PRESTON

UNIVERSITY
Final Project On An Insight Report on Pakistani Pharmaceutical Industries Submitted By Khuzaima Bin Tahir Registration Number. 2411-308016 BBA (Marketing & Finance) Submitted To: Prof. Ali Ahmed Dawood MAY 2012 In partial fulfillment of the requirements for the degree of Bachelors in Business Administration

Preston University
North Campus, Karachi

PROJECT APPROVAL

Project Title: An Insight Report on Pakistani Pharmaceutical Industries

Prepared By: Khuzaima Bin Tahir

Date of Submission: 24th MAY 2012

Supervisor:

Prof. Ali Ahmed Dawood

The above project has been submitted by this student and has my formal approval and can be submitted for evaluation.

Approval:

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Prof. Ali Ahmed Dawood 24th MAY 2012 (Project Supervisor)

LETTER OF AUTHORIZATION

24th MAY 2012

Khuzaima Bin Tahir

Please refer to your initial proposal for understanding the study on. An insight report on Pakistani Pharmaceutical Industries discussions (TOR) in the view of subsequent was meetings and the initial proposal finalized. Kindly

initiate the study on the finalized Terms of Reference.

Supervisor.

Prof. Ali Ahmed Dawood

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LETTER OF TRANSMITTAL
24th MAY 2012

Prof. Ali Ahmed Dawood Final Project Facilitator Preston University, Karachi. Dear Sir, I am submitting the final report on Insights of Pakistani Pharmaceutical Industry As per your advice, the report includes objective of the study and a brief literature survey. two different hypotheses were developed and SWOT analysis was taken. I am grateful for your guidance and supervision without which this report could have not been completed. Yours Sincerely, Khuzaima Bin Tahir

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Dedication

1st of all I like to dedicate this report of mine to all mighty Allah because without his blessing I could not have finished this report. & Then I would like to dedicate this Report to my parents who kept pushing me and supported me always.
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-Khuzaima

ACKNOWLEDGEMENT

First of all I would thank Almighty ALLAH who has guided me the way for a bright future without whose consent I would not have been able to accomplish this task. My Supervisor Ali Ahmed Dawood who helped me a lot in the questioning, data collection and preparation of this report. He was always full of energy and willing to teach me the concepts about Research

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and Marketing with his working and practical experiences and examples. My Family specially my parents who believed in me and supported me both financially and morally and for believing in me that I can do this. And to all the management personnel of pharmaceutical industries which I visited, who helped me in gathering data and answered so many questions on mine. To all of my friends and class mates who always believed in me and uplifted my spirits. And also to all the doubters who are motivation to continue in order to prove them wrong.

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 And also my soul mate who is always with me and because of her I was able to achieve everything which I am today. Thank you all for your support.. -Khuzaima Bin Tahir

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CONTENT
ABSTRACT

PART 1: INTRODUCTION
1.1: Brief history 1.2: Hypothesis 1.3: Objectives of study 1.4: Purpose of study 1.5: Limitation

PART 2: RESEARCH METHOLOGY/ RESEARCH DESIGN

2.1: Literature review 2.2: Designing the questionnaires 2.3: Personal/interviews 2.4: Data collection

PART 3: ANALYSIS
3.1: Porters 5 Competitive Forces 3.2: SWOT ANALYSIS

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PART 4: FINDINGS/CONCLUSION
4.1: Findings 4.2: Conclusion

PART 5: SUGGESTIONS/RECOMMENDATIONS
5.1: Suggestions.

BIBLIOGRAPHY

APPENDIX

REFRENCES

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ABSTRACT
This report gives an insight into the Pakistan pharmaceutical industry, its functioning, its strengths and weaknesses, current status and its potential. The pharmaceutical industry contributes around Rs. 64 billion1 to the GDP of Pakistan. Its the single largest multinational investment of the country. Multinational companies enjoy 54%2 of the market share whereas local companies account for the rest of the 46%. Also, this industry provides employment to 50,000 people who support around 300,000 dependants. Pakistan lacks basic molecular research; its expenditures on research and development are minimal. Even Bioavailability and bio equivalence tests are not conducted which is fast becoming a hindrance to Pakistans already low pharmaceutical exports of only 6% of total production 3. This is because the FDA4 EU and now the emerging ASEAN5 countries require medicines only that are Bioavailability tested. However, the industry is also sufficiently supported by an excellent distribution system, competent ancillary industries and the government that has banned imports of 40-45 medicines and has taken many other steps such as duty drawbacks and removal of general sales tax to encourage exports.

1 2 3 4 5

Economic Survey Of Pakistan 2009-10 IMS health December 2011 Report Economic Survey Of Pakistan 2009-10 FDA- Food and Drug Administration; subsidy of US Government ASEAN- Association of Southeast nations.

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PART 1: INTRODUCTION
Multi-national corporations, mostly owned by the United States of America, Canada, Japan, Europe and Latin America, rule the world pharmaceutical industry. Most of the research and development in the pharmaceutical industry takes place in North America Competition in the pharmaceutical industry is fierce, perhaps more so than in any other high technology industry. For example, in the United Kingdom, of the leading ten products in 1982, only one was placed in the top ten of 1992; five in the top 50 were out of the top 80 positions. As a result, only five of the top ten companies in 1982 remained in that group by the end of 1992. And this trend continues till today. Pakistan only forms 0.31% of the world pharmaceutical Industry. Being an underdeveloped and underprivileged sector and the recent smuggling and fraud cases in the international arena by Pakistani exporters, have lost strong export avenues such as EU and USA. Today, Pakistans export potential lies in the hand of the downtrodden devolving countries that includes ASEAN. In Pakistan only 41.2% of the population that is above the poverty line can consume medicine6.

Pakistan Business Review, October 2011 issue

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1.1: BRIEF HISTORY

Pharmaceutical Industry in Pakistan has come a long way. At independence, Pakistan had virtually no pharmaceutical industry in place with traders mostly engaged in importing medicines from various countries. Reasons were deficiencies of technical know how, shortage of raw materials and lack of quality control. After identifying the significance of this industry the Government of Pakistan established two units under the Pakistan Industrial Development Board (PIDB) namely Khurram Chemicals Limited (near Islamabad) and Antibiotics Private Limited (in Mianwali). The pharmaceutical industry in the country experienced a growth stage from 1948 - 1971. The year 1972 saw the introduction of Drug Generic Act, which implied discriminatory and restrictive registration policy that hampered the growth of national manufacturers who gradually lost their export market. Importation of formulated drugs was allowed by the government that resulted in flooding of domestic market with imported drugs. The competitive edge of the pharmaceutical industry was shattered.7 CURRENT SITUATION 8 Today local companies have a share of 45% value wise as opposed to MNCs share of 55% of the local pharmaceutical market. The federal health secretary Ejaz Rahim has recently announced in a press conference at Karachi that Pakistan Health Ministry is making a committee compromising of the World Health organization (WHO), Pakistan Pharmaceutical Medical Association and Health Ministry to keep check on the quality of products available in the market. Government of Pakistan had invested Rs. 8 billion in the pharmaceutical industry since 1999 to guarantee good quality products at competitive prices. 2500 new products have been registered and 32 new drugs manufacturing units have started producing since 1999. Most of the pharmaceutical units are concentrated in the province of Sindh coming to 23 out of 30 MNCs. Second and third highest with MNC dominance are Punjab and Balochistan with 5 and 2 units respectively. Punjab I s having lions share in context to local companies

Source: Pakistan Pharma- Is it on the right path?- By: Kapil Parabwww.pharmabiz.com

8

Source: Pakistan Business Review October 2011 page 56

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presence in the country with 165 units preceded by Sindh (76), NWFP(37), Balochistan(5) and Azad Kashmir(3)9.

1.2 HYPOTHESIS
H1o: We have seen that none of the companies are paying their taxes completely. H1A: We have seen that all the companies in the report are paying their taxes. H2o: Import for raw material is banned for pharmaceutical companies. H2A: Import for raw material is allowed by the govt. for pharmaceutical industries. H3o: The pharmaceutical industry does not provide job opportunities to the people of Pakistan. H3A: The pharmaceutical industry have employed 50,000 people on whom there 300,000 dependents.

Source: Pakistan Business Review October 2011 page 56

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1.3 OBJECTIVES OF STUDY

Through this project we are trying to calculate the total import and export of the Pakistan pharmaceutical industry and how does this industry works, in this report we are also going to see the distribution system of the pharmaceutical industries of Pakistan. We heard from several sources that Pakistan is facing difficulties in bio availability testing so through this report we are going to find out that how serious difficulties are being faced by the pharmaceutical industries of Pakistan. And also we are trying to find out that what is governments role in this industry is government taking any kind of initiatives to solve the problems of the pharmaceutical companies working at the moment in Pakistan. Government have made several new tariffs which are applicable on major imports and exports of raw materials, so through this report we are going to see that have those new tariffs made any kind of impact on the working of the pharmaceuticals industry.

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1.4: PURPOSE OF STUDY

We are going to study various portions of the new tariffs enforced by the government of Pakistan on pharmaceutical firms working currently in Pakistan; we are also finding the new and improved distribution methods of pharmaceutical firms in Pakistan. Through this report we are also going to find out that what are the strengths and weaknesses of the pharmaceutical industries of Pakistan and how can they expand their operations. Main purpose of this report is to give some recommendation as how to improve the working in Pakistans condition.

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1.5: LIMITATIONS.
I faced various hurdles in achieving the material for this project, the biggest problem which I faced was of getting personnel interviews as I had to visit those doctors in person and as nowadays doctors are very busy and dont have time for struggling students like me, but still some doctors were kind enough to lend me some of their precious time. The biggest hurdle of all was to get correct statistics for my report as we lack stats in all the fields and all the pharmaceuticals which I visited they refused to share their data with me which made this project even harder for me. Pakistans political conditions were also one of the reasons which made it difficult for me to finish this project as it was kind of hectic for me, whenever I used to visit and pharmaceutical firm there used to be a strike.

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PART 2: RESEARCH METHODOLOGY / RESEARCH DESIGN

Exploratory research method to gather the information related to the types, feasibility, and application of non-traditional Medias.

POPULATION:
All those people who are related to pharmaceutical industry and have knowledge about the governments new policies.

SAMPLING METHOD:
We are going to use combination of Non-Probability convenience and Quota distribution sampling in which anyone from population has equal chance to be selected.

SAMPLING UNIT:

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The sample will be drawn on following basis:

Educational Institutes and Executives Age group 18 above Users of any kind of medicines. Karachi based.

SAMPLING SIZE:
Our total sample size is of 200, which include 150 executives and 50 students above 18.

2.1: LITERATURE REVIEW

PAKISTAN PHARMACEUTICAL INDUSTRIES OVERVIEW Healthcare in Pakistan is still in the early stages of development. Widespread poverty and a weak health system underlie the poor health status of the population. Government funding continues to be minimal, equal to around 3% of GDP10 and achieves little more than maintaining the status quo. Other issues at the heart of the problem include the continuing prevalence of communicable diseases, how health manpower levels and the underutilization of primary health facilities. The pharmaceutical companies in Pakistan compromise two distinct groups in terms of ownership the nationals and the multinationals. Pakistan pharmaceutical industry is worth US$1.8 billion with an average growth rate of 9.4%11. Pakistan pharmaceutical market is comprised of large branded multinational companies which are producing and marketing research products and also other big and small national companies which predominantly produce and market generic products.

10 11

Pakistan Pharmaceutical Market Intelligence Report, Published by Espicom Business Intelligence

IMS Health Report 20011

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The pharmaceutical market remains beset with difficulties. Strict government control over pricing has made many drugs uneconomical, with the result that they either become available only on the black market at inflated prices, or disappear completely. This is not helped by a regulatory system best described as rudimentary. There is virtually no public drug reimbursement or IP protection; patent law was officially tightened in December 2000. In 2002 further changes were made, making Pakistans IP laws even weaker. Drug expenditure is growing slowly in Pakistan and should reach US$1.82bn in 2015, with per capita spending expected to be only just over US$1100 by 2015. However, BMIs recently released Pakistan Pharmaceuticals & Healthcare report recognizes that the domestic drug sector is still striving to modernize BMIs adjusted Business Environment Rankings for Asia reveal that Pakistans position is unchanged in 14th place. This is primarily due to the countrys poor regulatory system, which we rate as one of the worst in the region

PAKISTANI PHARMACEUTICAL INDUSTRY Local (Pakistani) pharmaceutical companies started in the 1960s but their growth increased in the 1980s. By providing quality medicines at economical rates in this fashion, Pakistani pharmaceutical companies have contributed substantially towards public health. THE PAKISTANI INDUSTRY SIZE AND TRENDS Pakistan houses about 2.4% of the world population but its share in the global pharmaceutical market is un-proportionately low at 0.31%. Despite the low share, the Pakistani pharmaceutical industry is well developed not only to meet local demands but to also export its products to over 90 countries. 1. Pakistan pharmaceutical industry can be classified under the following heads:

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Multinational Pharmaceutical Companies National Pharmaceutical Companies Commercial Exporters

Statistic

INDICATOR
Total Market Size (Includes prescriptions, sales to institutions, US$1.8 BILLION vacancies, etc) Growth Rate 12% to 13% (Q2, 2010)

Total number of companies 430 approx. (manufacturers) National Companies 400 (manufacturers) Multinational Companies 30

Average growth rate of national 30% (2007-10) companies Average growth rate multinational companies Pharmaceutical export revenues Export growth rate
SOURCE: PPMA/PHARMA BUREAU (OCCI) 2010 THE DIVISION OF PHARMA UNITS IN PAKISTAN

of 5.5% (2007-10) US$ 80 million 35% (Q2, 2007)

Units National Units Multi Nationals Source PPMA12 400 30

Share (value wise) 46% 54%

The top 20 pharmaceutical products are:

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PPMA- Pakistan Pharmaceutical Medical Association 20011 Report

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S. No

Brand Name13 Augmentin Amoxil Ponstan Velosef Septran Ampiclox Erythrocin Neurobion Brufen Lincocin Claforan Flagyl CAC 1000 Xanax Myrin Lactogen

Company name

GSK GSK Pfizer Merck GSK GSK Abbott Merck Abbott Pfizer Sanofi-Aventis Sanofi-Aventis Novartis (Pfizer) Wyeth Nestle

13

Refer to the appendix on page

11

Betnovate Ventolin Calpol Methycobal

GSK GSK GSK Hilton

Source: Pakistan Medical Association 20011 report

SALIENT FEATURES OF THE PAKISTAN PHARMACEUTICAL INDUSTRY TODAY

The pharmaceutical industry of Pakistan is a high technology industry with a very sound infrastructure. Not many people know that the pharmaceutical industry is only second to the textile industry in Pakistan. Here are some key facts about the industry:

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Very highly Regulated, unlike any other industry Very strictly Price Controlled unlike any other industry Essential hi-technology industry status, even strategically important High technology status, very well developed to international standards Overseas transfer of technologies takes place all the time Provides intensive training to industry personnel (skilled, semi-skilled) Is a vital source of information to the medical profession /pharmacists Provides extensive training to doctors to keep them abreast of latest trends Significant, reliable and honest source of government revenues Has big export potential if right incentives are given Produces close to 80% of the domestic demand for medicines Employs over 50,000 persons, who support another 300,000 dependents Has helped to develop ancillary industries e.g. glass, packaging, printing, etc. High quality manufacturers are a reliable source of consistent high quality medicines Contribution to GDP is Rs. 64 billion 14 Government public sector spending is only 0.84% of the total GNP
Sources: Wyeth Pharmaceuticals

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About 70% of the population of 160 million people do not have ready access to health care In 2010 the total market grew by 13% Multinationals enjoy 54% of the market share whereas the local manufacturers occupy the remaining 46% MNCs have a higher value share and nationals have a high volume share There are 13500 registered medicines including veterinary drugs of about 1700 in number About 2500 drugs are imported in finished form because they cannot be made locally for a host of reasons i.e. too technical to make such as vaccines and Serras. Direct employment provided by the pharmaceutical industry is 50,000. Other than this employment is provided in the ancillary industries of packaging, steel, glass etc The total pharmaceutical exports of Pakistan for the year 2004 were $50.5 million The exports are only 6% of the total production

ECONOMIC DRIVERS IN PHARMACEUTICAL INDUSTRY OF PAKISTAN

The economic drivers can be classified into the following external and internal group EXTERNAL ECONOMIC INTERNAL ECONOMIC DRIVER DRIVERS A very million large population162 Availability of cheap raw material from abroad

The Government providing health everyone

emphasis on Availability of Chinese machinery facilities for which is much cheaper as compared to other countries

An increase in per capita income Emphasis on greater field force ($1025) which has provided productivity greater disposable income for health related expenditures General health awareness and New generation of educated consciousness among the entrepreneurs in local companies population

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Approximately 56000 doctorsboth general physicians and specialists-whose participation are the main driver for the sale o f the sector

Availability of trained manpower of Multinationals, to national companies, because of merger related layoff in MNCs

A cut in the government duties on Production processes pharmaceutical raw materials and rationalization and improvements packing materials Export opportunities due to WTO An increase in implementation marketing spend sales and

Manufacturing and marketing of More emphasis on market new cheaper generic products by research data, especially in national companies National Companies Tax holidays for setting up new pharmaceutical plants
Government setting up new industrial estates specifically for the pharmaceutical sector

GROWTH TREND OF THE INDUSTRY 15

Pakistans current pharmaceutical industry is of $1.8 billion worth and has registered a growth of 11.67%. Out of more than 430 companies, leading 20 companies have contributed 61.4% of the pharmaceutical market. Market share is showing downward trend versus last year for MNCs.
15

Source: Current market Overview 2011 by Mr. Farhan Qureshi

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Compare to the pharmaceutical market, Novartis has achieved a better growth of 12.07% market share and has also improved from 4.52% market share in 2006 to 4.54% in 2007. As per previous years OTC has gain once again excellent growth of 18.82%, market share for OTC also improved from 1.52% in 2006 to 1.61% in 2007. Other than Novartis, only four companies among the leading 20-pharma companies of Pakistan increased their market share. These include GETZ Pharma 59.93%, Hilton 22.44%, Roche 22.34% and Searle 14.92%. Extended battles between MNCs and national companies continue. MNCs grew by 9.92% as compared to 50.81%. A recent report by EU claims that market share of MNCs is 49.98% and national is 51.02%
) s n o i l l i m n I . s R ( x a T r e t f A t i f o r P Profit Ater tax of thetop five com nies pa
GSK Abbot Wyeth Aventis Searle

1800 1600 1400 1200 1000 800 600 400 200 0 GSK Abbot Wyeth Company Aventis Searle

Source: Financial statements of the companies of year 2010

TREND: The top five companies approximately have 35% market share. Their Sales Revenues are reaching records heights and so is the profit after tax. ANALYSIS: It is quite surprising that despite over four hundred companies in the sector, the top positions are guided by only twenty nine MNCs that operate in Pakistan. The data above show that the leading firm in terms of revenue has been GSK. Although GSK has maintained its first position for more than a decade, its now slowly losing its market share to other MNCs and local firms. Its market share decreased from 12.02% in 2009 to 11.69% in 2010.

GROWTH TRENDS OF THE TOP FIVE FIRMS

ABBOTT

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ANALYSIS Abbot Pakistan, which is one of the leading pharmaceutical brands operating in Pakistan, showed a positive trend during 02-05. A deeper analysis of Abbot sales indicates that although sales have been increasing at a rapid pace, our exports seem to be stagnant. As shown by the chart below, sales during 2010 were definitely higher than 2009 but the percentage or share of exports during 2010 and 2009 have remained the same to 3%. This is not a good sign for the country. Exports are very important for every nation.
Local (Rs millions) 2009 2010 5913 6683 in Export millions) 163 200 (Rs in

FUTURE OUTLOOK Since Abbott is facing tough competition in Pakistan from local companies and is posed with various threats we expect its sales to decrease in near future. Also Pakistani exports are much expensive as compared to other countries, therefore exports from Pakistan by Abbott is expected to decrease. Also the profit after tax of Abbott will show a negative trend because of the increase threats it faces.

GLAXOSMITHKLINE ANALYSIS GSK is the leading brand operating in Pakistan and the only pharmaceutical firm to have its sales crossed the threshold of Rs10 billion which is surely an outstanding achievement for GSK. Sales have only increased by 25% during the period 04-06. GSK performance improved in 06-07 by 7% and it is observed that its performance will improve but only by lesser limit.

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Local (Rs millions) 2009 2010 10025 10668

in Export millions) 214 220

(Rs

in

FUTURE OUTLOOK GSK is the leader amongst the pharmaceutical sector. It occupies the larger chunk of the market share. However, it sales and profits are expected to decrease in the near future because of rising competition and innumerable threats and also because of GSK increasing cost of production WYETH ANALYSIS Wyeth Pakistan is also one of the leading pharmaceutical firm operating in Pakistan. Wyeth performance had been disturbing. It sales showed Rs in millions negative growth during 03-04 and in 04-05 it bear a loss of Rs1bn. It looked then that Wyeth might have been wiped out of market. However it showed impressive growth in 05-07 with its sales reaching to all time high in 2006.
2500 2000 1500 1000 500 0 2002 2003 2004 2005 2006 2007

Sales Growth Trend

Local (Rs in millions) 2005 2006 1731 1842

Export (Rs in millions) 154 171

FUTURE OUTLOOK Wyeth is also expected to well in near future because since Pakistan accession to WTO it has been heavily investing to gain the market share.

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SANOFI AVENTIS
Sales Growth Trend

ANALYSIS Aventis Pakistan is one of the leading pharmaceutical brands in 2006 Pakistan. It sales has improved positively during the period 02-07. 2004 Its sales improved by almost 48% during this period. Aventis has no 2002 what so ever record of exporting locally produced products abroad. 0 1000 2000 3000 4000 5000 This has affected its sales and profitability. It has been taken over Rs in millions by Wyeth and Searle in the top pharmaceutical firms operating in Pakistan ranking. FUTURE OUTLOOK Its performance in the near future is skeptical because other MNCs and locally set up firms are giving Aventis a tough time. SEARLE ANALYSIS
Sales G rowth Trend

Searle Pakistan has improved its 2500 performance drastically. It was among 2000 the top ten pharmaceutical firms 1500 operating in Pakistan in 2006 IMS 1000 rankings. However it has now jumped Rs in 500 to the top five pharmaceuticals firms millions 0 operating in Pakistan. Searle 2002 2003 2004 2005 2006 2007 performance has been good during 0205 and it had performed positively. After 2005, the company faced a loss of about Rs400mn in 06-07 that was reported as increase in cost of production and R & D activities.

Local (Rs millions) 2010 2011 2149 2577

in Export millions) 151 175

(Rs

in

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FUTURE OUTLOOK We expect that market share of Searle will decrease sharply in the near future and its sales and profits will decrease owing to competition from local companies.

GROWTH TRENDS: EXPORTS AND IMPORTS An amount of Rs.11 billion has been invested in pharmaceutical industry during past four and half years that showed a growth of 6-7 percent and provided job opportunities to about 8,000 people. 65 companies have already obtained ISO-certifications. More than hundred new units were established during four years, and almost 80 units, will start operation within six months or a year. EXPORT 1 6 Pharmaceutical sector of Pakistan is capable to enhance its exports to the tune of more than $600 million by 2010. Pakistan was exporting pharmaceutical worth $85 million while the industry was aiming to expand and this would only be possible when government puts a ban on the import of medicine, produced by the country.

EXPORTS IN THE PHARMACEUTICAL SECTOR Here is a graph showing the major exporting counties for Pakistan:

Major Exporting Countries

Others of 52% Pakistan,

Nigeria 18% Srilanka 10%

16

Source: Economic Survey

www.finace.gov.pk

Philipines 6%

Sinapore 6%

Afghanistan 8%

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Nigeria Sinapore Srilanka Philipines Afghanistan Others

Source: Ministry of Health Pakistan

IMPORTS Approximately one-third of Pakistan's total consumption of pharmaceutical is imported and the imports of finished drugs are expected to increase. Currently, major pharmaceutical imports by Pakistan are from China. Pharmaceuticals from India account for over 15 per cent of the total pharmaceutical imports. The imports include medicines, raw materials and machinery. GROWTH IN THE INDUSTRY

Growth 20% 15% 10% 5% 0% 2002-03 2003-04 2004-05 2005-06 2006-07 Growth

The graph shows a pit in the growth trend in 2004-05 which is because of decrease in investments. The investors lost their confidence in the pharmaceutical industry of Pakistan because in the global pharmaceutical sector it just contributes 0.31%.

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FACTORS AFFECTING SUPPLY

GOVERNMENT CONTROLS AND INTERVENTION Pakistani government has been undertaking strict controls, with no price increases allowed. This stifling price controls leads to market distortions; cheaper drugs are often in short supply because of being controlled at

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unrealistic and loss making levels. This has lead to the development of an underground black market. PROBLEMS IN REGISTRATION Because of the higher degree of complexity in the registration of the newly produced drugs, the discriminatory policy against Multinationals, make it a two or more years long process. This hinders the companies, with new products, from entering the market, thus, reducing the availability of diversified products and, affecting supply. This has discouraged companies from producing innovative, quality medicines and restricted their supply. RESEARCH AND DEVELOPMENT BY MNCS The research and development, carried out mainly by the MNCs operating in Pakistan is leading to various categories of life saving and crucial-for-healthyliving drugs. This in turn leads to the availability of good quality medicine. INVESTMENT BY MNCS MNCs entered in Pakistan, right after its inception in 1947 and since then, have not only made huge financial investments, but also are responsible for the transfer of technology, maintenance of ethical standards, quality controls and providing the consumers with innovative and excellent quality products. In fact, MNCs are the only companies responsible for providing life saving drugs. INFRASTRUCTURE Although, the overall supply position of medicines is very good. Very seldom there are shortages of certain products, but when do occur, they are because of the lack of infrastructure. This mainly includes, power breakdowns, machinery breakdowns etc. IMPORTS Supply of medicines is greatly dependent on the availability of imported raw materials, packaging material and machinery. Pakistan, imports 95% of its raw materials and almost all the machinery for packaging and manufacture of medicines. Any fluctuations or delays in the arrival of imported materials will have a direct impact on the supply of pharmaceutical products. COMMUNICATION LINKS AND RURAL HEALTH CARE CENTERS

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Supply is affected by the deftness of the distribution system and its reach. Its understandable that when a country lacks communication links i.e. roads, railway tracks etc. its difficult for medicines to reach every nook and corner of a country, especially when medicines need to be kept at certain temperatures to keep their potency intact. Earlier medicines were only sold at few chemists in urban centers. People in rural areas in need of medical help had to travel to nearest urban centers to get medicines for themselves. Therefore, there was little availability of medicines which had lead to a contracted supply. Hence, the building of a dense network of roads and development in rural areas has encouraged better supply of medicines. Also, the launching of health care centers allowed greater accessibility to medicines which has fuelled an increase in their supply. Pharmaceutical companies have to ensure that they make their products at a greater number of places than ever before. EXCHANGE RATE Pakistan purchases raw materials off competitive prices from India and China. However, any depreciation in rupee with respect to the dollar makes raw materials expensive. Supply is adversely affected in this context and can even leads to retrenchment in some cases. The distribution system of Pakistan in Pakistan is very good. There are a large number of medical shops and pharmacies which are scattered all over the country. In the rural areas, although not many doctors are present, the shop keepers of these medical shops prescribe medicines to the people because of the low literacy rates. Pharmaceutical sector can be classified as one of the most organized sector with respect to its institutional arrangements. About 200, both local and multinational industries are operating in the sector in which the market sales of the leading multinational companies are 50%. Most of the pharmaceutical industries are located in Sindh and Punjab.

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DISTRIBUTION SYSTEM OF PAKISTAN

The distribution system of Pakistan in Pakistan is very good. There are a large number of medical shops and pharmacies which are scattered all over the country. In the rural areas, although not many doctors are present, the shop keepers of these medical shops prescribe medicines to the people because of the low literacy rates.
Total number of Pharmacies in Pakistan Province Sindh Punjab NWFP Balochistan No. of Pharmacies 14942 16966 5690 1265 Major cities Karachi Lahore Peshawar Quetta 7600 3625 1901 582

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PRODUCTION PROCESS IN PAKISTAN INDUSTRY

Pharmaceutical sector can be classified as one of the most organized sector with respect to its institutional arrangements. About 200, both local and multinational industries are operating in the sector in which the market sales of the leading multinational companies are 50%. Most of the pharmaceutical industries are located in Sindh and Punjab. PRODUCTION The production of pharmaceutical products can be broken down into three main stages: 1) Research & development; 2) Conversion of organic & natural substances into bulk pharmaceutical substances or ingredients through fermentation, extraction and/or chemical synthesis; and 3) Formulation of the final pharmaceutical product. In Pakistan, only the formulation of pharmaceutical products is carried out and wide variety of chemical and pharmaceutical products are produced which includes anesthetics, disinfectants, water soluble salt, muscle relaxants, anti clotting agents, analgesic, anti-hypertensives, antibiotics, diuretics, anti-infective, cardiovascular, central nervous system and vitamins. In Pakistan no synthesis process is conducted, only formulation, filling and packaging process is carried out via local and multinational industries.

TYPICAL PRODUCTION PROCESSES17 1. DISPENSING Raw materials are sent from storage areas to the dispensing area, where they are weighed prior to their dispatch to the manufacturing areas. 2. TABLETS MANUFACTURING The manufacturing of tablets involves homogeneous mixing of input ingredients, such that when compressed into tablets, each tablet should contain equal amount of each raw material. The tablet manufacturing process involves the following steps:
17

Mr. Akbar Khan, Head of Supply Logistics, Sanofi-Aventis Pakistan

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a) Sieving b) Initial blending and Granulation c) Drying and Milling d) Final Blending e) Compression f) Coating and drying g) Packaging 3. ENCAPSULATION Encapsulation is the process in which medicine is filled in the preformed capsules, on encapsulation machines. Ingredients pass through steps of dispensing, sieving, and blending in the same way as in the tablets manufacturing, prior to being fed to the encapsulation machine. 4. SYRUPS MANUFACTURING Preservatives are dissolved in de-ionized water in a jacketed process vessel at temperatures of the order of 90 0C. The solution is stirred continuously and then cooled to a temperature of about 30 0C. After cooling, the active ingredients are added and stirring is restarted. Flavors are added during the process of mixing. The viscosity of the syrup is maintained by the addition of de-ionized water. After specified period of mixing, syrup is taken out of vessel, filtered and stored in large storage tank, before filling into the bottles and packing.

5. MANUFACTURING

OF

ORAL POWDERS

FOR

SUSPENSIONS

Duly formulated, mixed and homogenized powders are brought to the powder filling machines, where they are automatically filled in the bottles, in required quantities. 6. CREAMS, OINTMENTS
AND

LOTIONS MANUFACTURING

Pharmaceutical industry is producing oil-bases and water-based creams, ointments and lotions. The excipients are mixed in the jacketed process vessels, equipped with stirrers and heating arrangements. During mixing the active ingredients are added to the mixture. The prepared mixture is then stored in containers. The mixture is fed to the purpose-built automatic filling machines, which are different for different type of containers. The mixture is

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automatically filled, in required quantities, into collapsible aluminum tubes or bottles. 7. INJECTIBLES MANUFACTURING
Ampoules and vials are first washed with de -ionized water. a. Sterilization of Primary containers (Ampoules/vials) b. Autoclaving c. Mixing and Filtration d. Filling and Sealing e. Optical Checking f. Printing and Packaging

8. CAPSULE MANUFACTURING PROCESS The basic process in capsule manufacturing is the preparation of gelatin solution. Solution is processed in jacketed stainless steel melters equipped with stirrer. For transparent capsules, solution comprises of gelatin, water and some chemicals, whereas for the opaque capsules, titanium dioxide is added in the same solution as prepared for transparent capsules. Manufacturing of capsules is done in an electrically operated machine equipped with all necessary auxiliaries. After sorting, the approved capsules are released for packaging.

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2.2: DESIGNING THE QUESTIONNAIRES

A questionnaire has been prepared which will be filled by the samples selected for customers residing in Karachi. The data collection instrument used to collect the primary data is a structured questionnaire with open and close-ended questions. Using questionnaires for gathering information allows the level of flexibility required for this research. This has been done to collect accurate information with the help of questions, which are relevant in the circumstance

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2.3 PERSONNEL INTERVIEWS

Our research on doctors was based on direct interviews with a number of qualified doctors in which they were asked about certain questions concerning to them and the industry. Two of the doctors were also the members of Pakistan Medical Association. The issues are as follows: DOCTORS PRESCRIBE MORE MNC PRODUCT THAN LOCAL PRODUCTS
It is a general impression that MNC products are more effective because of its better standard raw material and products quality and result

One of the doctors stated that the doctors practicing in middle class or lower middle class population usually prefer economical, local pharmaceutical products but the doctors practicing in upper class areas usually prescribe more multinational products. General concept and observational studies prove this point that multinational products are better and therefore, highly prescribed. The manufacturing criteria are standard with MNC and drug efficacy is believed to be better. DOCTORS AWARENESS ABOUT DIFFERENT DRUGS AND THEIR EFFICACIES Awareness comes through regular readings of journals and visit by medical representatives of different pharmaceutical companies. Their efficacy can only be judged through personal practice. The medical representatives of pharmaceutical companies brief the new drug to the doctors when the company introduces any new drug in the market. They tell them about its benefits, cost and convince them to buy the drug. Also, the consultant level doctors go through the medical Journal, papers, seminars etc. Few doctors also perform the drug therapeutic trial to determine its effectiveness.

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DIFFERENCE BETWEEN MNC AND LOCAL MEDICINES IN QUALITY, EFFECTIVENESS AND PRICE MNC products are better than the local medicines generally but certain local drugs are as good as MNC drugs Qualitatively MNC is better but MNC and some local brands are similar due to similar benefits, results and effectiveness. When talking about the price, there is marked difference between the prices of the two. MNC are costly drugs as compared to local drugs. Local aspirin is of Rs.1 and MNC aspirin is of Rs.5. This is not reasonable but is actually due to the difference in quality of such drugs which can be determined by inspecting the tablet which crumbles in powder after sometime. The prices are high due to their import expenses as they have to import quality raw materials and then the drug is produced here.

PRESCRIPTION TO PATIENTS
Some doctors decide it on the buying capacity of the patients while

others go for standard medicines whether it is local or MNC The patients who afford to pay for the costly MNC medicines are prescribed MNC drugs and those who belong to lower and lower middle class are prescribed local medicines. In other cases it is decided on the past personal observation. If a local medicines efficacy is observed in past effectively then doctors usually prescribe it. Some of the educated patients themselves demand MNC product because of the general impression that they are better than the local product. One of the doctors stated, In my practice, I rather go for standard medicines because it shortens the length of recovery and ultimately turns out to be cost effective. PATIENTS OPINION ABOUT THE PRICES OF LOCAL V/S MNC DRUGS If the doctors concerned convince the patient about the product they even buy costly medicine The doctors were of the view that patients have no awareness about the medicines. They dont know whether a particular prescribed medicine is produced by a multinational company or by a local company and why it is expensive. They usually dont think about the price when it concerns their

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health but if they belong to a low economic group they request for cheaper medicines because of their non affordability. AVAILABILITY OF SMUGGLED (FAKE) DRUGS Such drugs are also available in the market but not many chemists keep them Smuggled drugs are also available but usually doctors dont prescribe them because it is against the principles of a doctor. It is unauthentic and unethical to prescribe them as they are not registered with the government of Pakistan. The government health authorities take serious action against the doctors and hospitals involved in the prescription and sale of fake medicines.

2.4: DATA COLLECTION

We are using Survey Method because there is no current data available that provide information about the non-conventional media habit of the consumers.

MEASUREMENT TECHNIQUE:
The measurement techniques that are being used in this research survey are questionnaires that helped us in eliciting reports of the consumer preferences about different personal care and nontraditional media that were selected for this particular report.

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PART 3: ANALYSIS
3.1: PORTERS FIVE COMPETITIVE FORCES
BARRIERS TO ENTRY Entering of the potential industrialists is easy, if they have the necessary finances, because the cost of obtaining the permit and start operations is very high. However, there is stiff competition among the companies, which have not only expanded their scope of operations and distribution through mergers and acquisitions, but also have the necessary know how and long experience to combat any new entrant. The lengthy and cumbersome registration process, spanning up to two years or more, whereby the new companies have to provide the Certificates of Free Sale, (which confirms the approval for the sale of products in US, Europe, Japan etc) ensure the sale of product in the parent company (in case of MNC). The pharmaceutical industry is a very capital intensive industry. This requires large amount of investment, and since, we lag behind in the capital industry, and it has to be imported. Thus, limiting new entrants. With no stress and emphasis on research and development in our country, it is most likely that the new entrants will produce a new form of the generic

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type, already being produced in abundance. Thus, the absence of any differential advantage over their competitors will further reduce their chances of survival in the industry. The risk aversive nature of the industrialists works as a major hindrance to entry. With the absence of required finances, lack of economies of scale and stiff competition, the prospective pharmaceuticals manufacturers find the chances of flourishing in Pharmaceuticals industry very grim. Only the companies with satisfactory quality and the ability to export their products will be able to carve a place for themselves. Therefore, the new entrants must keep in mind the necessity of producing quality controlled products. Government is also providing support to the local potential entrants; incentives, lowering of import duties and relaxation in patent laws being some. THREAT OF SUBSTITUTES The major threat faced by Pakistans pharmaceutical industry is that of WTO. The fast approaching deadline resulting in the removal of trade barriers will cause an influx of medicine and other Pharmaceutical goods from Korea and European countries. These products are not only of lower price, but also of good quality, and will prove to be a good substitute for our locally manufactured products. Pakistans drug industry is greatly threatened by the presence of smuggled products in the market. These products, smuggled from Burma, China, India, Bangladesh etc, in ever increasing quantities, are not only cheap, but also make wild claims of increase in physical strength in just two days, or reduction in weight in just five days. The presence of the following types of drugs also threatens the sale and popularity of good quality, genuine drugs: Spurious drugs: are drugs by unscrupulous manufacturers, who use the name and same packaging as that of the copied product, but with low quality material inside, thus, hampering sales of the original product, and negatively affecting its image. Counterfeit drugs: are the ones, which look exactly like the original and also contain the raw materials used in the original drug, but in a lower quantity. Substandard drugs: these are the drugs which mislead or misguide the consumer. For example; by writing on the label that this drug contains 250g

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of isotonic solution and 150g of sorbic acid, but in reality in contains only, perhaps, 120g of isotonic solution and 50g of sorbic acid. Localized drugs: these include all the alternative localized methods of treatment, example, Homeopathic, Ayurvedic, the genuine maulvis- giving charms(taweez) and Quranic verses to recite, the fake maulvis, asking for large amounts of money and claiming to neutralize the effect of supposed spells of devil and its magic and Unani. BARGAINING POWER OF SUPPLIERS Since the market is highly competitive and there are a large number of suppliers both locally and abroad for packaging materials, glass bottles and vials, cartons etc, suppliers have little power to dictate their own terms and conditions to the buyers. When it comes to raw material suppliers, the locals cannot bargain due to their low quality. More so, raw materials other than starch and sugar are not produced locally and hence have to be imported from either competitive markets in China and India mainly, or acquired from the parent companies of MNCs. 95% of raw material for the pharmaceutical industry in Pakistan is imported.

BARGAINING POWER OF BUYERS LOCAL BUYERS: Only government buying agencies have the buying power when they tender for medicines in large quantities. Direct consumers however, have little bargaining power due to their limited income and buying power. Local pharmaceutical companies compete on the basis of price; however MNCs compete on the basis of quality and are usually highly priced. An individual can only devote a certain part of his income to medicines depending on his financial status. Hence, he has to compromise on either quality or price. Another issue of prominence here is the illegal, unlawful black market created when theres a shortage in supply of medicines and sellers take advantage of this opportunity to sell at triple times the price of their product,

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just to make some quick money. This shows that local buyers have little bargaining power in the pharmaceutical market. INTERNATIONAL BUYERS: Exports for the pharmaceutical industry amounted to around $ 50 million registering a negative growth this year. Pakistans main market constitutes Nigeria, Kenya, Africa, Srilanka, UK, Russia, Canada etc. In most of these countries stringent quality control exists. Medicines need to be high in quality and efficacy to be cleared by the FDA and EU medicine regulatory bodies. Export rebates given to exporters to allow them to make their medicines cheap as well as the recent upliftment of GST on medicines have made our products more desirable in the international market.

3.2: SWOT ANALYSIS

STRENGTHS INDUSTRY DYNAMISM: The Pharmaceutical industry of Pakistan has an annual turnover of around 18 billion dollars and it registered 13% growth in 2007, and the industry is expected to grow by 12-15% in the next 2-3 years. EXPORTS GROWTH:

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Exports of locally manufactured medicines have surged to $80 million during the last few years, which is 6 percent of the total sales of $1.6 billion in the country. It is the pursuance of better and effective marketing strategies by the pharmaceutical companies and competitive prices of their products compared to neighboring countries, pushed the exports figures up. LOWER PRICES BY LOCAL INDUSTRIES: Our local industry is marketing products that are researched products of foreign companies; they just pack the old molecule with new brand name. But one impact of this is that the prices of such medicines are very cheap as compared to the brand leader. TECHNOLOGY: The Pharmaceutical Industry of Pakistan is a high technology industry, with many multinationals investing in the industry as well as in the research and development. Technology is widely available and most of the companies are ready to import the machinery if it is not locally produced. MEETING DOMESTIC DEMAND: The industry is able to fulfill 80% of the domestic demand for medicines; this saves a lot of foreign exchange of the country CHEAP RAW MATERIAL: There is an availability of cheap raw material sources from abroad. QUALITY OF THE RAW MATERIAL: The quality of the raw materials and the packaging materials that are imported are of very good quality. WORKING CONDITIONS: The working environment of the pharmaceutical industry is very good. The working conditions of the industry are very supportive, clean and satisfactory for the employees. The employees are provided with all necessary equipment to save them from health hazards and harmful working conditions. Even the wages given to the employees are very high as compared to the other industries of Pakistan. SOUND DISTRIBUTION SYSTEM:

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The distribution system of Pakistan is very good. There are more than 63,000 pharmacies around the nation (as per Dawn, EBR, Jan 11 2007). Other than this there are many retailers, hospitals in the rural areas and general stores in small towns provide medicines to the people there. This excellent system is able to provide medicines to many parts of the country. OTHER FACILITIES: The industry enjoys a very well managed and maintained all round transportation, packaging and warehousing system. SKILLED LABOR: Although there is a lack of PhDs in Pakistan, still there are many skilled labors working in the industry. Multinationals and good local companies enjoy a very good pool of skilled managerial and medical professionals. In fact there has even been the emergence of the new generation of educated entrepreneurs in local companies. SUPPORTING INDUSTRIES: Pakistan has a very good and well-developed ancillary industry. These industries include the packaging material industry, the glass and aluminum industry and other products for manufacturing. QUALITY MAINTENANCE: There is a reliable nucleus of 75 quality conscious, ethically dedicated companies. The national industry has improved its basic infrastructure by strong endeavors, and is now reaching internationally accepted levels of quality in terms of Good Manufacturing Practices (GMP), quality assurance standards, efficient modern production systems and tremendous upgrading of specialized machinery and other plant equipment. Most of the products are ISO approved. One of the major strengths of our industry is our consistent quality. This aspect is lacking in many other industries of Pakistan.

RECENT FBR SUPPORT: Currently Pakistan is exporting its products to over 100 nations. Incentives given by government that were put into effect gave a boost to the industry. These incentives come in the form of duty drawback by the revenue division of the Federal Board of Revenue in 2005.

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According to the notification, duty drawbacks were allowed at a rate of: 1. 4.15 per cent of the fob value on tablets or capsules; 2. 2.50 per cent of the fob value on liquids or syrups or suspension or drops or granules in bottles or sachets; 3. 2.62 per cent of the fob value on creams or ointments; 4. 3.31 per cent of the fob value on injections or inject able. 5. 2.04 per cent of the fob value on intravenous solutions. CHEAP MACHINERY: Availability of Chinese machinery which is much cheaper as compared to other countries. SEVERAL RECENT DEVELOPMENTS WITHIN THE INDUSTRY THAT MADE IT STRONGER: Production processes' rationalization and improvements. Over the last ten years the local companies modernized their plants through significant investment in capacity building. 1. An increase in sales and marketing spend 2. More emphasis on market research data, especially in National Companies 3. The driving factor of expansion in the pharmaceutical industry, most private sector players agree, is surging domestic demand
4. Other factors such as high per unit rate of profitability, favorable

public policy environment, good liquidity position, ready availability of trained manpower, advancement of local engineering, comparatively modest capital requirement contributed to create conditions that led to metamorphosis of domestic pharmaceutical industry. (Dawn, EBR, Jan 22 2007) 5. Appreciation of business potential by the investor, better managerial expertise, expanding local market, entry into new markets offshore, comparatively low capital requirement, etc. all played their part to make it what it is today, an ex-employee of a multinational who owns and operates a successful company today. (Dawn, EBR, Jan 22 2007)

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IMPROVED IMAGE: The promulgation of Patent Ordinance as per WTO requirement further improved the image of the local industry in the globalised trade environment as the country steps into product patent era. This can also be an opportunity for future. VARIETY OF PRODUCTS: The pharmaceutical industry is capable of producing a vast range of medicines and there are 125 categories of medicines produced locally. These include all kinds of vitamins, alkaloids, ointments, cough syrups etc. ISO CERTIFICATION: Many units are ISO certified and are adhering to US and UK Pharmacopoeia, according to a study by Frost & Sullivan. WEAKNESSES HIGHER PRICES CHARGED BY MNCS: Foreign drug-makers account for a large part of the drug market in value terms, with almost half the share, although domestic companies are dominant in volume terms. This shows how MNCs are able to exploit the market with higher prices. LOW EXPORTS: The small-scale nature of the pharmaceutical manufacturing sector and the fact that production consists mainly of basic medicines has meant that Pakistani drug exports are relatively minimal. This leads to the low export ratio of Pakistans pharmaceuticals as compared to total sales, which is just 6%. COMPETITIVENESS: Prices of Pakistani products are considerably higher than those of the Indians and the Chinese products. This undermines the competitiveness of our pharmaceutical industry. Although a silver lining in the dark cloud can be the fact that the quality of Pakistani drugs is a lot better than the Indian and Chinese products. LIMITED ROLE OF NATIONAL INDUSTRY:

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The national pharmaceutical industry has suffered from various restrictions limiting them to just packing and marketing. Multinationals have not developed new drugs in Pakistan neither have shown any interest in establishing factories for processing raw material. IMPORTS OF PHARMACEUTICALS: Approximately one-third of Pakistan's total consumption of pharmaceuticals are imported Pakistan is not proficient in the manufacturing many life saving drugs and there exists a good potential market for many medicines such as antibiotics, vaccines, drugs for the treatment of psychiatric conditions, tranquilizers etc. which have to be imported. RAW MATERIAL AND MACHINERY IMPORTS: Pakistan can only produce basic raw materials such as corn starch or sugar. It lacks basic manufacturing facilities. Currently, most companies in Pakistan still rely heavily on China, India, Germany, UK and Japan for raw material imports. Although Government has announced a policy to allow companies to produce raw materials locally, the situation is changing very gradually. 95% of our raw materials are being imported. Even the machinery has to be imported. REGISTRATION PROCESS: The lengthy and unreasonable process of registration is hampering the entry of many new producers and thus, affecting the progress of industry. LACK OF R&D FACILITIES: Lack of research and development in country, together with, absence of bioavailability facilities and proper labs and technicians make the chances for growth and diversity in this sector very meager. HIGH REGULATION: Over regulation of the industry, with the government following strict price control policies, is a serious hurdle in the expansion of Pharmaceutical industry. The pharmaceutical industry happens to be the most highly regulated industry of Pakistan. The previously made decision to link price increase with inflation is not being followed, leading the producers of low priced products to bankruptcy and hence, forcing them to resort to mal practices. Moreover, many companies also claim that the government is very interfering and hence not allowing them to develop to their highest potential.

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SHORTAGES: The other major weakness of the industry is the acute shortage of medicines from time to time. This results from people engaging in black marketing, who sell the products at many times the original price POLICY INCONSISTENCY: Inconsistent government policies are preventing investors from planning ahead and investing in plant extension, modernization, balancing which are the essential requirements of this industry. QUALITY CONTROL: Lack of any quality control teams and assurance tests, to check on the quality of the products and making the system more transparent and effective is another unfavorable trend prevalent in our pharmaceutical industry. LACK OF FACILITIES: Lack of proper storage facilities at chemists and pharmacies exist. Although, there is arrangements for cold storage at the Pharmaceutical manufacturing companies, the absence of them at the chemists, which are the final distributors of medicines, affect the potency of the drugs, and hence, rendering the process of quality control ineffective. PACKAGING: The packaging of our drugs is done locally, which costs very high. ILL-EQUIPPED PHARMACIES: The pharmacies and the medical store are neither owned nor operated by qualified pharmacists. In spite of the law of the country that each medical store has to have the services of a qualified pharmacist at its disposal, theres no implementation of the law. DISCRIMINATION: There is a lot of discrimination between domestic and foreign investors, mainly in the registration. TRANSFER PRICING BY MNCS:

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The practice of transfer pricing, whereby the multinationals, instead buying it off the competitive market, purchase the raw materials from their parent company at significantly high prices. This results in the cost of production to increase around ten times. SMUGGLED GOODS: No government control on the flow of smuggled goods in to and out of the country. PATENTS: Theres no proper understanding and implementation of patents. Even valid patents are not respected and generic copies are readily available.

Kenya, also provides an investment market to the Pakistani investors, three or four of those are keen to produce medicines in the country. At present, $200-225 million two-way trade is going on between both the countries. OPPORTUNITIES PROMISING ENVIRONMENT: The business environment is highly promising, with the liberal government policies, the industry has plan for expansion. Consistent economic policies have increased the investor's confidence and various new projects and expansion plans being undertaken. COMPETITIVE EDGE: There are around 92 countries in the world today which do not have even a single pharmaceutical manufacturing plant. The exports of Pakistan are only 6% of the total production of the industry. Pakistan has huge opportunities to cater to the world market with its pharmaceutical products. Pakistani Companies have very good quality products and they are currently exporting their products to more than 100 countries around the globe. Pakistani products are even being exported to USA and UK, which have the highest quality assurance standards in the world. Major exports of Pakistan are to Asia and Africa, which are still relatively untapped. PAKISTAN TO SET UP JOINT VENTURES WITH UZBEKISTAN:

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Pakistan and Uzbekistan have recently on 8th March 2007 has agreed to establish joint ventures in pharmaceutical industry, manufacturing of medical equipment and exchange of technology in health sector. KENYA: Kenya, also provides an investment market to the Pakistani investors, three or four of those are keen to produce medicines in the country. At present, $200-225 million two-way trade is going on between both the countries COOPERATION WITH IRAN: An agreement was reached between the Pakistani health ministry and Iranian health ministry for cooperation in the health sector on January 12 2007. Priorities include the pharmaceutical industry and pharmacies. It will encourage investment in health sector especially in the field of Pharmaceuticals, biomedical and surgical equipments and vaccine manufacturing.

LOCATION Pakistan enjoys a very unique geographical position which gives it a strategic position for the market access to Afghanistan, Middle East, Africa and Asian states. CHEMICAL ENGINEERS: Involving chemical engineers specializing in biochemical engineering will infuse life in the pharmaceutical industry. VICTIMIZED NATIONS: The recent war on terrorism in Afghanistan and Iraq presents an extremely viable prospect for the Pakistan pharmaceutical industry. War in any country, area or state tends to highly affect the demand for medicines due to the high incidence of casualties and injured people. THE PURCHASE OF MEDICINE UNDER GENERIC NAMES: The Health Ministry has finalized a list of 1,000 types of medicine to be purchased under their generic names instead of brand names. The list was prepared by the ministry in consultation with all stakeholders. Medical

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experts and people in the pharmaceutical industry said the substitution from medicines brand name to its generic name could also lower the drug prices. The official claimed the government would save 50 to 60 percent of the total current cost of the purchased medicine. PAK PHARMA EXPO 2007: The Pak Pharma Expo 2007 is one of them. It is the first integrated exhibition focused on Pharmaceutical Industry. The exhibition will provide a rare opportunity to both local and international manufactures and suppliers of equipment and service to have in direct contact with the Pharmaceutical Manufactures in Pakistan.
OBJECTIVES OF THIS EXHIBITION:

1. Serve as a source of providing business opportunities to the various stakeholders in Pharmaceutical Industry of Pakistan. 2. Coordinate to generate a conducive business environment to facilitate sales promotion and presentation, technical discussions, business negotiations, contract signing. 3. Assist foreign companies to participate in the well being of Pharmaceutical industry in Pakistan. Serve as a knowledge sharing forum and impart technical know how for Pharmaceutical Industry. 4. Enhance the exposure of local manufactures to the international participants and visitors to the exhibition. 5. Generate export opportunities and enhance business potential for the participants. 6. Enhance the country image as the business and investment friendly state. HUGE DOMESTIC MARKET A very large population 152 million people provides the pharmaceutical industry with enough consumers to target and markets to tap. This is 2.4 % of the worlds population. The Government's emphasis on providing health facilities for everyone ECONOMIC GROWTH

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An increase in per capita income which has provided greater disposable income for health related expenditures while general health awareness and consciousness among the population has increased over the years. DOCTORS AS PRESCRIBERS Approximately 56,000 doctors both general physicians and specialists whose prescriptions are the main sales drivers for the industry WTO Export opportunities due to WTO implementation THE RISE OF THE LOCAL INDUSTRY Manufacturing and marketing of cheaper new generic drugs by National Companies has started while : "Products of over 20 multinational companies are being manufactured by national pharmaceutical units through toll arrangements. LOCAL PRODUCTION OF RAW MATERIALS If Pakistan is able to develop the NAFTA cracking plant it will be able to produce most of its raw materials locally, which can significantly decrease the cost of production.

DEMOGRAPHICS Percentage of the aged population is increasing around the world. This is resulting is more medicines being consumed and greater dependence on drugs such as energy supplements, life saving and enhancing drugs. COVERAGE OF HEALTH ACTIVITIES Health care facilities and also health and medical insurance coverage are increasing. This proves to be a huge opportunity for the industry to expand. Companies are increasingly including health and medical services in their packages. This is encouraging pharmaceutical companies who are now increasing their supply to meet the growing demand.

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NATURAL DISASTERS The recent earthquake in Northern and Baluchistan areas with its devastating effects have proved to and will in future also prove to be a major opportunity for the Pakistani pharmaceutical industry. HERBAL MEDICINES One of the major opportunities lies in the area of herbal medicines. Pakistan has huge intellectual property in this area. The world market for herbal medicines is increasing day by day and currently it is around $63 billion. FAVORABLE GOVERNMENT POLICIES IN RECENT TIMES Tax holidays for setting up of new pharmaceutical plants have been announced as well as a cut in Government duties on pharmaceutical raw materials and packing materials. Government is also setting up new industrial estates specifically for the pharmaceutical industry. It actually took a number of measures to promote the sector. Except for certain categories, the government brought into effect deregulation of prices permitting free plays enabling local companies fixing prices at par with multinationals. (Dawn, EBR) MINISTRY OF HEALTH The Ministry of Health is giving various incentives to the local manufacturing to develop and to engage in exports. These include export rebates, lifting of the general sales tax of 15%. UNTAPPED MARKETS Many of the areas in Pakistan do not have access to quality medicines. Therefore they have an opportunity to tap those untapped markets. THREATS SPURIOUS, COUNTERFEIT AND IMPOTENT DRUGS The markets are flooded with products that are bogus and forged, not only putting the human lives at stake, but also affecting the sales and image of products that are genuine and unadulterated. Availability of these products in the market not only bring bad name but also deprives the industry from revenue- the income from counterfeit products goes to faceless cheaters who are playing with the lives of innocent people.

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PATENTS Today, patent protection is negligible proving that "pirate" is using the same process as the inventor is a cumbersome and tedious process which is practically impossible in the current Pakistan legal environment. Piracy continues to inflict losses on the research-based pharmaceutical industry, now estimated at $15 million to $20 million per year.

PRODUCT REGISTRATION Product registration is becoming increasingly difficult in foreign countries. FDA and EU are carefully scrutinizing drugs before approving them. Hence, our already low quality products are having a difficult time in getting clearance in the foreign market. The biggest reason for this is the lack of bio availability testing in Pakistan, a process by which the potency and effects of a drug are tested. COMPETITION WITH INDIA: India has a market of US$ 1 billion and is Pakistans most serious competitor with respect to the pharmaceutical industry. India with over twenty three thousand drug manufacturers has a much stronger base and a muchdeveloped manufacturing industry in comparison to Pakistan. Moreover, the Indian pharmaceutical industry is aided by government support and presence of basic raw materials produced locally PAKISTANS BMI POSITION: BMIs (Business Monitor International-A market research agency) adjusted Business Environment Rankings for Asia reveal that Pakistans position is unchanged in 14th place. This is primarily due to the countrys poor regulatory system, which is rated as one of the worst in the region. This might tarnish the image of Pakistani Pharmaceutical industry

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PART4: FINDINGS AND CONCLUSION.

4.1: FINDINGS The recent upsurge in raw material costs has severely impacted the Pharmaceutical sector profitability. Though the companies like Abbott, GSK, Novartis, Aventis (being amongst the top companies in pharmaceutical sector) are investing significant amount in new technologies to improve manufacturing efficiencies, they are now very limited in absorbing the impact of further cost increases. Prices of Pharmaceutical products have not risen since Dec01, despite rapidly increasing costs for most of the active pharmaceutical ingredients and of overheads, thus hindering the expansion of even the big fishes in the market. But on the other hand, decision makers are of the viewpoint, that keeping in view the recent trends during the last two years, where the growth in the pharmaceutical sector continued in line with the GDP of the country, with over 400 manufacturing and importing companies competing in a highly genericised market, having a size of over Rs.70 billion (US$ 1.2 billion), Pakistani government has started taking the pharmaceutical industry as a rapidly emerging, export-oriented and most beneficial sector. Zahid Saeed, Vice Chairman, Pakistan Pharmaceutical Manufacturers Association (PPMA), shed some light on the development and future prospects of the pharmaceutical sector. He stated that, India and China are two low-cost drug manufacturers. Pakistan, unfortunately, is located between these two countries. But now, Pakistan is all set for the action. For the past 10 years, the nation has been establishing its drug-manufacturing units, infrastructure and export capabilities. The business improvement initiatives undertaken in the last few years have contributed towards improved operational efficiencies and cost savings for

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the companies. The beneficial impact of these enhanced business efficiencies is, however, eroding and will continue to do so unless the government implements, in a timely manner, the existing notified policy of allowing price adjustments to offset inflation and devaluation.

4.2: CONCLUSION. All of the companies I visited have a positive outlook for the industry in Pakistan and also believed that there is a big room for development. The industry is reengineering itself to survive and compete in the face of high costs and no significant price increases. This was supported by the Abbott interviewee With government not increasing its prices, we have only one option that is to effectively and efficiently reengineer our processes. Like for example, we are tying to be cost efficient. All pharma industry has stopped hiring professionals now. In fact the companies have adopted a new system of contract bases and automation. In contract basis we pay less and can fire individuals without issuing notice. In automation, we have heavily invested and reduce the individuals in our company. For example: a packaging process in a unit usually involves 30 women, it has now been replaced with automatic machinery. We are laying off employees. This is wrong for the economy because standard of living is decreasing as jobs are decreasing but we have no other option. The MNCs were of the view that large pharmaceutical companies are looking for effective ways to meet their growing needs and prefer outsourcing R&D and IT services to low-cost, high output countries. On the other hand, some recent surprising developments in the pharmaceutical industry are worth to be mentioned which might be the basis of key future progress and development in regard to the MNCs operating in Pakistan concerned with the pharmaceutical sector.

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It is believed that such decisions have nothing to do with the issue of trust deficit of the corporate sector on the capability of a democratic government, rather the companies thinking of wrapping up because their profit margins and volumes plummeted due to emergence of an efficient local industry in the country, and the weak Pakistani currency adding to their woes. This scenario can serve as an opportunity window for the blooming local pharmaceutical industries to capture the larger chunk of the local market with quality local drugs, and being cost-effective. On the bigger picture, these local companies can extend their horizons and penetrate into the international market at relatively competitive pricing. Pakistan can still be a major player in this game. We recommend that with a slight orientation in our mindset, we can bring a change whereby local companies can go into alliances with international companies willing to do contractual outsourcing arrangements and establishing local subsidiaries to utilize our strong intellectual potential in Pakistan. As the PCSIR interviewee said Companies dont want to spend the money in R & D hence they buy patents. They have got to understand that it is not about making profits but about making products within the reach of everyone.

PART 5: SUGGESTIONS AND RECOMMENDATION. I recommend that a long-term solution backed by legal should be formulated to overcome the delays in product registration. The current procedures should be simplified in such a way that in the cases where the molecule has already been registered, the new product applicants should be accorded fast track registration. In case of the registration of new molecules, the registration processes should be made fast if the molecule applied for registration has already been approved by other respectable registration authorities. My other important recommendations include: 1. Well-equipped, high technology laboratories for bioavailability tests should be established to make our products international viable. 2. In Pakistan there are only a few raw materials manufacturers, and even they are finding it very difficult to compete with the international suppliers. Pakistan should try and develop its own raw materials and expand its own raw materials manufacturing base by developing or

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importing high technology capital goods. So it no longer has to depend on the foreign supplies for essential raw materials 3. Pakistan should seek to invest in research and development. Currently only 1% of our total revenue is being spent on research and development. The government should collaborate with pharmaceutical manufacturers to setup research and development centers which will facilitate innovation and make our industry more competitive 4. There should be exhibitions to promote and market Pakistan pharmaceutical products at home and abroad. Participation in foreign trade fairs is imperative for the success of our industry because this will improve Pakistans image in the foreign market and make people aware of its products. 5. The government should provide incentives to encourage exports to foreign countries. These could be in the form of rebates, concession in duties and the lifting of other kinds of taxes. The government should encourage people to send their representatives abroad for relationship building as well as to project a positive image of Pakistan abroad 6. The Government must commit to honoring annual price adjustments for controlled products in the future, according to an acceptable formula that will enable the industry to plan for the future with some confidence 7. Pakistan enjoys a very unique geographical position that gives it a strategic position for the market access to Afghanistan, Middle East, Africa and Asian states. For example, Stiefel interviewee informed us that they had plans to import to Thailand in the near future. 8. Market forces should be allowed to determine the price. If free market forces are allowed to work freely in this highly competitive market, companies in order to attain a higher market share in their respective therapeutic segments, are bound to reduce prices for the direct benefit of the consumers. 9. To protect consumers' interests the initial price of NCE's (new research drugs) must also be subject to review of the Price Regulatory Authority. 10. A long-term solution backed by legal should be formulated to overcome the delays in product registration.

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11. A far greater efficiency needs to be achieved in implementing a patent examination process and for implementing data exclusivity by the Ministry of Health. This step will augur well for Pakistan as it will lead to renewed and expanded overseas investment in Pakistan. 12. Pakistan Government should have long term plans in the field of health and pharmaceuticals. It should concentrate on preventive measures rather than extinguishing the fire when it erupts. The unhealthy and unfriendly regulatory climate 13. The people of Pakistan should be educated so that the issue of counterfeit drugs should be handled. 14. If some unit is not producing quality drugs it should not be given a manufacturing license. 15. Pakistan should try and develop its own raw materials and expand its own raw materials manufacturing base by developing or importing high technology capital goods. 16. Well-equipped, high technology laboratories for bioavailability tests should be established to make our products international viable. 17. There is a dearth of qualified experts and PhDs in our country. Also there is a scarcity of trained lab operators and pharmacists. Companies should engage in human resource training to provide the employees with the relevant expertise to carry out their tasks efficiently. 18. Pakistan should seek to invest in research and development. Currently only 1% of our total revenue is being spent on research and development. 19. There should be exhibitions to promote and market Pakistan pharmaceutical products at home and abroad. 20. The government should provide incentives to encourage exports to foreign countries. These could be in the form of rebates, concession in duties and the lifting of other kinds of taxes. 21. Pakistan should conduct quality assurance and quality control tests on its drugs. This ensures consistency in the standards of the product and improves its image.

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22. Countries like Uganda and Ethiopia send their teams to inspect the drug manufacturing facilities in Pakistan before theyre allowed to sell drugs to them. Therefore Pakistan should also formulate a system of control for imports of drugs into the country. This should be done to inspect and ensure that the imported drugs are of satisfactory quality. 23. A special police team should be made to prevent the illegal activities of smugglers. These people should be reprimanded accordingly so that this menace is completely eliminated from the society. 24. The drugs act should be more business friendly. The drugs act should become less harsh and less rigid.

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BIBLIOGRAPHY:

1. Dr. Aqeel Baig

MBBS , FCPS ,M.phil, PhD. Baqai University

2. Dr. Tajuddin Patel

MBBS , MS , M.Phil. National Institute of Cardio Vascular Diseases

3. Mr Zahid Saeed
Vice Chairman, Pakistan Pharmaceutical Manufacturers Association

4. Nadeem Khan Owner Brick Pharma- Pakistan

5. Dr. Mohammed Ashfaq Sheikh MS(Pshych) Pshychologist.

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APPENDIX

Mr. Akbar Khan, Head of Supply Logistics, Sanofi-Aventis Pakistan

Source: Economic Survey of Pakistan, www.finace.gov.pk Source: Current market Overview 2011 by Mr. Farhan Qureshi Sources: Wyeth Pharmaceuticals Source: Pakistan Medical Association 2010 report PPMA- Pakistan Pharmaceutical Medical Association 2011 Report
Pakistan Pharmaceutical Market Intelligence Report, Published by Espicom Business Intelligence

IMS Health Report 2009 Source: Pakistan Pharma- Is it on the right path?- By: Kapil Parabwww.pharmabiz.com Source: Pakistan Business Review October 20011 page 56

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REFERENCE.

www.finace.gov.pk www.pharmabiz.com www.google.com www.scribd.com www.pakbizreview.net Pakistan business revies 2011 october edition. MMS Medical annuall magazine. (2010) www.wikipedia.com www.statguru.com

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