VZCZCXRO4329
RR RUEHLH RUEHPW
DE RUEHIL #2905/01 2471326
ZNR UUUUU ZZH
R 031326Z SEP 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 8615
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHNE/AMEMBASSY NEW DELHI 3719
RUEHLH/AMCONSUL LAHORE 5999
RUEHKP/AMCONSUL KARACHI 0259
RUEHPW/AMCONSUL PESHAWAR 4806

UNCLAS SECTION 01 OF 02 ISLAMABAD 002905 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EINV KIPR PGOV PK
SUBJECT: PAKISTANI PHARMACEUTICAL INDUSTRY IN CRISIS 
 
¶1. (SBU) Summary:  On August 26, Econoffs met with Dr. Shujauddin 
Shaikh of Merck Sharpe and Dohme (MSD) and Dr. Iqbal Bengali of 
Pfizer regarding issues facing Pakistan's pharmaceutical industry. 
The GOP has not allowed an adjustment of pharmaceutical prices for 
over seven years.  Domestic and multinational companies as well as 
trade associations feel that the industry will no longer be viable 
if the pricing issue is not resolved, which could lead to a shortage 
of medications on the Pakistani market.  Undisclosed data protection 
- currently at a standstill within the Ministry of Health (MOH) - is 
still an issue for multinational firms, but it now takes a back seat 
to pricing.  Shaikh and Bengali were both positive about a Bilateral 
Investment Treaty (BIT) and thought that industries (not just 
pharmaceuticals) might be willing to approach the GOP to advocate 
for a BIT.  End summary. 
 
Pricing Issues 
- - - - - - - - 
 
¶2. (SBU) Bengali and Shaikh discussed the increasingly dire pricing 
situation for pharmaceuticals in Pakistan.  They said that the 
industry had not been allowed to raise prices in seven years, not 
even to adjust for inflation.  Noting cost increases in oil, raw 
materials and commodities, along with a weak rupee, they stressed 
the entire Pakistani pharmaceutical industry (both domestic and 
multinational) will soon no longer be sustainable.  MSD sold its 
Pakistan operations to a local company, Organon Bio Sciences (OBS), 
in April.  Bengali said he had already seen a letter from Bristol 
Myers Squibb (BMS) to Pfizer noting that BMS has plans to leave the 
Pakistani market.  Bengali and Shaikh both felt that if the pricing 
issue was not addressed soon, more companies might abandon the 
market.  Shaikh said that all of the multinationals "have their exit 
strategies ready." 
 
¶3. (U) According to news reports over the last three months, the 
Pakistan Pharmaceutical Manufacturer's Association (PPMA) - 
representing domestic manufacturers - has sounded the alarm about 
pricing.  They have appealed for a 15 to 20 percent adjustment in 
prices to account for inflation.  PPMA has also called for a 
withdrawal of a 10 percent customs duty and 15 percent sales tax on 
raw and packaging materials used in the industry, and exempting 
pharmaceutical manufacturing imports from the 35 percent letter of 
credit margin imposed by the State Bank of Pakistan.  According to 
press reports, Kashif Shaikh, president of the PPMA, called the 
pricing situation the worst crisis ever to affect the industry and 
said that it could result in an "acute shortage of drugs in 
Pakistan." 
 
¶4. (SBU) The GOP's primary concern over pharmaceutical pricing is 
affordability.  They said the Pharma Bureau of Information and 
Statistics, part of the Overseas Investors Chamber of Commerce and 
Industry (OICCI), was proposing an increase of 75 percent of 
Consumer Price Index (CPI) inflation for essential medications, and 
100 percent of CPI inflation for non-essential medications.  For the 
long term, they proposed the creation of a transparent government 
pricing system including yearly automatic price adjustments to 
account for inflation, and they were prepared to accept price 
adjustment caps for times of hyperinflation.  In the short term, 
however, they said a price adjustment to account for inflation was 
essential if Pakistan is to have hope of sustaining its 
pharmaceutical industry.  (Comment: PPMA and the Pharma Bureau are 
usually in direct opposition to each other on issues, but the 
pricing issue is a clear exception.) 
 
¶5. (U) Recent news reports state that Pakistan's 2008 Health Policy 
will be announced in September and that it will contain a 
pharmaceutical pricing mechanism that will address domestic and 
multinational pharmaceutical manufacturers' concerns.  A Drugs 
Regulatory Authority is also expected to be established during the 
fall. 
 
Data Protection 
- - - - - - - - 
 
¶6. (SBU) Bengali and Shaikh both said that an amendment to the 1976 
Drugs Act regarding protection of undisclosed test and research data 
against unfair commercial use was still important to the Pharma 
Bureau, but had taken a back seat to the pricing issue.  Shaikh 
expressed his frustration with the data protection situation saying 
that it seemed as if the issue had been "put in a drawer" and set 
aside by the MOH.  An Expert Committee of stakeholders, including 
the MOH, the Pharma Bureau and PPMA, was formed in 2006 to review 
the draft amendment.  This committee has not met since November 
2007, in spite of the Ministry of Law's direction to the MOH to hold 
a meeting in February 2008.  The February meeting was initially 
delayed until May, and ultimately was never held. 
 
 
ISLAMABAD 00002905  002 OF 002 
 
 
¶7. (SBU) An added challenge has been the high turnover of officials 
at the MOH.  Almost all the people originally involved in drafting 
the data protection amendment have left or been replaced.  Bengali 
said they were reluctant to seek meetings with the MOH for fear that 
interlocutors would be here today, gone tomorrow. 
 
Bilateral Investment Treaty 
- - - - - - - - - - - - - - 
 
¶8. (SBU) Econoff spoke about the current effort to revive Bilateral 
Investment Treaty (BIT) negotiations and asked about the 
pharmaceutical industry's interest in a BIT.  Shaikh and Bengali 
said they thought the BIT would be very beneficial and that they 
would be willing to approach GOP officials and advocate for a BIT. 
They suggested post seek out other Pakistani trade organizations 
asking their support as well. 
 
Comment 
- - - - 
 
¶9. (SBU) If the pricing issue is not satisfactorily resolved by the 
announcement of the 2008 Health Policy, multinational pharmaceutical 
companies may leave the Pakistani market completely.  Although PPMA 
may desire less competition from multinationals, it would ultimately 
be a Pyrrhic victory, as the domestic manufacturers will almost 
certainly be unable to sustain operations under current market 
conditions.  The undisclosed data protection issue remains 
frustratingly immobile, in spite of assurances from MOH officials 
that the legislation is close to being completed.  The legislation 
has been "very close to completion" for at least six months, but has 
in that time not moved at all.  Post will continue to follow up on 
all these issues.  End comment. 
 
PATTERSON