Pharmaceutical companies in Nepal are allowed to produce medicines just by paying royalties to the innovators and without obtaining patent rights.

This flexibility is provided for least-developed countries (LDCs) like Nepal under the WTO’s Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS).

However, Nepal will lose this flexibility upon LDC graduation. Nepal is graduating from the LDC to a developing country in November 2026.

Domestic pharmaceutical companies said losing these flexibilities would make medicines expensive as producing them would be costly. Exporting will also become more difficult.

They said it's high time Nepal thought about its alternatives.

“We must work according to active pharmaceutical ingredients (API) in new medicines and invest around Rs40,000 to find an API on a drug label. This will impact the affordability of the medicine,” said Mahesh Prasad Pradhan, president of the Association of Pharmaceutical Producers of Nepal. “It’s time we started thinking about these issues.”

The API is the central ingredient. APIs are produced from raw materials with a specified strength and chemical concentration.

Non-communicable diseases are on the rise in Nepal.

A patient exposed to a non-communicable disease needs to consume medicines every day. If it becomes expensive, it will impact the public health system, said Pradhan, speaking at an event jointly organised by South Asia Watch on Trade, Economics and Environment (SAWTEE) and Third World Network on the preparedness of Nepal’s pharmaceutical sector to cope with the challenges of the country’s LDC graduation.

Pradhan said India is among the countries that produce the cheapest medicines in the world, and Nepal produces cheaper medicine than India, giving patients a more affordable cure.

“As of now, we are the only country in the world that produces paracetamol at around Re1,” said Anil Bikram Karki, president of the Nepal Medical Association. “But with LDC graduation, these medicines will be more expensive. The price may double or triple as a patented medicine maker must pay the patent right holder. The high cost of medicines will impact Nepal’s health care system.”

According to the Association of Pharmaceutical Producers of Nepal, opening a pharmaceutical plant in Nepal requires a minimum of Rs1 billion.

There are 83 pharmaceutical companies in the country, and some six are in the process of opening. The pharmaceutical industry has around Rs80 billion in total investments and directly employs 40,000 people. The sector pays the government around Rs5 billion in taxes.

The association said that the Nepali pharmaceutical industry's business transactions stand at around Rs67 billion annually, including imported medicines. Domestic pharmaceuticals supply 50 percent of the market.

Posh Raj Pandey, the chairperson of SAWTEE, a South Asian think tank, said that 90 percent of medicines are generic, and only 10 percent are patented in the domestic pharmaceutical industry.

“If Nepal can easily import API, the domestic industry can produce internationally patented medicines.”

All the inputs required to produce medicines in Nepal are imported. The country imports API from India and China. Almost 95 percent of medicines are imported from India, and the remaining five percent from other countries.

The export of Nepali medicine is nil.

The intellectual property (IP) policy was introduced in 2017, and a draft bill for IP was prepared in 2019. Five years on, according to private sector officials, the final draft of the bill is shuttling between the law and industry ministries.

According to a report prepared by SAWTEE on Nepal’s pharmaceutical sector's preparedness to cope with the challenges of the country’s LDC graduation, IP law needs to address patentable subject matter.

The law also needs to address regulatory exceptions for generic manufacturers to research patented pharmaceutical products and submit their applications for marketing authorisation before the patent expires.

Compulsory licensing will support the idea that when negotiation for a voluntary licence fails, third parties can exploit the patent without the patent holder's consent. Pandey said such compulsory licences may also be granted to remedy anti-competitive practices, even without prior negotiation.

Pandey suggested that the government improve data on the pharmaceutical sector's production, import, and export and enhance transparency and accountability mechanisms to avoid frivolous patents, among other things.

He said that to incorporate the public health-related flexibilities in IP legislation fully, there is a need for extensive consultation with stakeholders before presenting the bill to Parliament.

Pandey said the pharmaceutical industry should continue advocating for flexibilities for newly graduated LDCs, conveying industry concerns to draft the IP bill.