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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
- Stop Undercutting Prices – When the difference between market shares of well-promoted and non-promoted drugs became wider, the lower end companies took refuge in offering discounts and other measures to lure the wholesale market and retail pharmacies. Wholesale market is still the conduit for making the drugs available to those areas and markets where the drug distributors do not reach. It is also supplier to retail pharmacies when they cannot wait for the distributors’ supply schedule.
- Wholesale market once had huge share in Pharma business; upward of 50%. There was no check and therefore some distributors in connivance with the company staff sold 70-80% stock to wholesale, which had the capacity to take in large volumes. Initially, Karachi, Multan, and Lahore were the major wholesale markets and a lot of trade happened between these three. Stock flooded in Karachi wholesale found its way to Multan and Lahore and vice versa. Products moved on small margins. Peshawar wholesale grew with the Afghanistan situation. After the invasion of Soviet Union in 1979 and subsequent events, more and more drugs were smuggled from Pakistan to Afghanistan because they did not have any local industry. The distributors were happy as they did not have to go shop to shop to sell, the sales teams were happy as they secured bulk of sales due to wholesale factor. However, the issue was that the wholesale market demanded additional discount which was managed in the beginning by sales teams through some unfair means.
- As sales volumes increased, it became impossible for teams to compensate for additional discount. The stock movement from one area to the other was strongly protested by those affected by the lost sales. The company started putting pressure to reduce the wholesales component quickly and it has been brought down to 10-15% of overall sales for those generic companies who have prescription-based business. For bulk selling companies, wholesale is still the most important business avenue.
- For years, Local Pharma has been embroiled with the MoH and later DRAP, about an SRO which restricted the discount on MRP – Maximum Retail Price to not more than 40%. It was an interesting debate. On one hand, PPMA made forceful presentations for increase in drug prices, and on the other hand, it asked to repeal the impugned SRO. The demands were mutually contradictory, and both were not granted. More than 40% discount was passed on all the same, but it was not shown as such.
- The retail market should be understood in this manner. There is a mainly urban market where major business comes through prescription from consultants and GPs. There is a large suburban market where business is through prescription, self-medication, and dispensing by pharmacy owner for small ailments like, cold, flu, fever etc. Finally, there is also a large rural market where pharmacy owner is also a doctor who treats patients with impunity. These are popularly known as ‘quacks’, the unqualified doctors but they treat a very large number of patients. Heavily discounted products are mainly consumed in rural and suburban retail markets, in that order.
- GPs – General Practitioners are usually the first point of consultation by people, that is why, they are also called family physicians. There are thousands of GPs in Pakistan, and they cater to the largest number of patients. Their practice model is universal; they would give an injection and a few drugs from their own dispensary and may also give a prescription. They charge the patients on the basis that they give medicines in addition to consultation. The tablets/capsules dispensed by GPs are taken out of their packaging and the patients do not know what exactly they are taking. To maximize their profit, GPs go for high discounts which is usually offered by medium to small companies.
- The point is that the market for a prescription-based drug is different from a discount-based drug. Both are mutually exclusive, which means they will not replace one another. This disparity has increased with time and shall remain so. The issue with marketers is that they want to mix the two models and end up losing on both counts. Products aimed for prescription must stay at that position and products aimed for discount selling should follow that model.
- Prescription takes a longer route. It takes time, effort, and investment, but it lasts longer. Like you take time and effort to convert a doctor to your drug for prescription, it would be equally hard for the competitor to replace you. Secondly, no prescription drug is entirely displaced. The doctor adds to his inventory of prescriptions and the prescriptions shall continue; quantity may vary.
- Discount sales take shorter route which may be made even shorter by offering larger discount. However, it is vulnerable to total replacement by the next competitor. No customer will mix a small discount/large discount stock; he will replace it entirely. As far the efficacy is concerned, the GP ensures it by giving the injection, the tablets/capsules are given only to supplement the effect. Some variations in the efficacy are covered as long the discount is lucrative.
Local Pharma is in a quandary. The top 100 companies have gobbled up over 95% share of business and they are holding tightly on it. Smaller companies/ New entrants are finding it increasingly hard to get a foothold. They are left with no choice but to undercut prices and get some business. However, it is eroding their margins severely and putting their survival at risk. Larger companies have also introduced separate teams for getting share from discount market and they have greater power and better products. It is making life even more difficult for smaller companies. They must change tactics, stop undercutting prices and use this money to tap other avenues such as prescriptions, drug development for better delivery, and using different customer service channels.
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