A wartime prescription for the pharmaceutical industry

We are finished! Well, not quite – but TBS editorial guidelines forbid the expletive that truly captures the crisis facing Bangladesh's pharmaceutical sector.

Life has not been easy since 2019. Yet one might reasonably ask: beyond my obvious vested interest, why single out pharmaceuticals for special sympathy? After all, life has not been easy for many companies worldwide since that time.

Indeed, the pandemic delivered a brutal shock, and the Ukraine war disrupted supply chains and costs everywhere. For Bangladeshi companies, two further developments severely limited their ability to recover from these earlier catastrophes.

First, macroeconomic mismanagement by the Awami League had disastrous consequences for currency stability, foreign exchange availability, and inflation. Second, the Yunus-led interim government maintained a business-unfriendly environment throughout its 18-month tenure.

Now, the world economy is taking a gut punch from the Middle East war. Economic shrapnel threatens every household's finances. With so many economic agents in triage, why focus on pharmaceuticals?

The answer is simple yet tragic: beyond the shared catastrophes, this industry suffers uniquely from the weaponisation of what was arguably one of Bangladesh's boldest and most visionary policies.

A brief history illuminates the point. Until the early 2000s, Bangladesh was hardly welcoming to entrepreneurs. Society viewed them as profiteers to be reined in through myriad controls. Until 1994, for example, all medicine prices were government-fixed.

Into this environment stepped former prime minister Begum Khaleda Zia, who removed price controls from almost all medicines. Companies could set prices but needed only a simple clearance from health authorities – a high-risk move that proved prescient.

Freed from stifling controls, the pharmaceutical industry grew spectacularly under entrepreneurial stewardship. Intense competition kept prices among the world's lowest, benefiting consumers.

Given this liberalisation's massive success, subsequent governments embraced the policy. Then things changed.

By 2023, inflation had spiralled upward. The Awami League government, attempting to demonstrate policy success against inflation, directed health authorities to withhold all pharmaceutical pricing requests.

During this period, the taka plummeted against the US dollar. Imported raw material costs soared, eviscerating pharmaceutical profits. Larger companies retained paltry net margins of 1% to 7%, while many smaller ones plunged into deep losses. The impact of de facto price controls was malignant.

The July Revolution ushered in an interim government that stabilised the currency, improved reserves, and made modest progress against inflation. Yet for populist reasons, it continued the clampdown on medicine prices.

Thus, unlike other sectors, pharmaceuticals could not regain financial health through price adjustments. They entered the Middle East war in a precarious position.

The early effects are deadly. Based on supplier quotations, bulk raw material prices have risen substantially. Raw material for esomeprazole – Bangladesh's highest-selling medicine – has increased by 25% to 44%, depending on the form.

Worse still, raw material prices for two already expensive cancer drugs, carboplatin and oxaliplatin, have more than doubled. Packaging materials with petroleum inputs have risen by 11% to 41%.

Costs shared with other industries, like freight, have rocketed. Energy prices, currently suppressed by government intervention, will rise considerably if the war continues.

Clearly, an industry already weakened by de facto price controls cannot withstand this war's effects without price adjustments. Many life-saving medicines will soon become unfeasible to manufacture under current constraints.

The best remedy is to restore the liberalisations introduced by the intrepid Begum Khaleda Zia. Competition would ensure companies cannot fully pass through cost increases, minimising irrational price hikes.

However, given these extraordinarily difficult times, policymakers may understandably wish to return to the original policy in phases. But let there be no doubt: the status quo is a poison pill for Bangladesh's pharmaceutical industry.

Kaiser Kabir is the CEO of Renata PLC.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.