Dear Colleagues! This is Asrar Qureshi’s Blog Post #710 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 on WordPress, the top blog site. Please email to email@example.com for publishing your contributions here.
This series of articles partakes from some material published in INSEAD Knowledge. INSEAD is in France and is highly ranked among the most prestigious business schools of the world.
Let us look at some negative factors which became barrier in the development of the Pharma companies.
Sticking to Traditional Model
As Allama Iqbal said, ‘Tarz e kohun pe arrna – sticking to old style’ is a difficult, critical stage in the life of nations and enterprises. The story is ubiquitous, from Nokia to Blackberry to Kodak to our local corporates. Does anyone remember RGA? Radio and General Appliances, the company that made radio and television sets locally? It is buried so deep in the past. Many well-known pharma companies of the yesteryears have either become irrelevant or are struggling in the lower tier. I can name so many of them; some never grew up; others made a name and then went into oblivion. A rather small number has grown to reach the upper tier of the market.
The traditional models have three distinct features: old manufacturing facility, basic range of products, and selling model. These features are their undoing also.
Most companies have constantly refused to invest in the upgradation of their manufacturing facility. The premises, the layout, the building structure, the equipment or rather lack of it, old staff who will do anything to survive, blatant refusal to follow modern quality assurance parameters, and lack of even basic things required under GMP. It is a big question as to how such units get renewal of license every five years, but they do, and they are surviving.
The second is about products. Progressive generic companies have gone very far with the introduction of new products, and rightly so. New products are the lifeline of generic pharmaceutical companies. A major part of non-progressive companies is that they keep sticking to the old, basic products they had been selling. New drug registration has become much more elaborate, complex, and expensive matter, and many companies do not have relevant human and financial resources to do it, even if they consider doing it. Previously they opted to stick to old products, now they are stuck with these. The biggest issue with old products is that these are manufactured by too many manufacturers. The competition is intense, and price is the major tool. Profitability of old products therefore, has gone down steadily.
Third is the selling model. Pharmaceutical sales are done on one or more of the three models: through own Marketing & Sales Teams; through wholesalers; and through franchising channel, either a master franchiser or many small ones. The most desired model is own marketing and sales; it has an initial investment which is heavy, but it pays many times more in the long run. Most companies are not doing their own marketing, and it is due to cost and even more so due to lack of expertise. Many companies started off in some way but could not sustain, closed halfway, and incurred big losses. They became a frightening example for other entrepreneurs who might have ventured in this arena otherwise.
Selling to wholesalers is a popular option. Wholesale market has two advantages; it has large capacity and therefore, it can take in large amounts of stock if the price is right, and wholesale markets are connected across the country thereby making stock movement from one city to the other easy. Some companies, who are not too small, are also totally aligned with the wholesale market for their entire business. Two issues prevail in this model; low prices, and credit of any number of days which may not be completely honored.
Franchising in pharmaceutical industry came into vogue about twenty years ago and is different from the standard concept of getting rights of a major brand for a country or area. Franchising has two sub-models. One, the entire stock of a range of products is sold to a Master Franchiser and he then allocates products and territories to many small franchisers. Master franchiser purchases at rock-bottom prices and sets his own prices for small franchisers. Mostly, master franchisers insist on bare-bone prices and do not go for credit. However, finding a credible master franchiser is not easy. Selling directly to small franchisers brings better prices, and cash sales, but the quantities maybe very small. Selling one batch of a product may take time. Secondly, small franchisers do not have smooth pattern of buying. They do not have investment and holding capacity and prefer to buy in patchy ways.
The sum up of this part is that the smaller companies remain entangled in these issues which forces them to stay small and less known. It is a difficult cycle, and breaking out of it is not easy.
More recently, contract marketing has come to the rescue of many small manufacturers. Large, marketing-strong companies are actively working to expand their portfolios. Due to long time required for new registrations, they seek small manufacturers who do not have the muscle to market their own products. They acquire the rights of products from several manufacturers for the whole country and market in their own pattern. They pay better prices and may support the manufacturers in many more ways, such as buying materials, and developing formulations. Contract marketing is a good option though grievances prevail on both sides. The marketing companies are unhappy about the slow, uneven pace of manufacturers, and the manufacturers complain about the highhandedness of large marketing companies.
To be Continued……
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