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
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
There are three other recent developments that have harmed the industry
significantly and have had enormous impact on pricing decisions. These
- 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:
||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.
||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.
|| 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%.
||Withdraw all notion of a high priced group of products
on which no upward adjustments will be allowed.
||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
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
- 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
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
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
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.