Think of a situation where two South Asian nations—Bangladesh and Nepal—face similar socio-economic constraints but take divergent pharmaceutical journeys. One emerges as a powerhouse, while the other struggles to meet domestic demand and control the circulation of substandard medicine. Nepal’s pharmaceutical landscape reveals multifaceted challenges, ranging from regulatory hurdles and infrastructure deficiencies to limited research and development capabilities. In contrast, Bangladesh’s success story is underpinned by strategic initiatives, innovative policies and a resilient entrepreneurial spirit. This disparity begs the question: What lessons can Nepal learn from Bangladesh?

Bangladesh’s approaches

As a least developed country (LDC), Nepal benefits from exemptions under international agreements, particularly intellectual property rights. These include dismissal from many Trade-Related Aspects of Intellectual Property Rights (TRIPS) standards until July 1, 2034, and from providing pharmaceutical patents until January 1, 2033. Despite these advantages, Nepal has not fully leveraged these provisions.

Meanwhile, Bangladesh, another LDC, has capitalised on TRIPS flexibilities, abolishing product patent protection in 2008. This strategic move has fostered a thriving pharmaceutical sector, producing affordable generics and exporting to over 150 countries. According to the Bangladesh Pharma Market and Regulatory Report, Bangladesh is not only self-reliant on generic drugs, serving 97 percent of the domestic market and exporting to more than 150 countries, but also produces complex anti-cancer drugs, hepatitis-C vaccines, monoclonal antibodies, biotech products and hormones.

Nepal’s scenario

In the pharmaceutical sector, success means either producing intermediate products such as active pharmaceutical ingredients like raw materials, producing generic medicine at competitive prices, or adding value to complex medicines with technology. Unfortunately, Nepal fails to achieve any of these—a heavy reliance on imports and a struggling domestic industry plague Nepal. One case lists 126 pharmaceutical manufacturers, the majority producing generic drugs necessitating imports of other types of medications to Nepal. The Nepali pharmaceutical market is valued at Rs53 billion, with imports accounting for 54.5 percent of the total market share.

In another case, Nepal’s southern neighbour, India, is a dominant pharmaceutical player (especially generic drugs). It exports drugs to over 200 countries and captures a significant global market share. India's technological advancement in this sector inherently enables the production of more cost-effective alternatives, posing a formidable challenge for Nepal's domestic industries to compete. To foster self-reliance, the Nepal Government imposed an import ban on 37 generic medicines produced by its domestic companies.

While protectionist measures such as banning competition may offer short-term benefits to interest groups, there are concerning long-term implications for consumer welfare. The cost of health for the general public has now increased. As consumers, we bear the burden of higher prices for incompetent products. With lesser competition, there are now abundant substandard drugs in the market. We are compelled to consume the paracetamol produced by companies such as Nepal Drugs Limited, which was banned for not complying with the WHO standards. Additionally, sodium chloride and ringer lactate solution for injection, manufactured by a leading pharmaceutical company in Nepal, Lomus Parentals and Formulation Pvt Ltd., was found to be substandard in laboratory tests. These are just some of the many troubling reports.

Furthermore, the pharmaceutical industry in Nepal faces a significant challenge due to the lack of standardisation. The presence of numerous unregistered drugs exacerbates this vulnerability, amplified by Nepal's proximity to India, a hub for pharmaceutical production with 35 percent of the market share in counterfeit drugs. Despite efforts to regulate the industry, the current workforce of 38 drug inspectors is insufficient to adequately monitor the thousands of pharmacies and the medicines they distribute. This strain on resources intensifies the challenges of ensuring pharmaceutical quality and safety in Nepal. Therefore, instead of investing significantly in loss-bearing state-owned Nepal Drugs Limited, the government should allocate its infrastructure and resources to monitoring the quality of medicines.

In Nepal, 100 percent of active pharmaceutical ingredients (APIs) are sourced, majority of them from India and the rest from China. While Nepal is yet to fully leverage the TRIPS provisions, Bangladesh recognised that fully leveraging its status as an LDC member necessitated the production of patented APIs at a reduced cost. Today, Bangladesh offers VAT waivers and VAT deduction at source on purchase and sales of locally made APIs, laboratory reagents, all raw materials, immovable assets and services up to 2032.

Unlike Nepal's five-year term loans for factories and equipment, Bangladesh provides a 12-year tenure, facilitating long-term investments. Moreover, Bangladesh allows for export earning retention of 40 percent, encouraging companies to focus on research and development to boost exports. It also imposes no single borrower cap and offers back-to-back letters of credit facilities. But Nepal has limitations on borrowing.

Information gap

Another challenge in Nepal's pharmaceutical industry is the gap in information. Consider this: When illness strikes, whom do we turn to? Typically, it's the expertise of a trusted medical professional. Do we question their prescriptions or the associated costs? Rarely. This lack of scrutiny renders the price of medicine largely inflexible. How about our knowledge of available options? Do we actively seek alternatives or simply go with what's prescribed? More often than not, doctors are the main decision-makers in this arena.

Pharmaceutical companies navigate this by relying heavily on marketing representatives to engage doctors. In Nepal, all drugs are generic, and their formulas have been available in the public domain for a long time. So, the only way for manufacturers to stand out is through aggressive marketing tactics, often offering lucrative incentives for doctors to prescribe specific brands.

Policy question

This brings us to a crucial policy question: How can the government redirect its focus to fostering innovation within the industry instead of incentivising doctors? To tackle this issue, some countries around the globe have implemented legislation mandating the prescription of medicine by their generic names. Bangladesh has taken a different approach to resolving this. A 20 percent cash incentive is provided if producers add at least 20 percent value to the API. This has incentivised the local API producers to innovate the health industry rather than sustain in the market by providing lucrative Public Relations packages to the doctors or by producing substandard products at a lower cost. Like in the case of Bangladesh, enhancing competitiveness through a free-market approach could offer a sustainable solution to address the vulnerabilities of the Nepali pharmaceutical industry.

Finally, for any industry to progress, embracing technological advancement along with investment is imperative. One potential avenue for this advancement lies in attracting foreign direct investment (FDI). However, securing FDI, particularly in this sector, is complicated, as the research and development spending of the pharmaceutical industry is 8.1 times higher than that of the aerospace industry, 7.2 times that of the chemical industry, and 1.2 times that of the computer services industry. Therefore, improving the overall business environment and ease of doing business index of Nepal is imperative to attract FDI.

It is essential to embrace the power of the free market to heal Nepal’s pharmaceutical industry. Bangladesh's success story shows how competition can drive innovation and affordability. Sometimes, abolishing patents leads to the spread of information, followed by innovation. By leveraging TRIPS flexibilities, Nepal can enable local companies to produce affordable generics and pioneer new treatments that address the unique healthcare needs of Nepali citizens.