net sale increases, the volume sale
registers a sharp decline, that means less earnings for us," said Nazir
Ahsan, who runs a pharmacy outside Islamabad's busiest Federal
Government Services Hospital.

Said Tahir Mehdi, a Lahore-based consumer protection activist, "The
worst hit by price hikes are low income groups ... three-fifth of the
population in Pakistan earn less than the per capita average income of
450 dollars."