Dear Colleagues! This is Asrar Qureshi’s Blog Post #627 for Pharma Veterans. Pharma Veterans welcome sharing of knowledge and wisdom by Veterans for the benefit of Community at large. Pharma Veterans Blog is published by Asrar Qureshi onWordPress, the top blog site. Please email to asrar@asrarqureshi.com for publishing your contributions here.
Opening Note
February 2022 marked my completing 47 years of working in Pharma Industry. Allah be praised. I am still working. My journey of near half century is also the journey of Pharma Industry in Pakistan. Great changes have occurred in this time and a lot could be written about it. In my blogs, which were started about four and a half years ago, I have covered several topics related to Pakistan Pharma Industry. This multi-part series shall do and review the SWOT – Strengths, Weaknesses, Opportunities, Threats – of the Pharma Industry.
STRATEGIES
It is now time to strategize, as this was the purpose of this long exercise.
Strategies are made on these parameters:
- Strategies based on Strengths
- Strategies to mitigate Weaknesses
- Strategies to exploit Opportunities
- Strategies to avert Threats
We shall follow the same line of thinking. We have completed Strategy Recommendations based on Strengths.
Strategies to Mitigate Weaknesses
- Consider Addition & Upstream/Downstream Expansion – Our Pharma manufacturers are so much focused on production that they do not wish to do anything else. Diversification is not considered at all. Relevant aspects are given below.
- Owning a manufacturing unit, even if it is a shabby one, is the ultimate desire. It probably gives a huge sense of pride to have a ‘factory’ and being a ‘factory owner’. Unfortunately, DRAP also encourages establishment of new units and renewing licenses of old ones which do not fulfill even the basic requirements. The first consideration should be to bring to standard the unit which is there already. Resistance against complying to standards comes in many forms and it may be quite forcefully presented on various forums. The observation is that the owners of the poorest units are most vocal ostensibly to protect themselves.
- Next stage is where the manufacturing unit starts doing well and money starts pouring in in predictable streams. The owners then take out money and start investing elsewhere, rarely in other businesses. The most desirable investment is property, at home and abroad. During the financial meltdown in Dubai several years ago, the biggest hit was taken by Pakistani and Indian investors; after all we come from the same stock. Those with rural background are also interested in agriculture property. Reinvesting in existing business is the last priority and that also under coercion.
- The first expansion may be done within the existing business. It is adding new manufacturing capability, new section, addition of capacity, etc. Pharma manufacturing units are presently established with either of the two objectives: to do business through own marketing; or to do business through franchising and giving products to marketers on contract. There is a third option; doing toll manufacturing for bigger pharma companies, but it is a tedious route and not everyone wants to take the hard road. In fact, the preferred model currently is franchising out. The franchisees are hard negotiators, they fight for every paisa. The manufacturer is forced to keep his costs low to earn some profit from the deals. The products being offered are more or less the same: couple of antibiotics, anti-ulcers, pain killers etc. It will work well if a deviation is considered, for example, soft gel products, lyophilized products, orally dispersible drugs etc. An expansion in this direction will get more traction and business.
- Upstream expansion is going into materials business, raw materials, and packaging materials. Recently, DRAP has launched a policy for encouraging API – Active Pharmaceutical Ingredients manufacturing in the country. It is a breakthrough policy which offers several incentives for putting up API plants. Presently, over 85% of APIs are imported, mainly from India and China. China is the largest manufacturer of API intermediates – the basic materials from which APIs are processed. Even India buys intermediates from China and processes them to make APIs. Pakistan has twelve API manufacturing units, but these are mostly small and manufacture the same API; twelve plants are not even making twelve materials. Even those twelve materials are not produced in enough quantity to cater to local demand fully. The gap in this area is huge even if only the local market is considered. With good manufacturing capacity, the APIs can be exported also. This is a very promising upstream business expansion opportunity.
- Most pharmaceutical packaging materials are also imported; aluminum foils, PVC/PVDC foils, aluminized paper for sachets, glass vials of various sizes, and glass tubes for making ampoules are all imported. Ghani glass is the only manufacturer/supplier of glass ampoules (there are couple of small ones also) and glass vials under 100ml size. 100ml and bigger sizes are imported. Aluminum foils are imported from China because Europe is too expensive. A company in Lahore has put up a plant where they import three sheets separately from China and assemble them to make aluminum foil for alu-alu packaging. They are still struggling with quality issues. There is a huge opportunity in this segment also, both at home and abroad. There is only one competitor, Ghani glass, but they refuse to upgrade themselves and insist on selling mediocre/poor quality. The users do not have any other options, particularly those who cannot import big quantities at one time. About foils. To my information, there is no proper slitting unit to cut bigger foil rolls into custom sizes because it should be done in Class A clean room which no one has. The bulk stock is smuggled from Afghanistan through dubious means and is sold on the market in dubious manner. All these areas can be turned into business opportunities, and someone shall do so.
- Downstream expansion would mean establishing distribution houses or further down, retail pharmacies. Both are good options. All Pharma companies work through distributors, and good distribution houses are overcrowded. Consequently, they are forced to go for second/third tier distributors and end up suffering business wise. In the past, Glaxo and Hoechst used to have their own distributions, but they closed due to two reasons: one, they kept it exclusively for their own company which was not financially viable; two, they ran these like corporates, not businesses. Both factors made the cost unviable, and they closed. Presently, Global Pharma and Platinum Pharma are doing distribution, but they are also exclusive for their own use. A distribution house should be independent business run on the pattern of other distribution houses, offering service to many clients. The nearest example is Premier Distributors which are owned by the same group that owns Pharmevo.
- Pharmaceutical manufacturers come from various streams: diversification from other business, like Candyland confectionery started Hudson Pharma, English Biscuit Manufacturers started Pharmevo. These are the only two examples where a major group came into Pharma. Pharmaceutical distributors, wholesalers, and even retailers went into manufacturing. Random people jumped into Pharma considering it to be highly lucrative business. Technical people from Pharma production got hold of some investor and became a manufacturer. There is a common issue with all of them; they do not know how to market their products. Many of them know how to do business and technical people do not even know this. The other issue is that by the time the plant is licensed and ready for production, their entire capital has been consumed. There is no money even for buying materials, what to talk about marketing. Most of the smaller setups suffer from this desperation which forces them to earn money by any means. Finer ideas and higher thinking die down in this environment. The management also suffers from desperation because it is your life or my life thing.
The last point leads to another phenomenon, price undercutting, which we shall take up next.
To be Continued……
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