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Keheliya and pharma firms contradict on pharma buyback agreement

26 Jan 2022

  • Health Minister says deal is merely an ‘understanding’ honoured by Govt.
  • Local manufacturers claim to be in possession of agreement papers; allege Ministry violating terms 
    By Shenal Fernando There is no buyback guarantee between the Ministry of Health and the local drug manufacturers and it was merely an understanding which the Ministry continues to honour, Minister of Health Keheliya Rambukwella claimed.  However, this statement made by the Ministry of Health to The Morning Business was dismissed by a source within the local drug manufacturing industry, who claimed: “All 12 local drug manufacturers are in possession of a written buyback agreement and under the said buyback agreement, certain quantities of drugs were assured to local drug manufacturers.”  He further claimed that contrary to what the Minister said, this agreement has not been honoured as of right now. However, he did admit that the national demand for certain drugs has dropped due to certain external factors and that a reduction in the allocation of such drugs is acceptable provided that the reduction is absorbed by all manufacturers. It was further alleged that there is also a decrease in the allocation of drugs that have not experienced a drop in demand.  The buyback agreements were first introduced in then President and current Prime Minister Mahinda Rajapaksa’s 2010 election manifesto “Mahinda Chintana – Vision for the Future” in order to increase local pharmaceutical drug manufacturing and encourage more investments into the sector. In 2014, the then Cabinet of Ministers delivered on the President’s promise by approving a proposal to enter into five-year buyback agreements with local manufacturers.  Despite cabinet approval being received in 2014, the agreements were only entered into by 2015, under the then Government led by then President Maithripala Sirisena. The buyback agreements were signed with 11 pharmaceutical manufacturing companies, and in 2017, these agreements were extended by a further five years. The industry source further claimed that one of the reasons why the Ministry of Health Medical Supplies Division (MSD) was refraining from allotting the assured quantities under the buyback agreement to local drug companies was due to the priority given to State Pharmaceutical Manufacturing Corporation (SPMC) joint ventures. Industry sources had previously disclosed to The Morning Business that the SPMC, in 2017 and 2018, entered into agreements to establish joint ventures with a number of private sector companies who are not part of the buyback agreement. These reliable sources noted that these companies have taken advantage of the joint venture and supply generic pharmaceutical products identical to the ones supplied by those who have entered into the buyback agreement. These joint venture companies are hesitant to bring in new technology or research and development (R&D) into the country, they added.  It was further revealed that procuring the required drugs from SPMC joint ventures gives no financial benefit for MSD, as they sell either at the same price point, or even a higher price point than the private companies who have entered into the buyback agreement with MSD. This strategy by the MSD is puzzling considering the fact that the major shareholding of such joint venture companies are foreign companies who will repatriate the profits leading to a loss in foreign exchange. Thus, such a move is counterproductive to the Government considering the prevailing foreign exchange liquidity crisis in the country.  Sri Lanka is heavily reliant on imports for its local drug requirement, and as a result, annually, a large sum of foreign exchange flows out of the country. Only 15% of the local requirement is manufactured locally following the buyback agreements, as previously, it was merely around 5-8%. At a time when Sri Lanka is trying to promote the local pharma industry and attract investments into the sector, such issues have devastating effects. It is reported that these local drug manufacturers had, on the basis of this buyback agreement, invested over Rs. 10 billion to upgrade quality and boost capacity, and are supplying about 88 products to MSD. The supplies are said to fulfil 25% of the islandwide out-patient department (OPD) requirement.


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