Govt ‘adoption’ of some pharmaceutical firms leads to skewed medicines market

theSundaily A preferential policy – practised for more than a decade by the government – in the pharmaceutical manufacturing industry may have left the door open to abuse due to its lack of openness and transparency.

Industry players decry that the policy has prevented industry growth and skewed the local market by making the Health Ministry play "favourites".

Speaking on condition of anonymity, those in the know say an 'adoption' policy, which has been enforced for more than 15 years, goes against the government's effort to move towards reforms in transparency, integrity and the use of open tenders.

"It is dubbed the 'adoption' policy – where a bumiputra company which produces, manufactures and distributes a generic drug locally is adopted by the Finance and Health ministries.

"This company is then given a five-year contract to exclusively provide specific medication to the Health Ministry," a source, who is a major industry player, told theSun.

"These companies negotiate directly on the price with the ministry, and do not undergo an open tender for the product," he added.

The source claimed that such direct negotiations may have led to cases where the ministry paid above market rates for some drugs – possibly by as much as 15% – as these "adoptees" need not bring down prices to compete in open tenders.

While the move is aimed at boosting bumiputra participation in the pharmaceutical industry, it may be open to abuse as many of the contracts can – and have been – renewed indefinitely, creating a lopsided market situation.

"It skews the domestic market because the number of products in this 'adoption' list also continues to increase," said the source, who estimated the number at about 200 products.

The adopted products are very commonly used generics, including:

metformin, which is the generic for Glucophage used for diabetes treatment,

glicazide, generic for Diamicron, also for diabetes treatment,

diphenhydramine, generic for Benadryl, which is a cough medicine,

metoprolol, generic for Lopressor, used for high-blood pressure treatment, and

omeprazole, used for gastric and gastro-esophageal reflux treatment.

The source claimed that many players, both local and multinational, are reluctant to enter the market or take up the production of new generic drugs because the products could at any time be declared as 'adopted' and the contract given exclusively to a particular producer.

"It's difficult to invest RM150 million to open a new factory only to have to struggle to recover your investment when the drug is 'adopted'," he said.

The source estimates that some RM350 million of RM700 million spent yearly on generics is done through such direct negotiations.

He claimed that the value of drugs purchased from local manufacturers via competitive tender has dropped sharply in 2011 compared to 2010, due to, among others, this adoption policy.

"Based on the National Drug Policy interim report 2012, this value dropped from 24.3% to 13.9% out of RM726 million," he said.

Another industry player agreed that this scheme has distorted open competition in the industry.

"After more than 10 years, it is still not clear to many local manufacturers what this whole policy is or who decides which company gets adopted. It is not transparent," he said.

Despite numerous text messages, emails, and calls, the Health Ministry has yet to officially respond to questions on this policy.