Helal Uddin Ahmed: The pharmaceutical industry is one of the most potential sectors for industrial diversification in Bangladesh, as the country can be highly competitive and enjoy comparative advantages in both short and medium terms in this sector.
BACKGROUND AND PRESENT STATUS: Multinational companies (MNCs) dominated the pharmaceutical sector in the early post-independence period of Bangladesh. Eight leading MNCs enjoyed 75 per cent of the total domestic market, producing vitamins, enzymes and cough syrups locally, and importing other essential drugs from their sister-units located abroad. The National Drug Policies of 1982 and 2005 helped the formation and growth of a domestic pharmaceutical industry in the country. As a result, Bangladesh became a drug-exporting country by the late-1980s from a drug-importing nation earlier.
The pharmaceutical industry in Bangladesh is now one of the largest capital-intensive white-collar industries, and has grown tremendously over the past few years. Bangladesh enjoys a comparative advantage in the sector due to its cheap labour and raw materials, favourable WTO legal regime as well as adequate supply of skilled manpower. Medicine sales in Bangladesh were worth US$ 0.60 billion in 2007, which nearly doubled to US$ 1.06 billion in 2011 and reached US$ 1.60 billion mark in 2014. The growth in 2011 alone was 24 per cent against the global growth of 8 per cent. Through export of medicines, Bangladesh earned US$ 52.65 million in 2011 and US$ 67.45 million in 2012. Bangladesh is now almost self-sufficient in manufacturing pharmaceuticals, as 97 per cent of the country’s needs were met by domestic manufacturers in 2011. The imported drugs are mostly specialised pharmaceutical products like vaccines and anti-cancer drugs. The current ratio may tilt further in favour of domestic producers as big local firms are preparing to manufacture these drugs as well.
The drug manufacturers hope to export drug items to 140 export destinations, climbing from the current 86, within the next few years, and have already made huge investments in new state-of-the-art manufacturing facilities. In fact, leading plants have increased their production capacity by 200 per cent to 300 per cent during the last few years. A number of companies have already obtained or are in the process of obtaining UKMHRA, EU, TGA and GCC certifications. The export prospects are very bright indeed, because of increased demand for high-quality generics throughout the world, and the inclusion of Doha declaration in WTO-TRIPS, which allows the LDCs not to opt for pharmaceutical product patents until 2016. Among the 50 LDCs, Bangladesh has one of the strongest bases for pharmaceutical manufacturing. Besides, there is a huge opportunity for Bangladeshi companies to go for contract manufacturing and compulsory licensing.
MAIN CHALLENGES: The major challenge for the expansion of pharmaceutical industry in Bangladesh is the expected expiry of WTO/TRIPS agreement in 2016, which provides patent exemption for pharmaceutical products in Bangladesh as a least developed country (LDC). Steps should be taken for extending this exemption for another 12-year term alongside preparations in the country for compliance with patent laws in case the exemption is not extended. Another challenge facing the local industry is absence of facility for bio-equivalence study, which is mandatory for drug exports to the regulated as well as some moderately regulated markets. Such tests are now done abroad at a quite high fee. Establishment of a full-fledged bio-equivalence laboratory in Bangladesh is, therefore, urgent in order to boost exports and improve the quality of products.
Bangladesh pharmaceutical industry does not have any significant capability for research or sophisticated production of medicines. Pharmaceutical manufacturing generally consists of two steps. The first step – manufacturing of active pharmaceutical ingredients (APIs) is a highly sophisticated, technically demanding chemical and biochemical fermentation-cum-synthesis process. The second step is the drugs’ final formulation, which belongs to the manufacturing sector. Bangladesh is mainly engaged in the final formulation of branded generics from imported APIs. There is no research and development (R&D) activity and so the capacity for ‘reverse engineering’ of patented drugs is very limited. Pharmaceutical production has proved to be highly sensitive in Bangladesh as raw materials like API, packaging and materials are imported from outside (mainly China and India). Approximately 80 per cent of the APIs were imported in 2008 and 75-80 per cent of these were generic. At present, there are 21 companies manufacturing 41 APIs in Bangladesh (2011, IDLC). However, the producers mainly run the final chemical synthesis stage with API intermediaries, instead of the complete chemical synthesis (World Bank, 2013).
There are currently 267 pharmaceutical companies in Bangladesh with the top 10 companies holding 67.6 per cent of the market share. With around 115,000 workers employed, it employs the highest number of white-collar workers in the country. Different factors within the pharmaceutical industry have prevented it from growing as expected. The industry is inherently a capital-intensive one and highly sanitised conditions are essential. Additional investments need to be made for the export market to guarantee quality and provide certification. The share of labour in total production cost is low, and this is even more so when the cost of APIs is included. Besides, the incentives created by policies have led to the private sector focus on import-substitution instead of enhancing ‘reverse engineering’ capacity to take advantage of the WTO/TRIPS waiver.
Other factors that adversely affect exports include weak enforcement of quality regulations and strict foreign exchange controls. Lax enforcement of regulations has allowed local companies to fall below the standards necessary for the stringently regulated export markets. Strict foreign exchange controls deter firms from undertaking critical activities like receiving certifications from overseas regulatory authorities in order to increase exports (World Bank, 2013).
GOVERNMENT MEASURES AND REQUIRED SUPPORTS: As the demand for Bangladeshi pharmaceutical products grows, the government is paying increasing attention to the quality of drugs in order to safeguard people’s health. The government’s drug-testing laboratories and the Directorate General of Drug Administration (DGDA) have the monitoring and supervision roles in this regard. The latter is continuously strengthening its capability for the purpose. The government has also taken necessary steps to establish an Active Pharmaceutical Ingredients (API) Industrial Park at Gazaria, Munshiganj, which will boost the industry’s competitiveness as well as exports. A total of 42 industries would be set up under the project scheduled to be completed by 2015.
The pharmaceutical sector has been among the high-priority ones in Bangladesh export policy since 2006. These sectors are entitled to income tax exemption for export earnings, export credit at reduced rates, assistance in marketing abroad through participation in export fairs etc. In addition, the government reduced or exempted duties on some capital machinery and raw materials imported for pharmaceutical production. The sector also enjoys a tax holiday and ‘duty drawback’ scheme.
The Directorate General of Drug Administration (DGDA) under the Ministry of Health and Family Welfare is the drug regulatory authority in the country. But despite extensive rules, the pharmaceutical market remains under-regulated due to lack of capacity at DGDA. It is severely understaffed — against the backdrop of a rapidly growing pharmaceutical market, large numbers of registered products, and a huge population size. Enforcement measures suffer as a result. The drug-testing laboratories, including the two under DGDA, also have insufficient capacity. Even infrastructure support for the regulatory authority is not adequate. Its effectiveness is further complicated due to complexities of multiple administrative bodies and committees involved in the regulatory process. The industry does not have a bio-equivalence testing facility, which is mandatory for product registration in developed markets (World Bank, 2011).
The government should undertake appropriate measures and initiatives for removing and rectifying these constraints in order to facilitate rapid growth of the pharmaceutical industry in Bangladesh.
The writer is a PhD, a senior civil servant, and former editor of Bangladesh Quarterly.