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Review of The Literature and Studies
Review of The Literature and Studies
RELATED LITERATURE
♣
The Pakistan pharmaceutical industry is a high technology, essential and
even strategically important industry that numerically represents the single
largest collective multinational investment in Pakistan; i.e. 31 dedicated and
fully committed foreign companies. It is an industry which manufactures a
wide range of research based life saving and life-enhancing medicines. It is
a major contributor to the health of the Pakistani people, and to the
economic well being of the country. Without a strong domestic
pharmaceutical sector, which directly supplies almost 80% of our nation’s
total pharmaceutical needs, Pakistan would have fewer resources to pay for
adequate health and social care.
According to the Ministry of health, there are about 250-270 licensed units
producing medicines and related goods in the country. Although it may
appear that this industry is highly fragmented, in actuality only 20 MNCs
hold nearly 60% of the market share. Therefore, the organized sector may be
defined as oligopolistic structured. At present there are 16 pharmaceutical
companies listed on the Karachi Stock Exchange, all but two (Ferozsons
labs and Zafa) being subsidiaries of multinationals.
♥
LIST OF THE 31 RESEARCH BASED MULTINATIONAL
PHARMACEUTICAL COMPANIES CURRENTLY OPERATING IN
PAKISTAN:
USA COMPANIES:
1. Abbot Laboratories Pakistan limited
2. Cyanamid Pakistan Limited
3. Merck Sharp & Dohme of Pakistan Limited
4. Parke Davis & Company Limited
5. Smith Kline & French of Pakistan Limited
6. Bristol-Myers Squibb Pakistan (Private) Limited
7. Wyeth Laboratories(Pakistan) Limited
8. Upjohn Pakistan (Private) Limited
9. Eli Lilly Scientific Office-Pakistan
10. Johnson & Johnson Pakistan (Private) Limited
BRITISH COMPANIES:
GERMAN COMPANIES:
Publication of Overseas Investors Chamber of Commerce & Industry (O.I.C.C. & I.)
SWISS COMPANIES:
JAPANESE COMPANY:
DUTCH COMPANY:
FRENCH COMPANY:
Table 1:
COMPARISON OF PERFORMANCE OF MAJOR PLAYERS IN THE
PHARMACEUTICAL INDUSTRY
Ψ
More specifically the domestic industry prepares drops, tablets, capsules,
injections, powders and ointments from imported basic chemicals. At
present, about 1000 different drugs are available in Pakistan. About 16,000
formulations have been registered in different dosage forms and strengths,
5,000 of which are for local production and the remainder in respects of
imports. Since the industry is primarily engaged in packaging and
formulation, investment in equipment and machinery is relatively low. Low
depreciation charges are a hallmark factor in inflating the bottom line.
Backed by the R&D and technology of globally recognized parents, local
subsidiaries have virtually zero capitalized R&D expenditures on their
books. The major competitors regularly engage in BMR (Balancing,
Modernization and Replacement) activities and try to solicit Maximum
advantage from the marketing, sales and production expertise of parent
companies.
a) Price
categories, with products finding their own price levels according to the
dictates of market forces (intense inter-company competition) for each
therapeutic segment.
b) Transfer Pricing
To emphasize to the authorities that the Pakistan government must not only
continue to respect international patent laws, but to vigorously support,
monitor and promote such intellectual property rights within Pakistan
particularly for the pharmaceutical industry, in which multinational research
based companies provide innovative vital ongoing research at great expense
and over a very long time frame. To work towards atleast a 16 years period
of firmly enforced patent protection in Pakistan for all patented products.
Furthermore, to pursue the need that such patent protection is extended to
products (compounds) and just processes.
2. To maintain a valuable data bank for industry related statistics, for the
benefit of the Bureau’s members, as well as for the information of
interested government agencies and other interested persons and
groups.
ℵ
The Overseas Investors Chamber of Commerce and Industry (O.I.C.C. & I)
stemmed from and superseded the Karachi chamber of commerce, which
was founded in 1860, and is the oldest chamber of commerce in Pakistan.
To conform to the government’s policy of rationalization, the present name
of the chamber - Overseas Investors Chamber of Commerce & Industry was
adopted in 1968. The Chamber has 163 members, of whom 76 are industrial
Publication of overseas Investors Chamber of Commerce & Industry (O.I.C.C. & I.)
60 British 41 European
33 American 12 Japanese
6 Middle Eastern 2 Canadian
9 others
The 29 members companies of the Pharma Bureau, which are all industrial
undertakings, represent 38% of the total 76 manufacturing units. As a group,
the 31 multinationals operating in the industrial sector of the O.I.C.C. & I.
represent 41% of the total number of manufacturing units. Numerically
speaking, the 31 pharmaceutical members represent the largest single
overseas group investment in Pakistan.
The chamber projects the views and relations of its members to policy
makers, and is often called upon to assist in formulating government policy
in the financial, commercial and industrial businesses operating in the
country.
One of its more important objectives is to ensure that members views are
heard and given due consideration by the government, while forming and
implementing policies for the country’s socio-economic development. The
chamber also takes up with the authorities, difficulties encountered by its
member firms arising from the administration of such policies.
The maximum retail prices of drugs and the ministry of health under the
Drug Act of 1976 control medicines. The current pricing formulae are as
follows.
A. Imported drugs
The maximum retail price is calculated by adding a 40% mark-up to the cost
and freight price. The mark-up includes the import license fee, the insurance
fee, distribution expenses and the profit of the importer and seller.
B. Local drugs
The maximum retail price is equal to the prime cost plus the mark-up. The
prime cost includes the cost of raw and packing materials while the markup
covers the profit of the manufacturer and the retailer. It also includes
administration, sales promotion, distribution, worker welfare, R & D,
gratuity and education fees charges etc.
The single most important issue currently facing the companies is that of
pricing. Prior to 1970, there were no government regulations regarding the
initial fixation or the subsequent increase in the retail prices of
pharmaceutical products. The prices were determined according to the
market forces of demand and supply. The import of raw materials and
finished goods only required standard commercial licenses.
Towards the end of 1970 the standard import licenses were replaced by cash
-cum-bonus-licensing system to greatly bolster the country’s exports and
improve the country’s foreign reserves. Since this was not entirely
successful, an element of price controls crept into government policies.
Between 1970 and 1990 the industry had to face a range of controls and
restrictions. Due to this the industry suffered very badly. The
pharmaceutical companies were allowed price increases on a case to case
basis and even those few companies that did receive permission to raise
their prices were not able to adequately cover their losses due to inflation
and devaluation.
The Drug Act of 1976 empowers the ministry of health to regulate the prices
of drugs and medicines. For the last two decades, regulatory authorities and
producers, especially MNC’s have been at loggerheads over pricing, since
profits and social welfare became competing goals. The retail prices of
drugs are the same, whether they are produced by national or multinational
firms. However the industry relies on imports for 90 to 95% of raw
materials, which represents about 60% of the total product costs.
Category A and B, accounting for about 72% of the market were placed
under price controls, while products falling under category C were
decontrolled. Furthermore, the industry gave an undertaking that price
increases even for decontrolled drugs would be gradual. To separately
reassure the public, MNCs decided in February 1994 to voluntarily restrict
price increases to an agreed level with the government, as well as impose a
price freeze until end June 1994. In end June 1994, this price freeze was
voluntarily extended by the industry for an additional period of three
months. However, once the free market forces were allowed to interact, the
prices shot up by almost 100%.