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Pharmaniaga’s PN17 classification a wake up call for pharma sector, says Galen Centre

Publish date: Wed, 01 Mar 2023, 11:33 AM

KUALA LUMPUR (March 1): Pharmaniaga Bhd’s inclusion into Bursa Malaysia Securities Bhd’s Practice Note 17 classification of financially distressed companies represents a wake up call for the pharmaceutical sector.

In a statement on Wednesday (March 1), Galen Centre for Health and Social Policy chief executive officer Azrul Mohd Khalib said it highlights the need for urgent reforms to be introduced, particularly on the public sector’s procurement practices of medicines.

He said te situation affecting Pharmaniaga is very worrying and has potentially severe implications across the entire Malaysian pharmaceutical landscape, especially the public health sector.

“If the company deteriorates further, there could be a massive disruption to the supply of medicines and drugs to the public health system.”

“The situation affecting Pharmaniaga exposes vulnerabilities in the current public health sector’s pharmaceutical procurement processes and highlights the need to undertake long argued for reforms in this sector.

“There is a need to emphasise on the importance of competition, diversity of providers, getting rid of tender agents as middlemen, and reducing government interference,” he said.

Azrul said Pharmaniaga previously enjoyed an exclusive concession for more than a quarter of a century to purchase, store, supply and distribute at least 700 pharmaceutical products under the  Approved Products Purchase List (APPL).

He said this represents more than a third of the government’s branded and generic drug and medicine supply.

“This GLC also has the logistics and distribution contract for these medicines.

“The government’s practice of exclusive concessions which grant individual companies such as Pharmaniaga and other GLCs major influence and dominance over large portions of our healthcare system, including hospital services, creates an unhealthy dependence.

“These companies will be considered indispensable and become ‘too big to fail’. Our public healthcare system is at risk of massive disruption when those GLCs run into difficulty. This is one such example,” Azrul said.

Azrul said that in 2019, the government made a commitment to move away from concession agreements and adopt open tenders.

“But this was disrupted by the Covid-19 crisis and Pharmaniaga had multiple extensions. Arguably, the soft landing never happened and the reduction of reliance on these arrangements has not been achieved.

“Unfortunately, any aspiring or potential local competitor or alternative to Pharmaniaga would have already rightly been discouraged from investing in participating in such tenders as the APPL, even if it were to offer better value,” he said.

Azrul said reforms also include removing dependence on tender agents, acting as middlemen within the procurement process, who charge commission for their services and increase the cost of medicines.

He said allowing suppliers to negotiate and bid directly with the government could potentially enable millions in public funds saved, lower prices, increase cost effectiveness and for newer therapies to be made available for patients.

“It will introduce improved diversity of suppliers and reduce vulnerability,” Azrul said.

“At this point of time, I do not think that Pharmaniaga’s classification will cause an immediate and complete disruption in their current ability to service the public health sector. However, the situation could change rapidly if the financial situation does not improve within the next year."

“It is unlikely that Pharmaniaga will be able to offload the majority of its Sinovac Covid-19 vaccines worth RM552.3 million, which reportedly expire in June 2024.

“Better understanding of the performance of Covid-19 vaccines and the disease have resulted in significantly decreased demand for this vaccine from countries in the region,” he said.

Azrul said Pharmaniaga’s stock must also compete with the new generation of bivalent Covid-19 vaccines which are starting to become available, promising improved coverage of new variants of the coronavirus.

“The government, if it chooses to intervene, has a number of options: it could provide a significant cash infusion, guarantee or bailout for the GLC which will likely be in the range of RM700 (million) - RM900 million.

“It could provide a government guarantee which Pharmaniaga could rely on to facilitate financial arrangements or obtain credit from banks or other financial institutions.

“Or it could grant yet another decade-long concession arrangement which would guarantee a significant and predictable volume of business for Pharmaniaga for years to come,” he said.

“The last option would be good and build confidence in Pharmaniaga, but not necessarily beneficial for the government, healthcare system or patients, overall.”

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