AN INTRODUCTION

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

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

THE WORLD’S TOTAL PHARMACEUTICAL MARKET

REGION PERCENT SHARE
Latin America 7
Asia Pacific 22
North America 31
Europe/Middle East & Africa 40

PERCENT SHARE

Latin America
7%
Asia Pacific
40% 22%

North America

31% Europe/Middle
East & Africa

REGION Percent
Rest of the World 99.68
Pakistan's share 0.32

Pakistan's Share of World Market

0.32

Rest of the World

Pakistan's share
1
99.68
 TOTAL ANNUAL PHARMACEUTICAL MARKET
IN PAKISTAN IN 1997
Value (Rs. 000s)
Total market sales value in 1997 was 35,269,648
A: Sales to retailers were (87.4% of the total market) 30,825,672
B: Sales to institutions were (12.6% of the total market) 4,443,976

Year R&D AS PERCENT OF SALES

1980 11.9
1980-85 15.1
1985-90 16.2
1990-95 19.4
1995-97 21.2

R&D AS A PERCENT OF SALES

25 19.4 21.2
20 15.1 16.2
15 11.9
R&D
10
5
0
1980 1980- 1985- 1990- 1995-
85 90 95 97

DEMAND

Factors affecting the demand for Pharmaceutical products are:

 A high urbanization rate leading to the awareness of medicine.
 The sales of medicines without prescription.
 The government campaign of “Health for all by 2010”.
 Better efforts towards health education.

2
SUPPLY

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

MEDICAL FACILITIES IN PAKISTAN

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

This existing nation wide network of medical consists of: 865 hospitals, 4573
dispensaries, 5121 basic health centers, 863 maternity and child health center, 262
tuberculosis centers and 513 rural health centers. There is 1 doctor for 1734 persons, 1
dentist for 42823 persons and one nurse for 5681 persons in Pakistan.

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

HEALTH MANPOWER AND POPULATION PER HEALTH STAFF

(Number)
Upto 1995 Upto 1996 Upto 1997
Registered Doctors 69,691 74,229 78,470
Registered Dentist 2,751 2,938 3,159
Registered Nurses 22,299 22,810 24,776
Population per Doctor 1,837 1,773 1,724
Population per Dentist 46,532 44,803 42,823
Population per Nurse 5,740 5,771 5,460

3
 TOTAL NUMBER OF PHARMACIES IN PAKISTAN
PROVINCE NUMBER
SINDH 14,942
PUNJAB 16,966
NWFP 5,690
BALAUCHISTAN 1,265
AZAD KASHMIR 207
GRAND TOTAL 39,070

HEALTH AND NUTRITION EXPENDITURE

PUBLIC SECTOR EXPENDITURE
(FEDERAL PLUS PROVINCIAL) (Million Rs.)
Year Development Current Total Change(%) As % of
Expenditure Expenditure Expenditure GNP
1995-96 5,741 10,614 16,355 35.3 0.76
1996-97 6,485 11,857 18,342 12.1 0.77
1997-98 6,077 13,587 19,664 7.2 0.72

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

Value (Rs. 000s)

4
 1997 (%)
Share of Multinationals 60.88%
Share of Nationals 39.12%

SALES OF 23 MULTINATIONALS AS A
PERCENT OF TOTAL ANNUAL
NATIONAL MARKET
MULTINATIONAL TOTAL

Share of
39% Multinationals

61% Share of Nationals

PROVINCE WISE
PUNJAB 155 5 160
SINDH 75 26 101
NWFP 32 - 32
AZAD KASHMIR 7 2 9
BALUCHISTAN 2 - 2
TOTAL 271 33 304

THE NUMBER OF RESEARCH BASED PHARMACEUTICAL

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

LOCAL PRODUCTION VS IMPORTS

Approximately 65% of the country’s demand are met from local production (both
national and MNC’s) and approximately 35% are imported mostly in finished form. Out
of the total 13,558 registered formulation, approximately 1,950 or 14% are imported,
while the rest are locally manufactured. The retail consumption of local and imported
drugs is about Rs.31 billion annually.

5
CONTROLLED DRUGS VS DECONTROLLED DRUGS
Out of 1,917 registered products 731 are in the “Controlled” category (essential
drugs) and the remaining 1,186 products are in the “Decontrolled” category (non-
essential drugs).
There was a downward trend in 1995 (the number of units sold in that year was
1% less than in 1994. The overall earnings increased by Rs. 6.34 billion) as the
government deregulated the Decontrolled category of drugs, causing a price increase of
upto 15%, this led to an increase in the sales of generics, and the decrease in the sales of
branded drugs. Transfer pricing and liberal regulations given by the government to the
Pakistani local generic companies are also seen as possible reasons for this trend.
SUMMARY OF RETAIL PRICE INCREASES VERSUS COST
INCREASES FOR THE PHARMACEUTICAL INDUSTRY

“CONTROLLED” CATEGORY OF MEDICINES ONLY

Year/Period Cost increases Retail price Shortfall in price

experienced during increases awarded increases
the period
1971 to 1990 10% on average per No across the board 10%
annum increases
1991(May) 10% on average per 9.5% -
annum
1992 11.5% on average Nil 11.5%
per annum
1993(June) 14% on average per 5% 9%
annum
1994(November) 15.8% on average 7.5% 8.3%
per annum
1995(November) 16% on average per 6.5% w.e.f. 1-1-96 9.5%
annum
1996(November 1) 21.73% on average 6.0% 15.73%
per annum
1997(November 1) 22.26% on average Nil 22.26%
per annum

6
 RETAIL PRICE INCREASE OF
CONTROLLED CATEGORY

25
20
15
10 Cost
5
0
Retail price
92

shortfall
...

...
..
19

19

19

19

“DE-CONTROLLED” CATEGORY OF MEDICINES ONLY

Year/Period Cost increases Retail price Shortfall in price

experienced during increases awarded increases
the period
1971 to 1990 10% on average per No across the board 10%
annum changes
1991(May) 10% on average per 9.5% -
annum
1992 11.5% on average Nil 11.5%
per annum
1993(June) 14% on average per Upto 50% -
annum
1994(November) 15.8% on average Nil 15.8%
per annum
1995(November) 16% on average per 15% 1%
annum
1996(November 1) 21.73% on average 12% 9.73%
per annum
1997(November 1) 22.26% on average Nil 22.26%
per annum

7
RETAIL PRICES
The retail prices of Pakistan are amongst the lowest in the world. In most cases they are
lower than neighboring countries including India.

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

FORMULATION AND PACKAGING

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

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

PROVINCE NATIONALS
FORMULATION BASIC REPACKAGING TOTAL
PUNJAB 148 15 1 164
SINDH 73 7 - 80
NWFP 32 1 - 33
BALUCHISTAN 6 1 - 7
AZAD KASHMIR 2 - - 2
TOTAL 261 24 1 286

PROVINCE MULTINATIONALS
FORMULATION BASIC TOTAL

8
 PUNJAB 3 4 7
SINDH 25 9 34
NWFP - - -
BALUCHISTAN 2 - 2
AZAD KASHMIR - - -
TOTAL 30 13 43

QUALITY CONTROL

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

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

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

9
REGULATIONS BY GOVERNMENT
The Pharmaceutical Industry continues to be regulated in the interest of public health
inspite of the overall government policy of deregulation and liberalization. The basic law
is the Drugs Act 1976 and the rules made there under which cover all aspects of the
deregulatory regime that has been laid down in the overall interest of public health.

PREREQUISITE OF WARRANTY

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

MAINTAINING RECORD OF SALES

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

QUALITY CONTROL BOARD

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

This strict enforcement of all the provinces of the Drugs Act and the Rules doesn’t ensure
that the quality and efficacy of the locally manufactured drugs are maintained according
to the high standards, which are in vogue in any other advanced and developed country in
the world.

10
DISTRIBUTION CHANNELS
There are basically 3 types of distribution set up employed by different Pharmaceutical
companies depending upon their resources, size and marketing policies.

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

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

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

RISKS FACING THE PHARMACEUTICAL INDUSTRY

RISING COST OF RAW MATERIALS
One of the main problems the pharmaceutical industry is presently facing is the high cost
of imports. In addition to this, the devaluation of rupee (approximately 17% during 1995-
96) has increased the cost of raw materials needed by various pharmaceutical companies
for manufacturing.

11
Pakistan produces less than 1% of basic pharmaceutical raw material and that too not
from stage one but by importing intermediaries.

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

LOSS OF PATENT RIGHTS

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

DEMAND EXCEEDS SUPPLY

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

PROBLEMS OF LOCAL MANUFACTURERS

Local manufacturers find it difficult to export their surplus output to other markets
because of low prices in countries like China, India, Taiwan, Eastern Europe and Korea.
FAKE MEDICINES
The government rigid cost controls have also resulted in shortages and mushrooming of
fake spurious medicines flooding the market.

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

LAW AND ORDER SITUATION

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

12
BUREAUCRACY
There is a great deal of bureaucratic red tape involved in the registry of the new product.

IMPORTS AND EXPORTS IN THE

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

IMPORTS 1997 (Rs. Mn) 1998 (Rs.Mn)

CHEMICALS 31,497 37,408
DRUGS AND MEDICINES 7,882 7,982

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

EXPORTS 1997 (Rs. Mn) 1998 (Rs.Mn)

DRUGS 1,095 1,179

PRICING ISSUES
THE HISTORY OF PRICE INCREASES
Between 1970 and 1990, MNC’s and national companies repeatedly applied to the federal
ministry of health for an upward revision of maximum retail prices of those registered

13
products which attained a negative gross profit margins, (i.e. products were actually
making losses due to inflation and devaluation).

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

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

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

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

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

In July 1996, a further price increase of 12% and 6% on de-controlled and controlled
items respectively was allowed.
 On August 14, 1997, the government on the de-controlled category of drugs re-
imposed a price increase restriction of 12%. Previously, the pricing restrictions were
limited to only essential drugs.
 Since then there has been no price increase in the industry.

14
RECENT DEVELOPMENTS AND THEIR EFFECTS
10% PRICE REDUCTION
Following no increases in the prices of drugs for the past two years, the Ministry of
Health (MoH) recently surprised the industry by reducing the prices of 46 drugs of
different manufacturers by 10%. Any concession in taxes or any relief did not accompany
the reduction in prices to the industry.

RELIEF TO THE CONSUMER

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

DAMAGES TO THE LOCAL MANUFACTURERS

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

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

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

15
cause an irreparable damage to the local manufacturers who are marketing the same
generic products at as low as one-tenth of the price.

MNC’s ALSO SUFFER SETBACKS

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

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

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

Imposition, withdrawal, increase, reintroduction and sudden suspension of sales

tax on locally manufactured medicines from time to time in such a manner that pharma
companies have been left holding the bill without proper adjustment or refund, thereby
causing substantial financial losses to companies with out any compensation.
CONCLUSION
Pakistani medicine prices are still among the lowest in the world. Research data shows
that out of the current top 128 selling medicines in Pakistan, the retail prices of 84
products (65.62%) are higher in India as compare to Pakistan, and 44 products (34.38%)
are lower in India.

16
OTHER PROBLEMS
The problems as listed by the pharmaceutical industry relate to lack of consistent, clear
cut and long-term government policies, inordinate delays in price increase, sudden
imposition of import duties and taxes, strict price control, long delays in registration of
new medicines and constant changes in drug rules. According to pharmaceutical
industry sources, the overseas investors cannot plan properly even over one year
period, let alone for log-term. Now investment mood of this group is at its lowest ebb.

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

ACCORDING TO THE PHARMA BUREAU OF

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

Keith Watson, Chairman of the P.R. Sub Committee of the Pharma Bureau, said that
due to high cost involved in the manufacture of medicines, it would not be possible for

17
them to maintain high quality under the present price formula. He said that the increase in
the prices of drugs was due in November last. He expressed his concern that
multinational companies could no more continue manufacturing operations in Pakistan
due to less attractive investment in the pharma sector.
Since the ECC refused permission to the companies to raise the prices of their
products. Keith apprehended that the market would be flooded with the sub-standard
medicines manufactured by mushroom local companies, which could not afford to
maintain the quality due to the high cost involved in the manufacture of drugs.

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

The basis of transfer pricing could be:

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

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

According to the health Action organization, a consumer watch organization, MNC’s

reportedly transferred out of $ 6,648,000 out of Pakistan in 1994 as a result of transfer
pricing. Currently it is estimated that 500 million dollars will be transferred out this way.

18
Multinationals pay on average 88% more for their raw material than their national
counterparts. The company can justify higher selling prices for the active substances of
raw materials for bigger tax- deductible expenses for tax return purposes.

An evidence of the suppliers bargaining powers in the pharmaceutical industry is the

adoption of the transfer pricing options by most of them. This has led to inflated cost of
inputs, which erodes profit and give the firms tax advantages. Below are a few examples
of inflated costs due to transfer pricing.

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

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

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

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

19
THE FUTURE OF PHARMACEUTICAL INDUSTRY
INVESTMENT PLANS
Though the investment planned by MNC’s for 1997-2000 was cut by Rs. 1.5 billion due
to inconsistent policies, the immediate future is by no means bleak for the industry, a sit
is expected that the government will allow an increase in prices by as much as the rate of
inflation. Further more, there are constant negotiation between the industry and the
government, which may lead to a breakthrough sometime in the future.

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

MULTINATIONAL VERSUS GENERIC COMPANIES

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

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

LACK OF STABLE AND EQUITABLE GOVERNMENT

REGULATIONS

20
The government is especially vulnerable to price adjustment, import duties and sales tax.
The previous governments have been unable to make clear, consistent and equitable
regulations for the industry.

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

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

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

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

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

21
TO OUR SHARE HOLDERS
We commit ourselves to providing fair and attractive economic returns to our
shareholders. We are prepared to take prudent risks to achieve sustainable long-term
corporate growth.

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

TO OUR BUSINESS PARTNER

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

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

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

COMPANY PROFILE

PARKE-DAVIS, one of the largest manufacturers of pharmaceutical and

biological preparations in the world was established in USA in 1866. Early from its
inception, emphasis on the best in quality and reliability has earned the company, a
leading position in the pharmaceutical industry all over the world.

22
The company is part of the Warner-Lambert world-wide group which conducts its
business in more than 140 countries, employs approximately 45,000 people, operates
more than 100 manufacturing facilities and maintains four major research centers.

Parke-Davis was incorporated in Pakistan as a Private Limited Company in 1960. In

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

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

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

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

Apart from historical achievements made in pharmaceutical discovery and development,

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

23
Research at Parke-Davis is a never-ending process with the ultimate objective of
fulfilling the needs for today as well as tomorrow.

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

GMP, Safety & Environment Compliance is the foremost criteria of performance and the
waste management program implemented whereby all types of industrial waste is either
recycled or incinerated is worth emulating by other companies.
Parke-Davis success can be attributed to its implementation of MVP (Management Value
Practices) which can be summarized as under: -
 Prize Creativity
 Be fast and first to opportunity
 Focus on what is important
 Be open and candid
 Reward true success
The people at PARKE-DAVIS are following the motto
“We are making the world feel better”

HISTORY OF PARKE DAVIS 1866-1998

Parke-Davis, a division of Warner-Lambert since1970, has been in existence for

more than 130 years. The company has played a significant role in the development of
both pharmacy and medicine since 1866.

24
 Below is the history of Parke-Davis and its research-based endeavors. The
company has a rich heritage and has over the years continued to make successful
traditions.
1866-Parke, Davis & Company was established.
1879-Introduced a pure liquid extract of ergot, exemplifying the company's pioneering
efforts in developing the principle of chemical standardization of drugs.
1894-Established the first commercial biological laboratory in the United States and
marketed antidiphtheria serum.
1897-Developed the principle of physiological standardization and introduced
physiologically standardized preparations.
1901-Introduced a pure form of adrenaline __ the first hormone to be isolated in pure
form. Established the first organized, systematic program of clinical, pre-marketing
testing of drugs, completing the chemical-physiological-clinical trial of medicinal
Standardization.
1902-Built and moved into the first industry-constructed US building to be devoted to
scientific research.
1903-Was issued US License No. 1 for manufacture of biological.
1907-Marketed the first Parke-Davis bacterial vaccine.
1908-Introduced the first water-soluble extract of pituitary hormones for use in surgery
and obstetrics.
1916-Pioneered research efforts on vitamins.
1927-Isolated two pituitary hormones __ one a uterine stimulant, the other an antidiuretic.
Introduced both separately for use in obstetrics and diabetes.
1930-Introduced a new estrogen hormone used chiefly for treating menopausal
symptoms.
1938-Introduced a breakthrough anticonvulsant for the treatment of grand mal epilepsy,
still widely used today.
1941-Introduced an oil-based pituitary hormone for treatment of diabetes insipidus.
1944-Introduced a topical coagulant to control surgical bleeding.
1945-Released a new influenza virus vaccine for use in the armed forces.

25
1946-Introduced the first effective antihistamine for treating allergic conditions, still
widely used today.
1949-Introduced the first synthetic broad-spectrum antibiotic reproducible on a grand
scale.
1952-Marketed a potent new aminoquinoline (for treatment of malaria) and an ultra-
short-acting intravenous anesthetic.
1953-Released the first succinimide anticonvulsant for treatment of absence (petit mal)
epilepsy.
1954-First manufacturer to produce poliomyelitis vaccine for nationwide field trials.
1957-Released an oral progestational agent for treatment of menstrual disorders.
1959-Opened new medical research center in Ann Arbor, Michigan.
1960-Introduced a new treatment for pinworm infections. Introduced an enzyme product
to facilitate skin and mucous membrane lesions. Introduced a selective agent for
treatment of absence (petit mal) epilepsy. Introduced a new antimicrobial agent for
bacterial infections and intestinal amebiasis.
1961-Marketed a newly developed progestational agent.
1964-Introduced an estrogen/progestin-based oral contraceptive.
1967-Introduced a new oral nonsteroidal anti-inflammatory agent with
analgesic/antipyretic activity.
1969-Marketed a new subvirion influenza virus vaccine.
1970-Became a division of Warner-Lambert Company. Introduced a unique non-
barbiturate, a rapid-acting anesthetic.
1971-Developed a new film-coated hematinic tablet for treatment of iron-deficiency
anemia.
1972-Released a stabilized nitroglycerin formula providing uniform tablet potency and
predictable dosage.
1973-Introduced a line of oral contraceptives with low-estrogen content in combination
with a progestogen.
1974-Began marketing a pre-moistened hemorrhoidal/vaginal pad.
1975-Marketed a gamma globulin product to prevent erythroblastosis fetalis in newborns.
1976-Introduced the first antiviral ophthalmic ointment.

26
1978-Released a parenteral antiviral agent for treatment of herpes simplex encephalitis.
1979-Introduced a new benzodiazepine for treatment of anxiety.
1980-Introduced a sustained-release antiarrhythmic agent for treatment of life-threatening
cardiac arrhythmias. Marketed a new nonsteroidal anti-inflammatory agent for
steoarthritis and rheumatoid arthritis.
1981-Introduced a unique dosage form of enteric-coated pellets of erythromycin.
Marketed an enteric-coated form of aspirin.
1982-Released a new lipid-regulating agent for treatment of hyperlipidemia.
1984- Developed and marketed a convenient new method for topical application of
thrombin.
1986-Introduced a unique enteric-coated, pelletized dosage form of doxycycline.
Introduced a sustained-release transmucosal delivery system for nitroglycerin.
1987-Announced the results of the Helsinki Heart Study, a five-year landmark
investigation that established the lipid-regulating value of the company's lipid-
regulating agent. The study demonstrated the drug's significant reduction of the
incidence of fatal and nonfatal heart attacks and sudden cardiac deaths.
1991-Introduced a new angiotensin-converting enzyme (ACE) inhibitor to control high
blood pressure. Introduced an antineoplastic agent for use in the treatment of hairy cell
leukemia.
1993-Introduced the first drug indicated for mild to moderate dementia of the Alzheimer's
type. Received approval for congestive heart failure indication for an ACE inhibitor.
Introduced a new agent for adjunctive treatment of partial seizures with and without
secondary generalization.
1996-Introduced a new extended-release agent for treatment of life-threatening cardiac
arrhythmias.
1997-Introduced the first station specifically indicated for lowering both triglyceride and
LDL (low-density lipoprotein) cholesterol levels in-patients with high cholesterol.
Introduced an oral anti-diabetic that targets insulin resistance, an underlying cause of type
2 diabetes. Introduced a new low-dose estrogen patch for treatment of menopausal
symptoms. Introduced a new agent for the control of acute, generalized epileptic

27
convulsions and for prevention and treatment of seizures that can occur during neuro
surgery. Developed and marketed an estrophasic birth control pill.
1998-Released a new and potent broad-spectrum cephalosporin antibiotic. Entered into a
co-promotion agreement with Forest Laboratories and launched a new SSRI (selective
serotonin reuptake inhibitor) citalopram HBr, for treatment of depression.

MERGER
WHAT THE MERGER MEANS IN PRACTICE?
1. Pfizer and Warner Lambert merger will form the second largest global company with
the international market share of 6.5%.

28
2. Board of directors and Management teams will be from both companies with William
C.Steere, Jr. as chairman and Chief Executive Officer and Dr.Henry Mc Kinnell as
President and Chief Operating Officer.
3. Pfizer shareholders will own 61% of the newly created & 90 billion organizations and
Warner Lambert shareholders will own 39%.

4. Warner-Lambert shareholders to receive 2.75 Pfizer shares for each Warner-

Lambert share, valued at $98.31 per share

5. Compounded three-year annual earnings growth of 25% forecast with $1.6

billion in cost savings by 2002; Companies to realize operational and sales
benefits, increase annual research and development expenditures to $4.7
billion in 2000
6. Leadership in therapeutic areas includes cardiovascular, lipid lowering,
central nervous system and infectious diseases; 138 compounds in
development in complementary pipelines

7. New company to be named Pfizer Inc, will integrate “In a Spirit of

Partnership and Mutual Respect”

8. The merger will be completed by mid of this year.

9. The merger between Warner Lambert and American Home Products has been
terminated.

10. The combined company will have annual revenues of approximately $28
billion, including $21 billion in prescription pharmaceutical sales, and will have
a market capitalization in excess of $230 billion.

11. Compounded annual revenue and earnings growth is expected to be 13

percent and 25 percent, respectively, through 2002. The transaction will be
accretive in the first full year of operations and will use pooling of interests
accounting.

12. The two organizations, having worked together for several years to achieve
the unprecedented success of Lipitor, will bring the same energy and intensity
to achieving the most rapid and seamless integration of the two companies.”

29
13. Unprecedented depth and breadth of products including seven billion-dollar
products: Norvasc, Lipitor, Zoloft, Zithromax, Diflucan, Celebrex and Viagra.
The Parke-Davis trade name will be preserved and represented through the
product portfolio, a dedicated sale forces and researches organization.

14. Parke-Davis brings to Pfizer valuable expertise in this area and a sales force
that has extensive experience in calling on mental health professionals.

15. Excellent opportunities for additional earnings growth based on anticipated

cost savings and efficiencies totaling $1.6 billion. Two hundred million dollars
of these savings are expected to be achieved by year-end 2000, $1 billion by
year-end 2001, and $1.6 billion by year-end 2002.

WHY WE HAVE MERGED?

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

WHAT THIS MEANS FOR PARKE-DAVIS IN EUROPE AND ASIA

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

30
4. Strong international presence with access to global markets including Japan and
confidence that comes from being a top player in each.
5. Combined consumer product sale of more than $ 3.5 billion, giving us a significance
stake in the consumer health care market.

HOW WILL THE MERGER MOVE FORWARD

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

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

SENSITIVITY OF THE COMPANY

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

Like any other pharmaceutical company, Parke Davis is sensitive to its

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

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

32
devaluation and the increasing cost because of the company’s dependence on the
imported raw materials.

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

MARKETING EFFORTS OF THE COMPETITORS

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

RISKS FACED BY THE COMPANY

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

AVAILABILITY OF THE PRODUCT

Alternate substitute are readily available in the market hence the customer don’t wait if
Parke-Davis medicine is not available they shift to some other product.

PRICING CONTROL

33
No increase in prices of pharmaceutical products from November 1996 and with
increasing cost of production the company has been squeezed into a corner. Their profit
margin has been continuously declining from 1996 when it was 19.5% to 15.2% in 1997
and to 10% in 1998 and according to half-yearly statements it is 12.5%.

SMUGGLING EFFECT
The smuggling of medicines does not effect Parke Davis as Pakistan has cheaper
medicine as compared to the neighboring countries. Hence very few medicines are
smuggled into the country. The low prices of medicines encourages smuggling out of the
country, which in turn effects the sale of the parent company or its subsidiaries in the
other regions. An example of this quoted by the management is narrated below.
Lopid, a medicine, was available at Rs.3/- in Pakistani market was smuggled to Far
Eastern countries where it was sold at approximately a US $1. This caused a loss in sale
of parent company and hence the product had to be closed in Pakistan on a large scale.

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

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

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

GOVERNMENT REGULATION

34
The government regulates price standards in the industry and fixes a price of the
medicines. As disclosed by the management Parke Davis used to send a cost structure to
the government and asked for a specific contribution margin and Ministry of Health sets a
price. Price negotiations with government are still in process.

LICENSING REQUIREMENT/BARRIERS TO ENTRY

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

PLACE OF THE COMPANY IN THE MARKET STRUCTURE

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

PRODUCT LIFE CYCLE

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

LOCATION OF THE COMPANY

35
Parke- Davis had a choice to locate at either Landhi or SITE. Location at SITE is
advantageous to the company, as it is closer to the port.

ANALYSIS OF THE MANAGEMENT

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

DIRECTORS, MAJOR SHAREHOLDERS AND SUBSIDIARIES

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

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

COMPANY SECRETARY
M.Saleem

AUDITORS
A.F.Ferguson & Co.

BANKERS

36
American ExpressBank Ltd.
ABN-AMRO Bank N.V.
Bank of America NT & SA
Standard Chartered Bank
Muslim Commercial Bank Ltd.
National Bank of Pakistan.

Categories of Number Shares Held Percentage

shareholders
Individuals 158 88,930 4.54
Investment 2 285,570 14.58
Companies
Insurance 1 75,000 3.83
Companies
Joint Stock 5 1,506,700 76.93
Companies
Financial Institution 1 2,000 0.1
Mudaraba 1 100 0.01
Companies
Co-operative 1 100 0.01
Societies
TOTAL 169 1,958,400 100.0

COST CENTERS

01 Chemical
02 Tablets & Capsules
03 General Pharma
04 Blister Packing
05 Liquid Packaing
06 Packaging Dry
07 Plant Manager
08 Plant Administration
09 Maintenance

37
10 Quality Control
11 Cost Account
12 Material Mangement
13 Accupancy
14 Cafeteria
15 Transport & Security
31 Marketing Administration
40 Direct Selling
41 Selling Administration
50 Distribution
61 MD’s Office
62 Finance
63 Human Resources

GRAPHICAL REPRESENTATION

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

Issue Requisition Production (WIP) Packaging

Bulk Materials
(Packaged)

Blisters Invoices Received

Warehouse38 (For Bottles
(For tablets) (Finishedsold)
products Goods) (For liquids)
CREATING OUR FUTURE
AMBITION AND PURPOSE
Creating our future articulates our vision of where we are going as a group. We aim to be
the best in the world in our business of fighting disease and improving health—I am
confident that we have the people, the resources and the commitment to succeed in this.

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

39
CORPORATE MISSION
Glaxo Wellcome Pakistan Limited is a subsidiary of Glaxo Wellcome plc 9 a research-
based company) whose people are committed to fighting disease by bringing innovative
medicines and services to patients in Pakistan and to the health-care providers who serve
them.

The strategic intent of Glaxo Wellcome Pakistan Limited is to be an ethical, enterprising

and aggressive company seeking long term business opportunities.

DIRECTORS, MAJOR SHAREHOLDERS AND SUBSIDIARIES:

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

EXECUTIVE COMMITTEE

Mr. Alan R. Eldridge, Chairman & Managing Director

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

40
BANKERS
ANZ Grindlays Bank Limited
ABN AMRO Bank NV
American Express Bank Limited
Bank Of America
Credit Agricole Indosuez
Emirates Bank International PJSC
Habib Bank Limited
Standard Chartered Bank
The Hongkong and Shanghai Banking Corporation
The Bank of Tokyo-Mitsubishi Limited
United Bank Limited

AUDITORS
Coopers & Lybrand

CATEGORIES OF SHAREHOLDERS AS AT 31 DECEMBER, 1998

CATEGORIES OF NUMBER SHARES HELD PERCENTAGE
SHAREHOLDERS
INDIVIDUALS 2,977 3,276,832 9.77
INVESTMENT 12 3,988,530 11.89
COMPANIES
INSURANCE 10 2,424,395 7.23
COMPANIES
JOINT STOCK 23 39,680 0.12
COMPANIES
FINANCIAL 12 242,221 0.72
INSTITUTIONS

41
MODARABA 1 770 -
COMPANY
FOREIGN 3 138,525 0.41
COMPANIES
ASSOCIATED 1 23,371,456 69.66
COMPANY
OTHERS 6 68,277 0.20
TOTAL 3,045 33,550,686 100.00

CORPORATE HISTORY AND SUMMARY

Glaxo Wellcome Inc., based in Research Triangle Park, N.C., is one of the nation's
leading research-based pharmaceutical firms. A subsidiary of London-based Glaxo
Wellcome plc, the company is committed to fighting disease by bringing innovative
medicines and services to patients and to the healthcare providers who serve them.

Glaxo Wellcome plc was formed in 1995 as a result of the merger of Glaxo plc and
Wellcome plc, both of which were respected leaders in innovative pharmaceutical
research and development. Glaxo Inc. was established in the U.S. in 1977, with the
purchase of Meyer Laboratories of Fort Lauderdale, Fla., and relocated to the Research
Triangle Park in 1983. Burroughs Wellcome Co. was established in the U.S. in 1906 and
relocated to RTP in 1970. The company employs approximately 9,156 people across the
U.S. and operates a manufacturing facility in Zebulon, N.C.

Robert A. Ingram is Chief Executive, Glaxo Wellcome plc. Today, as one of the world's
largest pharmaceutical research firms, Glaxo Wellcome plc is an integrated, research-
based group of companies whose primary corporate purpose is to discover, develop,
manufacture and market throughout the world safe, effective, high-quality medicines.
These medicines benefit patients through improved health, longevity and/or quality of
life, and benefit society in general by reducing health care or societal costs. True to that
mission, Glaxo Wellcome scientists and other employees around the world are searching
for new and better treatments for a variety of diseases. In 1998, Glaxo Wellcome spent
nearly $2 billion in research and development. In particular, Glaxo Wellcome is known as

42
a leader in respiratory, anti-viral (including AIDS/HIV), and central nervous system
research. Other therapeutic research areas include cardiovascular, oncology, critical care,
and metabolic diseases such as diabetes.

Glaxo Wellcome Inc. sales for 1998 were $5.6 billion. Glaxo Wellcome plc global sales
totaled £7.983 billion ($13.25 billion at $1.66 exchange rate). As a responsible corporate
citizen, the company has established a policy of giving back a portion of its earnings to
the communities and countries in which it operates. As a result of its good corporate
citizenship, Glaxo Wellcome Inc. is recognized as a major contributor to charities and
educational institutions in North Carolina and across the United States.

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

During 1998, Glaxo Wellcome had an average number of approximately 54,350

employees including some 19,600 in sales and marketing and approximately 9,200 in
research and development.

43
 PROPOSED MERGER OF GLAXO WELLCOME AND
SMITHKLINE BEECHAM

CREATING THE GLOBAL LEADER IN PHARMACEUTICALS

The Boards of Glaxo Wellcome and SmithKline Beecham announce that they have
unanimously agreed the terms of a proposed merger of equals to form Glaxo SmithKline,
the world’s leading research-based pharmaceutical company.

The merger will create:

44
1. A group with combined sales from continuing businesses of approximately
£15.0 billion ($24.9 billion), and an estimated 7.3 per cent share of the global
pharmaceutical market

2. A powerful R&D capability combining both companies’ expertise and technology

with a current annual R&D budget of approximately £2.4 billion ($4.0 billion)

3. An enhanced platform to discover and develop new medicines more effectively and
efficiently

4. One of the most extensive development pipelines in the pharmaceutical industry, with
a total of 30 new chemical entities (NCEs) and 19 vaccines in clinical development
(phase II / III), of which 13 NCEs and 10 vaccines are in late-stage development
(phase III)

5. A market leader in four of the five largest therapeutic categories in the pharmaceutical
industry: anti-infectives, CNS, respiratory and alimentary & metabolic; a leading
position in the vaccines market and a strong position in consumer healthcare and
over-the-counter medicines

6. An industry-leading sales and marketing force of approximately 40,000 employees

globally, including over 7,200 sales representatives in the US, providing Glaxo
SmithKline with global marketing strength

7. £1.0 billion ($1.7 billion) in annual pre-tax cost savings from the third anniversary of
completion of which £250 million ($415 million) is expected to be reinvested in R&D

8. A truly global organization with wide geographic spread and strong presence in the
important US market

Glaxo SmithKline would have a combined market capitalization of approximately

£114 billion ($189 billion) (based on the London Stock Exchange closing market prices
for the two companies as at 14 January 2000) and would be one of Europe’s largest
companies by market capitalization.

45
The terms of the merger are based on the recent relative equity market capitalization of
the two companies. Upon completion of the merger, Glaxo Wellcome shareholders will
hold approximately 58.75 per cent and SmithKline Beecham shareholders will hold
approximately 41.25 per cent of the share capital of Glaxo SmithKline.

Sir Richard Sykes will be Non-Executive Chairman, Jean-Pierre Garnier will be Chief
Executive Officer, John Coombe will be Chief Financial Officer and Sir Roger Hurn and
Sir Peter Walters will be Non-Executive Deputy Chairmen. The Board of Directors will
be drawn equally from the existing Glaxo Wellcome and SmithKline Beecham Boards.

Robert Ingram will be Chief Operating Officer and President, Pharmaceutical Operations,
James Niedel will be Chief Science and Technology Officer and Tadataka Yamada will be
Chairman, Research and Development.

This merger we are bringing together two world-class organizations with complementary
technologies and scientific knowledge. The new organization, led by one of the sector’s
most talented and experienced management teams, will be at the forefront of an industry,
which will continue to undergo rapid scientific and economic change."

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

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

RISK FACED BY GLAXO AFTER THE MERGER

Such as the ability of Glaxo Wellcome and SmithKline Beecham to integrate their large
and complex businesses and realize synergies and achieve cost savings, difficulties of
obtaining governmental approvals for new products, delays in new product launches,
exposure to fluctuations in exchange rates for foreign currencies, the risk that R&D will

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not yield new products that achieve commercial success, the risk of substantial product
liability claims, exposure to environmental liability, the impact of competition, price
controls and price reductions and inflation, adverse economic conditions, interruptions in
production, inability of Glaxo SmithKline to market existing and new products
effectively and the risk of loss or expiration of patents and trademarks.

Under the terms of the merger and on the basis of the current issued share capital of each
company

1. Glaxo Wellcome shareholders will receive approximately 58.75% of the issued

ordinary share capital of Glaxo SmithKline and

2. SmithKline Beecham shareholders will receive approximately 41.25% of the issued

ordinary share capital of Glaxo SmithKline.

RATIONALE FOR THE MERGER AND MERGER BENEFITS

The current rate of progress in science and technology is expected to have a profound
impact in the area of medical practice, and radically transform it over the next twenty
years. This transformation is expected to create significant potential for improving the
health and quality of life of people throughout the world.

Rapidly evolving technologies and advances in the understanding of the underlying

causes of disease are leading to fundamental changes in the pharmaceutical industry, and
in turn presenting new challenges and opportunities for pharmaceutical companies. Glaxo
Wellcome and SmithKline Beecham believe that significant scale and resources will be
required in order to sustain investment in the skills, technology and expertise necessary to
discover, develop and deliver new and better medicines to patients in a faster and more
efficient way.

Glaxo Wellcome and SmithKline Beecham believe that the combination of the skills and
resources of the two groups will create the leading research-based Pharmaceuticals
Company in the world. The proposed merger will improve the two groups’ ability to
generate sustainable long-term growth and enhance shareholder value in an increasingly
competitive environment. This will derive from:

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1. Global leadership and scale in the pharmaceutical industry

2. R&D strength to deliver long-term growth

3. Improved sales and marketing infrastructure to maximize sales opportunities in core

therapeutic categories

4. Complementary portfolio fit with strong new product momentum

5. Synergies and cost savings

GLOBAL LEADERSHIP AND SCALE IN THE

PHARMACEUTICAL INDUSTRY

Based on September 1999 moving annual total (MAT) market estimates of

pharmaceutical industry sales, Glaxo SmithKline would have been ranked the largest
pharmaceutical company in the world, the United States and in Europe.

Source: Estimates based on IMS data

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

R&D STRENGTH TO DELIVER LONG-TERM GROWTH

The merged company will have a powerful R&D capability combining both companies’
expertise and technology with a current annual R&D budget of approximately
£2.4 billion ($4.0 billion). This will create an enhanced platform to discover and develop
new medicines more effectively and efficiently.

Glaxo Wellcome and SmithKline Beecham share similar R&D philosophies and
strategies and the merger will bring together their complementary skills, technologies and
alliances. This combination will help Glaxo SmithKline to become the most productive

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research organization in the pharmaceutical industry, creating more drugs candidates and
reducing time to market through the integration of technologies to:

1. Find new targets based upon fundamental understanding of disease mechanisms

2. Identify "best-in-class" compounds by accessing an extensive and intelligently

designed chemical library and novel predictive screening technologies

Glaxo SmithKline aims to be the most efficient development organization in the

pharmaceutical industry, with the size and expertise required to conduct a broad array of
clinical studies on a global scale and to demonstrate the value of its medicines.

Glaxo SmithKline will have one of the most extensive development pipelines in the
pharmaceutical industry, with a total of 30 NCEs and 19 vaccines in clinical development
(phase II / III) of which 13 NCEs and 10 vaccines are in full development (phase III).

IMPROVED SALES AND MARKETING INFRASTRUCTURE TO MAXIMIZE

SALES OPPORTUNITIES IN ITS CORE THERAPEUTIC CATEGORIES

With one of the largest sales forces and marketing resources in the global pharmaceutical
industry, Glaxo SmithKline will have increased share of voice with physicians and
opinion leaders in the healthcare industry, which will allow the company to maximize the
potential of its existing products and future pipeline.

As pharmaceutical product marketing becomes increasingly targeted directly to the

consumer, SmithKline Beech’s strong consumer healthcare and over-the-counter
medicine businesses will provide Glaxo SmithKline with enhanced expertise in
consumer-oriented marketing strategies, which should benefit sales of prescription
pharmaceutical products.

THERAPEUTIC CATEGORY

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In addition to having a broad portfolio of products, Glaxo SmithKline will be a leader in
four of the five largest therapeutic areas, which together represent approximately 50% of
the global pharmaceutical market. This is complemented by a leading position in the
vaccines market.

SYNERGIES AND COST SAVINGS

The merger is expected to generate substantial operational synergies. Management of the

two companies estimate that annual pre-tax cost savings of £1.0 billion ($1.7 billion) are
achievable from the third anniversary of completion of the merger. It is expected that
£250 million ($415 million) of these savings will be derived from combining the two
R&D organizations and will be reinvested in R&D. The other cost savings of
£750 million ($1.2 billion) are expected to come from reducing the overlap in
administration, selling and marketing and manufacturing facilities.

The £1.0 billion ($1.7 billion) savings from the merger are in addition to the previously
announced estimated cost savings totaling £570 million ($946 million) expected to arise
from the implementation of the two companies’ existing manufacturing rationalization
programs.

Total costs of achieving the cost savings from the merger are expected to be
approximately £1.1 billion ($1.8 billion), of which approximately two thirds would be
cash expenditures, and one third accounting write downs. These costs are expected to be
charged as exceptional operating items in Glaxo SmithKline’s accounts over the three
years following completion.

LEGAL

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

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

EMPLOYEES

SmithKline Beecham currently has approximately 47,000 employees and Glaxo

Wellcome has approximately 60,000 employees. Glaxo Wellcome and SmithKline
Beecham will inform and consult with relevant employee organizations and
representatives about the consequences of the merger, in accordance with applicable legal
requirements.

It is inevitable that redundancies will arise as a result of bringing the two companies
together. However, it is difficult at this stage to be specific about the numbers involved or
how particular locations will be affected. The process will take place over a period of
years and wherever possible efforts will be made to reduce the impact of job losses by,
for instance, introducing early retirement schemes. Communication and consultation with
employees will form an integral part of the management’s plans and there will be a clear,
equitable and transparent process for selection of people for jobs.

Existing employment rights, including pension rights, of employees of both groups will
be fully safeguarded.

SUMMARY FINANCIAL INFORMATION

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Glaxo SmithKline had 1998 pro forma pharmaceutical sales of £12.6 billion ($20.9
billion), total sales from continuing businesses of £15.0 billion ($24.9 billion) and profit
before tax from continuing businesses of £4.1 billion ($6.8 billion). Pro forma combined
information on the enlarged group is set out in Appendix 4.

Glaxo SmithKline will account for the merger using merger accounting under UK GAAP.
Glaxo SmithKline will report its results on a quarterly basis, with respect to financial
periods beginning on and after 1 January 2001.

Summary financial information on SmithKline Beecham and Glaxo Wellcome is set out
in Appendices 2 and 3, respectively. The information in relation to Glaxo Wellcome and
SmithKline Beecham has been derived from the audited accounts of each company for
the year ended 31 December 1998.

DIVIDEND PAYMENTS AND POLICY

In the recent past Glaxo Wellcome has had a higher payout ratio than SmithKline
Beecham. It is envisaged that Glaxo SmithKline will pay an initial dividend in line with
Glaxo Wellcome’s 1999 dividend. Subsequently, it is currently expected that the new
company will at least maintain this level of payment, whilst building dividend cover
towards the industry average. It is expected that the first dividend paid by Glaxo
SmithKline will be in respect of the period from the completion of the merger to 31
December 2000, and thereafter dividends will be paid quarterly.

Glaxo Wellcome intends, in the absence of unforeseen circumstances, to declare a final

dividend for the year ended 31 December 1999 and an interim dividend in respect of the
first half of the current financial year, in line with its existing dividend policy.

SmithKline Beecham intends, in the absence of unforeseen circumstances, to declare a

fourth quarter dividend for the quarter ended 31 December 1999 and subsequent quarterly
dividends for the first half of the current financial year, in line with its existing dividend
policy.

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If completion of the merger does not occur by 30 June 2000, each of Glaxo Wellcome
and SmithKline Beecham intends to pay its shareholders prorated dividends for the
period from 1 July 2000 until completion but in all other respects such dividends will be
of an amount in accordance with the relevant company’s existing dividend policy.

DETAILS OF THE PROPOSED MERGER

The terms of the merger are based on the recent relative equity market capitalizations of
the two companies.

The merger is expected to be effected by way of scheme of arrangement (the "Scheme")

of Glaxo Wellcome and SmithKline Beecham under section 425 of the Companies Act of
1985. Under the Scheme, Glaxo Wellcome shareholders and SmithKline Beecham
shareholders will receive shares in a new holding company, Glaxo SmithKline, on the
following basis

• For each Glaxo Wellcome share, 1.0 new Glaxo SmithKline share

• For each SmithKline Beecham share, 0.4552 new Glaxo SmithKline shares

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

• For each Glaxo Wellcome ADR, 1.0 new Glaxo SmithKline ADR

• For each SmithKline Beecham ADR, 1.138 new Glaxo SmithKline ADRs

The merger is subject to the conditions set out in Appendix 1, including the approval of
the merger by shareholders of both Glaxo Wellcome and SmithKline Beecham, the
sanction of the Scheme by the High Court and satisfaction of certain regulatory
conditions.

The Scheme will require approval by a special resolution of the holders of Glaxo
Wellcome shares to be proposed at an extraordinary general meeting of Glaxo Wellcome.

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The Scheme will also require approval separately by holders of Glaxo Wellcome shares at
a meeting to be convened by direction of the High Court. The Scheme will require similar
approvals by the holders of SmithKline Beecham shares. The approval at each of the
Court-convened meetings is a majority in number representing 75 per cent in value of
those holders who vote at the meeting. In addition, the Scheme is required to be
sanctioned by the High Court.

It is intended that the formal documentation relating to the merger will be sent to
shareholders, and the extraordinary general meetings and the Court meetings of Glaxo
Wellcome shareholders and SmithKline Beecham shareholders will be convened, once
the pre-conditions set out in paragraph 1 of Appendix 1 (clearance by the European
Commission and the US Federal Trade Commission) are satisfied or waived. In the event
that the European Commission does not initiate Phase II proceedings, clearance should be
received in the spring of 2000. Under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (HSR Act), the merger may not be completed unless certain waiting period
requirements have been satisfied. The HSR Act provides for an initial waiting period of
30 days following an effective filing, which may be extended in the event that additional
information is requested.

The Scheme can only become effective if all conditions to the merger have been satisfied
or waived, including receipt of all shareholder approvals, sanction by the Court and all
other regulatory clearances. The Scheme would become effective upon the delivery to the
Registrar of Companies by each of Glaxo Wellcome and SmithKline Beecham of a copy
of the order of the High Court sanctioning the Scheme and registration by each of them of
such order. This is expected to take place two to three months after posting of the formal
documentation to shareholders.

Glaxo Wellcome and SmithKline Beecham have been advised that the Glaxo SmithKline
shares to be issued to holders of Glaxo Wellcome and SmithKline Beecham shares under
the Scheme are exempt from the registration requirements of the US Securities Act of
1933 and, as a consequence, the Glaxo SmithKline shares to be issued pursuant to the
Scheme will not be registered thereunder.

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EMPLOYEE INCENTIVE SCHEMES

The merger will affect the incentive awards granted under Glaxo Wellcome and
SmithKline Beecham’s share plans. Options will become exercisable and rollover of
those options into options in Glaxo SmithKline will be encouraged. It is expected that
awards under long-term and mid-term incentive plans will vest on completion of the
merger subject, in certain cases, to relevant approvals being given. Prior to completion of
the merger, each company will continue to grant options and awards in the ordinary
course.

As a leading worldwide pharmaceutical company, Glaxo SmithKline intends to retain,

motivate and recruit the very best employee talent available. To achieve this aim, it is
intended that the Glaxo SmithKline remuneration and incentive schemes will be
structured to reflect fully the international nature of both the business and the industry in
which they operate.

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