Govt. to revisit buyback pharma deal provisions

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The Health Ministry has halted the buyback agreements with local drug manufacturing companies. The halt is due to certain changes to the provisions laid out in the contracts issued by the previous government, The Sunday Morning Business learns.

Speaking to us, Health Minister Keheliya Rambukwella said that buyback guarantees are halted at the moment, and referred to the Attorney General’s (AG) Department, as certain conditions in the agreements need to be revisited.

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These agreements were first introduced during the second term of then President and current Prime Minister Mahinda Rajapaksa to increase local pharmaceutical drug manufacturing and encourage more investments in the sector, and received Cabinet approval in 2014. However, the agreements with local drug manufacturing companies were entered into in 2015, under President Maithripala Sirisena’s Government.

In 2017, the agreement which was entered with 11 companies for five years was further extended by another five years to make the agreement valid for a total of 10 years.

Sri Lanka is heavily reliant on imports for its local drug requirement, and as a result, a large sum of foreign exchange flows out of the country annually. Only 15% of the local requirement is manufactured locally following the buyback agreements as of 2020, which the Government wants to increase to 40% by 2025, along with the creation of Pharmaceutical Manufacturing Zones.

Speaking to The Morning Business earlier in September, an official from the local drug manufacturing industry said that the Government has failed to honour the agreements under which they have supplied drugs to the Medical Supplies Division (MSD) of the Health Ministry for the past five years. Instead, the MSD has been procuring most of the required drugs from the State Pharmaceutical Manufacturing Corporation’s (SPMC) private companies, which have joint ventures with it.

These manufacturers have reportedly invested over Rs. 10 billion to upgrade quality and boost capacity, and are supplying about 88 products to the MSD. The supplies are said to fulfil 25% of the islandwide Out-Patient Department (OPD) requirement.

“Private sector manufacturers do not have a level playing field anymore. These joint ventures always get preference over other private sector manufacturers. Though the national requirement is over and above the guaranteed quantity under these buyback agreements, MSD is procuring whatever quantity they feel like purchasing, and get the rest procured from SPMC joint ventures, another senior industry official said earlier.

An official from the Health Ministry told us that the prices of drugs that were purchased by the local manufacturers were decided by a cabinet-appointed pricing committee that did not have enough data to determine the accurate cost.

The pricing committee has basically decided the price of the drugs within an hour or two, based on the cost details given by the manufacturers and adding a margin of about 12% for the profit.

The official said that even though there was a representative appointed by the Ministry of Finance to ensure the transparency of the process, the Finance Ministry official knew little about the prices of materials used for drug manufacturing.

Sources said that although there were proposals to appoint a few other committees to decide on the pricing accurately, they never saw light.

Rambukwella said that the second round of local manufacturers that were proposed for new buyback guarantees did not get through to the cabinet under the current administration.

According to sources, this was due to arguments within the Health Ministry over wanting to go for a competitive model rather than simply awarding guarantees with the increased number of local drug manufacturers in the country.

A majority in the Health Ministry under the former Health Minister Pavithra Wanniarachchi had wanted to promote competition among local drug manufacturers.

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