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PHARMA INDUSTRY – Putting it in Perspective
Continued from previous……
- Economic Aspect – As mentioned in the previous blog, Pakistan Pharma is now worth over 400 billion rupees a year in sales; production is more because there are several layers of stocking, companies, distributors, wholesalers, retailers. In terms of percentage of GDP, it would be around 1.5% which is significant as a single industry. There are two subsets in Economic importance of Pharma Industry.
- Value Creation – the industry uses local and imported materials and creates value added products. These products are sold on the local market and are exported to several countries thereby earning foreign exchange. Only a handful of companies are listed on stock exchange. Market capitalization is not a significant factor for Pharma. Nevertheless, shares of listed Pharma companies have generally been doing very well. Every industry carries several allied industries with it and the total value creation is much more than what is directly associated with the industry. Just look at the array of allied industries here.
- Raw materials – though the raw materials production was not in line with the Pharma industry requirements and growth, but lately more investment appears to have been done in this area. The number of locally produced raw materials is still small but it is increasing. Production of Sitagliptin as well as several types of pellets in Pakistan is very encouraging.
- Packaging Materials – Pharma industry uses three levels of packaging; Primary (capsule shells, glass vials, bottles, aluminum foils, PVC foil etc.), Secondary (labels, flip off seals, unit cartons, leaflets etc.), and Tertiary (cartons, shippers etc.). Most of the packaging materials are now produced in Pakistan, barring a few which require higher level of technology or investment. Many packaging material industries have specialized and are working exclusively for Pharma Industry.
- Printing – Pharma uses a lot of printing. All packaging materials are printed in some way. In addition, Pharma is promotion-intensive business. Millions of folders, cards, flyers, brochures, stationery, flexes, backdrops and what not is printed. Like packaging, many printing facilities are working only with Pharma companies.
- Gifts – Pharma industry is also very fond of distributing gift items to customers. Key chains, pens, leather wallets, mugs, visiting card holders, table sets, jars, clocks; the list is endless. There is an entire industry of its own built around this business. Lately, many items from China are also offered.
- Services – as a customer-centric industry, Pharma uses many services like traveling, lodging, boarding, event organization, recruiting, training and so on. Large number of service vendors and individuals are engaged in providing various kinds of services. Logistics is a huge head. Stocks are moving in and out, across the country and across the globe; so are documents. Courier companies, forwarding companies, custom clearing companies, insurance companies, shipping companies, airlines are used regularly.
- Distribution – Pharma companies do not sell directly to pharmacies. It is done through Distributors. Long time back, Glaxo, Hoechst, Pfizer developed their own distribution facilities and used for many years. However, it has been proven beyond reasonable doubt that distribution is a specialized function and should be left to companies specializing in this function. There is no exact figure on how many distributors are functioning in the whole country; the number definitely runs into hundreds. Few distributors are operating country wide; more have branched out in a region, and the largest number is functioning as individual distributors. The business channeled through distributors is the same; 400 billion rupees. At any given time, distributors are holding an average of 100 billion worth of stocks. They act as a cushion against short term shortages. Even if the manufacturer goes out of stock for a while, the stock at distributor keeps the market filled. Distribution of Pharmaceuticals is also regulated under Drug Act 1976; therefore, Pharma distributors are dedicated for this business, even when they may have some other parallel businesses.
- Value Creation – the industry uses local and imported materials and creates value added products. These products are sold on the local market and are exported to several countries thereby earning foreign exchange. Only a handful of companies are listed on stock exchange. Market capitalization is not a significant factor for Pharma. Nevertheless, shares of listed Pharma companies have generally been doing very well. Every industry carries several allied industries with it and the total value creation is much more than what is directly associated with the industry. Just look at the array of allied industries here.
- Employment Aspect – there are over 700 Pharma manufacturing companies in Pakistan. There are several marketing companies who get products mostly from the manufacturers and market these through their own teams. Sales teams are the largest number of employees; the larger companies have over 2,000 staff in sales and marketing, the number varies with the volume of business. Pharma business is based on personal selling; media advertising is not allowed (except for few over-the-counter drugs like paracetamol), hence the large number of sales and marketing staff. Next largest employer is Production and related Plant Operations, Quality Operations, Engineering, Warehousing etc. Exact figures are missing but an estimated half a million people are directly employed by Pharma industry; from workers to chief executives; the range is at its fullest.
- Revenue to Government – Pharma industry is a source of huge amount of revenue to the government.
- Import Duties – All imported items are subject to import duties, ranging from the smallest slab to the highest slab. The assortment of duties is quite large and versatile; custom duties, sales tax, additional sales tax, advance income tax, airport/ port charges, CAA charges, PRAL charges and so on. Finished pharmaceutical products do not carry GST. Though the manufacturer pays GST on several imported and local components but cannot pass it on to the consumer.
- Income Tax – Pharma employees are usually well paid and liable to income tax. Salaried people cannot avoid paying income tax anyway. Millions of rupees in tax revenue is collected by the government from Pharma Industry and employees.
- DRAP Charges – Government charges fees for all processes that it regulates. There is fee for registration, inspection, source change, name change, other information change, getting some document like COPP and so on. When the DCO (Drug Control Organization) was converted to DRAP (Drug Regulatory Authority Pakistan), all charges were increased manifold.
- CRF – Clinical Research Fund was levied several years ago. It was ordained that all manufacturers shall pay 1% of declared profit to DRAP (previously to DCO) as CRF. Hundreds of millions have been collected in this head. So far, government does not appear to have spent anything on clinical research; the collection however continues.
We shall see next some other areas of importance.
Continued……