LAHORE - The much awaited pricing policy finalized by the government is a mixture of industry’s recommendations while none of those are fully incorporated, making the policy too complicated and error prone.

This was stated by different pharma industry experts while talking to this scribe.Pharma industry experts said that the prices of new chemical entities are proposed to be fixed by External Reference Pricing (ERP) but only two countries India & Bangladesh are kept in the basket of countries. This naturally reduces the rational pricing of new research drugs. It would have been better that at least 10 countries from Asia & Africa should have been included in the basket to provide a better option for price negotiations. In addition to increasing number of countries, a transparent mechanism for negotiations with manufacturer or importer of new research product should be devised like other countries. It is pertinent to note that in past many new research products could not be marketed because the prices allowed by the authorities were not feasible for the companies to market. Thus the patients remained devoid of the benefits of the new research. This also discouraged further investment in the country.

Another downside of the policy is reduction of price of a research product by 30% in 3 years time, after 4 years or when three generics of that product are available in the country. This again is an unprecedented recommendation as in countries where ERP is being practiced the period allowed for the initially fixed price is 5 years and thereafter the prices are reduced after a transparent process of negotiations and not an arbitrary percentage is fixed for such reduction.

Other than that it is a case of double jeopardy as the price of product is proposed to be fixed at the lowest and then a penalty of 30% reduction is being imposed and that too after 4 years only. Adopting the proposed formula of arbitrary price reduction will have negative consequences for patients and the industry. The practice of ERP which was adopted by the defunct Ministry of Health was very successful as companies got reasonable prices and the Ministry was able to do rational price fixation for the benefit of patients.

The new policy also proposes formulae to increase prices on the basis of hardship that is certainly a good initiative except the formula of Landed Cost+35% mark-up. This formula proposed in the policy need to be reviewed on the following grounds.

The formula given in the policy is “Landed Cost + 35%” markup and the breakup for the 35% markup is also given in the policy which apparently has some mistakes.

Industry experts said that costing was done by the government without taking into account the ground realities, business dynamics, norms and practices due to a misperception that the imported drugs are being imported by individual importers. This perception is not correct as almost all big national & multinational companies are importing life saving drugs from external sources and are putting in the same kind of efforts in promotion of these life saving products that include sales promotion activities that are allowed to be done with maximum of 5% expenses specially in case of new research molecules the expenses are always on a higher side. Further to that all large companies are participating in Provident Fund and are contributing as per law. Distribution expenses are the same in this case as well and they deserve 15% profit at par with manufacturers being manufacturers themselves.

Interestingly the discounts allowed are given on trade price and not on the landed cost. As per formula of Landed Cost+35% mark-up proposed by DRAP and assuming the landed cost equal to Rs. 100/- the T.P would be Rs. 135/- and distributor discount will be Rs. 13.5/-(10% of T.P) which is in actual will be 13.5% of the landed cost not 10%.

Further to that salaries & traveling expenses of salesmen/medical representative are nothing less than 15% due to increased cost of living; therefore 10% is not sufficient to cover the expenses. Interestingly again the distributor discount when calculated on trade price as per formula (manufacturing cost + 70% markup) will be 27.2% and not 16% as mentioned in the Proposed Pricing Policy. Thus the manufacturer cannot meet all the other expenses allowed to him in the policy. If the proposed policy is implemented in its present form then the likelihood of availability and continued supply of new research and quality drugs will be a dream for people of Pakistan.