Report from: Pakistan

January 2, 2009
Jane Wan
Pharmaceutical Technology
Volume 33, Issue 1

Although its domestic market is on the rise, Pakistan's market conditions have not proved welcoming enough to keep foreign investors.

Pakistan's ambassador to the Philippines, Muhammad Naeem Khan, recently invited an official of the Philippine International Trading Corporation to visit Pakistan to explore the possibility of selling pharmaceuticals to the country. The action drove home the point that Pakistan's pharmaceutical industry has become strong and affordable.

(STOCKBYTE/GETTY IMAGES)

Local industry on the rise. Indeed, Pakistan's pharmaceutical sector has developed by leaps and bounds over the past few years. The sector is valued at $1.2 billion and has experienced recent annual growth rates of 10–15%. More than 400 local firms are engaged in pharmaceutical manufacturing, meeting 80% of domestic demand, according to the country's Drugs Control Organization.

Several local companies, including Karachi-based Hilton Pharma, have moved into the Middle East, Far East, Africa, Sri Lanka, and Latin America with strong support from Pakistan's Export Promotion Bureau. Getz Pharma (Karachi) has successfully partnered with companies such as Sicor (Vilnius, Lithuania), and E-Pharma (Ravina di Trento, Italy) in pharma licensing. The Pakistani government has forged international alliances as well, including signing a Memorandum of Understanding with Brunei that harmonizes surgical procedures, training, and the pharmaceutical industry. And in January 2004, the government gave the green light to allow imports from India and China through custom-duty concessions under the South East Preferential Trade Agreement, thereby allowing the population to access cheaper drugs.

Despite stiff competition from neighboring China and India, Pakistan's local industry has actually eclipsed the presence of some 30 multinational companies (MNCs) in the country. Drug controller of Pakistan's Ministry of Health Dr. Fernaz Malik says that the market position of MNCs has dwindled from 80% to 45% during the past 20 years due to the growing domestic market. But this is not necessarily good news.

Foreign investment shrinking. There is more than domestic growth forcing MNCs out of Pakistan. "One of the biggest problems for our members is the inability to predict the direction of the Pakistani market," says Jonathan Kimball, associate international vice-president of the Pharmaceutical Research and Manufacturers of America (PhRMA). "The Pakistani government is interested in attracting pharmaceutical investments, but their policies have not promoted an environment that attracts them."

Taxes, for example, have increased despite Pakistan's trade liberalization policy enacted in 2002. The government does not grant special tariffs or tax exemptions to firms that have started manufacturing on Pakistan's soil. In India, the tax and tariff component is 34.57% for a locally produced product. At that rate, manufacturers are incented to increase prices to secure desired profit margins. In contrast, after joining the World Trade Organization in 2003, China reduced tariffs by 60% from 9.6% to 4.2%.

In addition, Pakistan increased charges on imports that remain competitive. And sales taxes on imported pharmaceutical packaging and raw materials are on the rise; firms are not allowed to pass the extra costs to consumers.

Disputes over custom procedures are commonplace in Pakistan as well. Cases involving frequent and unexplained rate changes, granting of preferential tariff rates to locally produced goods, and bribery all have occurred.

Intellectual property (IP) remains a thorny issue for the Pakistani authority and MNCs alike. A 2007 PhRMA report, National Trade Estimate Report on Foreign Trade Barriers, stated that IP rights in Pakistan are devalued because of new amendments to the country's 2002 Patent Act, which, among other things, restricts patent filings to single chemical entities for pharmaceutical and agrochemical inventions. The report recommended that Pakistan exercise and enforce protection of data as well as data conclusions so that an application cannot be made until a product's full term of protection expires, or until a party generates supporting data or obtains consent from PhRMA. In addition, the report suggested Pakistan put in place safeguards to prevent data leakage. Making matters worse, the US Trade Representative listed Pakistan on the United States' Priority Watchlist for 2008 because of its poor IP controls.

With a poorly regulated market in which local firms have a free hand in introducing products, MNCs, therefore, have been discouraged from launching new brands in the country.

In early 2008, Merck Sharp & Dohme Pakistan (Karachi) sold its business to Karachi-based Organon BioSciences based on declining sales and profits. Bristol-Myers Squibb (Karachi) is planning to close its subsidiary's (Karachi) doors because of Pakistan's worsening economic conditions and inflationary pressures, according to a recent Economist Intelligence Unit report. Other reports suggest that additional MNCs plan to exit Pakistan's market because of difficult market conditions

WTO gone wrong. Pakistan's ascension to the World Trade Organization (WTO) in 1995 was supposed to provide better opportunity for MNCs to enter the country's market. For example, the WTO's 20-year patent period allows firms to produce drugs in a noncompetitive environment at high prices and dominate the market. It also presents an opportunity for outside firms to gain authority within Pakistan in research and development, especially in biotechnology as Pakistan's progress in this area is in its infancy.

WTO membership, unfortunately, has not delivered the desired results. According to Kimball, "Pakistan's WTO membership demands a certain level of predictability and protection for foreign companies and their products. However, it does not necessarily police market-oriented standards. This is where pharmaceutical companies in Pakistan run into problems, especially with issues related to IP protection for pharmaceutical test data."

Bounce-back plans. To counter the exit of MNCs, Pakistan's government has pledged to form a task force comprising Ministry of Health and industry representatives to formulate short- and long-term policies. In addition, a committee will be established to promote and educate the public on the significant role in the country's public health played by the pharmaceutical industry.

The government is actively promoting Pakistan and its large patient population as a place to carry out clinical research. Moscow-based Synergy Research Group partnered with Metrics Research (Karachi), Pakistan' first multinational contract research organization, to establish a foothold in the country's untapped market and to compete with global organizations. And local giants SAMI Pharmaceuticals and Hilton Pharma announced plans to merge. This is the first time a merger is taking place between two top-10 companies in the country, which may spark a trend in local consolidation.

The government is also paying attention, in part, to local firms' requests. Although it did not grant industry representatives the price adjustment of 15–20% that they requested in May 2008, the government has granted concessions to companies to maintain prices at current levels. In addition, the Pakistani government reduced by 5% custom-duty fees on pharmaceutical ingredients and packaging materials, and exempted life-saving drugs and medical supplies from import duties and sales tax.

Domestic companies are trying to make the best of the current economy by exporting their products overseas. Pakistan is expected to export more than $600 million worth of pharmaceutical products by 2010 compared with $85 million in 2008, according to Kaiser Waheed, a senior member of the Pakistan Pharmaceutical Manufacturers Association. He recommends that exporters be granted cost-sharing for registration of products in overseas markets that will enhance these exports. The government lowered the import duty from 15% to 10% in September 2007, to allow domestic producers to manufacture finished drugs at lower costs.

Even though Pakistan's market environment is not very appealing compared with those of China and India, industry players believe the country's ideal geographical position and low-cost base will help it succeed. "I strongly believe that if issues such as IP rights are adequately protected, and government policies are geared to rewarding innovation [as well as transparency], then the industry can emerge as a regional leader," says Kimball.

Jane Wan is a freelance writer based in Singapore.