PHARMACEUTICAL INDUSTRY IN

PAKISTAN

The current inflation is affecting not only the economy of Pakistan but also the
world globally, the prices of all products are increasing, the sellers are putting whole
pressure on the consumers without cutting down their profit margins, this will definitely
lead to decrease the buying capacity of peoples, and then the sellers would be at the
losing side. That does not mean that the sellers are not aware, but the problems is that
they don’t know how to handle that kind of situation, same is the case with
pharmaceutical industry in Pakistan, who had unanimously made the decision to increase
their medicines prices up to 20% to 30%. Their standing is this that the cost of raw
material has increased in the same proportion and their profit margins have been
decreased, they have forwarded the request to the authorities to approve this increase and
the chances are the authorities will approve this increase.
No doubt their standing is justified that the cost of raw material has risen, but we
should first identify that what is proportion of raw material in the total cost of a product,
it will be very interesting for some people to know that the proportion of raw material
cost is from 5-10%( it is lesser in some products) , but from the manufacturing to
reaching that medicine to the ultimate customer, its price rises up to 300 to 400%(I am
setting it at lowest side) , for example the antibiotics which are frequently prescribed its
cost of production is not more than 1 rupee, but the same medicine costs Rs.15 to the
customer, so what are the factors which make products so costly.
Pharmaceutical companies are of two types, one is manufacturing and other is
franchising, most of the companies manufacture and sell their medicines themselves,
while some companies purchase marketing rights from any manufacturing company, if
you are interested in pharmaceutical marketing you can easily get these products right to
market at 20%-40% of trade price, for example, if the trade price of a products is Rs.10
you can purchase it by paying 2 -3 rupees , so remaining can be one’s profit. I think it
sounds great for investors, even the smugglers that they can make profit without breaking
the law, isn’t it? Moreover when the chemist receives this product on T.P (trade price)
Rs.10, he will sell it at15% profit margin that is Rs.1.76 at one tab, so the customer has
paid Rs.10+1.76=11.76 and the difference of cost and sales price is Rs.9, he is paying 9
rupees extra, it is an example of a franchise business., if it has been a manufacturing
concern the profit margin definitely will be higher. .
Secondly, Pharmaceutical companies are investing heavily in promotional
activities, like gifting for doctors, refresher courses for the doctors, giving them medical
equipments, arranging awareness programs. This also leads to the price hike of the
medicines. Apparently it sounds great rather necessary but in practice this fair trade is
also marred with unethical practices. For example, bribing doctors to prescribe their
medicines, like foreign tours, giving highly valuable gifts e.g. cars, paying their clinic
rents, their utility bills, celebrating their even their kid’s birthday, financing their kid’s
educational expenses. Most of the antibiotics are sold on “deals” their rates are fixed like
any other commodity, who bids higher gets the business, even one of the top national
company fixes a fair amount of budget for that kind of activities i.e. 3% of their sales
value. Two years back it was 7%.
Moreover, the profit margin of chemist is 15%, which is nearly 5 times greater
than the profit a seller of FMCG (fast moving consumer goods) gets.
The law enforcing agencies should come forward and put a close check on this
industry, pharmaceutical companies should also sit together and make decisions not to
get involved in unethical practices and decrease their unnecessary promotional expenses,
and the government should frame a law to set profit margin. If these issues are settled, the
next meeting of pharmaceutical industry will be conducted to provide some relief to the
people not to raise the prices.

By:

M.S. Ashraf, Sahiwal.