Galen: Drug Price Controls May Hurt Malaysia’s Health Care Industry

Regulatory compliance that requires generics’ bioequivalence can cost up to RM1 million per drug.

KUALA LUMPUR, July 9 — The Galen Centre warned the government that regulating medicine prices could harm local pharmaceutical companies that produce generics and affect the entire health care sector.

The health think tank pointed out that regulatory compliance that requires generics to be bioequivalent with innovator medicine can cost up to RM1 million per drug.

“Restricting the industry’s ability to recover such expenditures and investments through its pricing strategies constricts and discourages local innovation and private sector investment in the local generics industry,” Galen said in its policy brief titled “Drug Price Controls In Malaysia: Implications and Considerations”.

“In the long run, compared to their international counterparts who are importing both patented and generic drugs, local pharmaceutical companies are less likely able to absorb the effects of drug price controls and to bounce back.”

The Pakatan Harapan (PH) administration plans to control the prices of originator medicines in the first phase of its drug price controls.

Galen said it was likely that the next two years after the first phase will involve innovator, biosimilar and generic medicines across the public and private sectors.

The Health Ministry has said that it will use external reference pricing (ERP) to benchmark drug prices in Malaysia against prices in other countries. 

The three lowest prices from those countries will be averaged to set the price ceilings for pharmaceutical products in Malaysia, after the government determines a certain percentage of markups that can be imposed at the wholesale level and retail points like hospitals, clinics, and pharmacies.

Galen warned the Health Ministry that drug price controls could lead to local manufacturers refraining from making drugs that are expensive to produce and are less profitable.

“Instead, they would focus on those which will produce sales, market share and profits. The diversity and availability of generic medicines could actually suffer.

“Price controls could severely affect the sustainability of local pharmaceutical manufacturers, causing a crisis in drug supply,” Galen said.

The think tank also predicted that most private clinics would not survive drug price controls, given that their business mainly depends on selling medicine since general practitioners’ (GP) consultation fees are controlled by the government at a 1992 rate.

Galen said community pharmacies are already operating with very thin margins for drug sales and are forced to sell non-medical consumer products to sustain their business, a practice called “over-servicing”.

“Drug price controls will mean that those margins will further shrink. 

“Patients may no longer seek to buy their drugs at community pharmacies, if they can get them for the same price at chain pharmacies, clinics and private hospitals.”

As for private hospitals, Galen said medicine price regulations would likely lead to price increases for other services.

Galen said distributors and wholesalers, which stock drugs and dispense them but do not own the products they distribute, would have to diversify their portfolios and services once drug price controls come into place.

“They will likely strengthen value-added services and solutions, such as improved continued medical education for health care providers, upgraded digital solutions for supply chain management, better technical support, increased efficiency of logistical services, and better credit terms.”

Bumiputera tender agents, which act as middlemen between the public health care system and local non-Bumiputera and foreign pharmaceutical companies, would be least affected by drug price controls, according to Galen.

“Despite earning 2 to 3 per cent in commissions for submitting tender documents on behalf of their suppliers, their exposure is limited and minimal,” said Galen, noting that pricing is determined by drug makers and logistics is provided by other independent distributors.

“Unless this policy changes, tender agents will gain the same percentage of commissions regardless of price controls.”

Galen warned the government that drug price controls could discourage multinational pharmaceutical companies from bringing innovative medicines into Malaysia, citing India that suffered declines of new drug launches by 75 per cent and delays of patented drugs entering the market by more than five years, due to price controls for its essential medicines.

“With price controls, Malaysia’s reputation could take another hit and the country regarded as a risky and unpredictable market to launch new high-value innovative drugs for the treatment of illnesses such as cancer and rare diseases.”

Galen chief executive Azrul Mohd Khalib called for a regulatory impact analysis of proposed legislation controlling the price of drugs to determine its impact on GPs, patients, hospital service providers, and pharmaceutical manufacturers, as well as a cost benefit analysis.

“We need to have better clarity and transparency regarding the implications of such a move,” Azrul said in a statement. “Price controls do not encourage innovation and healthy competition for industry growth. “

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