With globalization and genericization, the focus of multinational companies towards lesser regulated markets, BRIC (Brazil, Russia, India and China) economies and South Asian Association of Regional Cooperation (SAARC) countries has come under the spotlight. The shift in focus of multinational companies heralds the role of countries like Pakistan has to play in future. Hence, it is high time we paid attention to neighboring economies such as Pakistan.
The pharmaceutical industry in Pakistan, characterized as a developing market, is relatively small in size and uncompetitive as compared to its neighbor India. In 2006, the pharmaceutical industry of Pakistan was worth about US $1.3 billion, representing merely a 0.31 percent of the global market.
Pakistan lags far behind in drug exports, as the small-scale pharmaceutical manufacturing sector in the region is mainly capable of supplying basic medicines for domestic consumption.
A fragmented industry
With around 66 per cent increase in the number of companies within a decade, currently the region has 592 pharmaceutical companies, including both manufacturers and importers. Pakistan has about 400 pharmaceutical manufacturing units, including 30 multinationals.
Steady growth for native companies
Currently, Pakistan's pharmaceutical sector is almost evenly divided between the domestic companies and the MNCs. Though MNCs dominated the phrama market in value terms during mid 70s to early 90s, the local companies have gained a grip on the market at present. Market domination by the MNCs in value terms plummeted from 80 per cent in the mid 70s to 53 percent at present. During early 1990s, MNCs accounted for 75 per cent of market domination in terms of value. However, in terms of volume the local pharmaceutical industry accounts for about 85 per cent of the total market.
A 50/20 effect
The top 50 companies enjoy 84 per cent of the market share, while the top 100 companies control 95 per cent of the market. Of the top 50 companies in the market, 20 are MNCs.
Chronic diseases Vs anti-infectives
Pakistan is a land of extremes. On one hand, about 80 per cent of the population has no access to basic healthcare facilities, while on the other hand, the economically better-off suffer from lifestyle diseases. Major therapeutic areas in the region are anti-infectives and alimentary tract/metabolic disorders. Infectious diseases constitute the highest portion amongst all, comprising about 66 per cent of the total diseases. Diabetes and cardiovascular diseases contribute 11 per cent, while psychiatric diseases 3 per cent of the total diseases. According to WHO reports, these categories are growing at a rapid pace and will account for a good per cent of diseases in next 5-10 years. The rising sophistication of patient demand and changing demographic profiles are expected to provide some value growth to cardiovascular and central nervous system (CNS) sales by 2010.
Long-term prospects
The estimated size of the Pakistan pharmaceutical market is around US $1.3 billion. It comprises of an 80 per cent retail sales and a 20 per cent healthcare institutions. According to different estimates, the market is expected to grow to over US $2 billion by 2010. The prescription, OTC and generics markets in the region were valued at about US $880 million, US $300 million and US $120 million, respectively, in 2006. By 2010, these markets are expected to reach around US $1.3 billion, US $450 million and US $180 million, respectively.
Pakistan lags far behind in pharmaceutical exports and its exports account only 5 percent of the local production. However, there is a growth potential in coming years. Pakistan had exported drugs to over 80 countries in 2006. The WTO regime has boosted export of generics to key emerging markets in the Middle East, Africa, Central and South Asia. Pakistan has a location advantage, which allows it easy access to these markets. Further, the country can focus on Commonwealth of Independent State (CIS) countries. In 2006, the value of Pakistan's pharmaceutical exports was US $60 million. It is expected to rise to about US $300 million by 2010. The government is planning various incentives to encourage local producers to achieve greater success in this sector.
Growth factors
Factors impeding growth include an inadequate regulatory infrastructure, economic and political instability and a high level of poverty. The government has failed to upgrade the basic regulatory framework. MNCs have been continuously demanding the modernization of the regulatory framework, as the existing regulations discriminate against foreign companies. The major hurdles are the government's drug pricing and reimbursement policies and import taxes. The local pharmaceutical industry remains dependent on raw materials sourced from abroad due to its relatively poor technical capacity and lack of financial resources. Even MNCs are sourcing raw materials from their parent companies on a transfer pricing basis. The high inflation, which has led to an appreciation of the real exchange rate, has made imports costlier.
Intellectual property rights including patent protection remain a contentious area, as the authorities concerned have failed to enforce the new patent law. Political tensions and the military rule have hampered reform initiatives. Moreover, strained relation with India is still a threat for the country.
Healthcare spending
In 2006, Pakistan's per capita spending on pharmaceuticals was very low at around US $6-8, comprising less than 1 per cent of the country's GDP. The vast majority of the population is unable to pay for even the most basic healthcare, while the public sector accounts for only a quarter of total health expenditure. Private spending accounts for 75 per cent of total healthcare expenditure sourced through out-of-pocket payments, international aid and non-governmental institutions. The Government has allocated a budget of US $172 million for the health sector in fiscal year 2006-2007.
Healthcare facilities
There are more than 12,000 hospitals with over one lakh practicing doctors in the region. The doctor patient ratio is below the recommended ratio of 1:1000 and the nurse-to-patient ratio is even poorer. At least 80 per cent of the population does not have access to basic healthcare facilities and around 80 per cent of all new births are at home. This shows the poor healthcare facility. Some people in major cities have access to advanced healthcare services, but the vast majorities are unable to pay f controlled or even the most basic care. Pakistan's maternal mortality and neonatal mortality rates are high, because of dearth of qualified staff and medical facilities and inadequate prenatal care.
Drug costs
Though the government has controlled the drug prices in accordance with the 1976 Drugs Act, the prices are still higher. The government splits drug pricing into two categories: controlled and decontrolled products. The prices of the former drugs are tightly controlled, while the prices of the latter are left to market forces. But in reality, the prices of decontrolled drugs are also as controlled by the government as the controlled list products.
Despite the implementation of legislation stipulating an year-over-year price rise in 1994, increases have only been permitted four times (in 1995, 1996, 2000 and 2001). There was also a price cut in 1999. Drug prices have not been revised for the last six years. The pending price rise, coupled with rising production costs, inflation / currency devaluation and existence of a sizeable black market in pharmaceuticals have made realization of margins difficult. While commenting on Pakistan's pricing regulations the pharmaceutical research and manufacturers of America (PhRMA) claimed that despite providing information regarding country of origin price, regional prices and product cost, the government sets prices at around 40-50 per cent lesser than the original submitted price. According to the Ministry of Health of Pakistan, the country's expensive pharmaceutical market discourages 41.2 per cent of its population from procuring medicines.
Imported raw materials
High drug prices in Pakistan are due to the non-availability of raw materials and their reliance on large quantities of imported raw materials from India, China, Europe and Japan. About 90 per cent of the basic raw material used for drug manufacturing is imported.
Patent regime
As a WTO member, Pakistan is subject to the terms of the Trade-Related Aspects of Intellectual Property Rights (TRIPS). Pakistan introduced patent legislation in December 2000 in the form of a Patent Ordinance, which was amended in October 2002. Though a patent office has recently been established, its activities are still at a very early stage. The amended patent law of 2002 is characterized by lack of protection for clinical dossier data, the parallel importation of molecules patented by originator companies, the absence of 'second use' patents, barriers to the patenting of biotech products and lenient provisions on compulsory licensing.
The current patent legislation has permitted the widespread copying of patent-protected, branded products and the proliferation of counterfeit products. Low-cost domestic companies have welcomed the greater flexibility afforded by the 2002 amendment, while MNCs have criticized it for ambiguities and the poor enforcement of regulatory standards. Pakistan is on the 'priority watch list' of the US in terms of its compliance with intellectual property standards. Despite the financial implications, the reform of the IPR regime as per international standard is essential for the development of the domestic pharmaceutical sector and for attracting foreign direct investment.
There is a difference between government regulation and MNCs stance regarding trademarks. The government requires that the non-proprietary generic name of the substance be printed on pharmaceutical packaging with at least the same prominence as the brand name. MNCs claim that such a provision undermines trademark rights and gives an unfair advantage to the local generics sector by encouraging substitution.
Whats needed
The current scenario of Pakistan's pharmaceuticals market indicates a very difficult long-term prospect for development. Modernization of healthcare sector, reform of pharmaceutical policy, regulatory reforms, along with economic development and regional harmonization could bring the industry in line with global standards.
(The author is senior research analyst, Healthcare Practice, Frost & Sullivan)
(The author can be reached through sthomas@frost.com)