Pakistan’s sinking economy, with one of the lowest GDP growth rates in the region, high unemployment, and worsening investment trends across all sectors, is causing the health sector, particularly the pharmaceutical sector, to be severely impacted. Pharmaceutical firms with such uncertainty in both the economic and political environment of the country face a lot of challenges in order to meet the huge demand for medicines by the 240 million people of the country. These challenges and hindrances originate mainly from the regulatory side, like unreasonable pricing control under high input costs, due to which many pharmaceutical firms shut down their activities or limit production.
Why are pharmaceutical companies shutting down, and why are multinational pharma companies, of which there were once 40, have dwindled to 17, out of which only 6 or 7 MNCs are actively producing medicines, while others are producing only specialized goods? The reasons behind this downfall are low profitability and margins, the difficulties faced by MNCs in repatriating their profit abroad, and the issue of governance - in which the government fails to provide patent rights to the companies who are producing their own products, the price freezing policy, and tough competition from national companies.
The absence of necessary regulations to run the pharmaceutical sector on its own fuel leads to the downfall of this sector. Further, the government remains wedded to the orthodox policies of the 1920s and little attention to the pharma sector enhances its challenges manifold. The pharmaceutical industry is a specialized labor and energy-intensive industry. In Pakistan, the firms are bearing high energy costs for production, as compared to regional peers. Here, we will take an example of the Getz Company, which is one of the biggest exporters of pharma products in the country. The manufacturing units of this company require a lot of water during production and the firms require water to be at exactly zero TDS units (total dissolved solvents) so it becomes useable in medicines manufacturing; our available water has anywhere from 500 to 1,000 TDS units. To filter and purify water to zero TDS requires a lot of energy, further escalating the cost of production. Also, the filtration process requires ROs and plants, which are to be imported mainly from the US, and there are high rates of tariff on it. Ahead of this, most industries don’t have piped connections for water and they end up meeting the demand for hundreds of thousands of gallons of water that they require for production through tankers, which also significantly enhances the costs borne by the industry.
Most industries don’t have piped connections for water, and they end up meeting the demand for hundreds of thousands of gallons of water that they require for production through tankers, which also significantly enhances the costs borne by the industry.
In the case of paracetamol, mainly produced by Haleon Company Limited Pakistan, which is a consumer healthcare medicine, the cost of production per kilogram of paracetamol has risen from Rs 750 in June 2020 to Rs 2400 per kg in 2023. But the issue is that the prices were fixed by the DRAP. Due to this price control, production in the country ceased because profitability in this situation was nearly non-existent – disincentivizing investment in the production of a necessary drug. That’s why there was a shortage of Panadol in the market a few months ago, as the production was stopped due to this fundamental market failure. After negotiations with the government, this issue was resolved through a rise in the prices of Panadol up to 30 rupees per sachet, and on this rise in price, the people and media raised their voice that there was a 100% increase in prices, not realizing that the market fundamentals of the production of the drug had changed.
The pharmaceutical industry produces 700 billion rupees worth of medicines, and if these are not produced domestically, then we have to import all of these in order to meet the demand of the masses. Still, for the above-mentioned production, 70 to 78% of APIs (active pharmaceutical ingredients) and packaging materials are imported, which costs more than production at the domestic level. This situation has been further aggravated by the consistent devaluation of the rupee. Despite this, the productive capacity of Pakistan’s pharmaceutical sector is reasonably healthy, as total exports amounted to $23.2 billion in FY23, and the pharma sector contributed almost $1,072.3 million, which makes 4.62% of the overall exports from Pakistan. Pakistan exports chemical and pharma products, and surgical instruments to Afghanistan and Sri Lanka, but the export potential is necessarily higher. Furthermore, the pharmaceutical industry employs approximately 1 million people in Pakistan, and if the sector’s productive capacities are enhanced, then it can generate more employment. It was said that by 1952 Pakistan had 9 pharmaceutical manufacturing units, while there were none in India and other regional countries. We had pharma schools, where people from Jordan came to study pharma. Today, Jordan is exporting $1 billion in pharmaceutical products to the world.
Pakistan mainly produces generic drugs and does not focus much on branded drugs, which can be a substantial source of revenue, so it is necessary for the pharma sector to produce branded products as well.
There is a dire need to invest in the pharmaceutical sector of Pakistan, because it is a critical requirement. MNCs can be brought back to the country by improving the fundamentals of the economy. The scalability and viability of this sector are very high, and the government needs to improve regulations, not only in terms of price control, but in control of quality standards as well. The sector also needs relevant and technical labor in order to be consistent with technological advancement. We also need to enhance the production of active pharmaceutical ingredients domestically, so that we become less dependent on imports and can indigenize the entire production chain.
Pakistan mainly produces generic drugs and does not focus much on branded drugs, which can be a substantial source of revenue, so it is necessary for the pharma sector to produce branded products as well. The pharmaceutical industry is one of the country’s nascent industries, and many international agencies, for example McKinsey, call it a sunrise industry. If some attention is given to, it may pay exponential dividends in generating growth in the economy.