Pharmaceutical in Pakistan: Financial

Analysis
by Ravi Magazine 18th December 2015
AN INTRODUCTION

As per results of IMS compiled at the end of quarter 1,1999, the industry recorded a growth of
8.6%, while last year for the same period, growth of only 1.2% was recorded.
At the end of 1997, the average return on investment figures was 9.5%.

The total number of registered products available in the market is about 20,000, which is a gain
of 20% over the last year. As of December 1997, the total Pharmaceutical market in Pakistan is
worth Rs. 35, 269, 648. In 1997 it had a market growth rate of 4.5%. The total estimated
Pharmaceutical market in Pakistan is of US $ 759 million, which represents only 0.32 % of the
estimated world market of US $ 233billion.

THE WORLDS TOTAL PHARMACEUTICAL MARKET

REGION

PERCENT SHARE

Latin America

Asia Pacific

22

31
North America
Europe/Middle East & Africa

40

REGION

Percent

99.68
Rest of the World

Pakistans share

0.32

TOTAL ANNUAL PHARMACEUTICAL MARKET

IN PAKISTAN IN 1997
Value (Rs. 000s)
Total market sales value in 1997 was
A: Sales to retailers were (87.4% of the total market)
B: Sales to institutions were (12.6% of the total market)

Year
1980
1980-85
1985-90
1990-95
1995-97

35,269,648
30,825,672
4,443,976

R&D AS PERCENT OF SALES

11.9
15.1
16.2
19.4
21.2

DEMAND

Factors affecting the demand for Pharmaceutical products are:

A high urbanization rate leading to the awareness of medicine.

The sales of medicines without prescription.

The government campaign of Health for all by 2010.

Better efforts towards health education.

SUPPLY

It is estimated that the industry supply will not grow as fast as demand and so Pakistan will have
to increasingly rely on pharmaceutical imports of cover the growing short fall. The industry has
been operating at 80% capacity, thus leading to imports to cover the remaining 20%. It is due to
price regulation that squeeze margins, that companies who have the capacity to produce certain
products locally, internationally do not do so, and let commercial importer import them.

MEDICAL FACILITIES IN PAKISTAN

Pakistan spends only 2% of its GNP on health as compared with the WHO recommendation of
7%. The average per capita expenditure on medicines in 1994 was approximately Rs. 270.10 per
person, per annum, or Rs. 22.50 per month.

This existing nation wide network of medical consists of: 865 hospitals, 4573 dispensaries, 5121
basic health centers, 863 maternity and child health center, 262 tuberculosis centers and 513 rural

health centers. There is 1 doctor for 1734 persons, 1 dentist for 42823 persons and one nurse for
5681 persons in Pakistan.

There are an estimated total of 39,070 retail outlets throughout the country, stocking and selling
pharmaceutical products, which are distributed as follows:

HEALTH MANPOWER AND POPULATION PER HEALTH STAFF

(Number)
Upto 1995

Upto 1996

Upto 1997

Registered Doctors

69,691

74,229

78,470

Registered Dentist
Registered Nurses
Population per Doctor
Population per Dentist
Population per Nurse

2,751
22,299
1,837
46,532
5,740

2,938
22,810
1,773
44,803
5,771

3,159
24,776
1,724
42,823
5,460

TOTAL NUMBER OF PHARMACIES IN PAKISTAN

PROVINCE
SINDH
PUNJAB
NWFP
BALAUCHISTAN
AZAD KASHMIR
GRAND TOTAL

NUMBER
14,942
16,966
5,690
1,265
207
39,070

HEALTH AND NUTRITION EXPENDITURE

PUBLIC SECTOR EXPENDITURE

(FEDERAL PLUS PROVINCIAL)

(Million Rs.)

Year

Development
Expenditure

Current
Expenditure

Total
Expenditure

Change(%)

As % of GNP

1995-96
1996-97
1997-98

5,741
6,485
6,077

10,614
11,857
13,587

16,355
18,342
19,664

35.3
12.1
7.2

0.76
0.77
0.72

SHARE OF COMPANIES
This is a very competitive and fragmented market. No Company has a share bigger than 5.92%
of total sales. The hundred leading individual companies shares range from .072% to 5.92% of
the total market. There are a total of 304-government license manufacturing units, out of which
33 are multinational and the rest are national. However, it is estimated that apart from the 33
MNCs units, only 120 or so national units are currently manufacturing.
In the past MNCs were dictating terms and were commanding a share of 90% of the
Pharmaceutical market, which has now declined to 60.88%. Currently there are 271 national
companies in Pakistan engaged in making generic products (i.e. unbranded drugs).

Value (Rs. 000s)

Share of Multinationals
Share of Nationals

1997 (%)
60.88%
39.12%

PROVINC
E WISE

NATIONAL

MULTINATIONAL TOTAL

PUNJAB
SINDH
NWFP
AZAD KASHMIR
BALUCHISTAN
TOTAL

155
75
32
7
2
271

5
26

33

160
101
32
9
2
304

THE NUMBER OF RESEARCH BASED PHARMACEUTICAL MULTINATIONAL

COMPANIES
There are currently 33 research based pharmaceutical multinational companies operating in
Pakistan, representing the single largest collective multinational investment in Pakistan.

LOCAL PRODUCTION VS IMPORTS

Approximately 65% of the countrys demand are met from local production (both national and
MNCs) and approximately 35% are imported mostly in finished form. Out of the total 13,558
registered formulation, approximately 1,950 or 14% are imported, while the rest are locally
manufactured. The retail consumption of local and imported drugs is about Rs.31 billion
annually.
CONTROLLED DRUGS VS DECONTROLLED DRUGS
Out of 1,917 registered products 731 are in the Controlled category (essential drugs) and the
remaining 1,186 products are in the Decontrolled category (non-essential drugs).
There was a downward trend in 1995 (the number of units sold in that year was 1% less than in
1994. The overall earnings increased by Rs. 6.34 billion) as the government deregulated the
Decontrolled category of drugs, causing a price increase of upto 15%, this led to an increase in
the sales of generics, and the decrease in the sales of branded drugs. Transfer pricing and liberal
regulations given by the government to the Pakistani local generic companies are also seen as
possible reasons for this trend.

SUMMARY OF RETAIL PRICE INCREASES VERSUS COST INCREASES FOR THE

PHARMACEUTICAL INDUSTRY

CONTROLLED CATEGORY OF MEDICINES ONLY

Year/Period
1971 to 1990
1991(May)
1992
1993(June)
1994(November)
1995(November)
1996(November 1)
1997(November 1)

Cost increases
Retail price increases Shortfall in price
experienced during
awarded
increases
the period
10% on average per
annum
10% on average per
annum
11.5% on average per
annum
14% on average per
annum
15.8% on average per
annum
16% on average per
annum
21.73% on average
per annum
22.26% on average
per annum

No across the board

increases

10%

9.5%

Nil

11.5%

5%

9%

7.5%

8.3%

6.5% w.e.f. 1-1-96

9.5%

6.0%

15.73%

Nil

22.26%

DE-CONTROLLED CATEGORY OF MEDICINES ONLY

Year/Period

Cost increases
Retail price increases Shortfall in price
experienced during
awarded
increases
the period

1971 to 1990
1991(May)
1992
1993(June)
1994(November)
1995(November)
1996(November 1)
1997(November 1)

10% on average per

annum
10% on average per
annum
11.5% on average per
annum
14% on average per
annum
15.8% on average per
annum
16% on average per
annum
21.73% on average
per annum
22.26% on average
per annum

No across the board

changes

10%

9.5%

Nil

11.5%

Upto 50%

Nil

15.8%

15%

1%

12%

9.73%

Nil

22.26%

RETAIL PRICES
The retail prices of Pakistan are amongst the lowest in the world. In most cases they are lower
than neighboring countries including India.

BASIC MANUFACTURING:
Basic manufacturing, which includes the production of drugs by synthesis, (fermentation or
extraction from naturally occurring materials), is very limited in Pakistan. 24 compounds, out of
the total 1,100, are manufactured entirely in Pakistan. Although there are approximately 16,415
registered medicines, the number of basic compounds registered is just under 3,500.

FORMULATION AND PACKAGING

Formulation and packaging involve the composition of medicines from semi finished products
and their packaging.

This process is undertaken in Pakistan due to the low cost to set up a formulation and packaging
plant. The low cost of formulation of packaging and the less time required for the products to
research the market.

PROVINCE

NATIONALS
FORMULATION

BASIC

REPACKAGING

TOTAL

PUNJAB

148

15

164

SINDH
NWFP
BALUCHISTAN
AZAD KASHMIR
TOTAL

73
32
6
2
261

7
1
1

24

80
33
7
2
286

MULTINATIONALS

PROVINCE
FORMULATION

BASIC

TOTAL

PUNJAB

SINDH
NWFP

25

34

BALUCHISTAN
AZAD KASHMIR
TOTAL

30

13

43

QUALITY CONTROL

INTRODUCTION
Until a decades ago the Pharmaceutical industry in Pakistan was at its prime in every respect. It
was the largest corporate taxpayer and tax paid by the sector was more than the tax paid by the
entire textile industry. Medicines produced were of the highest standard, second to none.
The Pharmaceutical industry in Pakistan is involved in the formulation (mainly mixing of raw
materials according to a given formula), packaging and marketing of prescription and nonprescription drugs. The Ministry of Health (MoH) regulates the industry so that the quality and
prices of drugs are controlled and monitored.

FULL DISCLOSURE
In order to insure perfect quality control, testing and analysis and full disclosure of the details of
specification have to be provided by the companies at the time of registration.

INSPECTION
After the grant of the manufacturing license, all the Manufacturing Factories are inspected by the
various panels of specialist at regular intervals to check necessary compliance of the internal
specification, batch record and the overall capability of the manufacturer to produce the quality
drugs.

REGULATIONS BY GOVERNMENT

The Pharmaceutical Industry continues to be regulated in the interest of public health inspite of
the overall government policy of deregulation and liberalization. The basic law is the Drugs Act
1976 and the rules made there under which cover all aspects of the deregulatory regime that has
been laid down in the overall interest of public health.

PREREQUISITE OF WARRANTY

Another basic requirement of the law in Pakistan is that the sales of drugs are back with
warranty/ this measure has been designed to ensure that only license sources are used for the
supply of drugs. Any drug, which is not backed by the requisite warranty from the manufacturer,
is not allowed for sale.

MAINTAINING RECORD OF SALES

Similarly, the retail outlets are under an obligation under the Drugs to maintain complete record
of sales. Thus, both Federal ensures the stringent enforcement of the legal compliance and
Provincial Government Agencies at all the three levels that is manufacturing, wholesale
distribution and retail outlets.

QUALITY CONTROL BOARD

To regulate the sales of medicines at retail outlets and to ensure their qualities, shelf life and
effectiveness on a continuos bases, each province has a Quality Control Board which includes
experts from the medical and Pharmaceutical fields. This Board decides on the action to be taken
in the cases of contravention of rules and regulations.

This strict enforcement of all the provinces of the Drugs Act and the Rules doesnt ensure that
the quality and efficacy of the locally manufactured drugs are maintained according to the high
standards, which are in vogue in any other advanced and developed country in the world.

DISTRIBUTION CHANNELS
There are basically 3 types of distribution set up employed by different Pharmaceutical
companies depending upon their resources, size and marketing policies.

SELF DISTRIBUTION
This involves the setting up of depots situated in various parts of the country. The manufacturers
operated these depots themselves and from there the medicines are supplied to various
wholesaler who ultimately supply these to hospitals, doctors or retailers. Wellcome, Hoechst and
Glaxo utilized this channel.

NATIONAL DISTRIBUTION
With this channel, the manufacturer employs a national distributor who has a distribution
network spread all over the country. Such arrangements often relieve manufacturers from the
problem involved in establishing and maintaining depots. Roche presently uses this type of
arrangements.

REGIONAL DISTRIBUTION
Here, the manufacturer employs stockiest or wholesalers, each are allocated a specific region for
the distribution of medicines to pharmacies, doctor and / or hospitals in the area. Examples
include Pfizer, Parke-Davis.

RISKS FACING THE PHARMACEUTICAL INDUSTRY

RISING COST OF RAW MATERIALS
One of the main problems the pharmaceutical industry is presently facing is the high cost of
imports. In addition to this, the devaluation of rupee (approximately 17% during 1995-96) has
increased the cost of raw materials needed by various pharmaceutical companies for
manufacturing.
Pakistan produces less than 1% of basic pharmaceutical raw material and that too not from stage
one but by importing intermediaries.

PRICE CONTROLS

The price controls put on the pharmaceutical industry has also put a great deal of pressure on the
industry.

LOSS OF PATENT RIGHTS

Due to the world Trade Order Agreement to be implemented in the year 2002, some 40 drugs
with a sale volume of $ 16 billion are set to loose their patent rights.

DEMAND EXCEEDS SUPPLY

Apart from about 65-70 quality manufacturers out of a total of 330, the remaining are operating
at less than one-third of their capacity, and therefore only fulfilling 80% of the total demand.

PROBLEMS OF LOCAL MANUFACTURERS

Local manufacturers find it difficult to export their surplus output to other markets because of
low prices in countries like China, India, Taiwan, Eastern Europe and Korea.

FAKE MEDICINES
The government rigid cost controls have also resulted in shortages and mushrooming of fake
spurious medicines flooding the market.

GENERIC COMPANIES
Generic companies are also on the rise. Generic companies offer medicines of inferior qualities
at a lower cost, in comparison to the branded medicine.

LAW AND ORDER SITUATION

The law and order situation over the past year lead to a great deal of losses for the industry, due
to loss in productivity as well as problems in distribution.

BUREAUCRACY

There is a great deal of bureaucratic red tape involved in the registry of the new product.

IMPORTS AND EXPORTS IN THE

PHARMACEUTICAL INDUSTRY
IMPORTS
Most of the raw materials are imported because of the limited basic manufacturing. The total
annual cost of imported finished goods sold was rupees 1,340million. At present only 35% of the
total demand is met through imports while the remaining 65% is met in local production. The
imports increased from Rs. 7,882 million in 1997 to Rs. 7,982 million in 1998.

IMPORTS

1997 (Rs. Mn)

1998 (Rs.Mn)

CHEMICALS

31,497

37,408

DRUGS AND MEDICINES

7,882

7,982

EXPORTS
The export of pharmaceutical products has increased from Rs. 1,095 million in 1997 to Rs. 1,179
million. Medicines valued at Rs. 395 million were exported during the period of July 1997 to
June 1998, which is 1.6% of the total net sales of the industry.

EXPORTS
DRUGS

PRICING ISSUES

1997 (Rs. Mn)

1,095

1998 (Rs.Mn)
1,179

THE HISTORY OF PRICE INCREASES

Between 1970 and 1990, MNCs and national companies repeatedly applied to the federal
ministry of health for an upward revision of maximum retail prices of those registered products
which attained a negative gross profit margins, (i.e. products were actually making losses due to
inflation and devaluation).

In 1991 the government decided to introduce a retail pricing formula for drugs to suggest
measures to increase local production, and review the over all drug registration system. Since
then the prices have increased by more than 40% to 50 % in many cases.

In July 1993, the Nawaz government partially deregulated the industry into Life Saving and
Non-Essential drugs. The government continued control over 3000 medicines, which were
considered to be essential. The total increase was 5% in 1993.

After the Benazir government was inducted, the leading manufacturers were summoned and long
negotiations on the freeze of drug pricing were agreed upon, but this was not implemented. The
prices of the drugs were increased by 7.5%.

During 1995, the devaluation of the Pak rupee, imposition of a 5% regulatory duty, and 13 %
inflation led to a increase in prices by 6.5% starting from January 1996.

The prices of non-essential drug, which were controlled in June 1993, were frozen in 1994. Since
then, only one increase of 15% has been allowed in July 1995.

In July 1996, a further price increase of 12% and 6% on de-controlled and controlled items
respectively was allowed.

On August 14, 1997, the government on the de-controlled category of drugs re-imposed a
price increase restriction of 12%. Previously, the pricing restrictions were limited to only
essential drugs.

Since then there has been no price increase in the industry.

RECENT DEVELOPMENTS AND THEIR EFFECTS

10% PRICE REDUCTION
Following no increases in the prices of drugs for the past two years, the Ministry of Health
(MoH) recently surprised the industry by reducing the prices of 46 drugs of different
manufacturers by 10%. Any concession in taxes or any relief did not accompany the reduction in
prices to the industry.

RELIEF TO THE CONSUMER

The per capita spending on medicines in Pakistan is Rs 270 or just 75 paisas per person per day.
A 10% reduction in drug prices, even if it covers limited numbers of formulations, thus can only
be hailed as a big relief to the consumers.

DAMAGES TO THE LOCAL MANUFACTURERS

The Chairman of PCDA has said that the national companies, which are selling their products at
a much lower competitive prices will not be affected by the notification as they are already
selling their products much below the maximum prices re-fixed by the government.

There are apprehensions that the price reduction will benefit the national pharmaceutical
companies in a y way for two reasons primarily:
They are already selling their products at much lower prices as compared MNCs whose best
selling and the highest priced products were chosen as model for the leader price.

Though the emergence of a number of quality national companies and the increasing prescription
by the e doctors of their products the medical practitioners as well as the patients nation wide,
chose to prefer prescribing and buying products of MNCs.
However, the ministry of healths notification to slash prices by 10% on 22 generic medicines,
representing 46- dose forms, is seen by many as doom for local manufacturers. In spite of
increasing collective share to 39% the local pharmaceutical companies still lag far behind 61%
share enjoyed by 23 MNCs. It is believed that while the MNCs would be able to absorb the
price cut with comparative ease, it is feared to cause an irreparable damage to the local
manufacturers who are marketing the same generic products at as low as one-tenth of the price.

MNCs ALSO SUFFER SETBACKS

The industry has protested against this move citing the disparity between cost and profit which
has emerged due to stable prices since December 1996 against an unstable Rupee. As a result of
this anomaly a US pharmaceutical company specializing in ophthalmic solutions has already
pulled out of Pakistan. In addition, most products with marginal profits have also started to
disappear from the markets.

WHY IT HAPPENED
SRO 1038(I)/94 dated October 16, 1994 promised to the pharmaceutical industry an indexation
of medicine prices, which were pledged to increase by the same percentage as the cost of input.
The formula defined by the said SRO was hence forth never used faithfully. The result is a short
fall of 40% in price adjustments. In other words: inputs cost have through devaluation, inflation,
custom duty increased by 40% more than medicine prices.

Imposition of ten- percent customs duty on all pharmaceutical imports (raw and packaging
material as well finished goods) with out any compensation in the prices.

Imposition, withdrawal, increase, reintroduction and sudden suspension of sales tax on locally
manufactured medicines from time to time in such a manner that pharma companies have been
left holding the bill without proper adjustment or refund, thereby causing substantial financial
losses to companies with out any compensation.

CONCLUSION
Pakistani medicine prices are still among the lowest in the world. Research data shows that out
of the current top 128 selling medicines in Pakistan, the retail prices of 84 products (65.62%) are
higher in India as compare to Pakistan, and 44 products (34.38%) are lower in India.

OTHER PROBLEMS
The problems as listed by the pharmaceutical industry relate to lack of consistent, clear cut and
long-term government policies, inordinate delays in price increase, sudden imposition of import
duties and taxes, strict price control, long delays in registration of new medicines and constant
changes in drug rules. According to pharmaceutical industry sources, the overseas investors

cannot plan properly even over one year period, let alone for log-term. Now investment mood
of this group is at its lowest ebb.

According to a survey conducted by the industry itself, the companies in this sector have cut
their original investment plans for the year 1997 through 2000 by the least Rs. 1.5 billion. The
reason is that the multinational as well as local companies have been shaken by inconsistent
government policies. In recent years, pharmaceutical industry in Pakistan has been subjected to
cost increases of more than 60 per cent through devaluation of Pak rupee, local inflation and
introduction of government levies. All this has happened during the last four years. Multinational
pharmaceutical industry in Pakistan also claims that the prices of many drugs in Pakistan are
cheaper than those prevailing in India.

ACCORDING TO THE PHARMA BUREAU OF

INFORMATION AND STATISTICS
The multinational pharmaceutical industry faces decline in its ability to continue to:
1. Maintain its high quality standards
2. Maintain high employment of highly skilled personnel.
3. Maintain its contribution to federal tax revenues.
4. Develop its high technology base.
5. Provide reasonable returns to its foreign shareholders.
6. Introduce new therapeutic agents to Pakistan.

Keith Watson, Chairman of the P.R. Sub Committee of the Pharma Bureau, said that due to high
cost involved in the manufacture of medicines, it would not be possible for them to maintain
high quality under the present price formula. He said that the increase in the prices of drugs was
due in November last. He expressed his concern that multinational companies could no more
continue manufacturing operations in Pakistan due to less attractive investment in the pharma
sector.

Since the ECC refused permission to the companies to raise the prices of their products. Keith
apprehended that the market would be flooded with the sub-standard medicines manufactured by
mushroom local companies, which could not afford to maintain the quality due to the high cost
involved in the manufacture of drugs.

TRANSFER PRICING
Transfer pricing is a practice carried out by MNC companies whereby the parent
companies charged a considerable mark-up on raw materials supplies to their
subsidiaries.

The basis of transfer pricing could be:

1. Cost + mark-up
2. Market price
3. Percentage of market price
4. Percentage of labor cost
5. Cost of finish less cost of initial products

Almost all of multinational subsidiaries buy from their parents. These price differentials range
between 50 and 5000 percent over the lowest priced drug.
While importing the basic raw materials from the parent companies at inflated prices MNCs
defend their positions by the arguments that the profit earned this way goes to the Research and
Development of new products.

According to the health Action organization, a consumer watch organization, MNCs reportedly
transferred out of $ 6,648,000 out of Pakistan in 1994 as a result of transfer pricing. Currently it
is estimated that 500 million dollars will be transferred out this way.

Multinationals pay on average 88% more for their raw material than their national counterparts.
The company can justify higher selling prices for the active substances of raw materials for
bigger tax- deductible expenses for tax return purposes.

An evidence of the suppliers bargaining powers in the pharmaceutical industry is the adoption of
the transfer pricing options by most of them. This has led to inflated cost of inputs, which erodes
profit and give the firms tax advantages. Below are a few examples of inflated costs due to
transfer pricing.

1. Pfizer paid $ 1700 per kg for doxycycline though the same material was available from
Italy at $ 334 per kg and from China for $ 200 per kg. However, they agreed to bring the
prices down to $ 850 per kg, after 1992.

2. Wellcome charged $ 239 per kg for trimethropin when the international price was $ 38.
They agreed to establish a plant at Karachi when the issue became public.

3. Ciba-Geigy charged $ 750 per kg for anti-TB rifampricin available from Italy for $350
and from China for $ 130. Though the company agreed to buy from Italy at $ 300, it is
obvious that it could have acquired the material from china at a better rate still.

CONCLUSION
Though the Pharma market is growing at a rate of 255 in terms o f sales value, it has increased
only 3% in terms of units of medicines, while in 1995, it sold 698 million units, a cumulative
increase of 19%. In 1995, there was negative trend, As number of unit sold in that year was 1 %
less than in 1994. The overall earnings increased by Rs. 6.34 billion owing to transfer pricing.

THE FUTURE OF PHARMACEUTICAL INDUSTRY

INVESTMENT PLANS
Though the investment planned by MNCs for 1997-2000 was cut by Rs. 1.5 billion due to
inconsistent policies, the immediate future is by no means bleak for the industry, a sit is expected
that the government will allow an increase in prices by as much as the rate of inflation. Further

more, there are constant negotiation between the industry and the government, which may lead to
a breakthrough sometime in the future.

PATENT RIGHTS
Some 40 drugs with the sales volumes of $ 16 billion are said to loose their patent rights by
2002. Most have a copy right period of 15 years thus, local generic companies will have
tremendous opportunity in the future the main strategy being used by the most MNCs is to
introduce their own line of branded generics. After the World Trade Order is implemented in year
2002 all new drugs introduced will be given a patent protection that will last for 16 years.

MULTINATIONAL VERSUS GENERIC COMPANIES

In Pakistan, multinational companies were dictating terms and were commanding market share
of 80%. However, for the past few years, the MNC witnessed declining trends compare to local
generic companies. The present market share of MNC is 59% and the local Companies have the
remaining 41%. Multinational will fare better in the future due to high quality products, the
brand names and the big advertising budgets.

UTILITIES
The increase in cost of utilities such as water, gas and electricity will drag up the cost.

LACK OF STABLE AND EQUITABLE GOVERNMENT REGULATIONS

The government is especially vulnerable to price adjustment, import duties and sales tax. The
previous governments have been unable to make clear, consistent and equitable regulations for
the industry.

PROBLEM
Pharmaceutical industry say that good or bad policy are not the real concern but in Pakistan
inconsistency and poor implementation of Policies does not allow them to make long term plans.

DEMAND
There will be a steady rise in the demand for Pharmaceutical drugs due to a high rate of
urbanization. A high population growth rate, increase in per capita income, one of the lowest per
capita expenditures on health in the world, and privilege given to the retailer to sell drugs
without prescriptions.

POTENTIAL
There is tendency among the practitioners to prescribe at least five products compared with three
recommended by the WHO.

OUR VISION at Warner Lambert is to be the best by offering the most innovative, highest
quality products to advance the health and well being of people around the world. Towards this
vision we will provide an environment where people can innovate and excel. To achieve this
vision, we make these commitments to those whose lives we touch.

OUR CREED
TO OUR CUSTOMERS
We commit ourselves to anticipating customer needs and responding first with superior products
and services. We are committed to continued investment in the discovery of save and valuable
products to enhance peoples lives.

TO OUR SHARE HOLDERS

We commit ourselves to providing fair and attractive economic returns to our shareholders. We
are prepared to take prudent risks to achieve sustainable long-term corporate growth.

TO OUR COLLEAGUES
We commit ourselves to attracting and retaining excellent people, and providing them with an
open and participative work environment marked by equal opportunity for personal growth.
Performance will be evaluated candidly on the basis of fair and objective standards, creativity,
speed of action, and openness to change will be priced and rewarded. Colleagues will be treated
with dignity and respect. They will have the shared responsibility for continuously improving the
performance of the company and the quality of the work life.

TO OUR BUSINESS PARTNER

We commit ourselves to dealing with suppliers and other business partners, fairly and equitably,
recognizing our mutual interests.

TO OUR SOCIETY
We commit ourselves to being responsible corporate citizens, actively initiating and supporting
efforts concerning the health of the society and stewardship of the environment. We will work to
improve the vitality of the worldwide committee in which we operate.

ABOVE all, our dealings with these constituencies will be conducted with the utmost integrity,
adhering to the highest standards of ethical and just conduct.

COMPANY PROFILE
PARKE-DAVIS, one of the largest manufacturers of pharmaceutical and biological preparations
in the world was established in USA in 1866. Early from its inception, emphasis on the best in
quality and reliability has earned the company, a leading position in the pharmaceutical industry
all over the world.

The company is part of the Warner-Lambert world-wide group which conducts its business in
more than 140 countries, employs approximately 45,000 people, operates more than 100
manufacturing facilities and maintains four major research centers.

Parke-Davis was incorporated in Pakistan as a Private Limited Company in 1960. In 1963, the
Company constructed its ultra modern centrally air-conditioned Plant at Karachi, where a wide
range of Parke-Davis world-renowned products, previously imported are now being
manufactured. It employs over 400 people and the plant is equipped with modern facilities to
maintain the same standard and quality of products, as those produced anywhere else in the
world.

In June 1983, the company offered its share for public subscription and was converted into a
public limited company, The company also acquired the shares of its associated companies,
Warner Lambert (Pakistan) Limited and the merger of the two companies was completed
in 1984.

The company amongst the top 25 Companies declared by Karachi Stock Exchange for the three
consecutive years i.e., 1984, 1985 and1986.

It was also awarded Excellence Certificate for 1987 and the coveted Corporate Excellence Award
for the year 1994, 1995 and 1996 by the Management Association of Pakistan.

Apart from historical achievements made in pharmaceutical discovery and development,

introduction of the principle of standardization of medical products is a contribution Parke-Davis
has made to the profession of medicine and pharmacy. This concept ensures that every bottle or
package of every lot produced has the same strength or potency as every other unit. The entire
industry subsequently adopted this concept of standardization.

Research at Parke-Davis is a never-ending process with the ultimate objective of fulfilling the
needs for today as well as tomorrow.

In the last five years it has invested Rs. 278 millions for improving productivity, enhancing GMP,
safety and environment and bringing in the latest MIS solutions. Its integrated IT software
Prism is the only one of its type in Pakistan.

GMP, Safety & Environment Compliance is the foremost criteria of performance and the waste
management program implemented whereby all types of industrial waste is either recycled or
incinerated is worth emulating by other companies.
Parke-Davis success can be attributed to its implementation of MVP (Management Value
Practices) which can be summarized as under:

Prize Creativity

Be fast and first to opportunity

Focus on what is important

Be open and candid

Reward true success

The people at PARKE-DAVIS are following the motto

We are making the world feel better

HISTORY OF PARKE DAVIS 1866-1998

Parke-Davis, a division of Warner-Lambert since1970, has been in existence for more than 130
years. The company has played a significant role in the development of both pharmacy and
medicine since 1866.

Below is the history of Parke-Davis and its research-based endeavors. The company has a rich
heritage and has over the years continued to make successful traditions.
1866-Parke, Davis & Company was established.
1879-Introduced a pure liquid extract of ergot, exemplifying the companys pioneering efforts in
developing the principle of chemical standardization of drugs.
1894-Established the first commercial biological laboratory in the United States and marketed
antidiphtheria serum.
1897-Developed the principle of physiological standardization and introduced physiologically
standardized preparations.
1901-Introduced a pure form of adrenaline __ the first hormone to be isolated in pure form.
Established the first organized, systematic program of clinical, pre-marketing testing of drugs,
completing the chemical-physiological-clinical trial of medicinal Standardization.
1902-Built and moved into the first industry-constructed US building to be devoted to scientific
research.
1903-Was issued US License No. 1 for manufacture of biological.
1907-Marketed the first Parke-Davis bacterial vaccine.
1908-Introduced the first water-soluble extract of pituitary hormones for use in surgery and
obstetrics.
1916-Pioneered research efforts on vitamins.
1927-Isolated two pituitary hormones __ one a uterine stimulant, the other an antidiuretic.
Introduced both separately for use in obstetrics and diabetes.
1930-Introduced a new estrogen hormone used chiefly for treating menopausal symptoms.
1938-Introduced a breakthrough anticonvulsant for the treatment of grand mal epilepsy, still
widely used today.

1941-Introduced an oil-based pituitary hormone for treatment of diabetes insipidus.

1944-Introduced a topical coagulant to control surgical bleeding.
1945-Released a new influenza virus vaccine for use in the armed forces.
1946Introduced the first effective antihistamine for treating allergic conditions, still widely used
today.
1949-Introduced the first synthetic broad-spectrum antibiotic reproducible on a grand scale.
1952-Marketed a potent new aminoquinoline (for treatment of malaria) and an ultra-short-acting
intravenous anesthetic.
1953-Released the first succinimide anticonvulsant for treatment of absence (petit mal) epilepsy.
1954-First manufacturer to produce poliomyelitis vaccine for nationwide field trials.
1957-Released an oral progestational agent for treatment of menstrual disorders.
1959-Opened new medical research center in Ann Arbor, Michigan.
1960-Introduced a new treatment for pinworm infections. Introduced an enzyme product to
facilitate skin and mucous membrane lesions. Introduced a selective agent for treatment of
absence (petit mal) epilepsy. Introduced a new antimicrobial agent for bacterial infections and
intestinal amebiasis.
1961-Marketed a newly developed progestational agent.
1964-Introduced an estrogen/progestin-based oral contraceptive.
1967-Introduced a new oral nonsteroidal anti-inflammatory agent with analgesic/antipyretic
activity.
1969-Marketed a new subvirion influenza virus vaccine.
1970Became a division of Warner-Lambert Company. Introduced a unique non-barbiturate, a
rapid-acting anesthetic.
1971-Developed a new film-coated hematinic tablet for treatment of iron-deficiency anemia.
1972-Released a stabilized nitroglycerin formula providing uniform tablet potency and
predictable dosage.
1973-Introduced a line of oral contraceptives with low-estrogen content in combination with a
progestogen.

1974-Began marketing a pre-moistened hemorrhoidal/vaginal pad.

1975-Marketed a gamma globulin product to prevent erythroblastosis fetalis in newborns.
1976-Introduced the first antiviral ophthalmic ointment.
1978-Released a parenteral antiviral agent for treatment of herpes simplex encephalitis.
1979-Introduced a new benzodiazepine for treatment of anxiety.
1980-Introduced a sustained-release antiarrhythmic agent for treatment of life-threatening
cardiac arrhythmias. Marketed a new nonsteroidal anti-inflammatory agent for steoarthritis and
rheumatoid arthritis.
1981-Introduced a unique dosage form of enteric-coated pellets of erythromycin. Marketed an
enteric-coated form of aspirin.
1982-Released a new lipid-regulating agent for treatment of hyperlipidemia.
1984 Developed and marketed a convenient new method for topical application of thrombin.
1986-Introduced a unique enteric-coated, pelletized dosage form of doxycycline. Introduced a
sustained-release transmucosal delivery system for nitroglycerin.
1987Announced the results of the Helsinki Heart Study, a five-year landmark investigation
that established the lipid-regulating value of the companys lipid-regulating agent. The study
demonstrated the drugs significant reduction of the incidence of fatal and nonfatal heart attacks
and sudden cardiac deaths.
1991-Introduced a new angiotensin-converting enzyme (ACE) inhibitor to control high blood
pressure. Introduced an antineoplastic agent for use in the treatment of hairy cell leukemia.
1993-Introduced the first drug indicated for mild to moderate dementia of the Alzheimers type.
Received approval for congestive heart failure indication for an ACE inhibitor. Introduced a new
agent for adjunctive treatment of partial seizures with and without secondary generalization.
1996-Introduced a new extended-release agent for treatment of life-threatening cardiac
arrhythmias.
1997-Introduced the first station specifically indicated for lowering both triglyceride and LDL
(low-density lipoprotein) cholesterol levels in-patients with high cholesterol. Introduced an oral
anti-diabetic that targets insulin resistance, an underlying cause of type 2 diabetes. Introduced a
new low-dose estrogen patch for treatment of menopausal symptoms. Introduced a new agent for
the control of acute, generalized epileptic convulsions and for prevention and treatment of
seizures that can occur during neuro surgery. Developed and marketed an estrophasic birth
control pill.

1998-Released a new and potent broad-spectrum cephalosporin antibiotic. Entered into a copromotion agreement with Forest Laboratories and launched a new SSRI (selective serotonin
reuptake inhibitor) citalopram HBr, for treatment of depression.

MERGER
WHAT THE MERGER MEANS IN PRACTICE?
1. Pfizer and Warner Lambert merger will form the second largest global company with the
international market share of 6.5%.
2. Board of directors and Management teams will be from both companies with William
C.Steere, Jr. as chairman and Chief Executive Officer and Dr.Henry Mc Kinnell as
President and Chief Operating Officer.
3. Pfizer shareholders will own 61% of the newly created & 90 billion organizations and
Warner Lambert shareholders will own 39%.
4. Warner-Lambert shareholders to receive 2.75 Pfizer shares for each Warner-Lambert
share, valued at $98.31 per share
5. Compounded three-year annual earnings growth of 25% forecast with $1.6 billion in cost
savings by 2002; Companies to realize operational and sales benefits, increase annual
research and development expenditures to $4.7 billion in 2000
6. Leadership in therapeutic areas includes cardiovascular, lipid lowering, central nervous
system and infectious diseases; 138 compounds in development in complementary
pipelines
7. New company to be named Pfizer Inc, will integrate In a Spirit of Partnership and
Mutual Respect
8. The merger will be completed by mid of this year.
9. The merger between Warner Lambert and American Home Products has been terminated.
10. The combined company will have annual revenues of approximately $28 billion,
including $21 billion in prescription pharmaceutical sales, and will have a market
capitalization in excess of $230 billion.
11. Compounded annual revenue and earnings growth is expected to be 13 percent and 25
percent, respectively, through 2002. The transaction will be accretive in the first full year
of operations and will use pooling of interests accounting.
12. The two organizations, having worked together for several years to achieve the
unprecedented success of Lipitor, will bring the same energy and intensity to achieving
the most rapid and seamless integration of the two companies.
13. Unprecedented depth and breadth of products including seven billion-dollar products:
Norvasc, Lipitor, Zoloft, Zithromax, Diflucan, Celebrex and Viagra. The Parke-Davis

trade name will be preserved and represented through the product portfolio, a dedicated
sale forces and researches organization.
14. Parke-Davis brings to Pfizer valuable expertise in this area and a sales force that has
extensive experience in calling on mental health professionals.
15. Excellent opportunities for additional earnings growth based on anticipated cost savings
and efficiencies totaling $1.6 billion. Two hundred million dollars of these savings are
expected to be achieved by year-end 2000, $1 billion by year-end 2001, and $1.6 billion
by year-end 2002.

WHY WE HAVE MERGED?

Four Industry wise global market trends:
1. A slow down in market growth.
2. A number of key patents due to expire.
3. Research and Development costs are rising significantly.
4. E-Commerce is changing the way we do business.
We need to rebalance our product portfolio, reducing our reliance on a small number of core
products and we need to speed up our pipeline.

WHAT THIS MEANS FOR PARKE-DAVIS IN EUROPE AND ASIA

1. The Parke-Davis name is one of the oldest and most respected names in pharmaceuticals.
Our name will continue to be represented through the combine product portfolio and
through dedicated sales force.
2. We will have more opportunities to create new markets with our existing products and
share the success of our unrivalled combined portfolio. No other company will cover the
range of therapeutic areas with so many market-leading products.
3. More opportunities to launch and support new products with R&D function of over
12,000 people and annual budget of $ 4.7 billion much more than any of the competitors.
4. Strong international presence with access to global markets including Japan and
confidence that comes from being a top player in each.

5. Combined consumer product sale of more than $ 3.5 billion, giving us a significance
stake in the consumer health care market.

HOW WILL THE MERGER MOVE FORWARD

1. Our goal remains to complete the merger agreement by July. There are a number of
statutory and regulatory hurdles we need to clear over the course of next few weeks. This
includes the 30 days review period by security exchange council in USA to give ruling on
the financial structure of the merger.
2. In the mean time we have set up a joint transition steering committee led by Tony Wild
and Hank Mc Kinnel to identify the best way forward for integration and to set out a clear
path to make it happen. Putting the merger into action will be the responsibility of our
operational line managers who will drive the transition at the local levels.
3. Our aim is to build an organization that harnesses the very best from our people, our
practices and our facilities. We will be asking for your ideas and contributions across the
organization to help shape the new company and create the structure, system and process
that will help us deliver the goal. We will keep u informed of the progress and upto date
with the challenges and situations we will undoubtedly face in the upcoming weeks. All
the feed back will be collated and summarized at the affiliate level and forwarded to the
European management.
PRODUCTION FACILITIES PROFILE
Parke Davis has the latest plant and production facilities as disclosed by the management. They
prize quality above all and dedicate all efforts to attaining it. It has been the efficiency of their
effort that even though there is no increase in the prices of their products they have increased
their profit margin by cutting down on the cost of production.

LABOR OR CAPITAL INTENSIVE

The company is capital intensive as huge costs are incurred to set up the plants. Even out of the
cost of goods sold a major portion is allocated to the raw materials and very little is allocated to
the labor expenses.

SENSITIVITY OF THE COMPANY

ENVIRONMENT:
The outgoing fiscal year 1998-1999 has been the most difficult and challenging year for the
Pakistans economy. They year witnessed the full impact of economic sanctions on domestic
economy as well as the continuation of deepening global economic recession. The world real
GDP, which grew by 4.2% in 1997, decelerated sharply to 2.5% and 2.3% in 1999. Pakistans
real GDP growth slowed down from 4.2% last year to 3.1% currently.

Like any other pharmaceutical company, Parke Davis is sensitive to its environment. Any slow
down in the economy effects the sale of its products. It is generally believe that the pharma
industry has inelastic demand but that is not so as disclosed by the Parke Davis management.
There major selling product or Cash Cow is Ponstan and this medicine cannot be classified as
a necessity. In the words of the Marketing Director if you are short of money you can skip a
Ponstan and put up with a headache.

DEVALUATION
80% of the raw materials used by the company are imported from the international markets. The
prices in the international markets have remained stable over the years but due to fall in rupee
value (depreciation and devaluation of the currency) the cost of raw material has been constantly
increasing. There is a direct co-relation between the devaluation and the increasing cost because
of the companys dependence on the imported raw materials.

NEW PRODUCTS
The company may not be sensitive to technological changes but its sales are greatly effected due
to introduction of new products in the market. As disclosed by the management their
Chloromycetin, which has been selling since 1947 faces a decline due to safer antibiotic with
lesser side effects, are being introduced in the country.

MARKETING EFFORTS OF THE COMPETITORS

The company is also sensitive to the marketing efforts done by the competitors. In the pharma
industry medicines are marketed through the push marketing strategy. The medicines are first
introduced to the doctors who then prescribe them to the patients. The doctors are given a
number of incentives to prescribe the medicines for example free samples and gifts. Hence any
major marketing campaign launch by the competitors can seriously effect the sales of the
company.

RISKS FACED BY THE COMPANY

ALL EGGS IN ONE BASKET
Parke Davis has concentrated its efforts on two products basically. This has increased the risk as
63% of the revenue is generated through the sales of Ponstan and Chloromycetin. Any blow or
setback to these products would seriously damage the profitability of the firm.

AVAILABILITY OF THE PRODUCT

Alternate substitute are readily available in the market hence the customer dont wait if ParkeDavis medicine is not available they shift to some other product.

PRICING CONTROL
No increase in prices of pharmaceutical products from November 1996 and with increasing cost
of production the company has been squeezed into a corner. Their profit margin has been
continuously declining from 1996 when it was 19.5% to 15.2% in 1997 and to 10% in 1998 and
according to half-yearly statements it is 12.5%.

SMUGGLING EFFECT
The smuggling of medicines does not effect Parke Davis as Pakistan has cheaper medicine as
compared to the neighboring countries. Hence very few medicines are smuggled into the country.
The low prices of medicines encourages smuggling out of the country, which in turn effects the
sale of the parent company or its subsidiaries in the other regions. An example of this quoted by
the management is narrated below.

Lopid, a medicine, was available at Rs.3/- in Pakistani market was smuggled to Far Eastern
countries where it was sold at approximately a US $1. This caused a loss in sale of parent
company and hence the product had to be closed in Pakistan on a large scale.

DEVALUATION
Over the last six years to 70% (Rs. 31 to Rs. 52 a dollar) devaluation in the currency has
imposed a rising cost expenditure on the firm. Its cost of imported raw material has increased by
56% in this time period.

ECONOMIC RECESSION
The slow down in the economy has seriously effected the purchasing power of the population.
The decline in GDP growth rate has a spill over declining effect in the sales of a company.

ECONOMIC ENVIRONMENT
REGULATED TAXES
Parke Davis pays a 10% regulatory duty on imports of raw materials.

GOVERNMENT REGULATION
The government regulates price standards in the industry and fixes a price of the medicines. As
disclosed by the management Parke Davis used to send a cost structure to the government and
asked for a specific contribution margin and Ministry of Health sets a price. Price negotiations
with government are still in process.

LICENSING REQUIREMENT/BARRIERS TO ENTRY

There are no licensing requirements. No import licenses are needed to bring in raw materials.
There are no restrictions on opening a new company but there are certain parameters such as
environmental control, quality assurance and drug control. Hence there are no barriers to entry in
the market if the company has the capital to invest.

PLACE OF THE COMPANY IN THE MARKET STRUCTURE

This is a very competitive and fragmented market. No Company has larger share of total sales
value market of more than 5.92 %. The hundred leading individual companies share range from .
072 to 5.92 of the total market. The total pharmaceutical market value is Rs. 38 billion. ParkeDavis ranks 10th in terms of value sales and 5th in terms of units sold. It has a market share of
2.35%, which is equal to Rs. 8.93 million.

PRODUCT LIFE CYCLE

Ponstan was launched in 1966. Ponstan is the highest selling product with Rs. 55 crore of sales
volume, which is 63% of the sales. Ponstan has shown a growth of 50%. It should be in its
decline stage but it is stretching its maturity phase at present. Chloromycetin was launched in
1947 and has still shown growth though now it is suffering from a few problems. Safer
antibiotics with lesser side effects are now available in the market and doctors prefer to prescribe
those in place of Chloromycetin. The company is considering either to Harvest or Divest this
product.
Lipitor will be launched in Pakistan soon. It turned out to be a great success worldwide. It is
meant to reduce Cholesterol levels. As people become more health conscious sales of such
products are bound to increase.

LOCATION OF THE COMPANY

Parke- Davis had a choice to locate at either Landhi or SITE. Location at SITE is advantageous
to the company, as it is closer to the port.

ANALYSIS OF THE MANAGEMENT

The management of the Parke Davis followed a conservative approach. They are very
conservative and flexible in setting their targets for the year. They almost achieved their set
targets in every department.

DIRECTORS, MAJOR SHAREHOLDERS AND SUBSIDIARIES

PARENT COMPANY

The Companys holding company is Parke Davis & Company, which is a subsidiary of Warner
and Lambert Company; both companies are incorporated in USA.

BOARD OF DIRECTORS
M.Raziuddin Ansari, Chairman, Chief Executive and Managing Director
Ramesh T. Thadani (Alternate: Monawwer Ghani)
Fabio Bernal (Alternate: Islam-ul-Haq Siddiqui)
Irtiza Husain
Badaruddin F. Vellani
S.Khalid Hussain
M.Saleem

COMPANY SECRETARY
M.Saleem

AUDITORS
A.F.Ferguson & Co.

BANKERS
American ExpressBank Ltd.
ABN-AMRO Bank N.V.
Bank of America NT & SA
Standard Chartered Bank

Muslim Commercial Bank Ltd.

National Bank of Pakistan.

Categories of
Number
shareholders
Individuals
158
Investment
2
Companies
Insurance Companies 1
Joint Stock
5
Companies
Financial Institution 1
Mudaraba Companies 1
Co-operative Societies 1

TOTAL

169

COST CENTERS

01

Chemical

02

Tablets & Capsules

03

General Pharma

04

Blister Packing

05

Liquid Packaing

06

Packaging Dry

07

Plant Manager

08

Plant Administration

09

Maintenance

Shares Held

Percentage

88,930

4.54

285,570

14.58

75,000

3.83

1,506,700

76.93

2,000
100
100

0.1
0.01
0.01

1,958,400

100.0

10

Quality Control

11

Cost Account

12

Material Mangement

13

Accupancy

14

Cafeteria

15

Transport & Security

31

Marketing Administration

40

Direct Selling

41

Selling Administration

50

Distribution

61

MDs Office

62

Finance

63

Human Resources

GRAPHICAL REPRESENTATION

This can be explained with the help of a flow chart as follows:

Issue Requisition

Invoices Received (For

products sold)

Warehouse
(Finished Goods)

Bottles
(For liquids)

Blisters
(For tablets)

Bulk Materials
(Packaged)

CREATING OUR FUTURE

AMBITION AND PURPOSE
Creating our future articulates our vision of where we are going as a group. We aim to be the best
in the world in our business of fighting disease and improving healthI am confident that we
have the people, the resources and the commitment to succeed in this.

We must shape our own destiny in a world of rapid changebuilding on strengths and seizing
new opportunities. Everybody in the company has a role to play in these efforts, though their
energy, their creativity and their innovative spirit.

CORPORATE MISSION
Glaxo Wellcome Pakistan Limited is a subsidiary of Glaxo Wellcome plc 9 a research- based
company) whose people are committed to fighting disease by bringing innovative medicines and
services to patients in Pakistan and to the health-care providers who serve them.

The strategic intent of Glaxo Wellcome Pakistan Limited is to be an ethical, enterprising and
aggressive company seeking long term business opportunities.

DIRECTORS, MAJOR SHAREHOLDERS AND SUBSIDIARIES:

BOARD OF DIRECTORS
Mr. Alan R. Eldridge, Chairman & Managing Director
Mr. A.U.Khawaja, No-Executive Director
Mr. Rafique Khan, Non-Executive Director
Mr. S.Riaz Ahmad,
Mr. Masood ahmad
Dr. Muzaffar Iqbal

Mr. Shahid Mustafa Qureshi, Secretary

EXECUTIVE COMMITTEE

Mr. Alan R. Eldridge, Chairman & Managing Director

Mr. S.Riaz Ahmad, Commercial Director
Mr. Masood ahmad, Finance director
Dr. Muzaffar Iqbal, Technical Diretcor
Mr. Shahid Mustafa Qureshi, Human Resource & Corporate Affairs director/
Company Secretary

BANKERS
ANZ Grindlays Bank Limited
ABN AMRO Bank NV
American Express Bank Limited
Bank Of America
Credit Agricole Indosuez
Emirates Bank International PJSC
Habib Bank Limited
Standard Chartered Bank
The Hongkong and Shanghai Banking Corporation
The Bank of Tokyo-Mitsubishi Limited

United Bank Limited

AUDITORS
Coopers & Lybrand

CATEGORIES OF SHAREHOLDERS AS AT 31 DECEMBER, 1998

CATEGORIES OF
SHAREHOLDERS
INDIVIDUALS
INVESTMENT
COMPANIES
INSURANCE
COMPANIES
JOINT STOCK
COMPANIES
FINANCIAL
INSTITUTIONS
MODARABA
COMPANY
FOREIGN
COMPANIES
ASSOCIATED
COMPANY
OTHERS
TOTAL

NUMBER

SHARES HELD

PERCENTAGE

2,977

3,276,832

9.77

12

3,988,530

11.89

10

2,424,395

7.23

23

39,680

0.12

12

242,221

0.72

770

138,525

0.41

23,371,456

69.66

6
3,045

68,277
33,550,686

0.20
100.00

CORPORATE HISTORY AND SUMMARY

Glaxo Wellcome Inc., based in Research Triangle Park, N.C., is one of the nations leading
research-based pharmaceutical firms. A subsidiary of London-based Glaxo Wellcome plc, the
company is committed to fighting disease by bringing innovative medicines and services to
patients and to the healthcare providers who serve them.
Glaxo Wellcome plc was formed in 1995 as a result of the merger of Glaxo plc and Wellcome
plc, both of which were respected leaders in innovative pharmaceutical research and
development. Glaxo Inc. was established in the U.S. in 1977, with the purchase of Meyer
Laboratories of Fort Lauderdale, Fla., and relocated to the Research Triangle Park in 1983.
Burroughs Wellcome Co. was established in the U.S. in 1906 and relocated to RTP in 1970. The
company employs approximately 9,156 people across the U.S. and operates a manufacturing
facility in Zebulon, N.C.
Robert A. Ingram is Chief Executive, Glaxo Wellcome plc. Today, as one of the worlds largest
pharmaceutical research firms, Glaxo Wellcome plc is an integrated, research-based group of
companies whose primary corporate purpose is to discover, develop, manufacture and market
throughout the world safe, effective, high-quality medicines. These medicines benefit patients
through improved health, longevity and/or quality of life, and benefit society in general by
reducing health care or societal costs. True to that mission, Glaxo Wellcome scientists and other
employees around the world are searching for new and better treatments for a variety of diseases.
In 1998, Glaxo Wellcome spent nearly $2 billion in research and development. In particular,
Glaxo Wellcome is known as a leader in respiratory, anti-viral (including AIDS/HIV), and central
nervous system research. Other therapeutic research areas include cardiovascular, oncology,
critical care, and metabolic diseases such as diabetes.
Glaxo Wellcome Inc. sales for 1998 were $5.6 billion. Glaxo Wellcome plc global sales totaled
7.983 billion ($13.25 billion at $1.66 exchange rate). As a responsible corporate citizen, the
company has established a policy of giving back a portion of its earnings to the communities and
countries in which it operates. As a result of its good corporate citizenship, Glaxo Wellcome Inc.
is recognized as a major contributor to charities and educational institutions in North Carolina
and across the United States.

MARKET POSITION
The Glaxo Wellcome Group constitutes a major global pharmaceutical group engaged in the
creation and discovery, development, manufacture and marketing of prescription and nonprescription medicines. It ranks 4th in terms of sales and has a market share of 3.4% which is Rs.
1.29 billion. Its principal executive offices and a number of its basic research and development
(R&D) and production facilities are located in the UK. It has operating companies in some 57
countries. Its products are currently manufactured in some 33 countries and sold in
approximately 150 countries. The major markets for the Groups products are the US, Japan, the
UK, France, Italy and Germany.

During 1998, Glaxo Wellcome had an average number of approximately 54,350 employees
including some 19,600 in sales and marketing and approximately 9,200 in research and
development.

PROPOSED MERGER OF GLAXO WELLCOME AND SMITHKLINE BEECHAM

CREATING THE GLOBAL LEADER IN PHARMACEUTICALS
The Boards of Glaxo Wellcome and SmithKline Beecham announce that they have unanimously
agreed the terms of a proposed merger of equals to form Glaxo SmithKline, the worlds leading
research-based pharmaceutical company.
The merger will create:
1. A group with combined sales from continuing businesses of approximately 15.0 billion
($24.9 billion), and an estimated 7.3 per cent share of the global pharmaceutical market
2. A powerful R&D capability combining both companies expertise and technology with a
current annual R&D budget of approximately 2.4 billion ($4.0 billion)
3. An enhanced platform to discover and develop new medicines more effectively and
efficiently
4. One of the most extensive development pipelines in the pharmaceutical industry, with a
total of 30 new chemical entities (NCEs) and 19 vaccines in clinical development (phase
II / III), of which 13 NCEs and 10 vaccines are in late-stage development (phase III)
5. A market leader in four of the five largest therapeutic categories in the pharmaceutical
industry: anti-infectives, CNS, respiratory and alimentary & metabolic; a leading position
in the vaccines market and a strong position in consumer healthcare and over-the-counter
medicines
6. An industry-leading sales and marketing force of approximately 40,000 employees
globally, including over 7,200 sales representatives in the US, providing Glaxo
SmithKline with global marketing strength
7. 1.0 billion ($1.7 billion) in annual pre-tax cost savings from the third anniversary of
completion of which 250 million ($415 million) is expected to be reinvested in R&D
8. A truly global organization with wide geographic spread and strong presence in the
important US market

Glaxo SmithKline would have a combined market capitalization of approximately 114 billion
($189 billion) (based on the London Stock Exchange closing market prices for the two
companies as at 14 January 2000) and would be one of Europes largest companies by market
capitalization.
The terms of the merger are based on the recent relative equity market capitalization of the two
companies. Upon completion of the merger, Glaxo Wellcome shareholders will hold
approximately 58.75 per cent and SmithKline Beecham shareholders will hold approximately
41.25 per cent of the share capital of Glaxo SmithKline.
Sir Richard Sykes will be Non-Executive Chairman, Jean-Pierre Garnier will be Chief Executive
Officer, John Coombe will be Chief Financial Officer and Sir Roger Hurn and Sir Peter Walters
will be Non-Executive Deputy Chairmen. The Board of Directors will be drawn equally from the
existing Glaxo Wellcome and SmithKline Beecham Boards.
Robert Ingram will be Chief Operating Officer and President, Pharmaceutical Operations, James
Niedel will be Chief Science and Technology Officer and Tadataka Yamada will be Chairman,
Research and Development.
This merger we are bringing together two world-class organizations with complementary
technologies and scientific knowledge. The new organization, led by one of the sectors most
talented and experienced management teams, will be at the forefront of an industry, which will
continue to undergo rapid scientific and economic change.

The proposed merger is expected to become effective in the summer of 2000.

Glaxo SmithKline will be domiciled in the United Kingdom with corporate headquarters in
London. Operational headquarters will be established in a new location in the US. It is intended
that Glaxo SmithKline will be listed on the London and New York Stock Exchanges.

RISK FACED BY GLAXO AFTER THE MERGER

Such as the ability of Glaxo Wellcome and SmithKline Beecham to integrate their large and
complex businesses and realize synergies and achieve cost savings, difficulties of obtaining
governmental approvals for new products, delays in new product launches, exposure to
fluctuations in exchange rates for foreign currencies, the risk that R&D will not yield new
products that achieve commercial success, the risk of substantial product liability claims,
exposure to environmental liability, the impact of competition, price controls and price
reductions and inflation, adverse economic conditions, interruptions in production, inability of
Glaxo SmithKline to market existing and new products effectively and the risk of loss or
expiration of patents and trademarks.

Under the terms of the merger and on the basis of the current issued share capital of each
company
1. Glaxo Wellcome shareholders will receive approximately 58.75% of the issued ordinary
share capital of Glaxo SmithKline and
2. SmithKline Beecham shareholders will receive approximately 41.25% of the issued
ordinary share capital of Glaxo SmithKline.
RATIONALE FOR THE MERGER AND MERGER BENEFITS
The current rate of progress in science and technology is expected to have a profound impact in
the area of medical practice, and radically transform it over the next twenty years. This
transformation is expected to create significant potential for improving the health and quality of
life of people throughout the world.
Rapidly evolving technologies and advances in the understanding of the underlying causes of
disease are leading to fundamental changes in the pharmaceutical industry, and in turn presenting
new challenges and opportunities for pharmaceutical companies. Glaxo Wellcome and
SmithKline Beecham believe that significant scale and resources will be required in order to
sustain investment in the skills, technology and expertise necessary to discover, develop and
deliver new and better medicines to patients in a faster and more efficient way.
Glaxo Wellcome and SmithKline Beecham believe that the combination of the skills and
resources of the two groups will create the leading research-based Pharmaceuticals Company in
the world. The proposed merger will improve the two groups ability to generate sustainable
long-term growth and enhance shareholder value in an increasingly competitive environment.
This will derive from:
1. Global leadership and scale in the pharmaceutical industry
2. R&D strength to deliver long-term growth
3. Improved sales and marketing infrastructure to maximize sales opportunities in core
therapeutic categories
4. Complementary portfolio fit with strong new product momentum
5. Synergies and cost savings
GLOBAL LEADERSHIP AND SCALE IN THE
PHARMACEUTICAL INDUSTRY

Based on September 1999 moving annual total (MAT) market estimates of pharmaceutical
industry sales, Glaxo SmithKline would have been ranked the largest pharmaceutical company in
the world, the United States and in Europe.
Source: Estimates based on IMS data

Based on combined 1998 pharmaceutical sales, Glaxo SmithKline would have derived
approximately 45 per cent of revenues from the United States, approximately 33 per cent from
Europe and approximately 22 per cent from the rest of the world.

R&D STRENGTH TO DELIVER LONG-TERM GROWTH

The merged company will have a powerful R&D capability combining both companies
expertise and technology with a current annual R&D budget of approximately 2.4 billion
($4.0 billion). This will create an enhanced platform to discover and develop new medicines
more effectively and efficiently.
Glaxo Wellcome and SmithKline Beecham share similar R&D philosophies and strategies and
the merger will bring together their complementary skills, technologies and alliances. This
combination will help Glaxo SmithKline to become the most productive research organization in
the pharmaceutical industry, creating more drugs candidates and reducing time to market through
the integration of technologies to:
1. Find new targets based upon fundamental understanding of disease mechanisms
2. Identify best-in-class compounds by accessing an extensive and intelligently designed
chemical library and novel predictive screening technologies
Glaxo SmithKline aims to be the most efficient development organization in the pharmaceutical
industry, with the size and expertise required to conduct a broad array of clinical studies on a
global scale and to demonstrate the value of its medicines.
Glaxo SmithKline will have one of the most extensive development pipelines in the
pharmaceutical industry, with a total of 30 NCEs and 19 vaccines in clinical development (phase
II / III) of which 13 NCEs and 10 vaccines are in full development (phase III).

IMPROVED SALES AND MARKETING INFRASTRUCTURE TO MAXIMIZE SALES

OPPORTUNITIES IN ITS CORE THERAPEUTIC CATEGORIES

With one of the largest sales forces and marketing resources in the global pharmaceutical
industry, Glaxo SmithKline will have increased share of voice with physicians and opinion
leaders in the healthcare industry, which will allow the company to maximize the potential of its
existing products and future pipeline.
As pharmaceutical product marketing becomes increasingly targeted directly to the consumer,
SmithKline Beechs strong consumer healthcare and over-the-counter medicine businesses will
provide Glaxo SmithKline with enhanced expertise in consumer-oriented marketing strategies,
which should benefit sales of prescription pharmaceutical products.
THERAPEUTIC CATEGORY
In addition to having a broad portfolio of products, Glaxo SmithKline will be a leader in four of
the five largest therapeutic areas, which together represent approximately 50% of the global
pharmaceutical market. This is complemented by a leading position in the vaccines market.

SYNERGIES AND COST SAVINGS

The merger is expected to generate substantial operational synergies. Management of the two
companies estimate that annual pre-tax cost savings of 1.0 billion ($1.7 billion) are achievable
from the third anniversary of completion of the merger. It is expected that 250 million
($415 million) of these savings will be derived from combining the two R&D organizations and
will be reinvested in R&D. The other cost savings of 750 million ($1.2 billion) are expected to
come from reducing the overlap in administration, selling and marketing and manufacturing
facilities.
The 1.0 billion ($1.7 billion) savings from the merger are in addition to the previously
announced estimated cost savings totaling 570 million ($946 million) expected to arise from the
implementation of the two companies existing manufacturing rationalization programs.
Total costs of achieving the cost savings from the merger are expected to be approximately 1.1
billion ($1.8 billion), of which approximately two thirds would be cash expenditures, and one
third accounting write downs. These costs are expected to be charged as exceptional operating
items in Glaxo SmithKlines accounts over the three years following completion.

LEGAL
Sir Richard Sykes and Jean-Pierre Garnier will co-chair the integration-planning committee,
which will operate until the earlier of three months after the completion of the merger and 31
December 2000.

Glaxo SmithKline will be domiciled in the United Kingdom with corporate headquarters in
London. Operational headquarters will be established in a new location in the US. It is expected
that, in most countries, the merged groups operations will be consolidated. However, it is
anticipated that in the US SmithKline Beechams pharmaceutical business based in Philadelphia,
its consumer healthcare business based in Pittsburgh, and Glaxo Wellcomes business based in
Research Triangle Park, North Carolina will retain their current locations. There is no intention
to close any major R&D site of either company worldwide.

EMPLOYEES
SmithKline Beecham currently has approximately 47,000 employees and Glaxo Wellcome has
approximately 60,000 employees. Glaxo Wellcome and SmithKline Beecham will inform and
consult with relevant employee organizations and representatives about the consequences of the
merger, in accordance with applicable legal requirements.
It is inevitable that redundancies will arise as a result of bringing the two companies together.
However, it is difficult at this stage to be specific about the numbers involved or how particular
locations will be affected. The process will take place over a period of years and wherever
possible efforts will be made to reduce the impact of job losses by, for instance, introducing early
retirement schemes. Communication and consultation with employees will form an integral part
of the managements plans and there will be a clear, equitable and transparent process for
selection of people for jobs.
Existing employment rights, including pension rights, of employees of both groups will be fully
safeguarded.

SUMMARY FINANCIAL INFORMATION

Glaxo SmithKline had 1998 pro forma pharmaceutical sales of 12.6 billion ($20.9 billion), total
sales from continuing businesses of 15.0 billion ($24.9 billion) and profit before tax from
continuing businesses of 4.1 billion ($6.8 billion). Pro forma combined information on the
enlarged group is set out in Appendix 4.
Glaxo SmithKline will account for the merger using merger accounting under UK GAAP. Glaxo
SmithKline will report its results on a quarterly basis, with respect to financial periods beginning
on and after 1 January 2001.
Summary financial information on SmithKline Beecham and Glaxo Wellcome is set out in
Appendices 2 and 3, respectively. The information in relation to Glaxo Wellcome and
SmithKline Beecham has been derived from the audited accounts of each company for the year
ended 31 December 1998.

DIVIDEND PAYMENTS AND POLICY

In the recent past Glaxo Wellcome has had a higher payout ratio than SmithKline Beecham. It is
envisaged that Glaxo SmithKline will pay an initial dividend in line with Glaxo Wellcomes
1999 dividend. Subsequently, it is currently expected that the new company will at least maintain
this level of payment, whilst building dividend cover towards the industry average. It is expected
that the first dividend paid by Glaxo SmithKline will be in respect of the period from the
completion of the merger to 31 December 2000, and thereafter dividends will be paid quarterly.
Glaxo Wellcome intends, in the absence of unforeseen circumstances, to declare a final dividend
for the year ended 31 December 1999 and an interim dividend in respect of the first half of the
current financial year, in line with its existing dividend policy.
SmithKline Beecham intends, in the absence of unforeseen circumstances, to declare a fourth
quarter dividend for the quarter ended 31 December 1999 and subsequent quarterly dividends for
the first half of the current financial year, in line with its existing dividend policy.
If completion of the merger does not occur by 30 June 2000, each of Glaxo Wellcome and
SmithKline Beecham intends to pay its shareholders prorated dividends for the period from 1
July 2000 until completion but in all other respects such dividends will be of an amount in
accordance with the relevant companys existing dividend policy.

DETAILS OF THE PROPOSED MERGER

The terms of the merger are based on the recent relative equity market capitalizations of the two
companies.
The merger is expected to be effected by way of scheme of arrangement (the Scheme) of
Glaxo Wellcome and SmithKline Beecham under section 425 of the Companies Act of 1985.
Under the Scheme, Glaxo Wellcome shareholders and SmithKline Beecham shareholders will
receive shares in a new holding company, Glaxo SmithKline, on the following basis

For each Glaxo Wellcome share, 1.0 new Glaxo SmithKline share

For each SmithKline Beecham share, 0.4552 new Glaxo SmithKline shares

In addition, Glaxo Wellcome ADR holders and SmithKline Beecham ADR holders will receive
Glaxo SmithKline ADRs on the following basis

For each Glaxo Wellcome ADR, 1.0 new Glaxo SmithKline ADR

For each SmithKline Beecham ADR, 1.138 new Glaxo SmithKline ADRs

The merger is subject to the conditions set out in Appendix 1, including the approval of the
merger by shareholders of both Glaxo Wellcome and SmithKline Beecham, the sanction of the
Scheme by the High Court and satisfaction of certain regulatory conditions.
The Scheme will require approval by a special resolution of the holders of Glaxo Wellcome
shares to be proposed at an extraordinary general meeting of Glaxo Wellcome. The Scheme will
also require approval separately by holders of Glaxo Wellcome shares at a meeting to be
convened by direction of the High Court. The Scheme will require similar approvals by the
holders of SmithKline Beecham shares. The approval at each of the Court-convened meetings is
a majority in number representing 75 per cent in value of those holders who vote at the meeting.
In addition, the Scheme is required to be sanctioned by the High Court.
It is intended that the formal documentation relating to the merger will be sent to shareholders,
and the extraordinary general meetings and the Court meetings of Glaxo Wellcome shareholders
and SmithKline Beecham shareholders will be convened, once the pre-conditions set out in
paragraph 1 of Appendix 1 (clearance by the European Commission and the US Federal Trade
Commission) are satisfied or waived. In the event that the European Commission does not
initiate Phase II proceedings, clearance should be received in the spring of 2000. Under the HartScott-Rodino Antitrust Improvements Act of 1976 (HSR Act), the merger may not be completed
unless certain waiting period requirements have been satisfied. The HSR Act provides for an
initial waiting period of 30 days following an effective filing, which may be extended in the
event that additional information is requested.
The Scheme can only become effective if all conditions to the merger have been satisfied or
waived, including receipt of all shareholder approvals, sanction by the Court and all other
regulatory clearances. The Scheme would become effective upon the delivery to the Registrar of
Companies by each of Glaxo Wellcome and SmithKline Beecham of a copy of the order of the
High Court sanctioning the Scheme and registration by each of them of such order. This is
expected to take place two to three months after posting of the formal documentation to
shareholders.
Glaxo Wellcome and SmithKline Beecham have been advised that the Glaxo SmithKline shares
to be issued to holders of Glaxo Wellcome and SmithKline Beecham shares under the Scheme
are exempt from the registration requirements of the US Securities Act of 1933 and, as a
consequence, the Glaxo SmithKline shares to be issued pursuant to the Scheme will not be
registered thereunder.

EMPLOYEE INCENTIVE SCHEMES

The merger will affect the incentive awards granted under Glaxo Wellcome and SmithKline
Beechams share plans. Options will become exercisable and rollover of those options into
options in Glaxo SmithKline will be encouraged. It is expected that awards under long-term and
mid-term incentive plans will vest on completion of the merger subject, in certain cases, to

relevant approvals being given. Prior to completion of the merger, each company will continue to
grant options and awards in the ordinary course.
As a leading worldwide pharmaceutical company, Glaxo SmithKline intends to retain, motivate
and recruit the very best employee talent available. To achieve this aim, it is intended that the
Glaxo SmithKline remuneration and incentive schemes will be structured to reflect fully the
international nature of both the business and the industry in which they operate.
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