The pharmaceutical industry in Pakistan.
Presently the number of registered or licensed manufacturers in the country is close to 300 units out of which are 32 majority control multinationals and there are many joint ventures with foreign collaboration. According to the IMS (International Market Survey) the total pharmaceutical market in Pakistan in 1996 was valued at US$900 million which grew at the rate of 20 per cent in 1996. The total world market for pharmaceuticals is estimated to be about US$248 billion in 1994 out of which North America had a share of 33.5 per cent followed by Europe at 27 per cent and Japan 21.5 per cent. Pakistan's share was about 0.3 per cent. The per capita consumption of pharmaceuticals is about US$4 in Pakistan whereas the average worldwide annual per capita consumption is estimated at US$30 with Japan the highest at US$ 180.
The multinationals have dominated the pharmaceutical market in the country and at one time their share in the overall sales was over 75 per cent. Presently the MNCs have a share of around 60 per cent of the total pharmaceutical market in the country. The MNCs have a strong research base and are one of Pakistan's most important high technology industry. The innovative contribution of this group has added immeasurably to the quality of life of the people of Pakistan.
No other manufacturing industry devotes more resources to R&D annually than the pharmaceutical industry. This rise reflects not only the long-term commitment of the industry in maintaining a strong and competitive research base worldwide, but also the growing intensity of R&D in the human pharmaceutical sector. Recent figures show that while R&D intensity in every major manufacturing industry has shrunk, those reported in the pharmaceutical and the chemical sectors have risen notably.
Pharmaceutical research is essentially a highly risky business. Out of 5000 or so compounds discovered and investigated, on average only one reaches the prescription market. It is estimated that it takes on average 12 years from patent filing to the launch of a major innovative medicine at a total cost of around US$400 million, as compared with US$ 100 million reported in 1985. Even so there is no guarantee of success in a highly competitive market where novel products are constantly and rapidly made obsolete or entirely replaced by new innovations - New Chemical Entities (NCEs).
The MNCs in the pharmaceutical sector are a steady employer of around 3000 people in Pakistan, 75 per cent of whom are skilled and possess high standard of education. Included are hundreds of pharmacists, doctors, including PHDs and engineers, besides other technicians and specialists. it can be safely said that this group supports some 130,000 family members directly and an additional 200,000 people in the ancillary industries. Apart from being a provider of employment the industry contributes substantially to the government its share of various tax revenues and levies and to the central research funds. Most of the drugs and medicines which are needed for the population are produced locally with the exception of certain products like anti-cancer drugs. Since for the purpose of this article the space available is limited, let us confine ourselves to some of the problems that this industry faces.
The pharmaceutical industry has been under strict price control for almost three decades. To obtain price increase it used to be a cumbersome exercise entailing considerable delays and more often than not the outcome was either nil or the quantum of price increase awarded was insignificant. It was perhaps in 1992 that the industry was given for the first time across the board price increase. Thereafter, a list was prepared for two categories of drugs controlled and decontrolled. it was explicitly stated that for decontrolled category of drugs there would be no price control but in actual practice the governments have not given the relaxation and continue to determine the quantum of price increase for both category of drugs. This continuation of price control adversely affects the pharmaceutical industry because with continuously rising inflation and imposition of additional levies the operating margins of the industry have been significantly reduced.
In 1995 and 1996 sales tax at 10 per cent was imposed not only on raw material, and packing material but also at the rate of 5 per cent on the sale of finished products as well which was supposed to be absorbed by the manufacturers. Fortunately the sales tax on finished products was withdrawn in October 1996 but earlier 10 per cent custom duty had been imposed on raw material including finished imported medicines.
While the sales tax has been removed by the government in the recently announced Federal Budget which is a welcome measure, the 10 per cent custom duty on imported raw material remains. As already stated above the industry is still within the ambit of price control and hence its flexibility to operate is considerably eroded. The present government is committed to deregulation, privatization and decontrol.
It is therefore difficult to understand why price control should continue in the pharmaceutical industry. It has often been stated that without price control the price of drugs and medicines would skyrocket. This cannot happen for the obvious reason that no company has a monopoly and with the exception of only two MNCs which have a share of a little over 5 per cent of the total pharmaceutical market the other MNCs have a share ranging between 1 to 3 per cent. With such strong competition amongst the multinationals and a growing share of around 250 local manufacturers, market conditions would ensure that prices remain at a very reasonable level.
However, if total decontrol in the real sense is not acceptable then at least for the so-called decontrol category of drugs the manufacturers should be allowed to raise their prices without any official interference. In the current year the industry has not been granted any price increase and although sales tax has been removed its impact will be felt from the beginning of next year as most companies are obliged to carry an inventory of around six months.
We have to acknowledge that over the last few years the attitude of the government and its policy on pricing has become more flexible than in the past. The pharmaceutical industry is conscious of its role in society and of its "essential nature" to the health of the people of Pakistan. The Pakistan Pharmaceutical Industry is a high technology industry that numerically represents single largest collective multinational financial investment in Pakistan. To achieve freedom from sickness and disease is the goal for research-based multinational companies. The MNCs are committed to provide to our people newer and more effective drugs wherever they are researched had developed to obtain better health for all Pakistanis by the year 2000.