THERE is an urgent need for reforms to be introduced, particularly on the public sector’s procurement practices of medicines after Pharmaniaga Bhd was issued the Practice Note 17 (PN17), Galen Centre for Health and Social Policy said. 

Its chief executive, Azrul Mohd Khalib, said Pharmaniaga’s classification as a financially distressed company is a wake-up call for the pharmaceutical sector.

It highlights the need for urgent reforms to be introduced, particularly on the public sector’s procurement practices of medicines.

“The situation affecting Pharmaniaga is very worrying and has potentially severe implications across the entire Malaysian pharmaceutical landscape, especially the public health sector,” he said in a statement.

On Monday, the government-linked pharmaceutical company was issued the PN17 after it was labelled financially distressed on Bursa Malaysia.

Its directors said the PN17 was triggered in the company’s audited consolidated financial statements for the period until December 31, 2022.

The company last year struggled to sell Sinovac Covid-19 vaccines worth RM552.3 million and wrote down an Indonesian unit of RM50.3 million. 

Azrul said should the company’s financial standing deteriorate further, there could be a massive disruption to the supply of 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 Pharmaniaga previously enjoyed an exclusive concession for more than 25 years to purchase, store, supply and distribute at least 700 pharmaceutical products under the Approved Products Purchase List (APPL). 

“This represents more than a third of the government’s branded and generic drug and medicine supply. This government-linked company (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 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 such tenders as the APPL, even if it were to offer better value.”

He added that 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.

“Allowing suppliers to negotiate and bid directly with the government could potentially enable millions in public funds saved, lower prices, increased cost effectiveness and for newer therapies to be made available for patients. It will introduce improved diversity of suppliers and reduce vulnerability. 

“At this point of time, I do not think 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 their financial situation does not improve within the next year.”

Azrul also said it is unlikely 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. 

“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 health group chief said the government, if it chooses to intervene, has a number of options such as providing a significant cash infusion, or a guarantee or bailout for the GLC, which will likely be in the range of RM700-RM900 million.

“It could provide a government guarantee that Pharmaniaga can 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.

“The last option would be good and would build confidence in Pharmaniaga, but not necessarily beneficial for the government, healthcare system or patients overall,” he said. – March 1, 2023.