Pharmaceutical industry around the globe is growing manifold. However, in Pakistan the industry seems to be stagnant and lurking between two sets of national and multinational regimes with eroding competitiveness of the national pharmaceutical companies. More than 700 companies are operating in the country, out of which less than 30 are multinational companies. The industry
contributes about 1% to the GDP annually. Despite a long history, the industry with a size of about USD 6.00 B still remains a formulation industry and is not noticeably producing Active Pharmaceutical Ingredients (API). On the other hand, the pharmaceutical industry in India is currently valued at USD 50 B. India is a major exporter of drugs and API with exports to more than 200 countries. Bangladesh’s pharmaceutical industry, driven by heavy investment by local
companies seeking to capture a larger share of the world market, is expected to grow by 15 percent reaching US$ 5.11 billion by end of 2023. Since 2018, the size of the domestic pharmaceutical market has shown an annual growth rate of 15.6 per cent over the past five years.
Whereas, Pakistan’s pharmaceutical sector could not grow to a mature pharmaceutical sector with a lesser annual growth of about 10 per cent during the last five years. It has not been able to change into a global success. The reasons, inter alia, being the sector is tilted in favor of large companies with the top ten firms enjoying 50% per cent of market share, significantly more than
in India, where it is about 38 per cent. Secondly prices of products produced by national companies are heavily controlled with excessive government regulation through the Drug Regulatory Authority of Pakistan (DRAP) as compared to those produced by MNCs. It is worth mentioning that both the national and multinational pharma companies import most of their API from China and India and the Drug Pricing Policy, 2018 provides for “one molecule (API) one price”. The only differential in Maximum Retail Price (MRP) can be on account of original research / brand. Whereas there are more than a hundred such cases where the price discrimination occurs. The following examples reveal the differentiation between the two:
Drug MRP for National
Pharma Companies
MRP for Multi- National
Pharma Companies
Clozapine 25 mg tablets Rs. 800 / 50 Rs. 1680 / 50
Lamotrigine 50 mg tablets Rs. 400 / 30 Rs. 1283 / 30
Pregabalin 75 mg capsules Rs. 300 / 14 Rs. 1304 / 14
Source: Pharma Plus – Neeshat Publications
Thirdly, due to existing pricing regime and weak intellectual property rights, MNCs in Pakistan target the local market and do not export from Pakistan as they cannot get into competition with their own principals in other countries.
The established national companies and new entrants in the market focus on low-volume, higher margin drugs, rather than manufacture the high-volume but lower value drugs on the National Essential Medicine List (NEML). Besides, the 600 plus smaller and medium sized firms (SMEs) supply low-priced drugs, fixed by DRAP, to rural/semi-urban markets within the country through wholesale of bulk packaged drugs. These firms produce basic generics, sustained by savings on packaging and marketing costs.
Another impediment is the absence of a national pharmaceutical policy framework. Companies cannot adequately make investment decisions due to the lack of certainty. The flawed and highly debated pricing policy of the government has added to the difficulties of the industry. The Drug Pricing Policy 2018, envisages a rule-based price setting as well as annual price increases tied to the Consumer Price Index (CPI). This was arbitrarily amended in 2020 to allow the government to exercise discretionary pricing controls on certain categories of drugs when required. Absence of rational market pricing has eroded profitability and dampened investment.
The FBR levied 17% Sales Tax on the drugs on January 15, 2022 through the Supplementary Budget. The same was subsequently withdrawn in the Finance Act, 2022. However, increasing more uncertainty for some industrial sectors including pharma industry, Super Tax of 10% with different slabs was imposed in the Finance Act, 2022. The issue was challenged in respective high courts which stayed the collection. However, the matter is now before the Supreme Court with
its directions for payment of 50 percent of the tax liability. The industry needs to bring it to the notice of the august court its earlier outstanding decisions pending implementation and directly related to the said taxation along with other financial and economic constraints. It should also file a timely reference with the FBR and M/o Finance for the withdrawal of the super tax in the forth coming budget for 2023-24.
There have been hardly any incentives from government to develop this sector over the years.
When viewed holistically, the value chain of a domestic production line is almost 95 per cent import dependent, across APIs, excipients, packaging and so on. The M/o Health and DRAP have yet to devise a pharmaceutical policy which could cater for the above-mentioned issues and prescribe incentives for the indigenous development of API in the country.
There are also issues of quality control, with no WHO approved quality control lab, and very little ability to even export to semi-regulated markets, like African origin and the Philippines etc., let alone the EU, UK and US. There are only one or two pharmaceutical companies which even qualify to submit the product specs / dossier for export to them. Of all licensed manufacturing exporting
units in Pakistan, none has been approved by the US Food and Drug Administration (FDA). This is primarily due to lack of incentives and lack of government emphasis on enforcing manufacturing compliances. Only three national companies have the World Health Organization (WHO) prequalification certification, which they have achieved at significant individual cost, without any
government facilitation or financial support.
Pharmaceutical firms instead of running a forward-looking business, are focused on survival, carving out profits on a daily basis by producing a larger menu of less profitable products. This constant struggle between different product segments leaves them little to no time in terms of professional business management and planning.
Pakistan certainly needs a National Pharmaceutical Policy framework to remove the abovementioned impediments, incentivize the investment climate and production of API and production of pharmaceuticals acceptable in the advanced countries as well, thus earning the much-needed foreign exchange for the country.
The writer is former Chairman
National Tariff Commission
Ex- Consultant NAB and the World Bank
He can be reached at abbasraza55@gmail.com
