Price Controls and Forced Price Reductions
While the Government of Prime Minister Nawaz Sharif has committed itself to allowing annual price increases utilizing a formula which considered currency devaluation and local inflation, the last price increase was allowed in November 1996. Even when price increases were allowed, they were substantially below the indexed figure which represented the true cost increases that the industry had to bear. It is now two years since the last increase. PhRMA seeks the support for the U.S. Government to ensure that the Government of Pakistan allows price increases immediately, and at a level which will be sufficient to stem the dramatically declining profitability of the research-based pharmaceutical industry during recent years.
This dramatic decline in profitability is driven by:
- A cost increase of 90% over the last five years generated by three factors - an inflation of 76%, a devaluation of Pakistani currency by 85% in relation to the U.S. Dollar, and an introduction of duties of 10% beginning June 1996.
- Insufficient price increases which do not compensate for the cost increases:
For "Controlled" drugs, the price increase was only 21% in the last five years
For "Decontrolled" drugs, the price increase was only 29% in the last five years
- The government imposed compulsory price reductions on targeted products which were based on an unjustified price comparison with India.
There are three other recent developments that have harmed the industry significantly and have had enormous impact on pricing decisions. These include:
- Show Cause Notices: with political pressure for cost containment, many multinational companies received Notices with orders to reduce prices of products by 30%. After negotiation, the industry agreed on reductions ranging from 5-28% on 21 packs of 17 products. (Double that number were on the original list). The drive behind this move is political and the reason given is the prices which prevail, for the same products, in India. Utilization of prices applicable to the Indian market are inappropriate when applied to pricing of pharmaceuticals in the Pakistani market. India has a significantly lower cost base for all materials, utilities and employee costs; and the purchasing power of the average Indian is significantly below a Pakistani citizen. In addition, all prices have, in any case, been approved by the Ministry of Health (MoH). Furthermore, they ignore all those products where there is a much lower price in Pakistan than in India.
- 119 High Price Products: Apparently the MOH has a list of 119 packs of 56 products, including those already targeted, they consider to have high prices (again the rationale is the price of these particular products in India). The likely outcome is that when prices are increased, these 119 presentations will not be allowed any increase.
- Alleged Illegal Price Increases: There has been much recent coverage in the Pakistani media alleging that companies have been illegally raising prices. Such claims are untrue because of requirements that all price increases have to be notified to, and authorized by, the Ministry of Health. The MOH has the legal ability and right to take appropriate action to withdraw any increases made illegally. In fact, research-based companies have complied with the Government's controls on prices in good faith during the financial turmoil in Pakistan, only to find that the Government is reneging on its legal obligation to allow for annual price adjustments.
These data clearly demonstrate the serious difficulty facing the pharmaceutical industry. No other industry in Pakistan has been put under such stringent price control; and no other industry has been forced to reduce prices. Given the significant level of foreign investment and international quality of locally produced products, it is only fair that the Government of Pakistan seriously consider the negative impacts of the current economic environment upon the industry when making decisions regarding the price increases which are now due.
In order to return to the profitability level of four years ago (i.e. 1993) the Government- allowed price increase should be of over 50% according to the SRO 1038(I)94 formula. However, the industry understands that such a large increase cannot be approved by the government for political reasons. Furthermore, the industry would not wish to burden the people for humanitarian reasons.
In order to return to an acceptable minimum profitability level, PhRMA supports the efforts of the research-based pharmaceutical industry in Pakistan to achieve:
1. Immediate implementation of upward adjustments for prices for "controlled" products recognizing that the adjustment due now is for a two year period from November 1996 to November 1998. A figure in excess of 20% will in no way compensate for the historical shortfall but will allow the industry to maintain supply of quality products. 2. The Government must commit to honoring annual price adjustments for controlled products in the future, according to an acceptable formula that will enable the industry to plan for the future with some confidence. 3. Either remove Customs Duty or allow a compensation in price adjustment. Note that the adjustment must be to maintain margin not simply to pay the duty. Hence, since approximately 65% of industry cost base is imported material, the extra increase must be 6.5%. 4. Withdraw all notion of a high priced group of products on which no upward adjustments will be allowed. 5. Introduce the concept of market driven pricing for the "decontrolled" products (i.e. abolish any control over these prices.
Intellectual Property Barriers
Pakistan has a law for the protection of intellectual property. In Pakistan, patents are registered under the Patents & Designs Act of 1911 and trademarks are registered under the Trademarks Act of 1940. Protection for patents is for processes only, and the duration of protection normally is 16 years.
The Patents & Designs Act, 1911 (PDA) confers on the patentee exclusive privilege for making, selling and using his invention throughout Pakistan and of authorizing others so to do. The primary purpose of the PDA is to protect new invention and to encourage the growth of industry in the country.
In case the patentee is inadequately remunerated for his patent during currency of the patent period, he may apply to the Federal Government for patent extension at least six months before the expiry of the patent period. The Pakistan Government may refer the application to the High Court which may, after hearing, grant an extension for a period of five years.
The PDA covers "manners of new manufacture" i.e., process patent as registered in Pakistan. In the event the same item is manufactured from another process, it would not be construed as patent infringement. As a consequence there are only few litigation of patent infringements cases registered in Pakistan. Moreover, there is always the chance that someone with a slightly different process can reproduce the same product/formula and market it at on an equal footing.
There are several specific problems with the Pakistan law, in addition to its lack of product patent protection for pharmaceuticals. These include the following:
- The right of the patentee is not adequately protected in the law, with the result that the infringer continues to freely manufacture counterfeit products.
- Numerous pending cases in High Courts result in delay of justice. Due to delay in the court proceedings, the patentee cannot immediately obtain injunction orders against infringer.
- The patent-owner only can file a suit against the infringer. The law does not allow a licensee of a pharmaceutical product to institute a legal proceeding against the infringer.
- There is always a threat of revocation of the patent through compulsory licensing. An application in the High Court can be filed claiming that the patented article in Pakistan is not being met to an adequate extent and on reasonable terms and thus force a compulsory license to be issued.
In sum, the two basic issues are that: (a) more active legal enforcement should take place, and (b) product patents should be allowed as well. The existing law needs to be amended and clarified in terms of providing clear protection to genuine original patent holders, whose process patents are infringed upon by others who have a slightly different process. The law should provide protection in "letter and spirit" and there should be no lacunae in the law.
Also, the penalties for infringement should be more severe, and there should be a dedicated Government Office, as well as a separate panel of well-trained judges, who fully understand the laws and are competent exclusively to try intellectual property infringement cases. This could result in the formation of an effective deterrent to potential infringers.
PhRMA does applaud the fact that, in 1996, Pakistan's Government moved expeditiously to provide a form of interim protection for certain qualifying pharmaceutical products through a "Mailbox" provision in its law, as per its obligations under TRIPs.
Other Barriers: Product Registration
The regulations to obtain a sales permit for a given pharmaceutical product require that the dossier of supporting data be accompanied by Certificates of Free Sale, confirming the approval for sale of the product in developed countries of the world, such as the U.S., Europe and Japan. The research-based industry has understood and accustomed itself to this requirement.
Now, however, it seems that the Pakistan Ministry of Health unilaterally is adopting a discriminatory policy against multinational pharmaceutical companies by insisting that they can only register products which are on sale in the country of incorporation of the respective company. Local companies, however, can register products from any source. This policy discriminates, therefore, against the research-based companies operating in Pakistan, many of which have registered in Pakistan as Pakistani companies.
Moreover, the general experience of many multinational pharmaceutical companies in Pakistan is that the time required for the registration process often is two years and sometimes longer. For the benefit of patients in Pakistan, and in view of increasing costs of pharmaceutical research and development and limited patent life of drugs, it is vital to keep the procedure of registration as brief as possible. PhRMA believes it necessary that the Government of Pakistan enhance the capacity of its equipment and manpower sufficiently to complete a registration process within a maximum period of twelve months.
There is a related issue in this area which also concerns the research-based pharmaceutical industry in Pakistan, and that is the proposed amendments in the form of a revised application for the Renewal of Product Registration Form. There are several proposed amendments that are cumbersome, not really necessary, and, in some cases, irrational. The Technical/Regulatory Affairs Subcommittee of the Pharma Bureau in Pakistan (i.e., the local equivalent of PhRMA) is examining these amendments with a view to filing formal objections to those clauses which they believe are not required, or discriminatory. However, it is still too early to paint a clear picture of where this issue stands and how far it has progressed.
Other Barriers: Drug Labeling Rules
By a Pakistan Government notification dated August 24, 1994, the generic name of the substance has to be printed "with at least equal prominence as that of the brand name." This has now been carried forward as policy by the Pakistan Government.
The addition of the generic name in equal prominence to the trademark constitutes an infringement of the proprietary rights of the originator. This is intended to dilute existing differences in quality, efficacy and safety, and incorrectly implies total interchangeability and equality of two different products. PhRMA asks the U.S. Government to note that these laws also appear to place Pakistan in violation of WTO TRIPs rules protecting trademarks, and therefore should be amended to comply with TRIPs.
Potential Exports/Foreign Sales
Pakistan remains an "Outsider" in the global community of nations providing some form of intellectual property protection for pharmaceutical products. At present, there is no product patent protection in Pakistan, but only protection for processes. It is incumbent upon the patent holder in Pakistan to prove that the "pirate" is using the same process as the inventor, which is practically impossible in the current Pakistan legal environment. One of the most important current issues for our industry in Pakistan is that this piracy continues to inflict losses on the research-based pharmaceutical industry, now estimated at $15 million to $20 million per year. While these "losses" are not as significant as those that we incur in India, they still represent a threat to the industry's ability to utilize its resources for the discovery of new medicines to address problems of morbidity and mortality, and uncured diseases worldwide.