Pharmaceutical industry of Pakistan:

Introduction:
Pharmaceutical is a critical sector that impacts public health globally. It plays vital role in healthcare
system by researching, developing, manufacturing and marketing drugs for use as medications.

Pharmaceutical companies discover and produce a wide range of medicines, from over-the-counter
drugs like pain relievers and cold remedies to complex prescription medications for chronic diseases
like cancer and heart disease and other life-saving drugs. The global pharmaceutical industry has
shown rapid growth over the years and emerged as one of the fastest growing industries in the world
though pharmaceutical production and consumption is still unevenly dispersed around the world with
the developed countries as the leading producers and consumers of pharmaceuticals

Generic Manufacturing Process:

Medicines are usually given to patients not just as a single chemical but in a specific mixture. This
mixture is carefully created to make sure the medicine is safe, works well, and is easy for the patient
to use. So, all medicines are basically a mix of two main parts: the active ingredient (the part that
does the medical work) and the excipient (other substances that help deliver the medicine safely).

Active Pharmaceutical Ingredient (API):

Definition: The primary therapeutic substance in a drug.

Production: Manufactured from raw materials through specific processes.
Purity: Requires high purity for quality medicine.
Role: Core element for the intended therapeutic effect.

Excipient:

Definition: Any substance in a drug formulation other than the API.

Function: Aids drug delivery, enhances stability, ensures safety.
Examples: Binders, fillers, preservatives, etc.
Variety: Influences the form of the medicine (tablets, capsules, etc.).

ECONOMIC OVERVIEW:

The Pakistan economy is undergoing severe stress due to a combination of domestic and external
factors. GDP growth has fallen to just 0.29% in FY23 down from 5.7% in FY22; however, the same is
expected to improve to 3.5% during FY24. Persistently high inflation above 30% continues to erode
purchasing power while tight monetary policy is hindering investment and growth. Moreover, import
restrictions imposed to preserve foreign exchange reserves have led to shortages and production
disruptions across industries. The devastating floods in 2022 damaged agriculture, infrastructure and
livelihoods, inflicting losses of over $30 billion as per World Bank estimates.

The pharmaceutical sector in Pakistan contributes more than one percent to the GDP and has
approximately one percent share in the total exports. It saves more than USD two billion annually
though import substitution and contributes some 4.2% to the largest manufacturing sector output.
The sector is estimated to employ around 90,000 workers directly and 150,000 indirectly.

Global perspective:

The pharmaceutical sector is a high-technology and knowledge-intensive industry. The industry has a
two-tier structure. The largest firms account for the majority of the R&D investment in the industry
and hold the majority of patents. A large number of smaller firms manufacture off-patent products or
under license from a patent-holder. Pharmaceutical companies mainly deal in generic, branded,
branded generic and over the counter drugs. Firms may also participate in contract development or
manufacturing, where a company provides all-inclusive services from drug development to drug
manufacturing for another client firm or just drug manufacturing.

Growth Trends and Regional Dynamics:

The pharmaceutical industry has seen significant growth due to new entrants, innovative treatments,
and consumer demands. In 2022, the global pharmaceutical market was valued at USD 1.48 trillion,
projected to reach USD 1.57 trillion by the end of 2023, and expected to hit 1.7 trillion USD by 2025.
The United States and China will dominate, representing over half of the market. North America is set
to maintain a leading position with a 45% market share in 2023, while Europe's share is expected to
decline to 20%. Asia Pacific will hold the second position with a 24% market share in 2023, and Latin
America and the Middle East/Africa will retain 8% and 3%, respectively.

PAKISTAN PHARMACEUTICAL MARKET:

Pakistan pharmaceutical industry is essentially concentrated on drug formulation rather than

innovation. As a formulation industry, its pharmaceutical products mostly include tablets, liquids and
syrups, injections, capsules, tinctures and ointments. The value chain of the Pakistan pharmaceutical
sector is therefore as under: Pakistan’s pharmaceutical industry is a growing, fast-paced market. The
industry meets around 90% of the country's demand of finished dosage forms and 4% of active
ingredients. Specialized finished dosage forms such as soft gelatin capsules, parenteral fat emulsions
and metered-dose inhalers continue to be imported. There are only a few bulk drug active ingredient
producers and the country mainly depends on imports of bulk drugs for its formulation needs
resulting in frequent drug shortages. Almost all the raw materials used in making of medicine are
sourced from abroad.

Market Dominance:

Locally manufactured pharmaceuticals, mainly generic drugs, dominate the market, fulfilling around
70% of the country's demand.
The remaining 30% is supplied by local branches of multinational companies (MNCs) and imports.

Sales Growth:

Local pharmaceutical sales have demonstrated strong growth, with a compounded annual rate of
15.3% from 2019 to 2023.
This outpaces the global growth rate of multinational companies (MNCs) in the sector, which stands
at 9.34% CAGR.

Industry Landscape:

Pakistan houses more than 800 pharmaceutical formulation units, including those operated by 25
multinational companies.

Market Value:

As of June 2023, the estimated value of Pakistan's pharmaceutical sector is Rs. 748 billion.
Approximately 70% of the market's domestic demand is met by local manufacturers and suppliers.

Future Projections:

The pharmaceutical market in Pakistan is expected to reach close to Rs. one trillion by 2025.
This growth is anticipated due to increased local production and higher healthcare spending.
Uneven Landscape in market:

The structure of the pharmaceutical market in Pakistan is heavily skewed, with the top 10 firms
holding 47%, the top 25 firms occupying 72%, and the top 50 companies controlling almost 90% of the
market share. This leaves over 750 small and medium-sized enterprises vying for the remaining 10%,
creating challenges for them in terms of competitiveness and sustainability. The market imbalance
has implications for the quality and technological advancements in the sector, with smaller firms
often operating on narrow profit margins, raising concerns about their viability in the long run.

Marketing efforts and delivery channels play a crucial role in growth of a pharmaceutical company. In
Pakistan, retail pharmacies have major share followed by whole sales and direct sales to doctors in
the delivery system.

Raw materials in the Pakistan pharmaceutical industry mainly consist of Active Pharmaceutical
Ingredients and excipients. However, import of pharmaceuticals takes all forms including APIs,
excipients, intermediate drugs and ready to use drugs.

The Pakistani pharmaceutical sector faces challenges hindering its evolution into a mature industry.
Despite a compound annual growth rate exceeding 15% in the last five years, it has struggled to
achieve global success. Key issues include:

Sector Dynamics:

1. Entry Barriers and Regulations:

Low entry barriers and substantial regulations characterize the Pakistan pharmaceutical industry.

2. Key Success Factors:

Success hinges on drug development capabilities, advanced manufacturing, quality, distribution

network, skilled workforce, brand reputation, and cost efficiencies.

3. Weak Patent Protections:

Limited patent protections enable imitation of patented drugs, fostering domestic competition but
hindering innovation.

4. Government Influence:

Government policies, including price controls and regulatory changes, wield significant influence over
the sector's outlook.

5. Product Differentiation and Pricing Power:

While no evidence of sector cartels exists, product differentiation provides pricing power to top
companies.

6. MNCs vs. Local Firms:

Large multinational companies (MNCs) hold premium positions, but local firms effectively compete on
costs.
Sector issues:

1. Dominance of Large Companies:

The top 10 firms hold significant market share, limiting competition, innovation, and R&D investment.

2. Price Controls and Government Regulations:

Heavy government regulations on prices have led to the exit of several multinational companies
(MNCs) since 2010, impacting efficiency, skills transfer, and technology upgrades.

3. Weak Regulation and Quality Standards:

Inadequate regulation and enforcement by DRAP result in varying quality standards among
manufacturing facilities.

4. Limited MNC Focus on Innovation:

The existing pricing structure and weak intellectual property rights discourage MNCs from exporting
or seeking stringent regulatory approvals, reducing incentives for introducing new medicines.

5. Healthcare Affordability and Access Disparities:

Private financing of healthcare in Pakistan, coupled with affordability challenges, limits the
accessibility of new medicines.
Disparities in healthcare access, influenced by poverty and rural-urban divides, constrain the domestic
market's expansion.

6. Registration formalities:

Lengthy registration process for new and generic drugs, weak enforcement of quality standards and
Good Manufacturing Practices (GMP) and absence of clear intellectual property rights are some of the
other issues facing the industry.

SECTOR OUTLOOK :

The pharmaceutical sector outlook in Pakistan remains positive driven by population growth,
increasing health awareness, rising personal income and heavier disease burden. Pakistan is also
strategically positioned to capitalize on the shifts in global supply and demand patterns. Nonetheless,
the ongoing trend of relying on imports for 95% of raw materials is unsustainable as a permanent
strategy for the industry. Prioritizing investment in research and development and exploring new
export markets remains key. For now, the industry remains vulnerable to exchange rate volatility.
Margins, therefore, are likely to remain constrained in the wake of limited pricing power.