Last year, when the dengue outbreak was at its peak, Nepal experienced a severe shortage of paracetamol (commonly known as Cetamol), a key drug for pain and fever relief. Similar shortages also occurred during the first and second waves of the Covid-19 pandemic, leading to unauthorised and often unregulated imports from India as desperate citizens sought essential medication.

Drug manufacturers attribute these recurring shortages to the government's neglect of domestic pharmaceutical industries. Sixteen years ago, the government set the price of 96 essential drugs, including paracetamol, at just one rupee per tablet. The price has not been revised so far. Manufacturers claim that they are forced to limit production to avoid financial losses as the price is far below their cost of production.

Because of this, Nepal's pharmaceutical production has significantly declined. Since the Covid-19 pandemic, eight out of 80 pharmaceutical companies in Nepal have shut down, 15 are on the verge of closure, and 40 are actively seeking buyers to escape mounting losses. Industry insiders believe Nepal has the potential to be self-sufficient in producing essential medicines, but unfavorable government policies have stifled growth and led to closures.

The pharmaceutical industry, valued at approximately Rs 65 billion, is facing a steep decline. Domestic companies, which once met 55% of the national demand, now hold only 45-50% of the market share. Of the 130 registered pharmaceutical companies, only 60 remain operational, and just 10-11 are profitable. Over the past three years, domestic pharmaceutical sales have fallen from Rs 35 billion to Rs 29 billion, leading to widespread closures and financial distress.

Despite improvements in regulation and manufacturing standards, the industry continues to grapple with outdated pricing policies, lack of government support, and rising operational costs. Additionally, fierce competition from subsidised Indian imports and heavy reliance on foreign products have further weakened Nepal's pharmaceutical sector.

Without immediate intervention through policy reforms, financial support and a revision of outdated pricing mechanisms, the pharmaceutical industry risks further decline which can result in increased dependency on imports and significant economic losses.

Struggling to Survive

Nepal has a total of 130 drug manufacturers, according to the Department of Drug Administration (DDA). Of these, 80 are still operational, but eight have ceased operations and 15 are on the verge of closure, according to the Association of Pharmaceutical Producers of Nepal (APPON).

“Given the number of industries shutting down and those preparing to close, it is clear that we are struggling to survive. The main reason is the government,” said Mahesh Prasad Pradhan, president of the association. “The domestic pharmaceutical industry is facing severe challenges, with both sales and profits steadily declining. Domestic pharmaceutical sales, which were Rs 35 billion three years ago, have now dropped to Rs 29 billion, and the decline continues. Of the 83 companies that were operational, 7-8 have already shut down and another 8-10 are on the brink.” According to Pradhan, who also runs Omnica Laboratories Pvt Ltd, only 60 companies remain in operation, and just 10-11 of them are profitable.

The pharmaceutical industry has a long list of grievances, ranging from the lack of a price review for essential medicines to the absence of crucial subsidies for domestic industries. Despite Rs 80-90 billion in investments, the future of Nepal’s pharmaceutical manufacturing industry is now at significant risk, according to APPON.

“The economic situation is one factor, but national pharmaceutical policies are also unsupportive. While some medicines are produced domestically, the DDA continues to prioritise imports, often sourcing from foreign countries despite policies that advocate for domestic promotion,” say pharma industry leaders. “It’s been 17 years since the government set medicine prices. Although policies call for preference of domestic products — even if the cost is 15% higher — this has not been implemented.”

Binod Shah, managing director of Meera Biotech Pvt Ltd, explains that domestic industries are struggling due to outdated government pricing regulations. “For example, if a foreign company sells a tablet for Rs 10, Nepali manufacturers are expected to offer the same tablet at a lower price, despite higher production costs due to smaller batch sizes. This price disparity reduces profit margins for local companies and harms their competitiveness,” he added.

According to industrialists, there was once a time when the government actively supported domestic industries. “The government used to promote the domestic pharma sector, creating significant enthusiasm for the industry. But now, trading has replaced production. No one is focused on manufacturing anymore. The government is only interested in taxes, and collecting tax from imports has become much easier for them,” said Shanker Ghimire, former president of APPON, and the managing director of Asian Pharmaceuticals Pvt Ltd.

It is ironic that Nepal continues to use an outdated law for drug pricing. The Drug Act, 1978, was introduced when there was only one pharmaceutical company in the country. It was intended to establish a uniform control mechanism for imports, not to regulate drug prices, explained Ghimire.

Deepak Dahal, a former president of APPON, stated that while the pharmaceutical industry is highly technical and heavily regulated, the government often treats it as if it were as simple as the chocolate industry. “Nepal has a long history in pharmaceuticals, with the National Drug Policy of 1995 aiming for self-sufficiency in essential drugs within 10 years. In response, the private sector invested based on government policies. However, with open borders and unregulated trading, domestic industries face significant challenges and are not adequately protected,” said Dahal, who is also the CEO of MDH Pharmaceuticals. “Despite having the capacity to meet 90% of domestic demand, Nepal’s pharmaceutical industry currently satisfies only 45%.”

Pricing, unchecked imports, lack of subsidies and unsupportive government agencies like the DDA and Department of Customs are key factors contributing to the survival challenges faced by the industry.

War Over Pricing

The Department of Drug Administration (DDA) has regulated drug prices since 1995 under the Drug Act of 1978. However, the absence of a legal framework for periodic adjustments has severely hindered the industry. The Maximum Retail Price (MRP) of 117 medicines, set between 2007 and 2015, remains unchanged despite rising raw material costs and international price fluctuations. This rigidity risks medicines being withdrawn from the market if import prices increase without corresponding MRP adjustments.

Nepal’s rules also cap the MRP of imported medicines at the price in the exporting country, limiting flexibility. Domestically, there is no system to ensure compliance with the set MRPs, allowing retailers and distributors to enjoy profit margins as high as 33%. Discounts and bonuses further incentivise overpricing, making medicines less affordable for consumers.

Expensive drugs, such as cancer medicines, are sometimes sold directly to patients by distributors, further complicating regulation and transparency. These systemic flaws not only burden consumers but also undermine the growth and stability of the industry.

Pricing remains one of the major challenges for the domestic pharma industry. "It has been 17 years since the government last revised the prices of essential medicines like paracetamol and electrolytes. Even though policies dictate prioritising domestic products, these are rarely implemented," said Pradhan.

Industrialists questioned how companies can sell a tablet of paracetamol for Re 1 and a pack of electrolytes for Rs 10 in today’s market. “In India, electrolytes are priced at Rs 27 per packet. It is Rs 47 per packet in Sri Lanka. Meanwhile, Nepali manufacturers are expected to maintain a Rs 10 price point despite rising raw material, labor and technological costs. Batch sizes are shrinking, and during emergencies, imports might become inevitable,” Pradhan added.

Ghimire echoed similar concerns. “For 17 years, paracetamol prices have not been revised. The government frames this as a political issue, claiming paracetamol is consumed by the poor. But are we truly valuing health?” Ghimire questioned. “Factory costs stand at Rs 0.58 per tablet, excluding marketing, logistics and research expenses. Raw material prices and dollar exchange rates have surged, yet we are forced to operate within outdated price caps.”

In 2015, a taskforce was formed to resolve pricing disputes between the government and manufacturers. The 16th meeting of the Drug Advisory Committee in 2018 directed the DDA to review the prices of essential drugs. However, no progress was made for the next four years. In 2022, the Ministry of Health and Population questioned the DDA’s inaction. Despite repeated directives from the ministry, no concrete action was taken by the DDA.

Narayan Dhakal, director general of the DDA, stated that while the committee's decisions were forwarded to the cabinet by the ministry, they remain stuck. “Now, a new committee has been formed to propose drug pricing recommendations,” he said.

Former APPON President Dahal warned that continued inaction could force him to shut down his operations. “When I began production in 2003, the price of a certain medicine was Rs 30. Today, raw material costs have tripled, the dollar exchange rate has more than doubled and fuel prices have quadrupled. Yet, prices remain the same,” Dahal said. “The government benchmarked pricing policies against India, Bangladesh and Sri Lanka, but it has yet to be implemented. This is penalising domestic manufacturers.”

Dhakal of DDA, however, said pricing is not the sole cause of the industry’s struggles. “While price revisions are overdue, unhealthy competition among producers is also affecting this sector,” he said.

Promoting Imports Over Production

Industrialists argue that the government bodies should prioritise using indigenous pharma products, even if they are 15-20% percent more expensive, to protect Nepal's pharmaceutical industry. However, they complain that the government continues to favor foreign products. Pradhan pointed out that many medicines currently imported from India are now being produced domestically. “Paracetamol, pain relief medicines, cough syrups (both liquid and tablet), rehydration solutions, ibuprofen, combination medicines, along with anti-parasitic, anti-diarrhoeal and cardiovascular drugs, are all being manufactured by various companies in Nepal,” he said. “Nepal’s pharmaceutical industry has the capacity to produce twice the current consumption if given the right environment. Yet, the government continues to prioritise imports over supporting domestic production.”

Pradhan highlighted that supporting locally produced medicines would bring long-term economic benefits. “When medicines are imported, the government earns only a small portion in taxes. However, supporting domestic production generates customs duties on raw materials and machinery, income tax from sales and employment opportunities,” he explained.

Dhakal of DDA said policies have been introduced to promote consumption of locally produced medicines. “We have provisions requiring imported medicines to include Nepali labeling and pricing. We also conduct inspections before granting approvals,” he said. “While these measures have encouraged increased investments, they have also resulted in unhealthy competition, creating additional challenges.”

Despite these policies, industrialists argue that the government practices still favour products, particularly pointing to delays in renewing WHO GMP certifications. “Renewal applications often take over a year. During this time, the government avoids purchasing domestic products due to the lack of certification,” they say. “Without urgent reforms, many companies risk closure, threatening jobs and the country’s self-reliance in healthcare.”

Addressing the 15% price preference policy, Dhakal of DDA explained that during government procurement, the lowest bid, regardless of whether it is domestic or foreign, tends to win. “This is a free market. Even at the DDA, we cannot complicate matters by accepting higher bids when lower ones are available,” he added.

While imports continue to dominate the market, concerns about the quality of foreign drugs remain. “The DDA intervenes only when there are complaints. Until then, unchecked imports continue to enter the market,” said an industrialist.

In 2022, the DDA published a list of 16 Indian pharmaceutical companies that failed to comply with the WHO GMP standards. Earlier this year, the DDA also suspended sales and distribution of Biotax 1gm, an antibiotic injection manufactured by Zydus Healthcare of India, citing serious health risks. According to the department, laboratory testing of batch F300460 revealed that the drug did not meet production specifications.

“In Nepal, quality has never been a concern for us. We fear the authorities and are committed to not compromising people’s health. Yet, the government continues to view us differently,” said Dahal. 

Dhakal of the DDA acknowledged improvements in drug quality but stressed the need for more resources. “Nepal’s laboratory human resources are limited, but we have done our best with the available capacity. Moving forward, increasing manpower and resources for drug quality testing is essential,” he said.

What After LDC Graduation?

Nepal’s pharmaceutical industry could face significant challenges following the country’s graduation from Least Developed Country (LDC) status, primarily due to the loss of trade benefits and patent rights associated with the transition. A key concern is the potential rise in costs related to obtaining and enforcing pharmaceutical patent rights. As Nepal exits LDC status, it will no longer enjoy the flexibility provided under the World Trade Organization’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which allows LDCs to delay enforcing pharmaceutical patents.

Stricter intellectual property regulations will require Nepali pharmaceutical companies to pay for patents on medicines, increasing costs for both producers and consumers. Additionally, the prices of imported raw materials, machinery and technology are expected to rise, further undermining the competitiveness of locally produced medicines against cheaper imports from countries with lower production costs. Patent rights may also restrict domestic companies' ability to manufacture essential medicines unless they pay royalties or licensing fees to multinational corporations, driving up drug costs for consumers.

“As a result, healthcare affordability could become a concern. The higher cost of medicines due to patent fees or royalties may limit access to essential drugs. Therefore, urgent measures, such as government support for domestic production, investment in research and development, and effective policy frameworks, are required to mitigate the potential adverse impacts of LDC graduation on the domestic pharmaceutical industry,” said APPON President Pradhan.

While off-patent medicines may not see significant cost hikes post-graduation, on-patent medicines are expected to become dearer due to stricter regulations and patent fees. This could result in increased imports of such medicines, as domestic production may become economically unfeasible.

Nepal has until July 1, 2034, to comply with the TRIPS standards. During this transition period, the government has an opportunity to strengthen the pharmaceutical sector by promoting exports, subsidising interest and power costs, and investing in workforce training. “Nepali companies could export medicines to non-regulatory markets where demand exists but stringent compliance is not required. However, this will require proactive government policies and support,” said Pradhan.

Some industrialists warn that patented drug prices could rise to levels seen in Thailand and Singapore. “After LDC graduation, companies will have to pay substantial patent fees. Commonly used medicines like pantoprazole, which are patented, could see price rise fivefold, aligning with prices in Thailand and Singapore,” said Ghimire of Asian Pharmaceuticals.

Industrialists believe that Nepal has until 2032 to position itself as a pharmaceutical hub, similar to India and Bangladesh. While India must pay patent fees to produce patented medicines, Nepal currently has the flexibility to produce them without such costs, making domestic drugs cheaper and potentially creating export opportunities to India.

“Bangladesh is a model of pharmaceutical self-sufficiency, meeting 97% of its domestic demand. Nepal could follow this example by importing raw materials and focusing on local production. Bangladesh has leveraged TRIPS provisions, allowing least-developed countries to produce patented medicines without restrictions until 2032,” Dahal said. “Nepal, despite being eligible, has failed to utilise this advantage. If we had, the country could potentially produce medicines worth Rs 15-20 billion annually and even export to India.”

Nepal must strengthen its regulatory framework and implement compulsory licensing under the Intellectual Property Act to produce patented medicines for domestic use post-2033.

However, uncertainty remains. Dhakal of DDA said it is still not clear whether Nepal will retain TRIPS benefits until 2026 or 2033. “We need extensive consultations with stakeholders. If industries lose these benefits, billions of rupees in investments could go to waste. We will also lobby with stakeholders to ensure additional support for Nepal’s pharmaceutical industry," he said. "The full picture will only emerge once Nepal officially graduates from LDC status."

Protecting Domestic Industries

Nepali pharmaceutical companies can broadly be classified into three categories, according to industry people. The first group comprises the established players, companies with a history of 25–30 years and strong brand presence. While they face some challenges, they are not struggling significantly. The second group consists of new entrants from the past 10–15 years, where only a few are performing satisfactorily, while many others are financially struggling. The third group includes recent entrants, established within the last five years, who face intense competition from established companies and are financially unstable.

Investors have put their assets into building this sector for the country. Why can't there be policies to protect industries?" questioned Ghimire, suggesting several measures that the government could take to help alleviate these issues.

He proposed that the government directly procure medicines from manufacturers, bypassing marketing, packaging and logistics costs. For example, medicines supplied to hospitals could be packaged in simple plastic bottles instead of expensive strips, reducing unnecessary expenses. He also recommended that production of common medicines, such as paracetamol, be restricted to a limited number of companies. "If Asian Pharmaceuticals produces cetamol, only a few other companies should be licensed to do so. If demand isn’t met, those companies should face penalties," he added.

According to Ghimire, the Nepali pharmaceutical industry suffers from overcrowding. "For example, if one person opens a petrol pump, others follow suit. Similarly, too many pharmaceutical companies have emerged without proper planning," he added.

While the industry calls on the government for protection, it is also mired in unethical practices. “Pharma companies offer international trips, cars and watches to doctors to promote their medicines. This inflates costs, making it difficult to compete with lower-priced brands. Yet, these companies continue to blame the government for not protecting domestic businesses,” said an official from the DDA. On complaints about a lack of revision of prices for 17 years, the official said these companies often bid government tenders at the lowest possible price. “If pricing were genuinely the issue, why would they bid so low? And how can they sell at such prices?” the official questioned.

Former APPON President Ghimire said industries compete fiercely to avoid losing their market share. “Batch sizes are reduced, and unsold medicines often go to waste,” he added.

Industrialists argue that while the government blames them for the industry’s challenges, it is the government’s failure to understand the industry that exacerbates the problems. They said that the DDA suffers from a lack of human resources and budget constraints, hindering its ability to regulate the sector effectively.

Some industrialists have suggested placing non-tariff barriers to control the import of medicines that Nepal is self-sufficient in. “India protects its industries through several measures, but Nepal does not. For example, India imposes stringent quarantine checks and often rejects Nepali products for export. It also charges significantly higher registration fees — $5,000 per product and $55,000 per company — while Nepal’s fees are negligible,” said Ghimire. He added that APPON had requested the government to increase registration fees in Nepal to provide more resources to the DDA, enabling better monitoring of medicines and protection of domestic products. “But our concerns have been repeatedly ignored,” he added.

Dahal echoed this sentiment, citing India’s substantial investment in its pharmaceutical sector. “For instance, the Central Drug Research Institute in Lucknow develops medicines and transfers technology to private industries. Additionally, India provides cash incentives, biotechnology upgrades, power subsidies and other support. The Central Drugs Standard Control Organisation, India’s regulator, receives INR 38 per capita annually, compared to Nepal’s meager allocation of Rs 4 per capita for DDA,” he said.

Industrialists have also raised concerns about the tax system. While the government provides tax subsidies on some raw materials, infrastructure goods required for production remain heavily taxed, sometimes as high as 50%. According to Ghimire, Indian companies can sell subsidised medicines in Nepal due to protection from their home market, which has strengthened their businesses. He also pointed out that raw materials such as panel boards are taxed at 36%. "We are pharmaceutical manufacturers, not importers of construction materials. Even alcohol is taxed at additional rates, adding to our financial burden," he said.

The government also imposes a 52% tax on equipment necessary for WHO GMP upgrades. In contrast, Dahal said, India reimburses 80% of such taxes after project completion, providing stronger support to its pharmaceutical sector.

Treating Drugs as Food Supplies

Nutraceuticals, which include dietary supplements and health-related products, are increasingly being imported into Nepal as part of food supplies. These products are widely prescribed by doctors for therapeutic purposes and are also available over-the-counter (OTC) in pharmacies. However, the surge in nutraceutical imports has posed significant challenges for the government in terms of regulation and monitoring. The DDA has struggled to keep track of the vast number of imported products, especially unregistered or counterfeit nutraceuticals. Warnings have been issued against the sale of such products, as they may pose potential health risks to consumers.

According to Pradhan, the nutraceuticals market in Nepal is another area of concern. “Nutraceuticals, which are considered pharmaceutical products globally, are being imported in large volumes under the category of food products. These imports, worth Rs 30 billion annually, are not properly regulated and are prescribed by doctors. Despite this, domestic production of nutraceuticals is not permitted,” he said. “In this category too, we can be producers, but the government restricts us. It allows the import of drugs under the food category but doesn’t allow domestic industries to produce them.”

When asked about the issue, Dhakal of the DDA mentioned that a case had been filed at the Supreme Court regarding the illicit supply of nutraceuticals in Nepal. “However, the case has been pending for six years,” he said, adding that traders have become so powerful that monitoring has become a significant challenge when it comes to nutraceuticals. “We confiscate nutraceuticals from the market almost every day, yet during inspections, we find them again. We, too, are waiting for a verdict from the court on this matter.”

Previously, while Birodh Khatiwada was the health minister, the Ministry of Health and Population had proposed setting up a new entity, the Food and Drug Administration, to control the quality of healthcare equipment and monitor the quality of nutraceutical products. Most countries have dedicated agencies responsible for ensuring the safety, efficacy and security of drugs, biological products and medical devices, among other things. According to Dahal, Nepal needs such a body to effectively monitor both food and drugs. “Countries have these kinds of regulators. However, traders are taking advantage of the loopholes because we lack such a regulator here,” he said.

The United States has the Food and Drug Administration (FDA), and neighbouring India has the Central Drugs Standard Control Organization (CDSCO) for this purpose. Additionally, there is no agency in Nepal to monitor the quality of cosmetic products being sold in the market. Consumers are using these products without knowing their quality. “The DDA regulates the quality of medicines, but there should be another agency under the Ministry of Agriculture and Livestock Development to address these concerns,” Dahal added.

Export Potential

Nepal can draw inspiration from Tilganga Institute of Ophthalmology’s success in exporting eye lenses to first-world countries, achieved through collaboration with Australian regulators. By building similar partnerships in the pharmaceutical sector, Nepali companies could scale up in the international market.

Organisations like UNICEF, which procure public health goods globally, only accept products from companies that meet stringent World Health Organization (WHO) standards. Due to inadequate regulatory frameworks, Nepali companies are often excluded from bidding for such tenders. To address this, the DDA should adopt stricter regulatory measures to ensure Nepali products qualify for international tenders, say industry people.

The WHO ranks drug regulators globally on a scale of 1 to 4, with Level 1 indicating a lack of trust in Nepali pharmaceutical products internationally. In comparison, countries like India, Bangladesh and Pakistan are ranked at Level 3, granting them greater credibility and access to global markets.

UNICEF, in particular, prefers medicines from countries with higher WHO regulatory rankings when procuring drugs through global tenders.

“First, the regulator in Nepal needs to improve itself, and only then will it open doors for us to export properly,” Dahal said.

Despite Nepal’s potential to export pharmaceutical products, government support remains a significant hurdle. Countries like India have established a Pharmaceutical Export Council and invested heavily in enhancing regulatory mechanisms to boost pharmaceutical exports and gain better access to international markets. Nepal can draw lessons from such examples and replicate similar frameworks with enhanced government support to increase pharmaceutical exports and strengthen its position in global markets, he added.

What Next?

To ensure the survival and growth of Nepal’s pharmaceutical industry, several key measures should be implemented by the government, according to industry leaders. “First, revising outdated drug price controls is essential to help domestic manufacturers remain competitive. Second, restricting the import of medicines that can be produced locally is equally important,” they emphasise.

Additionally, infrastructure development, including reliable power supply and access to essential utilities, is crucial. “High costs related to infrastructure development deter investment. Simplifying the process for obtaining these facilities and offering financial incentives could significantly reduce the operational burden on pharmaceutical companies,” said Dahal.

Industry leaders also highlight the need for consistent policy support. This includes financial incentives, tax relief and easier access to funding to foster investment and innovation within the sector.

(This report was originally published in  January 2025 issue  of New Business Age Magazine.)