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Industrial Analysis
Group ID 9
Submitted By:
Submitted To:
Muhammad Shafique
Industry Snapshot
The pharmaceutical sector of Pakistan was estimated to be USD 3.2 billion in value with annual
growth rate of 13.2%. There are over 650 companies operating within this sector however the
competition is skewed towards top 10 companies that command 46% of the market share. In 2019,
pharmaceutical sector’s total exports were USD 218 million which account for only 0.9% of
Pakistan’s total exports.
Companies are striving for new molecule introductions on the underlying market assumptions of
increasing population, affordability, infrastructure investment, technology, life expectancy, chronic
diseases, and pandemic.
However, firstly 95% reliance on imported Active Pharmaceutical Ingredients (APIs) raise supply
chain disruption and exchange rates fluctuation risk. Low per capita expenditure, and low prices with
respect to global market creates significant problems for companies within this sector.
Looking at the supply side of the industry, high reliance on imported API is primarily due to low
emphasis on R&D leading to only 5% of locally produced APIs. Even though Switzerland is the largest
exporter to Pakistan in this category, industry has diversified its import from other countries like
Belgium, Germany, France, India, and Italy to create a cushion against supply chain disruption.
While looking at the supply side, another aspect to consider is that even though total number of
companies have increased in this industry, market capitalization of MNCs in local market has
reduced due to inconsistent policies and controlled drug prices. Since DRAP has linked the prices
with CPI, cost of R&D cannot be shifted to consumers, and this has caused MNCs to pull foreign
investment and eventually exit the market. A total of 10 MNCs have exited in past 10 years due to
low profit margins.
In the demand side rising population and increasing health issues maintains a stable demand as this
is an essential good, so this industry is recession resistant. Furthermore, new product pricing and
price increases are approved by DRAP based on CPI as per amendments in Drug Pricing Policy 2018.
Therefore, companies cannot change prices unilaterally.
Conclusion
Pharmaceutical sector is highly regulated and requires approval for almost everything due to the
nature of the products. However, R&D investments are required to uplift the revenues in the longer
run. The sector shows growth yearly but that is primarily due to increasing population, growing
middle class and covid vaccines. The amendment in pricing policy will serve to help companies
implement price revisions faster. Price competition does not exist in this sector due to controlled
pricing, so companies are left to capitalize on brand power and quality. Exports of pharmaceutical
products have grown due to increased demand and disruptions in global supply chains during Covid-
19. If stakeholder expectations can be satisfied of high lead time, regulatory framework, and
oversight of export products. These changes can drive the industry towards a higher share of profits
in global market.