Case study 2
4. The pharmaceutical market in Bangladesh
international estimates, and field interviews with company officials of Square and BPL reveal that the low local demand for ARV drugs is a major deterrent to scaling up production. Although field interviews with Square revealed that the company still intends to apply for GMP prequalification, its incentives to embark on expansion and GMP prequalification over the mid-term are unclear.
Square and BPL also produce various antimalarial products for export, which would benefit from WHO prequalification.
The technological capacity of neither firm extends to being able to produce APIs from inception. The production of APIs constitutes a significant portion of the inputs needed to manufacture any drug (Gehl Sampath, 2010a). No company in Bangladesh produces APIs from scratch. Most firms import APIs from an advanced intermediate stage and perform the last few stages of API production in-house. However, the ability of firms to reverse-engineer drugs completely and manufacture APIs within the country will be critical to make their exports more competitive vis-à-vis the branded generic firms from China and India, from where most APIs for Bangladeshi pharmaceuticals are currently sourced. This case study found that pharmaceutical companies in Bangladesh have yet to fully master the capacity to produce APIs. They import 80% of the APIs needed to produce the finished products. For example, field interviews show that BPL is able to produce APIs for paracetamol and penicillin from advanced intermediate stages, and it imports the APIs it requires for all its other formulations. BPL’s API production is for its own use, unlike Square, which also supplies APIs to many competitors, including BPL, Aventis, Novartis Bangladesh, Advanced Chemicals Industry, Eskayef Bangladesh, Opsonin Chemicals, Renata and Essential Drugs Co. (Business Monitor International, 2010).
To support the development of API production in Bangladesh, the Bangladeshi Government approved the establishment of an API industrial park during 2008–
2010 (Business Monitor International, 2010). The only recent development in this regard was the acquisition of land for the industrial park in September 2009, and ongoing land filling for the park during 2010–2011, but actual groundwork has yet to start.18
4. The pharmaceutical market in Bangladesh
The population of Bangladesh has reached 153 million, according to a 2008 estimate, making it the seventh most populous nation in the world and one
17 See http://www.squarepharma.com.bd/CurrentExportMarket.html.
18 See http://bangladesheconomy.wordpress.com/2010/12/28/pharma-sector-to-get-api-park/.
of the world’s most densely populated countries (Economic Intelligence Unit, 2009). Bangladesh’s GDP in 2008 measured at purchasing power parity (PPP) stands at US$ 213.5 billion, according to World Bank data.19 The GDP is projected to reach US$ 355.6 billion by 2014 at PPP. However, per-capita income is so low that the United Nations classifies the country among the 49 LDCs (UN-OHRLLS, 2010).20 Despite being an LDC, Bangladesh is among the few developing countries that could be considered relatively self-sufficient in pharmaceutical products. Currently there are 5300 registered brands covering 450 generic drugs, most of which are produced locally (Gehl Sampath, 2007).21 According to the most recent (at the time of writing) data posted on the web site of the Directorate General of Drug Administration (DGDA) of the Ministry of Health of Bangladesh, there are 245 registered pharmaceutical companies in Bangladesh,22 of which 135 are considered to be actively operational (Gehl Sampath, 2007). The companies include medium to large Bangladeshi companies with international links, specialized subsidiaries of multinational corporations, and a number of small companies (Gehl Sampath, 2007).23 Despite the presence of such a large number of firms, the market is highly concentrated, with the top 10 companies (including Square and BPL) controlling 70% of the market (Gehl Sampath, 2007; World Bank, 2008a). As mentioned earlier, Square and BPL jointly control approximately 26% of the market.
Estimates of the local pharmaceutical market vary. A 2010 report notes in this regard that the total value of the local market for pharmaceuticals was about US$ 1.13 billion in 2009 (Business Monitor International, 2010). However, the BAPI executive director, Abdul Muktadir, founder and manager of Incepta Pharmaceuticals Ltd., which also ranks in the top five firms in the market in 2010, estimates the market size to be around US$ 700–800 million. Despite the very low per-capita income in Bangladesh, Bangladesh’s economy has experienced dynamic growth over the past decade, with a very clear rise in exports in the key sectors of textiles and ready-made garments, agro-processing and pharmaceuticals (UNCTAD, 2007). In addition to the growing GDP, income from remittances accounts for the increase in per-capita expenditure on pharmaceuticals in the country.24 The local market is also expanding due to a marked increase in newer forms of illnesses, mainly in the cardiovascular
19 The service sector contributes 52.4% of GDP, followed by industry at 27.4%; the rest is contributed by agriculture. See Economic Intelligence Unit (2009).
20 The second largest Asian LDC (of 15 in the region) in terms of population is Myanmar, which has 47 million people (2008 estimate) and covers a surface area much bigger than Bangladesh
21 There have been no new surveys of the sector since 2007 to update these figures.
22 See http://ddabd.org/allopathic.htm.
23 Of these, 34 companies are marked as “suspended” in the list of manufactures on the DGDA web site, although the reason for suspension is not provided.
24 The economy has grown by 5–6% over the past few years, despite inefficient state-owned enterprises, delays in exploiting natural gas resources, insufficient power supplies, and slow implementation of economic reforms (UN-OHRLLS, 2010). Bangladesh is the fifth country outside the Organisation for Economic Co-operation and Development (OECD) in terms of the total amount of remittances received from abroad. Remittances from Bangladeshis working outside their country stood at US$ 9.6 billion in 2008–2009 (Bangladesh Bank, 2010).
and respiratory ailment categories. These factors are considered to be some of the drivers for growth of the pharmaceutical industry in Bangladesh (Gehl Sampath, 2007). During interviews, pharmaceutical companies identified as drivers the growing income due to such remittances, expanding disease patterns, and a larger demand for pharmaceutical products in rural parts of the country.
Small independent pharmacies and drug stores are the principal means of distribution of pharmaceuticals in Bangladesh. The distributors are supplied by the pharmaceutical companies. Square, for example, operates 11 depots throughout the country (LankaBangla Securities Ltd, 2008). Of the 200 000 pharmacies and drug stores spread across the country, the government recognizes only 76 000 as licensed, indicating the presence of a large “grey”
market (i.e. medicaments from non-authorized sources) for medicaments (World Bank, 2008a). Poor people cannot always afford to visit hospitals and clinics and have to rely on self-medication and advice from pharmacy staff.
The 1982 National Drug Policy (revised in 2005 and again in 2010) mandates price control to ensure access to medicines. The DGDA is vested with the mandate of controlling prices, but the implementation of the price control system is conditional on the issuance of a regulatory order by the Ministry of Health. A 1993 Price Control Order reduced the number of drugs that were under price control from 150 (as of 1982) to 117 drugs. A new update created in 2009 found that of these 117 drugs, an estimated 100 were obsolete and proposed 209 new drugs to be placed under price control in the interests of public health and greater access to medicines in Bangladesh. However, at the time of the field interviews, the DGDA was still awaiting a governmental order to implement the new 2009 update. In the absence of this, the DGDA will be able to control only 50 drugs from the previous 1993 list of drugs that were placed under price control, most of which have been found to be obsolete.
The pricing of all other pharmaceutical products is based on the indicative value for money price. The maximum retail price is broken down into trade price (75.5%), wholesale commission (2.3%), retail commission (12.0%) and value-added tax (VAT; 12.5%). Imported finished products are priced by adding a fixed percentage of mark-ups to the cost and freight price to arrive at the maximum retail price. The breakdown for the imported products includes trade price (88.89%) and retail commission (11.11%).25
Interviews with ministry officials and donor organizations active in the health sector conducted for the case study revealed a broad consensus that price control is nonfunctional or not effective at a general level. For all the other drugs being sold that are not under price control, in the absence of pressure on public expenditures or other incentives by the Ministry of Health, the indicative price may not be an optimal price.
25 These figures seem to suggest that retail commission is higher for locally produced pharmaceuticals than for those that are imported. See Bangladesh Ministry of Health and Family Welfare (1982, 2004) and Uddin Ahmad (2008).
Even in the absence of an effective price control mechanism, the presence of a competitive market with a large number of medium and large companies should theoretically be sufficient to provide ample space for price-based competition that is essential for greater access to medicines. This does not seem to be the case in the Bangladesh market, however. The increased concentration of the pharmaceutical market and the importance of company-based distribution networks for distribution of medicinal products both contribute to a market where branded competition does not necessarily contribute to lowering prices as close to the margin as could be expected.