Analysis of BPL and Square

The early collaboration by Square and BPL with multinational corporations provided the opportunity for technology transfer and exposure to standards of good-quality manufacturing in developed country markets. Square and BPL took advantage of their earlier experiences and moved to active learning and mastery of formulation technology. They did so by building in-house capacity and securing the services of companies from advanced countries for further learning. The in-house capacity of Square and BPL is strong in the formulation and marketing of pharmaceuticals for local and underregulated markets. Both are building their capacity to formulate and develop products in-house, with the help of foreign companies for export to regulated markets.

They have important success in accreditation of their facilities by regulatory authorities of advanced countries such as the United Kingdom and Australia.

As a sign of strong product formulation capacity, both developed the capacity for manufacturing of medicines in many therapeutic categories, including ARVs and various antimalarial products. If Square and BPL secure WHO prequalification for their ARVs, they will be able to export and tap into the large market in Africa, provided that they have a strong and viable marketing strategy. They have already established their presence in foreign markets, including some emerging markets.

The market share of the two companies, supported by the National Drug Policy, has provided them with the opportunity to generate revenue and use

42 BPL considers 2007–2008 a difficult period, when charges of corruption were brought against two senior mangers of the larger Beximco Group. Profit in 2007 was lower than in the previous year, which later bounced back in 2008 (Business Monitor International, 2010).

resources to secure technologies and know-how at arm’s length trade from companies in advanced countries. However, in terms of export, common perceptions of the country and questions regarding the local quality-control system may pose challenges for exporters. Regulatory control continues to be a problem and requires further reform. The extent to which Square and BPL can deal with their image challenges by securing foreign accreditation is uncertain.

The main shortcomings in terms of technological capability of Square and BPL pertain to the capacity for the production of insulin, anticancer drugs and vaccines where there is growing interest, undertaking research and development, and manufacturing APIs. Square is tackling the problem by launching an insulin bottling facility. In their export ventures, Square and BPL undertake bioequivalence studies, hiring the support of foreign companies.

In Bangladesh, bioequivalence studies are required only for importation of drugs and thus there is no incentive to build research capacity for this purpose. When exporting products, regulated markets demand the filing of bioequivalence studies. No independent domestic contract research organization or any research facility is accredited by foreign regulatory bodies to undertake bioequivalence and other studies in securing qualification or WHO prequalification.

The success in mastering formulation and production capacity in pharmaceuticals by Square and BPL has not yet translated into capacity for producing APIs, which is a technologically more challenging activity for pharmaceutical firms. Square and BPL produce various APIs only from an advanced intermediary stage. Furthermore, Square’s attention and investment capacity may be distracted by its venture into pesticides and animal health, where the company has predicted more short-term gains. The bigger challenge is the lack of clear strategy by both the private sector and the Bangladeshi Government to enter into API production, as plans for an API park in Bangladesh have all but stalled (field interviews). The original plan was for the API industrial park to be established during 2008–2010. The incentive for API production in Bangladesh could be undermined by the short-term challenge of competition with other countries in the region that have been producing APIs for four decades or more, such as China and India. The existing API production from an intermediary basis seems to be motivated by the desire to export and the need to comply with regulations of export markets rather than the local market.

The companies that move to produce a specific API take the risk of increased initial costs of production for their final formulation compared with companies that import APIs from highly competitive producers in China and India at tariff rates lower than the most favoured nation or at zero if final products are for export. This could explain the stagnation of API production observed in Bangladesh, despite a long history of pharmaceutical production.

Strategic intervention and investment would be required by local producers to develop the capabilities to domestically produce APIs. On a positive note, the Bangladeshi Government is intending to establish a common effluent

treatment plant for all producers of APIs in a bid to revitalize the API park project. Undertaking water treatment for pharmaceutical production and waste management is an expensive operation for each company to do separately. The common effluent treatment plant, if implemented, could at least place Bangladesh’s infrastructure on a par with other countries in the region for API production. With respect to API production, ensuring the quality of education and human resource training, and a supply of skilled labour in chemistry and engineering fields, would need particular attention.

7. Implications of local production and related technology transfer on access to medicines

Square and Beximco, as the two oldest companies in the local sector, have contributed throughout their growth phase to promoting greater access to medicines in Bangladesh. Both companies have focused on producing cheaper, local versions of drugs for use by the local population and maintain a wide area of therapeutic coverage. These changes, although promoted by the National Drug Policy of 1982, have been sustained at the firm level by a series of technology transfer and tacit know-how-building alliances between the firms and their international counterparts.

Technology transfer from foreign companies, as highlighted in this study, has been extremely important for (i) establishing production capacity, (ii) expanding product portfolios to include several new product categories, and (iii) technological upgrading of the kind required to produce good-quality medicines at reasonable cost. The case study method, although well suited to exploring a particular case in detail, is not suitable for gathering time-series data (over a period of time) to see the impact of the companies’ activities on promoting access to medicines in the country. The impact of all the companies in the local sector on reducing the burden of disease in the country similarly calls for the generation of much more rigorous data. A last question on firm-level activity and access to medicines pertains to whether the products manufactured by the local companies are priced cheaply enough to promote access to medicines, when compared with generic substitutes that could be obtained from other countries or sources.

On this issue, although the study was unable to ascertain the extent to which the medicines produced by both companies are cheaper than those in other generic markets, such as China and India, it is clear that the drugs manufactured by both companies are significantly cheaper than the generic versions of drugs that can be obtained from multinational companies (Ahmed, 2009). A study on pricing differentiation of 35 essential medicines between local producers and multinational pharmaceutical companies in Bangladesh found that the majority of locally produced anti-infectives were less expensive than the counterparts of their multinational corporations, notwithstanding the business reasons for still maintaining high per-pill profits locally (Chowdhury

& Rahman Kabir, 2009).

8. Policy-relevant findings

The two companies that form the subject of this case study are fairly typical of the larger companies in the local pharmaceutical sector in Bangladesh. The other local companies in the market share the historical factors that led to the emergence of the firms, along with the technological strengths and limitations described in the study, even though the other local companies vary in size and market share when compared with Square and BPL. Several important lessons may be drawn from this case study that also could apply to the other firms in the sector:

1. Both of the researched firms initially acquired the technological capacity to manufacture good-quality pharmaceutical products through collaborations with foreign pharmaceutical companies, which at the time were controlling the market in Bangladesh.

2. Through targeted infant industry protection, the Bangladeshi Government provided the legal and economic framework for domestic companies to develop their market share. Important elements of these policies were the 1982 National Drug Policy (revised in 2005) limiting imports of pharmaceuticals where local production was sufficient; the potential of a large domestic market; intellectual property legislation favouring domestic generic producers; cheap labour costs;

and access to APIs. Against this favourable policy framework, firms such as BPL and Square have managed to thrive even without WHO prequalification of any product, which they are currently seeking in their bid to reach export markets served by international organizations, aid agencies, philanthropic initiatives and nongovernmental organizations (NGOs). Bangladesh’s pharmaceutical companies have the capacity to produce drugs in most therapeutic categories and dosage forms, available at low (but oligopolistic) prices in the domestic market.

3. In the context of access to medicines, the study shows that both long-term and short-/medium-term considerations have to be taken into account when designing policies for local production. The long-term public health objective is to enable the population’s access to affordable, good-quality medicines. While the replacement, to some extent, of foreign imports by domestic production, as pioneered by the 1982 Drug Policy, was an important medium-term step towards the creation of local pharmaceutical capacities, this industrial policy objective has not been well coordinated with access to medicines and pricing policies. In particular, lack of monitoring of company pricing practices and lack of systematic emphasis on ensuring that the local production is in the interests of public health are evident. Controlling pricing practices of local firms, ensuring an up-to-date essential medicines list and drug regulation are some of the safeguards required to make sure that access to medicines and public health is well-integrated into industrial policy promoting the sector.

These need to be further strengthened through new measures that promote dynamic competition in the local market, and through establishing checks and balances on the pricing and behaviour of local firms through a strong DGDA

and other policy measures, such as, for instance, the gradual introduction of price-based competition from abroad.

4. The case study shows that important long-term issues remain to be addressed. The field interviews and other data collected for the study point towards the need to determine (i) whether and how local production contributes towards providing access to drugs identified under the essential medicines list within Bangladesh, (ii) the access gaps, and (iii) how these gaps are being alleviated through the new incentives of the Industrial Policy of 2009. A clearer link between the new industrial incentives and the public health needs that the firms can cater to (both locally and through exports) is required. The biggest challenge with respect to export markets will be building capacity for local API production from the initial stage, which is seen as the principal means to lower the price of medicaments to a level where domestic firms could compete with Chinese and Indian manufacturers. In the medium to long term, increased API production capacity in Bangladesh could potentially provide good opportunities for outsourcing production for firms from China and India.

5. Seeking to address this issue, the Bangladesh Science, Innovation and Technology Policy (currently in preparation) identifies the pharmaceutical subsector with a view to building capacity in the production of basic chemicals and pharmaceuticals. Developing a pharmaceutical subsector science, innovation and technology policy could help to systematically address strategies for the industry, and for the problems regarding the quality of human resources and education, especially for building the capacity for the production of APIs from the initial stage. A science, innovation and technology policy may help to address issues relating to inadequate infrastructure, especially reliable energy and water and land allocation, and the problems of linkage between research organizations and the private sector.

6. In the context of the affordability of medicines, the study illustrates the importance of effective price monitoring systems that ensure ethical pricing practices and the gradual introduction of foreign competitors to the market, now that the domestic producers have reached a sufficient degree of technological capacity to face competition. A phased, locally suited technology regime is not new: countries have used highly interventionist technology policies in the past to build local sectors (e.g. Chang, 2002, 2003).

In this respect, ensuring the quality of locally produced drugs is essential. The regulatory authority plays a key role in this respect. It needs to be performing and fully operational in order to support local producers in their efforts to improve quality.

7. The lessons listed above make clear that access to affordable, good-quality medicines through local production depends on the availability of scientific and technological capacities. The design and effective functioning of a country’s educational system is therefore an important long-term consideration for public health and other policy-makers.

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Annex: List of interviewed individuals and