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Pharmaceutical industry in Pakistan.

Pharmaceutical Industry in Pakistan

According to the Ministry of Health, there are 224 licensed units, producing medicines and other pharmaceuticals, of them, 32 units are owned by multinational companies. More than 95 per cent of the total investment of Rs. 2.5 billion is of the private sector. The 32 multinational companies control about 70 per cent of the country's drug market, and the rest is shared by some 150 Pakistani firms. Despite 85 percent self-sufficiency in its requirements, the country imported Rs. 3.723 billion worth of medical and pharmaceutical products in the last fiscal year, ending June 1990, as against Rs. 3.318 billion spent on these items in 1988-89, according to the State Bank Annual Report.

On the other hand, Pakistan's exports of medicines and pharmaceuticals amounted to Rs. 382 million in 1989-90, more than thrice the exports (Rs. 110.4 million) in the preceding year. The main importers of Pakistani drugs and medicines were Bangladesh, Iran, Malaysia, SriLanka and Saudi Arabia. The industry claimed sources said that the quality of drugs manufactured in Pakistan was according to international standards and one of the best in the developing countries.

The major problem, facing the pharmaceutical industries since the promulgation of Drugs Act 1976, was the "arbitrary fixation" of prices and the allegedly unreasonable attitude of the previous governments to award reasonable increase in prices commensurate with the devaluation of Pakistani rupee and inflationary trends in the country. The prices have been under severe regulatory controls, while imports of basic raw materials had become dearer by 100 to 200 per cent during the last 15 years. Moreover, local manufacturers believed that the multinationals should be confined to manufacture products of their own research, leaving production of all other drugs and medicines to national pharmaceutical companies. This would not only rescue the national industry from an imminent collapse, but also result in cheaper availability of drugs and medicines, and savings in foreign exchange.

There are about 75,000 medicines being sold in the market, 70 per cent controlled by the multinationals. It is alleged that some multinationals were using the transfer pricing mechanism, which allowed a local subsidiary to import raw material from the parent company at disproportionately high prices, to take away bulk of profits. One multinational company was reported to have charged eight times higher prices for a broad-spectrum anti-biotic under the guise of transfer pricing.

The number of import licenses issued for finished and raw materials for pharmaceutical products increased from Rs. 30 billion in 1984-85 to Rs. 5.5 billion in 1988-89, according to Chief Controller of Imports and Exports. The wholesale price index of drugs and medicines increased from 100 in 1980-81 to 156.66 in 1988-89, and is estimated to have gone up further by 10 per cent or more in the past 18 months.

The principal reason for the increase in costs was a steep fall in the value of Pakistani rupee, which depreciated by over 180 per cent against the major currencies in the past decade. There are some 30,000 people, including large number of doctors, pharmacists engineers and skilled and semi-skilled workers, employed in the pharmaceutical industry. The industry has also been instrumental in the development of ancillary industries like glass bottles, plastics, paper, printing, packaging and engineering industries.

Pharmaceutical Companies on KSE

At present there are 16 companies on the list of Karachi Stock Exchange. All the companies belong to multi national group except Ferozsons Laboratories which is a Pakistani company. Total equity capital of these companies stood at Rs. 1.653 billion including Rs. 734 million free reserves and surplus. Top five companies according to sales were the following in 1988-89.

Table : Top Five Companies

(Rs. in million)
Name Sales
Ciba Geigy 1487.49
Sandoz 836.80
Hoechst 736.19
Wellcome 656.00
Glaxo 608.92


Source: Annual Reports 1988-89.

All the companies except Reckitt and Colman showed a rise in sales during 1989. Appreciable rise in sales was recorded by Hoechst (43.45%) SK&F (25.06%) Ciba Geigy (23.70%) and Glaxo (20.50%). In respect of Hoechst local sales increased from Rs. 567 million in 1988 to Rs. 700 million in 1989 while export sales increased from Rs. 27 million to Rs. 135 million. The profit before tax was a complete turn around with Rs. 41 million as against a similar loss in 1988. Export sales mainly directed towards USSR for the first time this year.

In 1989 Ciba Geigy improved sales to the extent of 23.70% as a result of improved product mix and with slightly better selling prices. The decline in sales of Reckitt & Colman was attributed to the imposition of sales tax on a number of household products. Another factor was law and order situation due to which there was reduction in consumer purchases of less essential household products and lowering of trade stock levels.

Profit picture is quite encouraging. Out of 16, only 13 showed profit. Companies which are in the red were Leiner, and Otsuka, while Zafara has just started its operations. Companies which have improved profits were Cyanamid (139.06%), Wellcome (133.17%) and Glaxo (33.85%).

The export sales of Glaxo were satisfactory. The Government has included pharmaceuticals in the list of items for which income tax relief has been increased from 50% to 75%. In November 1989 Glaxo multi-purpose fermentation plant was inaugurated. After initial teething troubles, the commercial production of griseofulvin was successfully established. Trial manufacture of penicillin feed-stock for the manufacture of cephalosporins is currently in hand. The pharmaceutical industry in Pakistan is unhappy that at a time when the government is embarking on decontrol and deregulation in a big way in a hurry in almost every economic sector, their industry is left largely untouched and as totally controlled. The pharmaceutical manufacturers have been projecting their cause both for deregulation and higher prices because of the higher cost of the imported raw material due to the steady devaluation of the rupee, higher manufacturing cost due to rising input costs and higher wages. But the government has been reluctant to raise the prices, except in some cases where there are suspicions of impropriety. As a result, profitability of the manufacturers has suffered, despite the fact that chemicals and pharmaceutical companies have the largest investment in Pakistan, even higher than the textile industry.

In the recent past - during the regime of the previous Government - increases in the prices of drugs and medicines were liberally allowed. In certain cases, the price increase was proved to be 30 to 50 per cent. And yet the price control is supposed to have been maintained which continues to be a source of complaint and grievance for the pharmaceutical industry. That the profitability of this industry has remained progressively on the increase in some efficiently managed companies despite control on prices, is not only evident from the balance sheets of the quoted companies but also from the steady pace of their expansion over the past four decades.

NEW PROJECTS

Zafara International Limited

Located at Nooriabad, District Dadu, the company was incorporated as a private limited company on December 13, 1984 and subsequently converted into a public limited company on November 22, 1988 at Karachi with the basic object of setting up a unit for the manufacturing of Disposable Syringes and Needles in first instance and later on exted to manufacture intravenous infusions and other pharmaceuticals and allied preparations. Technical know-how for manufacture of Disposable Syringes and Needles has been provided by Boin Medica Company Ltd., Seoul, Korea. The complete plant and machinery has been supplied by Lucky Gold-star International Corporation, Korea. The project has a capacity to manufacture 30 million syringes and needles per year based on 3 shifts in injection Moulding Department, double shift in Needle Grinding Department and single shift in Assembly Department. The company has exclusive rights for Pakistan, Gulf Co-operation countries, Bangladesh and India to manufacture, distribute, export and use |SAFTI' trade mark of Boin Medica Co. Ltd. commercial production started in 1990.

The authorised capital of the company is Rs. 30 million divided into ordinary shares of Rs. 10/- each against which the Paid-up capital stood at Rs. 30 million.

At present full requirement of the country regarding Disposable Syringes and Needles is imported from various countries of the world. The current annual requirement of the country is estimated at 150 million Disposable Syringes and Needles and the company has a capacity to manufacture 30 million syringes and needles per annum. The company has good potential for future growth. Market is fast growing at an estimated rate of 15% per annum. Besides general public, main buyers of these products are laboratories, government hospitals, defence and other health institutions. [Tabular Data Omitted]

Table : Estimated Cost of Project & Means of Financing

(Rs. in million)
Land and Building 7.86
Plant and Machinery 21.97
Import Expenses/Surcharges 4.23
Engg./Tech./Installations Fee 10.69
Pre-Production Expenses 4.85
Trial Production 2.60
Bank Charges 3.82
Erection Cost 1.00
Other Capital Assets 2.31
Working Capital 8.35
 67.68


MEANS OF FINANCING:
Equity 30.00
Debts 37.68
 67.68
COPYRIGHT 1991 Economic and Industrial Publications
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Industry
Publication:Economic Review
Date:Jun 1, 1991
Words:1526
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