Affordability of a drug for patients is a major concern when prices are determined, as a pharmaceutical company has to consider competition in the market. Pharmaceutical companies have reduced their production costs by consolidation of their manufacturing facilities and downsizing to maintain margins that would be acceptable to their shareholders. Cost cutting measures have limits as at the current levels any further cost cutting would compromise quality of pharmaceutical products. As production costs increase, pharmaceutical companies have no alternative but to abandon manufacture of such pharmaceutical products.
Before procurement, raw materials are tested for impurities and the harmful effects they have. Higher quality materials are expensive but are essential safeguard against harmful side effects of impurities that might be in cheaper and low quality alternatives. Apart from the raw materials such as Active Pharmaceutical Ingredients (API), majority of which are imported in Pakistan. There are three main components that are part of a product’s cost namely Depreciation, Utilities and Salaries & Wages. Prices have to be adjusted keeping in view any change in these costs.
Another component that directly affects the prices of drugs is input tax that is imposed by the government irrespective if it is the Essential Drug or not that is not adjustable as pharmaceutical products are exempt from tax instead of being zero rated.
Globally companies are now compelled to operate in an environmentally sustainable way that means that any wastages or discharge from the factory should be treated as to not pollute the environment. This also incurs tremendous amount of costs.
In 2017, Drug Regulatory Authority of Pakistan (DRAP) issued barcoding rules for controlling counterfeit and spurious drugs. These measures were taken without giving the industry adequate time and incentive to implement. Counterfeit measures are costly to implement. At the current level of prices many products would become unviable as the cost per unit will exceed its market price.