PHARAMAECUTICAL INDUSTRY OF PAKISTAN
All praises belong to almighty Allah who is the supreme authority knows the ultimate relations underlying all sorts of phenomenon going on in this universe and whose blessings and exaltation flourished our thoughts and thrives our ambitions to have the cherished fruit of our modest efforts in making project of entrepreneurship. We also offer our humblest thanks to holy prophet Hazrat Muhammad (P.B.U.H) who is the forever torch of guidance and knowledge for humanity as a whole. We deem it our utmost pleasure to avail this opportunity to express gratitude and deep sense of obligation to our teacher Prof. Hameeda bataol for his valuable and dexterous guidance, scholarly criticism, untiring help, compassionate attitude, kind behavior and moral support. Through the project he helped us and guided us in every aspect, as that was a very new experience for us.
We would also like to thank all friends who were always there to meet and talk about our idea. Last, but not least, we would like to thank Our Parents for unconditional support and encouragement to pursue our interests. At the end, we just want to say it is eagerly waiting for your strong interest in the study of this report.
³Pharmaceuticals are the substances that are aimed to treat, cure, prevent or recognize diseases and relieve pains through their applications.´ The pharmaceutical industry develops, produces, and markets drugs licensed for use as medications. Pharmaceutical companies can deal in generic and/or brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs. The practice of using chemical agents to treat disease is not new. Extracts from plants (such as ephedrine, caffeine, opium, quinine and hundreds of other biologically active compounds) have been used for thousands of years by "healers" to treat a variety of physical ailments. While natural products were the basis for the pharmaceutical industry, the formal start of the industry has been fixed to 1935 when sulfonamide antibacterial was introduced for general use. The industry has made significant accomplishments in its attempts to cure disease over the last 60 years; however, there are still several areas which lack effective treatment options. The primary goal of the pharmaceutical industry is to find, develop, and market new chemical entities (NCEs) which can be used against untreatable diseases, or which have superior properties when compared to currently available drugs. Research and discovery are the essence of pharmaceutical industry, and its success has played a vital role in maintaining pre-eminent position of the pharmaceutical industry in the world today. Such activities demand a sustain rate of huge investment over a long period. Pharmaceutical Industry devotes huge resources to R&D more than any industry.
At the time of independence there were only two small units which were enabled to meet the local demand. The rest of the medicines were imported. The decision taken in 1972 to abolish brand names, restrict availability of essential drugs to 850, fix maximum retail prices across the board and freely allow local manufacturer of all the essential drugs was in fact the life line for the national segment of the industry. Due to several reasons, especially inaccessibility of new researched medications this policy was ultimately reversed in 1976. Since 1999 the Govt. has invested US$ 133 million in the pharmaceutical industry. The last 10years was eventful for the Pakistan Pharmaceutical Industry because they have developed a large number of domestic manufacturers. In 2006 there were 400 licensed pharmaceutical companies in Pakistan, including 30 multinationals who had over 53% of market share. Today the industry has developed technology, production and an infrastructure of imports. It is a well regulated industry. It has domestic companies which are quite confident of doing good business.
PAKISTAN PHARMACUETICAL INDUSTRY
Although Pakistan¶s pharmaceutical and healthcare sectors are expanding and evolving rapidly, about half the population has no access to modern medicines. Clearly this presents an opportunity, but much more work needs to be done by the government and industry's stakeholders. The value of pharmaceuticals sold in 2007 exceeded US$1.4bn, which equates to per capita consumption of less than US$ 10 per year and value of medicines sold is expected to exceed US$2.3 B by 2012. Pakistan is a developing pharmaceutical market, with a large population and economic progress evident, but per capita drug spending was rather low at around US$9.30 in 2007. Private spending accounts for 65% of total healthcare expenditure sourced through out-of pocket payments, international aid and religious or charitable institutions. Pharmaceutical spending accounts for less than 1% of the country's GDP, comparable to levels in some neighboring countries but above that in some of the South Asian countries. COMPANY¶S GSK ABBOTTLAB HIGHNOON LABS GETZ PHARMA SANOFI AVENTS ROCHE MARKET SHARE 11.6% 7.9% 6.3% 3.9% 3.8% 3.1%
Pakistan meets 80% of its domestic demand of medicines from local production and 20% through imports. The pharmaceuticals market size is Rs. 70 Billion (US $ 1.2 Billion), approximately. The market for pharmaceuticals in Pakistan has been expanding at a rate of around 10 to15% since last few years.
EXPORTS AND IMPORTS
Pakistan is also exporting its surplus drugs to a large number of countries particularly to the Asian and African regions with an expanding trade in the newly emerged Central Asian States. About a hundred million strong populations of the Central Asian States, with almost no local manufacture of medicines, offers an attractive market for industries located in Pakistan. The share of pharmaceutical industry in exports has been reached to 4.04% that was 3.28% in 2008. So far as imports are concerned Pakistan imports nearly 95%of the basic raw-material used for manufacturing from countries such as China, India, Japan, U.K, Germany, and others and major importers are in Islamabad, Karachi, Lahore, Peshawar and Quetta. BMI'S BUSINESS ENVIRONMENT RATINGS Pakistan slipped from 13th to 15th and last place, out of the key markets assessed in the Asia Pacific region. In addition to the challenging economic environment, the country's pharmaceutical expenditure will also be shaped by the volatile political and security situation. Overall, it is expected that pharmaceutical market value to increase at a compound annual growth rate (CAGR) of 9.39% in local currency terms, reaching PKR206.9bn (US$2.3bn) in 2014. Growth over our longer, 10-year, forecast is likely to be somewhat more subdued, at a CAGR of 8.75% in local currency, as the operating environment stabilizes.
MAJOR SUPPLIERS Major suppliers include United States, U.K., Germany, Switzerland, Japan, Holland and France. BASIC MANUFACTURES There are five units operating in Pakistan for the Semi Basic Manufacturing of pharmaceutical raw material and still Pakistan has the capacity to absorb the significant investment in this field. MULTI NATIONAL MANUFACTURERS At present 30 multinational pharmaceutical organizations are producing their products in Pakistan. LOCAL MANUFACTURERS 411 units are involved in local pharmaceutical manufacturing.
SOME KEY STATISTICS OF THE INDUSTRY REGISTERED DRUGS 47000
1% of the profit
AVERAGE GROWTH RATE
MARKET SHARE OF MULTINATIONAL COMPANIES
MARKET SHARE OF LOCAL COMPANIES
HEAD OFFICE PPMA has its head office located at KARACHI with two Regional offices in Punjab & NWFP.
BUSINESS CONNECTIONS AND EFFICIENCY:
Pharmaceutical companies are of two types, one is manufacturing and other is franchising, most of the companies manufacture and sell their medicines themselves, while some companies purchase marketing rights from any manufacturing company, if you are interested in pharmaceutical marketing you can easily get these products right to market at 20%-40% of trade price, for example, if the trade price of a products is Rs.10 you can purchase it by paying 2 3 rupees , so remaining can be one¶s profit. I think it sounds great for investors, even the smugglers that they can make profit without breaking the law, isn¶t it? Moreover when the chemist receives this product on T.P (trade price) Rs.10, he will sell it at15% profit margin that is Rs.1.76 at one tab, so the customer has paid Rs.10+1.76=11.76 and the difference of cost and sales price is Rs.9, he is paying 9 rupees extra, it is an example of a franchise business., if it has been a manufacturing concern the profit margin definitely will be higher. . Secondly, Pharmaceutical companies are investing heavily in promotional activities, like gifting for doctors, refresher courses for the doctors, giving them medical equipments, arranging awareness programs. This also leads to the price hike of the medicines. Apparently it sounds great rather necessary but in practice this fair trade is also marred with unethical practices. For example, bribing doctors to prescribe their medicines, like foreign tours, giving highly valuable gifts e.g. cars, paying their clinic rents, their utility bills, celebrating their even their kid¶s
birthday, financing their kid¶s educational expenses. Most of the antibiotics are sold on ³deals´ their rates are fixed like any other commodity, who bids higher gets the business, even one of the top national company fixes a fair amount of budget for that kind of activities i.e. 3% of their sales value. Two years back it was 7%. Moreover, the profit margin of chemist is 15%, which is nearly 5 times greater than the profit a seller of FMCG (fast moving consumer goods) gets. The law enforcing agencies should come forward and put a close check on this industry, pharmaceutical companies should also sit together and make decisions not to get involved in unethical practices and decrease their unnecessary promotional expenses, and the government should frame a law to set profit margin. If these issues are settled, the next meeting of pharmaceutical industry will be conducted to provide some relief to the people not to raise the prices.
ROLE OF GOVERNMENT
The government has set up an independent Drug Registration and Pricing Authority. In Pakistan the Ministry of Industries decides about the drug pricing. In the biotechnology sector, Pakistan has initiated many programs. It is planning to set up biotechnology plant worth Rs.400 million to meet the growing needs of quality medicines in the country. While substantial increases in public sector spending have recent years. Some major public sector programs have been initiated to needs of the population. These include: y The National Program for Family Planning and Primary Health Care y The Expanded Immunization Program address the healthcare been witnessed in
y National Program for Hepatitis Prevention and Control y National Tuberculosis Control Program y National Malaria control Program y National HIV/AIDS Control Program y Women's Health Program. y The public sector health development expenditure increased from PKR 4.3 billion in 2003-04 to Rs.6 billion in 2004-2005, and Rs.9.5 billion in 200506. y Ministry of Commerce has given 50% subsidy to export from 1998 to 2003 y The government has also formed a policy recently allowing produce raw materials locally. y Companies in Pakistan rely heavily on China, India, Germany, UK and Japan for raw material imports y Since 1999 the government has invested US$ 133 million in pharmaceutical industry the companies to pharmaceutical
companies for registration of their exported products in foreign countries for
FLOW CHART OF PROCEDURE FOR LICENSING OF PHARMAECTICAL UNIT
FLOW CHART OF DRUG REGISTRATION
PEST ANALYSIS PEST analysis is a useful tool for understanding the big picture of the environment in which we are operating, and the opportunities and threats that lie within it. By understanding the environment in which we operate (external to your company or department), we can take advantage of the opportunities and minimize the threats. Specifically the PEST or PESTLE analysis is a useful tool for understanding risks associated with market growth or decline, and as such the position, potential and direction for a business or organization.
The government plays a vital role within the operation of manufacturing these products in terms of regulations. There are potential fines set by the government on companies if they do not meet a standard of laws. Some examples include: y y y y y y Political instability Tax policy (including tax rate changes, new tax laws and revised tax law interpretations) Employment laws Environmental regulations Trade restrictions and tariffs Current wave of terrorism in Pakistan
NATURE OF CHANGE In pharmaceutical industry prices are fixed by ministry of health. It exposes a significant risk on pharmaceutical industry.
IMPACT OF CHANGE Profit margin of pharmaceutical industry will be reduced due to price fixation policy. THREAT Price fixation is a long term threat for pharmaceutical industry. STRATEGIC RESPONSE Those companies who are involved in efficient portfolio management of their products resulting in sophisticated profit margins.
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macro economy: y y y y Economic growth Interest rates Exchange rates Inflation rate
NATURE OF CHANGE Inflation and exchange rate fluctuations are important factors influencing pharmaceutical industry of Pakistan because raw material such as molecules and supporting material is imported. IMPACT OF CHANGE Inflation and exchange rate fluctuations expose a risk of increase in cost because main cost involved in pharmaceuticals is import of raw material. THREAT
This change will increase pressure on cost control functions. STRATEGIC RESPONSE Industry has to consider operational efficiency in order to reduce the impact of this threat.
Social factors include the demographic and cultural aspects of the external macro environment. These factors affect customer needs and the size of potential markets. Some social factors include: y y y y y Health consciousness Population growth rate Age distribution Career attitudes Emphasis on safety
NATURE OF CHANGE Population is increasing day by day resulting in increased demand of pharmaceutical products. Cross border relationships have also strong influence on pharmaceutical industry of Pakistan. Supporting material is imported from India and China. So, cross border situations of India and Pakistan do matter. Terrorism and global alliance are also important factors stimulating the standing of pharmaceutical industry of Pakistan. IMPACT OF CHANGE Diseases are increasing day by day due to increase in population. Sales will be reduced due to cross border relationship and terrorism activities. Due to global alliance market share increases.
THREAT Unfavorable cross border relationships and terrorism will have a threat on pharmaceutical industry of Pakistan. OPPORTUNITIES Increase in population and global alliance are growth opportunity for pharmaceutical industry to explore further market. STRATEGIC RESPONSE Increase in population creates demand for pharmaceutical industry which can be explored through strong research and product development. Unfavorable cross border relationships and terrorism activities can cause reduction in profits. Global alliance is a growth opportunity which can be achieved by focusing on market capitalization strategies.
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include: y y y y R&D activity Automation Technology incentives Rate of technological change
NATURE OF CHANGE y Technology is changing day by day. Pharmaceutical industry should acquire new and advanced technologies for further improvement in product¶s quality, to achieve cost efficiency and in order to, compete in the market. y Technological changes affect the growth of business greatly.
The effectiveness of company's advertising, marketing and promotional programs. The new technology of internet and television which use special effects for advertising through media. They make some products look attractive. This helps in selling of the products. This advertising makes the product attractive. This technology is being used in media to sell their products.
IMPACT OF CHANGE Massive production is possible through advanced technologies by which they can achieve economies of scale. OPPORTUNITY Economies of scale will strengthen the standing of companies because it would be a competitive advantage. STRATEGIC RESPONSE Whenever new technology is evolved need for trained and skilled employees arise. Either training of existing employees or hiring of new employees is required. Huge funds allocation is needed in this perspective.
PEST IMPACT Political Forces Economic Forces
NATURE OF CHANGE Price Fixation Inflation, Exchange Rates Fluctuations Cross border Relationship Terrorism
IMPACT OF CHANGE Low Profits Increase in cost
Long Term Pressure cost
Efficient Management on Focus on operational efficiency
Decrease in Growth opportunities sales Decrease in sales Increase in Market Share Economies of Scale Growth Opportunities Competitive Advantage
Global Alliances Political Forces Advanced Technology
Research & product development Reduction in Strong Profits business relationship Focus on Market Capitalization Human Resource & Fund Allocation
PORTERS FIVE FORCES MODEL
Political Legal Forces (High) Economic Forces (High)
Threat of New Entrants (Moderate)
Bargaining Power of Buyers (Low)
Rivalry among the Competitors (Moderate) Threat of Substitute Products (High)
Bargaining Power of Suppliers
Social Force (High)
Technological Forces (High)
Porters five Forces Model is used for industry analysis and it implies that risk adjusted rates of return should be constant across firms and industries. According to numerous economic studies it has affirmed that different industries can sustain different levels of profitability, part of this difference is explained by industry structure. External threats and profits move into opposite direction.
RIVALRY AMONG THE EXISTING FIRMS
µThe strength of competition in the industry¶ So far as industry analysis is concerned it implies that rivalry among existing firms in pharmaceutical industry is almost at moderate level. Pharmaceutical companies are competing on the basis of: y y y y Quality Cost Product rang Research and development
BARGAINING POWER OF SUPPLIERS
Suppliers of pharmaceutical industry of Pakistan are the originators and large research based companies located in developed countries. They are a few in numbers as compared with pharmaceutical companies in Pakistan. Therefore they have strong bargaining power with them.
BARGAINING POWER OF CUSTOMERS
It is very sensitive to switch from one product to another because it is a life concern so customers cannot switch easily from one reliable product to the other. On the other hand there are many pharmaceutical companies offering a wide range of products. So, the bargaining power of customers is at moderate level.
THREAT OF NEW ENTRANT
Pharmaceutical industry of Pakistan is growing rapidly and there is still significant potential for growth. There are chances of some new entrants but this threat is at moderate level. It is not easy to establish a new pharmaceutical company in Pakistan due to requirement of huge investment
THREAT OF SUBSTITUTES
Research and development are the essence of pharmaceutical industry. Every pharmaceutical company in Pakistan is making efforts for the betterment of their research and development department. Still there is a significant threat of substitute products because of rising discoveries and pacing research and development in the whole world.
PORTER¶S FIVE FORCES Rivalry among the existing firms Bargaining power of suppliers Bargaining power of buyers
Threat of new entrant Threat of substitutes
STRENGTHS y y y y Export potential Contribution to GDP Employment generation (70000 directly and 150000 indirectly) Advancement in technology
WEAKNESS y y y y y Price fixation No tax No R&D incentives Imported raw material lack of resources Registration process
OPPORTUNITIES y y y Molecule development (Clinical trials and research) Market growth (Increasing health consciousness) Global alliance (Highnoon laboratory is having enough capacity for the production of medicines. They are also doing outsourcing for other companies such as for Solvay Pharmaceuticals in Germany). Incredible export potential (Central Asia states) Aging of the old population New diagnoses and new social diseases
y y y
THREATS y y y y y y TRIPS (Trade Related Aspects of Intellectual Property Right) agreements Competition from MNCs High cost of R&D Low funds for plant up gradation Government policies (0.7% of GDP for health sector) High cost of inputs (95% import)
1. The government should allow yearly price increases in the essential drugs to account for the rupee devaluation and for the rampant inflation. It should also decontrol the prices of all those drugs that are produced by at least three or four manufactures locally so that their prices may be determined by the market mechanism. 2. When the government feels that the price being charged on a particular drug is unreasonable and that unjustified profits are being made, it should allow the temporary import of that drug in consultation with the PPMA. 3. The import of those medicines, whose demand can be adequately met through local production, should be banned. 4. The Pharmacy industry should be declared an essential industry and it should be given preference with regard to utility connections. 5. Incentives should be provided to both the national and the multinational companies to start the manufacture of raw materials locally. 6. Practically all the existing production facilities are operating below capacity levels and therefore no new unit should be allowed to commence operations for at least next five years. 7. To keep up with international quality standards the Pharmacy industry has to constantly keep on importing highly sophisticated and sensitive quality control equipment. Since this type of equipment is very expensive to import, the government should withdraw the duties and taxes imposed on their import. 8. Biotech pharmaceutical plants should be installed. 9. Funds for development should be provided at concessionaire rates so that quality medicines can be produced at reasonable prices and in sufficient quantity.
The pharmaceutical industry in Pakistan includes both multinational and domestic companies. Multinationals have an upper hand in a way that they possess worldwide advertising facility and can spend allot of money on their research programs. On the other hand local Pharmaceuticals basically rely on licensing for their core business, as they are unable to match the advertising budget and expertise of their multinational competitors. By following the above suggestions many problems of the pharmaceutical industry of Pakistan can be resolved.