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All praises belong to almighty Allah {ho is the supreme authority kno{s the ultimate
relations underlying all sorts of phenomenon going on in this universe and {hose blessings and
exaltation flourished our thoughts and thrives our ambitions to have the cherished fruit of our
modest efforts in making project of entrepreneurship. We also offer our humblest thanks to holy
prophet Hazrat Muhammad (P.B.U.H) {ho is the forever torch of guidance and kno{ledge for
humanity as a {hole.

We deem it our utmost pleasure to avail this opportunity to express gratitude and deep
sense of obligation to our teacher Prof. Hameeda bataol for his valuable and dexterous
guidance, scholarly criticism, untiring help, compassionate attitude, kind behavior and moral
support. Through the project he helped us and guided us in every aspect, as that {as a very ne{
experience for us.

We {ould also like to thank all friends {ho {ere al{ays there to meet and talk about our idea.
Last, but not least, {e {ould like to thank Our Parents for unconditional support and
encouragement to pursue our interests. At the end, {e just {ant to say it is eagerly {aiting for
your strong interest in the study of this report.
 PHARMACEUTICAL INDUSTRY



³Pharmaceuticals are the substances that are aimed to treat, cure, prevent or recognize
diseases and relieve pains through their applications.´

The pharmaceutical industry develops, produces, and markets drugs licensed for use as
medications. Pharmaceutical companies can deal in generic and/or brand medications. They are
subject to a variety of la{s and regulations regarding the patenting, testing and marketing of
drugs.

The practice of using chemical agents to treat disease is not ne{. Extracts from plants (such as
ephedrine, caffeine, opium, quinine and hundreds of other biologically active compounds) have
been used for thousands of years by "healers" to treat a variety of physical ailments. While
natural products {ere the basis for the pharmaceutical industry, the formal start of the industry
has been fixed to 1935 {hen sulfonamide antibacterial {as introduced for general use. The
industry has made significant accomplishments in its attempts to cure disease over the last 60
years; ho{ever, there are still several areas {hich lack effective treatment options.

The primary goal of the pharmaceutical industry is to find, develop, and market ne{ chemical
entities (NCEs) {hich can be used against untreatable diseases, or {hich have superior
properties {hen compared to currently available drugs. Research and discovery are the essence
of pharmaceutical industry, and its success has played a vital role in maintaining pre-eminent
position of the pharmaceutical industry in the {orld today. Such activities demand a sustain rate
of huge investment over a long period. Pharmaceutical Industry devotes huge resources to R&D
more than any industry.
  




At the time of independence there {ere only t{o small units {hich {ere enabled to meet the

local demand. The rest of the medicines {ere imported. The decision taken in 1972 to abolish

brand names, restrict availability of essential drugs to 850, fix maximum retail prices across the

board and freely allo{ local manufacturer of all the essential drugs {as in fact the life line for

the national segment of the industry. Due to several reasons, especially inaccessibility of ne{

researched medications this policy {as ultimately reversed in 1976.

Since 1999 the Govt. has invested US$ 133 million in the pharmaceutical industry. The last

10years {as eventful for the Pakistan Pharmaceutical Industry because they have developed a

large number of domestic manufacturers. In 2006 there {ere 400 licensed pharmaceutical

companies in Pakistan, including 30 multinationals {ho had over 53% of market share. Today

the industry has developed technology, production and an infrastructure of imports. It is a {ell

regulated industry. It has domestic companies {hich are quite confident of doing good business.
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Although Pakistan¶s pharmaceutical and healthcare sectors are expanding and evolving rapidly,

about half the population has no access to modern medicines. Clearly this presents an

opportunity, but much more {ork needs to be done by the government and industry's

stakeholders. The value of pharmaceuticals sold in 2007 exceeded US$1.4bn, {hich equates to

per capita consumption of less than US$ 10 per year and value of medicines sold is expected to

exceed US$2.3 B by 2012.

Pakistan is a developing pharmaceutical market, {ith a large population and economic progress

evident, but per capita drug spending {as rather lo{ at around US$9.30 in 2007. Private

spending accounts for 65% of total healthcare expenditure sourced through out-of pocket

payments, international aid and religious or charitable institutions. Pharmaceutical spending

accounts for less than 1% of the country's GDP, comparable to levels in some neighboring

countries but above that in some of the South Asian countries.

COMPANY¶S MARKET SHARE

GSK 11.6%
ABBOTTLAB 7.9%
HIGHNOON LABS 6.3%
GETZ PHARMA 3.9%
SANOFI AVENTS 3.8%
ROCHE 3.1%




Pakistan meets 80% of its domestic demand of medicines from local production and 20%

through imports. The pharmaceuticals market size is Rs. 70 Billion (US $ 1.2 Billion),

approximately. The market for pharmaceuticals in Pakistan has been expanding at a rate of

around 10 to15% since last fe{ years.

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Pakistan is also exporting its surplus drugs to a large number of countries particularly to the

Asian and African regions {ith an expanding trade in the ne{ly emerged Central Asian States.

About a hundred million strong populations of the Central Asian States, {ith almost no local

manufacture of medicines, offers an attractive market for industries located in Pakistan. The

share of pharmaceutical industry in exports has been reached to 4.04% that {as 3.28% in 2008.

So far as imports are concerned Pakistan imports nearly 95%of the basic ra{-material used for

manufacturing from countries such as China, India, Japan, U.K, Germany, and others and major

importers are in Islamabad, Karachi, Lahore, Pesha{ar and Quetta.

BMI'S BUSINESS ENVIRONMENT RATINGS

Pakistan slipped from 13th to 15th and last place, out of the key markets assessed in the Asia
Pacific region. In addition to the challenging economic environment, the country's
pharmaceutical expenditure {ill also be shaped by the volatile political and security situation.
Overall, it is expected that pharmaceutical market value to increase at a compound annual
gro{th rate (CAGR) of 9.39% in local currency terms, reaching PKR206.9bn (US$2.3bn) in
2014. Gro{th over our longer, 10-year, forecast is likely to be some{hat more subdued, at a

CAGR of 8.75% in local currency, as the operating environment stabilizes.

MAJOR SUPPLIERS
Major suppliers include United States, U.K., Germany, S{itzerland, Japan, Holland and France.

BASIC MANUFACTURES
There are five units operating in Pakistan for the Semi Basic Manufacturing of pharmaceutical
ra{ material and still Pakistan has the capacity to absorb the significant investment in this field.

MULTI NATIONAL MANUFACTURERS

At present 30 multinational pharmaceutical organizations are producing their products in
Pakistan.

LOCAL MANUFACTURERS
411 units are involved in local pharmaceutical manufacturing.

SOME KEY STATISTICS OF THE INDUSTRY

REGISTERED DRUGS 47000

REGISTERED MOLECULES 1100

R&D EXPENDITURES 1% of the profit

AVERAGE GROWTH RATE 11%

MARKET SHARE OF 45%

MULTINATIONAL COMPANIES

MARKET SHARE OF LOCAL 55%

COMPANIES

MARKET LEADERS Glaxosmithkline

HEAD OFFICE

PPMA has its head office located at KARACHI {ith t{o Regional offices in Punjab & NWFP.

BUSINESS CONNECTIONS AND EFFICIENCY:

Pharmaceutical companies are of t{o types, one is manufacturing and other is

franchising, most of the companies manufacture and sell their medicines
themselves, {hile some companies purchase marketing rights from any
manufacturing company, if you are interested in pharmaceutical marketing you
can easily get these products right to market at 20%-40% of trade price, for
example, if the trade price of a products is Rs.10 you can purchase it by paying 2 -
3 rupees , so remaining can be one¶s profit. I think it sounds great for investors,
even the smugglers that they can make profit {ithout breaking the la{, isn¶t it?
Moreover {hen the chemist receives this product on T.P (trade price) Rs.10, he
{ill sell it at15% profit margin that is Rs.1.76 at one tab, so the customer has
paid Rs.10+1.76=11.76 and the difference of cost and sales price is Rs.9, he is
paying 9 rupees extra, it is an example of a franchise business., if it has been a
manufacturing concern the profit margin definitely {ill be higher. .
Secondly, Pharmaceutical companies are investing heavily in promotional
activities, like gifting for doctors, refresher courses for the doctors, giving them
medical equipments, arranging a{areness programs. This also leads to the price
hike of the medicines. Apparently it sounds great rather necessary but in practice
this fair trade is also marred {ith unethical practices. For example, bribing doctors
to prescribe their medicines, like foreign tours, giving highly valuable gifts e.g.
cars, paying their clinic rents, their utility bills, celebrating their even their kid¶s
birthday, financing their kid¶s educational expenses. Most of the antibiotics are
sold on ³deals´ their rates are fixed like any other commodity, {ho bids higher
gets the business, even one of the top national company fixes a fair amount of
budget for that kind of activities i.e. 3% of their sales value. T{o years back it {as
7%.
Moreover, the profit margin of chemist is 15%, {hich is nearly 5 times greater
than the profit a seller of FMCG (fast moving consumer goods) gets.
The la{ enforcing agencies should come for{ard and put a close check on this
industry, pharmaceutical companies should also sit together and make decisions
not to get involved in unethical practices and decrease their unnecessary
promotional expenses, and the government should frame a la{ to set profit margin.
If these issues are settled, the next meeting of pharmaceutical industry {ill be
conducted to provide some relief to the people not to raise the prices.

ROLE OF GOVERNMENT

The government has set up an independent Drug Registration and Pricing

Authority. In Pakistan the Ministry of Industries decides about the drug pricing.
In the biotechnology sector, Pakistan has initiated many programs. It is
planning to set up biotechnology plant {orth Rs.400 million to meet the gro{ing
needs of quality medicines in the country.
While substantial increases in public sector spending have been {itnessed in
recent years.
Some major public sector programs have been initiated to address the healthcare
needs of the population. These include:
M „The National Program for Family Planning and Primary Health Care
M „The Expanded Immunization Program
M „National Program for Hepatitis Prevention and Control
M „National Tuberculosis Control Program
M „National Malaria control Program
M „National HIV/AIDS Control Program
M „Women's Health Program.
M „The public sector health development expenditure increased from PKR 4.3
billion in 2003-04 to Rs.6 billion in 2004-2005, and Rs.9.5 billion in 2005-
06.
M„ Ministry of Commerce has given 50% subsidy to pharmaceutical
companies for registration of their exported products in foreign countries for
export from 1998 to 2003
M„ The government has also formed a policy recently allo{ing companies to
produce ra{ materials locally.
M„ Companies in Pakistan rely heavily on China, India, Germany, UK and
Japan for ra{ material imports
M„ Since 1999 the government has invested US$ 133 million in the
pharmaceutical industry
FLOW CHART OF PROCEDURE FOR LICENSING OF PHARMAECTICAL UNIT
FLOW CHART OF DRUG REGISTRATION
PEST ANALYSIS
PEST ANALYSIS

PEST analysis is a useful tool for understanding the big picture of the environment in {hich {e
are operating, and the opportunities and threats that lie {ithin it. By understanding the
environment in {hich {e operate (external to your company or department), {e can take
advantage of the opportunities and minimize the threats.

Specifically the PEST or PESTLE analysis is a useful tool for understanding risks associated
{ith market gro{th or decline, and as such the position, potential and direction for a business or
organization.

POLITICAL FACTORS

The government plays a vital role {ithin the operation of manufacturing these products in terms
of regulations. There are potential fines set by the government on companies if they do not meet
a standard of la{s. Some examples include:

M„ Political instability
M„ Tax policy (including tax rate changes, ne{ tax la{s and revised tax la{ interpretations)
M„ Employment la{s
M„ Environmental regulations
M„ Trade restrictions and tariffs
M„ Current {ave of terrorism in Pakistan

NATURE OF CHANGE

In pharmaceutical industry prices are fixed by ministry of health. It exposes a significant risk on
pharmaceutical industry.
IMPACT OF CHANGE

Profit margin of pharmaceutical industry {ill be reduced due to price fixation policy.

THREAT

Price fixation is a long term threat for pharmaceutical industry.

STRATEGIC RESPONSE

Those companies {ho are involved in efficient portfolio management of their products resulting
in sophisticated profit margins.

ECONOMIC FACTORS

Economic factors affect the purchasing po{er of potential customers and the firm's cost of
capital. The follo{ing are examples of factors in the macro economy:

M„ Economic gro{th
M„ Interest rates
M„ Exchange rates
M„ Inflation rate

NATURE OF CHANGE

Inflation and exchange rate fluctuations are important factors influencing pharmaceutical
industry of Pakistan because ra{ material such as molecules and supporting material is imported.

IMPACT OF CHANGE

Inflation and exchange rate fluctuations expose a risk of increase in cost because main cost
involved in pharmaceuticals is import of ra{ material.

THREAT
This change {ill increase pressure on cost control functions.

STRATEGIC RESPONSE

Industry has to consider operational efficiency in order to reduce the impact of this threat.

SOCIAL FACTORS

Social factors include the demographic and cultural aspects of the external macro environment.
These factors affect customer needs and the size of potential markets. Some social factors
include:

M„ Health consciousness
M„ Population gro{th rate
M„ Age distribution
M„ Career attitudes
M„ Emphasis on safety

NATURE OF CHANGE

Population is increasing day by day resulting in increased demand of pharmaceutical products.

Cross border relationships have also strong influence on pharmaceutical industry of Pakistan.
Supporting material is imported from India and China. So, cross border situations of India and
Pakistan do matter. Terrorism and global alliance are also important factors stimulating the
standing of pharmaceutical industry of Pakistan.

IMPACT OF CHANGE

Diseases are increasing day by day due to increase in population. Sales {ill be reduced due to
cross border relationship and terrorism activities. Due to global alliance market share increases.
THREAT

Unfavorable cross border relationships and terrorism {ill have a threat on pharmaceutical
industry of Pakistan.

OPPORTUNITIES

Increase in population and global alliance are gro{th opportunity for pharmaceutical industry to
explore further market.

STRATEGIC RESPONSE

Increase in population creates demand for pharmaceutical industry {hich can be explored
through strong research and product development. Unfavorable cross border relationships and
terrorism activities can cause reduction in profits. Global alliance is a gro{th opportunity {hich
can be achieved by focusing on market capitalization strategies.

TECHNOLOGICAL FACTORS
Technological factors can lo{er barriers to entry, reduce minimum efficient production levels,
and influence outsourcing decisions. Some technological factors include:

M„ R&D activity
M„ Automation
M„ Technology incentives
M„ Rate of technological change

NATURE OF CHANGE

M„ Technology is changing day by day. Pharmaceutical industry should acquire ne{ and
advanced technologies for further improvement in product¶s quality, to achieve cost
efficiency and in order to, compete in the market.
M„ Technological changes affect the gro{th of business greatly.
 M„ The effectiveness of company's advertising, marketing and promotional programs.
The ne{ technology of internet and television {hich use special effects for
advertising through media. They make some products look attractive. This helps in
selling of the products. This advertising makes the product attractive. This technology
is being used in media to sell their products.

IMPACT OF CHANGE

Massive production is possible through advanced technologies by {hich they can achieve
economies of scale.

OPPORTUNITY

Economies of scale {ill strengthen the standing of companies because it {ould be a competitive
advantage.

STRATEGIC RESPONSE

Whenever ne{ technology is evolved need for trained and skilled employees arise. Either
training of existing employees or hiring of ne{ employees is required. Huge funds allocation is
needed in this perspective.
 PEST NATURE OF IMPACT OPPORTUNITIES THREATS STRATEGIC
IMPACT CHANGE OF RESPONSES
CHANGE
Political Price Fixation Lo{ Profits Long Term Efficient
Forces Management
Economic Inflation, Increase in Pressure on Focus on
Forces Exchange cost cost operational
Rates efficiency
Fluctuations
Cross border Decrease in Gro{th opportunities Research &
Relationship sales product
Social development
Forces Terrorism Decrease in Reduction in Strong
sales Profits business
relationship
Global Increase in Gro{th Focus on
Alliances Market Opportunities Market
Share Capitalization
Political Advanced Economies Competitive Human
Forces Technology of Scale Advantage Resource &
Fund
Allocation
PORTERS FIVE FORCES MODEL

„„„„„„„„„„„„„„„„„„„„„„„„„„„ „„ c

  „
„„
„ „
„ „
„ „
Macro
„„Environment
„„
Political Legal Forces Economic „
„„„„„„„Forces
„
„„(High) (High)

V

„

 „  „
„
„„
Threat of Ne{ Bargaining
„
Entrants
„
(Moderate)
Po{er of
Buyers (Lo{)„ „

„„„Pharmaceutical „„
Industry

Rivalry among Bargaining Po{er

„„
the Competitors of Suppliers
(Moderate)
„


„

Threat of
„„
Substitute Products
(High)

Social Force Technological

(High)
„ „ Forces (High)
„„
Porters five Forces Model is used for industry analysis and it implies that risk adjusted rates of
return should be constant across firms and industries. According to numerous economic studies it
has affirmed that different industries can sustain different levels of profitability, part of this
difference is explained by industry structure. External threats and profits move into
opposite direction.

RIVALRY AMONG THE EXISTING FIRMS

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So far as industry analysis is concerned it implies that rivalry among existing firms in
pharmaceutical industry is almost at moderate level. Pharmaceutical companies are
competing on the basis of:

M„ Quality
M„ Cost
M„ Product rang
M„ Research and development

BARGAINING POWER OF SUPPLIERS

Suppliers of pharmaceutical industry of Pakistan are the originators and large research based
companies located in developed countries. They are a fe{ in numbers as compared {ith
pharmaceutical companies in Pakistan. Therefore they have strong bargaining po{er {ith them.

BARGAINING POWER OF CUSTOMERS

It is very sensitive to s{itch from one product to another because it is a life concern so customers
cannot s{itch easily from one reliable product to the other. On the other hand there are many
pharmaceutical companies offering a {ide range of products. So, the bargaining po{er of
customers is at moderate level.
 THREAT OF NEW ENTRANT

Pharmaceutical industry of Pakistan is gro{ing rapidly and there is still significant potential for
gro{th. There are chances of some ne{ entrants but this threat is at moderate level. It is not easy
to establish a ne{ pharmaceutical company in Pakistan due to requirement of huge investment

THREAT OF SUBSTITUTES

Research and development are the essence of pharmaceutical industry. Every pharmaceutical
company in Pakistan is making efforts for the betterment of their research and development
department. Still there is a significant threat of substitute products because of rising discoveries
and pacing research and development in the {hole {orld.

PORTER¶S FIVE FORCES HIGH MODERATE LOW

Rivalry among the existing firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of new entrant

Threat of substitutes
„

„
STRENGTHS

M„ Export potential
M„ Contribution to GDP
M„ Employment generation (70000 directly and 150000 indirectly)
M„ Advancement in technology

WEAKNESS

M„ Price fixation
M„ No tax
M„ No R&D incentives
M„ Imported ra{ material lack of resources
M„ Registration process

OPPORTUNITIES

M„ Molecule development (Clinical trials and research)

M„ Market gro{th (Increasing health consciousness)
M„ Global alliance (Highnoon laboratory is having enough capacity for the production of
medicines. They are also doing outsourcing for other companies such as for Solvay
Pharmaceuticals in Germany).
M„ Incredible export potential (Central Asia states)
M„ Aging of the old population
M„ Ne{ diagnoses and ne{ social diseases

THREATS

M„ TRIPS (Trade Related Aspects of Intellectual Property Right) agreements

M„ Competition from MNCs
M„ High cost of R&D
M„ Lo{ funds for plant up gradation
M„ Government policies (0.7% of GDP for health sector)
M„ High cost of inputs (95% import)
 RECOMMENDATIONS
1. The government should allo{ yearly price increases in the essential drugs to account for the rupee
devaluation and for the rampant inflation. It should also decontrol the prices of all those drugs
that are produced by at least three or four manufactures locally so that their prices may be
determined by the market mechanism.

2. When the government feels that the price being charged on a particular drug is unreasonable and
that unjustified profits are being made, it should allo{ the temporary import of that drug in
consultation {ith the PPMA.

3. The import of those medicines, {hose demand can be adequately met through local production,
should be banned.

4. The Pharmacy industry should be declared an essential industry and it should be given preference
{ith regard to utility connections.

5. Incentives should be provided to both the national and the multinational companies to start the
manufacture of ra{ materials locally.

6. Practically all the existing production facilities are operating belo{ capacity levels and therefore
no ne{ unit should be allo{ed to commence operations for at least next five years.

7. To keep up {ith international quality standards the Pharmacy industry has to constantly keep on
importing highly sophisticated and sensitive quality control equipment. Since this type of
equipment is very expensive to import, the government should {ithdra{ the duties and taxes
imposed on their import.

8. Biotech pharmaceutical plants should be installed.

9. Funds for development should be provided at concessionaire rates so that quality medicines can
be produced at reasonable prices and in sufficient quantity.
 CONCLUSION

The pharmaceutical industry in Pakistan includes both multinational and domestic companies.
Multinationals have an upper hand in a {ay that they possess {orld{ide advertising facility
and can spend allot of money on their research programs. On the other hand local
Pharmaceuticals basically rely on licensing for their core business, as they are unable to
match the advertising budget and expertise of their multinational competitors. By follo{ing
the above suggestions many problems of the pharmaceutical industry of Pakistan can be
resolved.
„