KUALA LUMPUR (April 19): The government’s decision to extend the concession agreement with Pharmaniaga Bhd represents a “major blow” to the country’s healthcare system, said Galen Centre for Health and Social Policy.

In a statement on Wednesday (April 19), the public policy research and advocacy organisation said that the extension was a major blow to much-needed healthcare reforms and towards strengthening the country's resiliency and security of its health system.

"This decision, while representing a big win for the company and good news for its shareholders, signals a confirmation that the Malaysian health system is vulnerable, at risk, and heavily dependent on a single company for more than a third of the government's branded and generic drug supply, and most if not all of its logistics and pharmaceutical supply chain,” Galen Centre chief executive officer Azrul Mohd Khalib said.

He noted that the extension agreement also contradicts and refutes the previous denials that no such dependency exists.

“The government's practice of exclusive concessions, which grant individual companies such as Pharmaniaga and other government-linked companies (GLCs) a dominant grip and major influence over large portions of our healthcare system, including hospital services, has created an unhealthy over-dependence in the belief that these companies will be considered indispensable and become 'too big to fail'. This decision confirms that perception.

"[With it] being included into Bursa Malaysia's Practice Note 17 classification of financially distressed companies, found by the auditor general to have provided faulty ventilators to the Ministry of Health (MOH) during a public health emergency, which threatened the lives of many, and [with its] problematic business decisions regarding Covid-19 vaccines costing more than half a billion ringgit, which cost the former CEO his job, this decision is baffling, disappointing, and will be seen as rewarding the company regardless of its performance or the risk it represents. Will this be the approach whenever this GLC runs into financial trouble?" he asked.

Meanwhile, he said that the government's decision will also send a signal to all pharmaceutical players that there is no point in building, investing, and growing their business in Malaysia to compete for the provision of medicines under a concession arrangement, as Pharmaniaga has practically locked it up for another decade. 

"This is poor business practice, deprives the Malaysian public healthcare system and the people of this country from the benefits of healthy competition, reduces the diversity of providers, and maintains the existence of tender agents as middlemen, which unnecessarily increase the costs of medicines.

"The lack of courage, vision and inability to seize the opportunity of this crisis, which is practically limited to one private company, to introduce much-needed and long-argued reforms for a more cost effective and efficient system, is disappointing," 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, he noted.

"It will introduce improved diversity of suppliers, reduce vulnerability, and increase resiliency. It will force companies like Pharmaniaga to improve, and not take their business for granted. The renewal of a concession agreement lasting for a decade will unlikely have that effect," he added.

Health Minister Dr Zaliha Mustafa confirmed on Tuesday (April 18) that the MOH will extend the concession agreement with Pharmaniaga for 10 more years to provide medicine and medical supplies to the ministry’s facilities.

Pharmaniaga’s wholly owned subsidiary Pharmaniaga Logistics Sdn Bhd was initially granted a concession agreement by the MOH in 1994 to supply public health facilities with medicines and medical supplies. The agreement was extended by six months last December until end-June to facilitate a new agreement.

Previously on March 30, Pharmaniaga dismissed claims that the government is over-relying on the group as its pharmaceutical logistics and distribution services provider.

Pharmaniaga said that the MOH only spent approximately 35% of its pharmaceutical spending via Pharmaniaga, with the group’s role limited to managing the logistics and distribution of products, as well as holding the drug stockpile to the tune of RM400 million as of Dec 31, 2022, according to the pharmaceutical group in a statement.

Shares in Pharmaniaga were 4% or 1.5 sen higher, settling at 39 sen on Wednesday, giving the group a market capitalisation of RM503 million. 

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