Nepal's pharmaceutical makers have a 25 percent share of the Rs 6 billion local market for allopathic drugs, which is growing by 15 percent annually.

Some Rs 4 billion has been invested in Nepal's pharmaceutical industry, with individual investors putting in anywhere between Rs 4 and Rs 200 million. A manufacturer told us that if you invest Rs 100 million and produce 25-30 medicines, you'd start earning a profit within five years. The industry provides roughly 5,000 jobs directly, and indirect employment for another 15,000-20,000 people.

And yet, most pharmaceutical companies say that they are operating at 50 percent capacity because of marketing constraints. Of 35 factories registered at the Department of Drug Administration, only 26 are still manufacturing. Four companies shut down last year and the state-run Royal Drugs Limited has been reporting losses.

Competition in the market is cut throat. The industry association of retailers and wholesalers has fixed commissions at 16 percent with the producers, but in reality it is a free-for-all at individual retail outlets. Some Indian manufacturers have been selling "buy one get three" schemes, and offering higher commissions.

Doctors and health workers are an important link in drug sales. Nepali producers say that the Indian companies have pampered them to such a degree that local producers cannot offer them competitive incentives. It is not unusual for doctors to put down brandnames on prescriptions, though medical ethics dictate that they should be using generic terms. Hospitals for their part charge exorbitant rents for medical store concessions within their compounds. A drug vendor paying Rs 350,000 as rent at, say, the Teaching Hospital, will naturally try and sell the most expensive brands.

Royal Drug used to meet most of the government's drug needs until an open market policy was adopted. Initially, Indian companies dominated this segment, but the recent policy of procuring drugs from Nepali companies, even if their prices are up to 10 percent higher, has changed things.

The problem now is price: the government looks for the cheapest Nepali drugs during its annual procurement of medical supplies. Three years ago the Ministry of Health requested bids and then purchased 5.5 billion tablets of an antibiotic for 42 paisa per pill. Nepali producers say it is impossible to produce the drug at that price, and that companies are compromising on quality to cut costs. Recently, a Department of Drug Administration (DDA) official at a public program organised by the association of drug manufacturers alleged that 25 percent of drug supplies purchased from private manufacturers are counterfeit.

The WHO recently issued a set of manufacturing and staffing guidelines called Good Manufacturing Process. The DDA requires that all pharmaceutical companies obtain GMP by the end of this year. But a recent inspection of Nepali pharmaceutical companies by WHO representatives revealed that only four Nepali companies can be granted the GMP certification. Data from the department shows that 6,000 different brands made by 278 companies are being sold in Nepali markets. Prior to the provision of GMP certification, 1,100 different foreign companies used to supply drugs to Nepal.