Pakistan Pharmaceutical Industry

In 1947 when Pakistan gained independence from the British there wasnt a single company
operating in the pharmaceutical industry but now after 68 years of independence there are
almost 400 manufacturing units being operated by both national and multi-national firms.
The Pharmaceutical industry caters to almost 70-80% of the local demand of finished
medicines. 42% of this demand is met by Multi-National Companies while 58% is met by
Local companies
Background
Pakistans Pharmaceutical industry started out slowly but gradually became an integral
contributor to the developing economy of Pakistan. Arguably the most significant day for the
Pharmaceutical industry was 26th January 1961, when the Pakistan Pharmaceutical
Manufacturers Association (PPMA) was formed. The Ministry of commerce registered
PPMA as the sole non-governmental representative of Pharmaceutical manufacturers in
Pakistan. The head office of PPMA is situated in Karachi.
At the time of formation there were only 10 members of the PPMA, as of 2015 there were
around 235 companies holding membership. The initial 10 members of PPMA are the ones
through whose efforts resulted in the formation of this association. These initial members and
early members have contributed significantly to the Pakistan Pharmaceutical industry and
they still remain the major players in todays ultra-competitive industry. ! !
Ministry of Health (MOH)
Alongside The PPMA the Ministry of Health (MOH) was also a key component of the
Pharmaceutical industry until it was devolved in June 2011. The Ministry of Health had a
wide variety of tasks which included
Providing Manufacturing License :
This was the most fundamental role of the Health ministry. Any company that has a license is
allowed to legally manufacture and sell drugs. Any company producing without a license
cannot sell its drug in Pakistan.

Protecting Patents

Any medicine that is under a patent becomes the intellectual property of the patent holder. If
a company tries to make a drug that has been patented by another company then the Pakistan
Health Ministry is liable to take action against that company under the claim of intellectual
property theft. In simple terms if a company copies the formula of another company without
prior consent then it would be committing a crime and The Pakistan Health Ministry is
supposed to protect companies against all such crimes.
Imposing a price freeze
MOH has the authority to impose a freeze on prices at any time it pleases. Under the
imposition of a price freeze no company can change the price of any drug. This step is taken
to ensure that the general public receives quality medicine which is affordable to all. In
certain cases of Hardship the pharmaceutical manufacturers can appeal to the MOH to lift the
price freeze off a certain drug.
Encourages the use of Good Manufacturing Practices (GMP)
GMP is a set of guidelines which enable manufactures to maintain a certain standard of
quality.
MOH encourages its use in accordance with both domestic and international guidance. MOH
feels that the use of these guidelines is in the best interests of the industry. Most of Pakistans
manufacturing units are ISO certified adhering to UK and USA standards. The National
pharma industry has shown a progressive growth over the past five years. The industry has
invested substantially to upgrade itself in the last few years and today the majority industry is
following Good Manufacturing Practices (GMP), in accordance with the domestic as well as
international Guidance. Currently the industry has the capacity to manufacture a variety of
product ranging from simple pills to sophisticated Biotech, Oncology and Value Added
Generic compounds. Although Pakistans pharmaceutical and healthcare sectors are
expanding and evolving rapidly, about half the population has no access to modern
medicines. Clearly this presents an opportunity, but much more work needs to be done by the
government and industry's stakeholders. The value of pharmaceuticals sold in 2015 exceeded
US$3.5 bn, which equates to per capita consumption of less than US$ 10 per year and value
of medicines sold is expected to exceed US$5.3 B by 2018.
Power to create a DRA

MOH also possesses the ability to form a DRA (Drug Regulatory Authority) as an
independent body under the 18th Amendment. In recent years PPMA has called for the
creation of such an authority so as to stop the counterfeiting of drugs.
Registration of Generic Drugs!
Without the proper registration of the MOH no drug can be produced by a company. The
MOH conducts Bio-equivalence studies on the Generic drugs before giving companys
permission to produce them.

Pharmaceutical Industry and its Significance in Pakistan

Pakistan's Pharmaceutical market is very significant in the World market as it is the 10th
largest in Asia Pacific and the 4th fastest growing market (2008/09) after China, India &
Vietnam. The total worth of Pakistans Pharmaceutical industry is measured at Rs. 191
Billion (USD 1.8 Billion) in September 2015 most of which is down to private sector
investment. The private sector contributes to an overwhelming 82.5% of the total health
expenditure. Leaving the government of Pakistan with a very meagre amount of 17.5% which
is around 1% of GDP, this percentage is considerably lower than other South Asian countries.
This is a very disturbing stat for a country where 24% of the population lies below the
poverty line; it is difficult to understand how the poor people are able to afford medicines.
This constitutes to the fact that per capita spending on medicines was US$ 10 in 2010. Figure
below

provided insight of growth trend for both MNCs and National pharmaceutical

companies.

Both multi-national and national companies have contributed to the growth of this industry,
but national companies have contributed a higher percentage to the growth simply because
national
Companies are greater in number compared to multi-nationals. Table below shows the total
value of National Companies and the value of MNCs in PKR of the Pharmaceutical Industry
of Pakistan.

The Pharmaceutical Industry of Pakistan consists of numerous players large and small but
only a few companies are major contributors to the overall valuation of the industry. The
following is a market share distribution with respect to each companys sales volume as of
September 2015.

GSK is the market leader and also the leading Multi-National with almost 12% share. The
biggest local manufacturer is Getz Pharma which has around 4.46% of the market share.
Pakistans Pharmaceutical industry specialises in antibiotics, vaccines, tranquillisers,
hormones, anti-oxidants, cardio vascular, anti-cancer, cicatrix, contraceptives and birth
control medicines. Around 125 different categories of medicines produced locally which
include vitamins, anti-allergic, ointments and cough syrups etc. The following table provide
details of the highest selling molecules in Pakistan in terms of sales volume in PKR (Drug
Regulatory Authority of Pakistan, 2015).

Global scenario
The pharmaceutical industry in any country is considered as the mainstay of public health.
Looking at the global scenario, the importance given by developing nations to the
pharmaceutical sector can be clearly identified by including healthcare and pharmaceutical
industry in their health and welfare strategy. The global pharmaceutical market is valued at no
less than US$440 billon, with annual growth of 6%. As the following graph indicates, the
developed countries of North America, Europe and Japan have the largest share of the global
pharmaceutical market

Key statistics of Pakistan Pharma Industry

A quantitative overview of the pharmaceuticals sector is presented in the following table.

Top 25 local Pharma Companies in Pakistan

Top 10 Multinational Pharma Companies in Pakistan

Production/manufacturing process

Manufacturing facilities
Pakistan produces various dosage forms, including tablets, capsules, syrup, suspension,
drops, cream, gel, ointment, ophthalmic/optic drops, infusions, insulin, suppositories,
vaccines, liquid and powder injections, inhalers, vitamin sachets, disposable enemas and
modified release dosages. The national pharmaceutical industry is currently catering to more
than 60% of the countrys needs in terms of volume. (If we were to add the volume being
produced for multinational companies (MNCs) on contract, the figure rises to approx. 75%.)
As a result, the heavy dependency on imported products has decreased and the local industry
has experienced a great boost.
In accordance with GMP, most of the leading national pharmaceutical companies invested
heavily in the latest technology to produce cost-effective and quality products. Hence, the
production facilities now include state-of-the-art equipment imported from leading European,
US and Chinese manufacturers. The smaller units are understandably struggling. The leading
national pharmaceutical manufacturers claim that their products have an edge over Southeast
Asian products. One of the reasons is that the active pharmaceutical ingredients (APIs) of
most local products manufactured in Pakistan are imported from quality manufacturers in
Europe, Japan, Korea, South America and Southeast Asia. The reliability of the quality of
local products is evident from the fact that leading multinational companies are having their
products manufactured by the national companies under contract manufacturing
arrangements. The national companies have been quite successful in introducing various
innovative products by using technology transfers and licensing arrangements. If the amount
of manufacturing done for the MNCs were to be added to the direct brand sales of the local
manufacturers, this would exceed the 75% requirement of pharmaceutical products of the
country.
Local companies have also acquired latest technologies and entered the field of
microencapsulation of bitter molecules for taste masking and enteric coatings of various
products. The leading companies have acquired ISO quality certifications. There are about 15
new production facilities currently under construction that aspire to obtain FDA credentials.
This clearly indicates that the local pharmaceutical companies are preparing to enter the
highly regulated markets, such as the United States and Europe through achieving high
quality on priority. The quality of national pharmaceutical products has been acknowledged

and accepted by many international countries and quality certification authorities, which
include quality accreditation from:
European Union (German GMP)
Uganda (NDA)
International Trade Centre 25
Yemen (MoH)
Uzbekistan (MoH)
UAE (MoH)
Turkmenistan (MoH)
Senegal (MoH)
Tanzania (MoH)
Canada (MoH)
Sudan (MoH)
Sri Lanka (MoH)
The leading companies are also inclined to improve their systems and documentation
requirements by complying with various quality management standards in their organisations,
including ISO 9001, 2000 and ISO 14001. Most of the essential drugs outlined in the WHO
list are manufactured by national and international companies operating in Pakistan. The
industry employs over half a million people directly and indirectly. Considering the
complexity of operations and introduction of new technologies, highly educated, competent,
and committed human resources of the country are working in the pharmaceutical sector. This
should ideally result in the pharmaceutical sector stepping in the research operations where
they have considerable potential to earn substantial revenues in the form of contract research
arrangements.
The Ministry of Health, Government of Pakistan, controls all aspects of the industry and has
played a vital role in improving the quality standards of manufacturers. This has been

possible by ensuring that product registrations are only given on the basis of ability to
manufacture quality products. In a number of new product registrations, an exclusive
inspection of the applicants production facilities is also carried out, thus ensuring compliance
with cGMP in accordance with the need of that particular molecule. Moreover, certain new
regulations are under discussion and it is expected that their enforcement shall further
strengthen their objective i.e. compliance with cGMP in pharmaceutical manufacturing as
well as marketing

Availability, quality and price of raw materials

Only a few companies are manufacturing quality APIs in Pakistan. There are only few
smallscale API manufacturers operating, but they neither have technical commercial-scale
expertise nor resources to operate as per Good Manufacturing Practices (GMPs). However,
the Government of Pakistan is inclined to promote API manufacturing and has a positive
attitude towards this particular category. The Government has often supported quality API
manufacturers by granting various tariff protections. The majority of pharmaceutical
companies are dependent on European, Japanese, Korean, South American and Southeast
Asian manufacturers for the requirements for their API raw materials requirements of their
products hence have little control over the cost of APIs. The problem is further aggravated as
the national manufacturers of APIs misuse the tariff protection and sell APIs at higher than
international prices. This makes finished products for the exporters uncompetitive at the
international market.
The pharmaceutical industry imports approximately 91% of all raw materials. The local
availability of raw materials is restricted to the following actives
Amoxacilin
Ampicillin
Aspirin
Cefixime
Cefadroxil
Cephalexin
Cefradine

 Ciprofloxacine
Cloxacillin
Ephedrine
Ephedrine Sulphate
Flucloxacillin
Furazolidone
Ibuprofen
Magnesium Stearate
Norfloxacillin
Paracetamol
Parabinez
Piperazine
Pseudoephedrine
Pyrazinamide
Santonin
The raw materials mentioned in the above list do not necessarily meet the entire need of the
industry and a major portion of special grades is still imported. There are numerous factors
restricting the entry of national companies manufacturing APIs to the international market. A
few of them have been mentioned below:
Substantial cost of setting up R&D facility
Continuous cost of test runs to achieve
Required yields
Required stability
Required purities

 Required characteristics
Continued technical support
Salaries and perks to qualified scientists
Cost of indirect inputs
Because of the limited manufacturing of quality APIs, uncontrolled API prices as well as
various tariff protections meant to support the indigenous industry, the exports of certain
molecules is affected and substantial opportunities are lost. Another fact, worth considering,
is that currently the national pharmaceutical products are registered and exported not only to
the developing countries of Africa, but they are also doing quite well in quality-conscious
markets like Canada, the European Union, Central Asia, Middle East, South Africa and the
Far East. Raw and packaging material is easily available from international sources such as
India and China. Their quality varies from one source to another. Yet in most of the cases, the
materials are subjected to stability testing to conform to the standard of US Pharmacopeias
and British Pharmacopeias. In exceptional cases, raw/packaging is not available off the rack
and has to be manufactured to conform to the users specific needs. This entails longer
planning horizon and lead times. The shortage of some raw packaging material occurs
occasionally due to exceptional increase in demand. Cipro, for example, affected the local
industry a couple of years ago no differently from the rest of the world. The prices of raw
packaging have been on the decline for the last few years. The European prices are slightly
higher followed by the lower prices of India and China. The prices of Europe are usually
higher to the extent of 20% as compared to other countries. Raw and packaging material from
India and China conform to BP/USP standards thus prompt the local industry to switch to
these sources.

Other production inputs

Following are the production inputs used in plant/machinery:
Plant/machinery (should be according to cGMP regulations)
- HVAC systems
- Mixer
- Blender

- Granulation suits
- Packing area machinery
- Molding
- Water treatment plant
- Quality control equipment
- HPLCs
- GC etc
Energy
- Generator
- Electricity connection
Documentation
- SOPs
- Registrations
- Regulatory compliance
- Quality/standard certification
Building
- Drainage waste system
- Raw material temperature control
- Dispensary area
- Laboratory
- Stores
- Packaging material stores
- Finished goods stores

- Quarantine area
Personal
- Management
- Executives
- Regulatory
- Distribution and supply chain
- Marketing
- Import and export
- Engineering
- Technical staff
- Labour

Growth in the sector

Based on IMS figures growth in the pharmaceutical sector of Pakistan in 2015 was:
Market growth in volume - 10% per year
Market growth in value - 8 % per year

SWOT

analysis

of

Pakistani

pharmaceutical

companies
The following SWOT analysis has been done after interviewing manufacturers, exporters,
PPMA and Pharma Bureau. It also includes the consultants views and observations.

Strengths
Pakistan has a fairly large prevalence and continuous supply of well-trained, English
speaking pharmaceutical technicians and professionals. The colleges and universities all over
Pakistan produce 1,500 pharmacists and 3,500 chemists every year.
Approximately 430 pharmaceutical manufacturing units are working in the country. These
include 24 multinational pharmaceutical plants, manufacturing and marketing more than 100
molecules, which results in the transfer and dissemination of technology and information
from these innovators to the Pakistani industry. Each year about 13 to 15 new manufacturing
licences are issued.
There is still a huge potential existing for pharmaceutical products to penetrate into the
Pakistani market because they are still not reaching each consumer in Pakistan. No data is
available for Pakistan, but a Pharmbiz report for India indicates that pharmaceuticals reach
only 30% of the total Indian population, the rest of whom still rely on traditional medicines
and faith healers.
Additional strengths include:
Flexibility
Because of the recent global political and economic changes, there is a reverse-drain of
skilled Pakistani pharmaceutical professionals and technicians from developed countries to
Pakistan.
The Pakistani pharmaceutical industry is growing at a rate of 12-13% each year. The growth
is phenomenal both in terms of value and volume.
Pakistani pharmaceutical professionals have developed good skills in making the generic
copies of innovative molecules through reverse engineering and process development.
The pharmaceutical exports of Pakistan are growing: from US$37 million in 1997 to US$63
million in 2005. More and more Pakistani companies are now inclining towards exports. This
surge of exports is well supported by enabling government policies.
There is a 50% subsidy on the registration of pharmaceutical products in export countries.
Also, the Government gives a freight subsidy for exports to some countries.

 Opening and liberalising trade with India is resulting in the inflow of useful and affordable
capital goods and raw materials for the Pakistani pharmaceutical industry.
The availability of rich and promising knowledge base in the field of Unani Tibb can be
helpful in developing Pakistan as a major supplier of herbal raw material, herbal products and
Neutraceuticals.
Weaknesses
The main weaknesses identified were as follows:
The low perception of quality by customers and consumers.
The Pakistani pharmaceutical industry is 100% dependant on copying of innovative drugs.
Not much innovation takes place in processing and developing products.
Hardly any Pakistani pharmaceutical manufacturing plant has a license or approval from
renowned international regulatory authorities. (India has 74 US FDA-approved plants.)
Others mentioned the following weaknesses:
Scarce management know-how, especially in international marketing.
Auto-financing.
The low per capita health expenditure in Pakistan shows US$76 for Pakistan, US$356 for
Iran, US$130 for Vietnam, US$167 for the Philippines, US$1,091 Argentina and US$477
Mexico).
No world-class reference labs are available for drug evaluation and testing.
National companies, despite being very large in number (406 national against 24
multinational companies), have only 47% of the total market share, which indicates the low
level of national capacity development.
Pakistan is largely dependant on imports for raw materials and hi-tech finished products. At
least 91% of raw materials consumed by the Pakistani pharmaceutical industry is imported.
Approximately 24% of pharmaceuticals sold in Pakistan are imported.
The price of pharmaceuticals in Pakistan is fixed, which restricts competitions.

 R&D efforts and expenditure in the pharmaceutical industry are very low.
The size of the Pakistani pharmaceutical market is small. Pakistans population is 2.5% of
the total world population; however the Pakistan pharmaceutical market is only 0.325% of
the total world pharmaceutical market.
Entry barriers for the Pakistani pharmaceutical market are very low. For this reason,
competition is ever increasing and it is further complicated by tight price regulations.
Opportunities
The main opportunities identified were:
A well-developed regulatory network compliant with WHO standards that regulates the
pharmaceutical market all over Pakistan, combined with the recent modernisation in drug
regulations in Pakistan:
A drug regulatory authority is being developed and will be an independent body under the
federal cabinet.
Herbal drugs will soon be regulated: the draft has been submitted to national parliament for
debate.
The Supreme Court has been vigilant in modulating regulatory practices through
instructions on various issues to the Ministry of Health.
Migration to a patent product regime is likely to transform industry fortunes in the long
term. The new patent product regime will bring with it new innovative drugs. This will
increase the profitability of multinational pharmaceutical companies and will force domestic
pharmaceutical companies to focus more on R&D.
Being low-cost producers, Pakistani companies can become a global outsourcing hub for
pharmaceutical products, provided they obtain regulatory approvals and upgrade their plants.

Others mentioned the following opportunities

Knowledge of local/regional markets.

 Motivation.
The positive development of the natural products market.
The rapid development of the generics market.
Pakistans economy has taken a positive turn. The per capita income is increasing.
The increasing penetration of the media and the growing rate of literacy have increased
health awareness.
Recent trends stressing primary healthcare are opening new horizons for exploration.
The saturation point of the market is still far away.
Recent trade pacts with neighbouring countries, for example Sri Lanka, and expected
regional agreements (ASEAN) are likely to give bigger market opportunities for the exports
of Pakistani pharmaceuticals.
This migration could result in consolidation as well. Companies operating at small-scale may
not be able to cope with the challenging environment and may succumb to bigger companies.
The large number of drugs going off-patent in Europe and in the United States between 2005
and 2009 offers big opportunities for the Pakistani companies to develop modern generics.
Opening up of the health insurance sector and the expected growth in per capita income are
key growth drivers from a long-term perspective. This leads to the expansion of the
healthcare industry, of which the pharmaceutical industry is an integral part.
Threats
Following are the main threats identified:
Trade barriers, especially regulatory difficulties.
The existence of very strong pharmaceutical manufacturing and marketing industries in
neighbouring countries that would speedily penetrate the Pakistani market in case of trade
liberalisation.
The increasing vigilance of international regulations and the hi-tech demands of the
regulators have significantly increased the cost of quality compliance.
Others mentioned the following additional threats:

 Poor access to finance.

The Internet, enabling customers/consumers to access competitive information and seeking
other options.
Globalisation, new entrants in the home market and in export markets.
The industries of these countries also give a tough competition to Pakistani exporters in
export markets.
There is also a rise in the cost of entry into the new export markets
Pakistan has entered a product patent regime that expels Pakistani products from competing
into the more modern molecules markets.

Competitive Profile Matrix of Pharma Market leaders in

Pakistan
CPM
Critical Success factors

Abbott

GSK

Pfizer

Weight

Rating

Score

Rating

Score

Rating

Score

Advertising

0.06

0.12

0.18

0.18

Product Quality

0.09

0.27

0.27

0.27

Price Competitiveness

0.07

0.14

0.21

0.21

Management

0.12

0.36

0.36

0.36

Financial Position

0.08

0.16

0.24

0.24

Customer Loyalty

0.06

0.12

0.18

0.18

Global Expansion

0.10

0.3

0.3

0.4

Market Share

0.08

0.16

0.24

0.24

Research & Development

0.17

0.34

0.34

0.51

Employee Turnover

0.07

0.21

0.28

0.21

Brand

0.10

0.2

0.3

0.4

Totals

1.00

2.38

2.9

3.2

Market Concentration
The concentration in the industry is very high, the three market leaders constitute more than
60% of the industrys revenues they are capturing almost 85% of the total market share.
(BASED ON THEIR SALES REVENUE)
Company
GSK
Abbot
Pfizer
Total

Market Share
40%
24%
21%
85%

Hirschman-Herfindahl index
HHI = (40)(40)+(24)(24)+(21)(21)
= 1600+576+441
= 2617
The Hirschman/Herfindahl index is about 2617 and concentration is 85% indicating very high
concentration refers to dominancy.

Porters Diamond Model Analysis of the Pharmaceutical Industry of

Pakistan
As we conduct the analysis, the purpose is to understand the dynamics of the Pharmaceutical
industry. How different players interact and affect the market synergy? What are the leading
and lagging indicators? What factors determine market demand and supply? What sort of
government interventions assist and create hurdles in the formation of market structure? And,
what are the ramifications? What sort of price control policies exist? The strengths, weakness,
opportunities and threats

The emphasis will be laid upon making the reader understand guiding principles that
formulate the industry, so that a critical eye will be able to identify the loopholes, and based
upon this industrial note further research could be carried out that could address the critical
issues raised in this report.
More importantly, many a times what happens is that researchers tend to extrapolate certain
assumptions that helps us identify the dark spots that are many a times being ignored.
Suppliers
The Pakistani industry is different from most of the pharmaceutical industries of the world.
Most big pharmaceutical industries around the world get benefits such as volume benefits,
accessibility to cheap locally produced raw materials, wide range of suppliers so low over all
costs of raw materials and also opportunities are available for forward and backward
integration between suppliers and producers.
Unfortunately in Pakistan all these advantages are not available to the drug manufacturers.
National manufacturers however hold an advantage compared to the multi-nationals. Local
manufacturers who do not have quality standards as high as that of the multi-nationals so they
can afford to use low grade raw materials imported from countries such as China,
Afghanistan and at times even use very low quality domestically produced raw materials. On
the other hand multi-national which are highly conscious of their quality standards and hence
are forced to import expensive raw materials from European countries such as France,
Holland, Sweden other Scandinavian countries. Also the parent companies of these multinationals demand that their companies use highest quality raw material usually imported from
the county of origin the company. This is one of the most important advantages of that local
manufacturers hold over the multi nationals.
Customers
First of all it is important to understand who actually the customers of the pharmaceutical
industry are. Unlike most industries the general public isnt the direct customers of the
industry. But the doctors are the customers. Doctors do not have to bargain for prices, this is
how they are unique from normal customers. The doctors do have a wide variety of products
to choose from. Due to ineffective patents many similar products produced by different
companies are at the doctors disposal for prescribing. The ineffective patent laws allow

similar products to be produced at different prices, this gives doctors freedom to prescribe
drugs to different patients. This makes drugs affordable for everyone.
Drug companies distribute their medicines to retailers and wholesalers through their specified
distributors. The general public purchases medicines from these retailers and wholesaler, the
wholesalers traditionally offer lower prices. Some small retailers also purchase medicines
from these wholesalers. There is a trend that when medicines are bought from retailers a
discount of around 10% is on offer in case of bulk purchase.
New Entrants
The pharmaceutical industry is highly regulated by the MOH which makes it very difficult
for new companies to enter the industry. The presence of very large established companies
such as GSK and Novartis it is difficult for new entrants to establish themselves as a major
player in the market.

Not only is the Pakistani market littered with well-established

companies but also the market is highly saturated with both large and small firms. The only
positive for new companies is that the market is rapidly growing so there will be some
opportunities for new prospects. Apart from this the high interest and inflation rates make it
impossible for owners to start new companies from scratch.
Also the unforgiving economic situation does not encourage fresh investment in any industry
let alone in the pharmaceutical. The set up cost of pharmaceutical industry is also rather high
especially the need to have a highly trained and knowledgeable workforce. In the
Pharmaceutical market it is very important to have a well-trained sales force as they are
solely responsible for
generating revenue. When the salesperson goes to a doctor to sell medicine he needs to have
perfect knowledge about the product so they can convince the doctors to prescribe their
medicine. The training costs of employees make a big chunk of the expenses of
pharmaceuticals.
Substitutes
The Pakistani market has a general disrespect for patent laws and intellectual property rights.
The leniency of law also encourages many local firms to quickly copy the formulas of the
bigger well established firms in order to bring in cheaper substitutes. There also a role of the
PPMA and MOH who are not very strict about patents and patent expiries. The companies
which turn a blind eye towards patent laws use very cheap raw materials imported from

Afghanistan or made in Pakistan. This harms the reputation of the Pharmaceutical industry
and also causes huge losses to established companies.

Competitive Rivalry within the industry

The conclusive analysis of the industry gives us that the industry is pretty competitive but
there is still some room for improvement in this department. The Pakistan market is still very
young with a lot of room for improvement. The market is still controlled by around 10-20 of
the large firms, most of which are multi nationals. With new entrants coming in competition
will increase and should spread the market share more evenly.

Demand Conditions
At present, the global pharmaceutical industry is worth approximately USD 1 Trillion so the
Pakistan industry isnt even 1% of a rapidly growing and vibrant industry. Being home to
almost
200 million people, Pakistan is a very attractive market for both local and foreign investors. !
Please note following information was gathered in 2009. The following pie chart shows the
global market share of the pharmaceutical market by region.

The table below shows the country wise per capita expenditure on in US Dollars (2013)

Pricing
Perhaps the greatest challenge faced by the pharmaceutical industry in Pakistan is the control
of
the government on the pricing of the medicines produced in Pakistan. The last across the
board
price increase announced by the government was in April 2001. In 2010 there was another
price
increase but this price increase was granted only to the vitamins sector of the industry and
was notgranted across the board to all products. Whereas the dilemma viewed by the eyes of
the industry are the ever increasing charges by hospitals and doctors fees. Despite repeated
efforts by the Pakistan Pharmaceutical Manufacturers Association (PPMA) since the last 3-4
years, there has been no formal agreement on the pricing formula between the government
and PPMA. The government still practices the old pricing formula based on costs but this has
been heavily
Criticised by the PPMA as they cited concerns that the government in fact wanted to keep a
check on the profitability of the companies. According to the PPMA any formula based on the
costs would deter investment in the industry as it would fail to provide incentives for
companies to grow. The health ministry has classified drugs into controlled (essential) and
decontrolled categories. The ministry also demands regular disclosure and breakdown of
costs which has been a bone of contention between the government and the PPMA.
During the last decade, the cost of raw materials and other inputs has risen sharply. Inputs
such as electricity and gas have recorded exponential increase in their costs. Also, the recent

devaluation of the rupee has increased the costs of importing machinery and chemicals. Also
considering the fact that 85-95% of the raw material used is imported the costs of production
has risen immensely during the last decade. The delay by the government in announcing a
price increase during the last decade has hurt the pharmaceutical industry badly and also
deterred many investors from investing in the sector.

Transfer Pricing
Another factor contributing to the high costs of production is that of transfer pricing. The fact
to be noted is that instead of importing chemicals at an internationally competitive price from
the world market, most of the multinational companies are importing chemicals from their
parent companies.
Simply speaking, instead of buying chemicals at the lowest available cost they are actually
paying more than they should. Not only does it increase their cost of production, it also has a
negative effect on Pakistans balance of payment account.41.2% of Pakistanis live below the
poverty line and to these people pharmaceutical drugs, even at the fixed prices of the
Pakistani government are too expensive and inaccessible. While powerful multinational
companies are adamant about increasing prices time and again, experts say that there can be
a substantial decrease in prices if the government adopts measures to contain transfer pricing
by MNCs. The exchequer is losing huge sums in terms of foreign exchange due to transfer
pricing.
There could be a substantial cut in drug prices if transfer pricing is contained and those drugs
are
manufactured whose patents have expired. Patent rights expire after 16 years and will expire
after 20 years when the WTO becomes effective. Hence the monopoly of the company comes
to an end and anybody could manufacture a drug whose patent has expired. MNCs are
adamant about increasing wholesale prices of drugs and since the Ministry of Health is
resisting such a move, they are exerting pressure and insisting that pricing should be done by
the Ministry of Industries and Production. But MNCs are trying to involve the Ministry of
Industries and Production to fix the drug policy.
If this policy is implemented then it will have a devastating effect on affordability, quality,
rational use and safety of pharmaceutical products in the country. The new policy draft under
consideration of the government these days does not even take into account the concept of
essential drugs promoted vigorously by the health authorities throughout the world.

Local Demand
At present, Pakistan is able to meet 70%-80% of its pharmaceutical requirements with
locally produced medicines while the rest of the demand (approximately 20%-30%) is met
through imports. Sales are currently growing at 11% and because of the increase in natural
disasters and diseases demand for medicines has the industry is expected to report a further
increase in demand.
Despite boasting a population of almost 180 million people, Pakistans per capita expenditure
on
Medicines are just under US $10 per annum. Pakistans pharmaceutical expenditure was
estimated to be PKR 152.97 billion (US $1.79 billion) in 2010. The countrys pharmaceutical
market is moderately large by Asian standards being just ahead of Vietnam (US $1.58 billion)
and behind the Philippines (US $12.58 billion).
According to the estimates made by Business Monitor International, by 2014, the markets
value at consumer prices is expected to post a compound annual growth rate (CAGR) of
7.13% in local
currency terms. Due to the weakening rupee, however, growth will be just 3.50% in US dollar
terms, which will also act as a deterrent to foreign participation. The situation is forecast to
improve somewhat over the ten-year forecast period, with CAGR rates coming in at 8.84%
and 6.98%, respectively. Prescription drugs are expected to account for the majority share (at
around 76% to 78%) for the remainder of our forecast period (both five- and ten-year spans)
Exports and Imports
The Trade Development Authority of Pakistan (TDAP) has recently founded a
Pharmaceutical Celling TDAP in order to capitalise national companies potential to
participate in the growth of export of Pakistan. TDAP has observed that despite being
technologically efficient and having all the technical expertise the national pharmaceutical
companies are devoid of any international
accreditations. After a recent agreement signed between PPMA and TDAP, PPMA will ensure
that by 2015, there will be at least 10 WHO pre-qualified companies in Pakistan.
In a recent conference held by TDAP to bring PPMA members up to date on the issue, the
WHO

Country Advisor pointed out that, due to the lack of WHO Pre-qualification, national
companies are unable to participate in US$ 110 Million bids which are appropriated for
drugs supply to Pakistan by the WHO.

Because of the rapid devaluation of the local currency and the governments failure to
announce an across the board increase in prices of medicines, Pakistani pharmaceutical
manufacturers have turned to exports. Currently, exports are growing at an average of 15%
per annum mainly to South Asian countries like Afghanistan, Central Asian countries and to
countries in Africa which includes Sudan and Somalia. 2009 estimates show that the share of
pharmaceutical exports was approximately 4.04% of the total exports.

Export destinations and their volumes of Pakistani Pharmaceutical medicines

Pharmaceutical exports are currently the seventh largest manufacturing-based export

segment, but high infrastructure and operating cost, rapid inflation, high interest rates,
inconsistent government policies, high duties, lack of research and development facilities,
energy shortage and the poor security situation have obstructed efforts to raise exports to their
potential.

Corporate strategy, Structure and Rivalry

The devolution of the Ministry of Health to the provinces; The website of the Ministry of
Health, www.health.gov.pk, says, The Ministry of Health has been devolved as per federal
Government notification No. 4-9/2011-Min.I. Pakistans Ministry of Health was abolished
on the 30th of June 2011 and a number of federal health responsibilities were placed under
the
jurisdiction of seven other government ministries/divisions. With the passage of the 18 th
Amendment Bill, health is going to become exclusively a provincial subject and, according to
the
Constitutional requirements, all the departments under the federal health ministry are to be
Absorbed gradually in the provincial health administrations. This includes the registration
and
Regulation of medicines. Recently, pharmaceutical companies and their representative bodies
have expressed serious concern about the possible devolution of federal drug administration
to the provinces.
According to Pakistan Pharmaceutical Manufacturers Association after the devolution of
Health Ministry to provinces under the Amendment, the pharmaceutical industry may face
colossal losses,
closure of business as well as a sharp decline in exports. Their standpoint is that drug
registration, issuing licenses, etc, are federal subjects and provinces lack the expertise to
handle such matters as they have traditionally been taken care of by the federal government
in Pakistan. PPMA also complains that since the Ministry of Health has been devolved there
are going to be major variations in the quality-control procedure if provinces govern and

regulate drugs and medicines, thereby creating block hurdles as one drug may be declared
safe in one province and may be banned in the other. There can also be a case that a drug X
may be registered in Sindh for pain relief and the same drug may be registered in Punjab for
cholesterol control, etc., so there is expected to be confusion over who will provide, govern
and regulate licenses. PPMA has advised the government to form a Drug Regularity
Authority (DRA) which should be directly under the federal government so that there is no
confusion over the issuing of licenses, they suggest that the DRA would look into all the
matters that the provincial governments dont have to expertise to work in.

Corporate structure
At the time of independence there was hardly any pharmaceutical industry in Pakistan. Today
the pharmaceutical industry in Pakistan comprises of over 400 pharmaceutical manufacturing
units Including around 30 operated by multinationals present in Pakistan. Province wise
breakup of Pharmaceutical Manufacturing units in Pakistan is given below.

At present there are around 66,000 registered formulations in Pakistan and around 1300
registered molecules. For example, paracetamol is a molecule that can be used to make a
number of formulations like tablets, Syrups, injections etc. A new technology by the name of
Taste Marking has also recently been introduced in Pakistan. Taste marking helps to improve
the taste of medicines.

Rivalry

Because the multinational pharmaceutical companies have brought in millions of dollars of

investment in Pakistan, the government policies are tilted in their favour. The Drugs Acts of
1976 gives the government the authority to fix the prices of drugs, it must be remembered
that this law was passed in an era of nationalisation but despite the fact that the other
nationalisation laws have been repealed, the Drugs Act of 1976 still continues to play a
significant role in pharmaceutical sector. The government has often been accused of
favouring the multinationals and ignoring the pleas of the local manufacturers. Because the
prices are set according to the face value of the companies, the multinationals because of their
larger cash backings always secure high prices for their products. The government has been
accused to offer multinationals a price that is 50% to 170% higher than that offered to local
companies for the same products. The control of the government on the pricing mechanism is
a major barrier of entry into the market and has been blamed for the closure of many
companies.
In 1992, almost 82% of the market was controlled by the multinational companies while the
local
Companies had a share of just 18%. Today, the tide has turned and some form of equilibrium
has
been achieved with foreign companies controlling only 37% of the market while the rest of
the 63% is controlled by the local companies. The import of medicines that are also locally
manufactured is destroying the market as some of the drugs made locally cannot compete in
quality to these imported goods. The PPMA demands that only those medicines not produced
locally should be imported.
Factor conditions
Raw material
A very high % of the raw material used in the pharmaceutical industry is imported. Most of
the
chemicals are imported from India and China while large quantities are also imported from
Japan, Germany, Switzerland and the United Kingdom. Even though it is said that Pakistan
possesses most of the raw materials to manufacture these chemicals on its own, the extraction
of these raw materials is a thorny issue and has been ignored by the government since the
inception of Pakistan mainly due to the high costs involved. Neither does Pakistan has the
money to extract these minerals, nor does it has the technology to further process the raw
materials. Local wholesale dealers often import chemicals which are then sold to these

pharmaceutical companies. Because these whole sellers do not have any testing equipment to
check the purity of the imported content they import it any way and there have been instances
when the local manufacturers of drugs had bought the chemicals from whole sellers and these
chemicals proved
to be substandard during the tests conducted by the manufacturers in their labs. Special
warehouses and cooling units are required for storing some of the imported goods. Raw
materials for the purpose of packaging are used from the local market, packaging material
such as paper, glass bottles and plastics. Other raw materials taken from the Pakistani markets
include sugar which is used as a sweetener in some of the medicines and glucose which is
used as an energy portion in some of the drugs.

Technology
Most pharmaceutical companies have their own labs where the chemicals are tested before
being used to produce medicine. Those companies that cannot afford a laboratory often
outsource their laboratory work to hospitals or other independent labs. The pharmaceutical
industry is highly capital intensive and requires the installation of huge machines almost 90%
to 95% of which are imported from foreign countries and the remaining manufactured locally.
Although the process is entirely capital intensive, some small companies employ labour for
the packaging and counting processes. Due to the acute shortage of energy in the country,
most pharmaceutical companies have also installed massive generators for the supply of
electricity in the event of an energy shortfall. Some companies have also installed shredders
to shred the empty chemical bottles so that they cannot be reused. Incinerators have also been
installed by some of the companies for the safe disposal of their hazardous solid and liquid
wastes. Often, the government has offered to subsidise the import of machinery but in order
to import more machinery the importers often import 2 old machines for the cost of 1 new
one. This has affected the efficiency and has often resulted in rapid depletion of

the

machinery. Also, this practice has increased the electricity consumption as old machines are
not as energy efficient as the new ones.
An unstable economy
In the short-term, flooding and political unrest will remain key features defining Pakistan.
From an economic standpoint, experts are concerned that a decline in output and an
aggravation of price pressures will exacerbate Stagflationary concerns, while reconstruction

efforts will drain public funds for years to come. From the healthcare point of view, malaria is
expected to affect 2 million people in the flood-affected regions over the coming four months,
according to the September 2010 statements made by Medical Emergency Relief
International's (Merlin) malaria expert Naeem Durrani. He added that efforts should be
immediately scaled up to fight the disease, with much of the pharmaceutical treatment as well
as funds for reconstructions likely to come from foreign donations. The outbreak and the
rapid spread of the Dengue Virus in Punjab and the spread of Swine Flu in the recent past has
exposed the vulnerability of Pakistans healthcare sector as it was often the case that
medication required for the treatment of affected patients was often not available in Pakistan
and had to be imported from abroad.
The Pakistani pharmaceutical sector has experienced huge losses during FY10/11 as a result
of
uncertainty in the industry, according to Pakistan Pharmaceutical Manufacturers Association
chair Mian Asad Shujur Rehman. He said the prevailing uncertainty is likely to hinder export
earnings from the sector. Rehman's comments followed the enactment of the 18th
amendment, under which powers have been transferred from the central government to the
provinces. He said that the devolution of power would create ambiguity among drug
manufacturers of all sizes and prevent local and foreign investors from investing in the sector,
thus also affecting trade.! !
The prices of the Active Pharmaceutical Ingredients (APIs) used for the manufacturing of
drugs as well as of the other raw materials such as paper, plastic, glass, rubber, etc, have
increased manifold since 2001. The cost of oil, gas, electricity, transportation, and labour has
all gone up
dramatically. Besides, the cost of compliance to environmental standards; power and water
filtration requirements and sophisticated machinery for quality drug manufacturing have also
increased manifold during the last seven years. All the factors mentioned above have
seriously eroded the profit margins of drug manufacturers. Several local pharmaceutical
companies face the threat of closure if immediate remedy is not provided. Pakistan
Pharmaceutical Manufacturers Association (PPMA) has underlined difficulties through the
media and has been campaigning rigorously for the last few weeks to move the authorities
concerned to come to the pharmaceutical industrys rescue.
Lack of Research and Development (R&D)

Most industry experts are convinced that unless the government encourages research culture
and streamlines public-sector universities, the country will continue to lose opportunities in
this important arena of research and development. Experts believe that the local private sector
is not
motivated to conduct research. This is in contrast to China and India, which have emerged as
the top destinations for researchers in the global pharmaceutical industry.
China and India are providing benefits to their patients with new treatments. This has also
helped
them in authenticating their registration process by getting local pre-registration data. China
and
India are benefitting from generating revenue by giving industry status to clinical research.
These
countries are creating a culture of research for drug development that will take them further
ahead of Pakistan. In Pakistan, the only research taking place is on the marketing and
packaging side, there is hardly any research on product development as it requires millions of
dollars to develop a molecule.
Labour
Even though it is a capital intensive industry, the pharmaceutical industry in Pakistan
provides direct and indirect employment to approximately 4 million people. There is an acute
shortage of trained experts in the industry especially in the quality control departments. There
are regular
training sessions for the employees at some of the companies. The pharmaceutical sector is
the largest employer of white collar skilled labor in Pakistan.

The three magic points: focus standards - alliance

Focus
Focus for the industry
The industry should focus on:
Product portfolio: Stop trying to make and sell everything. Companies should concentrate
on product lines in which they are strong, effective and efficient, and for which they have a

high degree of market expertise and credibility. If they absolutely need other products, they
should buy them instead of making them.
Sourcing: Companies should review their purchases of literally everything: machinery,
services, raw material, packaging material, and negotiate more favourable conditions with
their suppliers.
Exports: Companies should identify the export markets where their products stand the best
chances of success.
Focus for the government
The government too should concentrate its efforts where they really matter:
Choose the best suited foreign markets and concentrate on whatever support services
available for these markets. Study and, where appropriate, apply successful industry
supporting measures from other countries.
Simplify all administrative obligations for exporting companies and keep only the ones that
are really important.
Always have the pharmaceutical industry prominently present in international discussions.
The pharmaceutical industry happens to be a very important industry for the Pakistani
economy.
Standards
Good enough is not good enough everywhere all the time, and it is especially true for
thepharmaceutical industry.
For the industry and for the government alike, all the standards presently in use should be
elevated by at least a couple of points. This applies to:
Quality
Simplification and speed of administrative chores imposed by the government and increased
smoothness and expediency of international operations in thecompanies.
Professional competencies of international executives in the companies: insight in
international marketing principles, language proficiency, negotiation skills and diplomacy.

Alliances
At a time when the international giants of the pharmaceutical business are getting together in
ever more intricate associations strategic alliances, mergers, acquisitions it cannot be
that the relatively small Pakistani pharmaceutical companies could meet all of todays
formidable challenges on their own. Alliances are therefore called for:
Between Pakistani pharmaceutical companies
Between Pakistani pharmaceutical companies and companies from other (developing)
countries
Between Pakistani pharmaceutical companies and multinational companies, in particular the
so-called medium-tier companies
And last but not least, between the Pakistani pharmaceutical companies and the government
of Pakistan

Conclusions
The Pakistani pharmaceutical industry has come to a crossroads. It is fast outgrowing
itscapacity to live and thrive on the scale of Pakistan alone. It has to re-orientate its focus
from inside-looking to outside-looking. A number of Critical Success Factors will ensure the
success of that endeavour:
An unlimited commitment to quality,
The organization of a learning and information system for the industry,
The mobilisation of the young intellectuals of the country for adapted and appropriate
pharmaceutical R&D,
And above all, the willingness to do things together with colleagues in Pakistan and abroad.
The Government has shown its eagerness to support the industry, by easing or eliminating
policies that may hamper the internationalization of the industry, by supporting the search for
high quality, and by defending the interests of the industry in international organizations, in
particular at the WTO.

The future looks promising but also full of challenges that will require diligence, hard work
And initiative

Recommendations:
a) The pharmaceutical industry has a long standing demand for allowing a reasonable price
increase against inflation and heavy increase in input costs. The government must consider
their legitimate demand after carrying out mandatory cost audit of each product through cost
auditors so that the increase in prices and profits are not so excessive that put additional
burden on the common man.
(b) The Drug Regulatory Authority (DRA) need to be revamped and restructure to transform
it into a dynamic and professional body that may develop effective policies for the
pharmaceutical industry.
(c) The government should offer tax incentives to attract investments from foreign
pharmaceutical companies and also to encourage the local pharmaceutical industry to
produce quality medicine.
(d) The government should support research and development initiatives in the
pharmaceutical sector, like in other countries, to ensure availability of quality drugs in the
country. In this connection, the government may also consider release of grants to
pharmaceutical companies on meeting set criteria.
(e) The government should make it mandatory through legislation for every pharmaceutical
company to produce at least on essential raw material in Pakistan so as to reduce heavy
dependence on imports of costly raw material from other countries. This would not only save
foreign exchange but also help bring down prices of medicines in Pakistan which would
ultimately benefit the people.
(f) The government must take strict measures to prevent sale of fake, sub-standard and nonregistered drugs as well as hoarding of medicines, by imposing penalties and making
legislation.