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The Export Strategy Pharmaceuticals 2023-2027 breaks some new grounds and addresses most old ones. However, some real issues were either not surfaced during consultative process or were not included in the final report. Here are some of the real barriers to pharma export business from Pakistan.
State of Entrepreneurial Mindset
The biggest barrier to improvement is the state of mind that pharmaceutical industry owners carry. The 700 odd national pharmaceutical companies may be categorized in three major types based on the mindset of the business owners. I would not take names because it would be impolite, and it does not add value.
The first category is that of the go getters. Disregarding the present size of their business, they are constantly striving to increase their business volume and market share. Without doubt, they are the movers and shakers of the market, and the market growth is driven by them. Some of these are very aggressive and they mean business by all means, even if it means bending certain norms and rules. However, while they are very active in the domestic market, they are not interested in export business in the same measure, barring a couple. They have the financial strength to invest in export business, but for reasons best known to them, they are not investing in this sector.
The second category is a large one where the firms are doing reasonably well in the domestic market as the second-tier companies. Many of these are actively pursuing international business. They have hired dedicated teams who travel to regional countries, participate in various exhibitions, appoint distributors, apply registrations, handle plant inspections, get orders, and manage supplies. Their business is patchy, and the volumes are small. They are struggling to sustain their export business. The credit does go to the entrepreneurs that they are still pursuing this segment.
The third category is even larger one where the firms are small and not doing well in the domestic market. They are trying to get some export business to survive. It is a tall order because export business takes time to start, and with new regulations coming in, the time lag has increased much. If a company has been designed for export-oriented business, it would be entirely a different model. The entrepreneurs may be commended for their initiative, but it is counterintuitive and not highly productive.
State of entrepreneurs’ mindset is a major barrier in the development of export business.
State of Business Model
All Pakistani Pharma companies started with the same business model. Before the email revolution, someone would travel, find a suitable distributor, and finalize products and prices. Registrations were quick and easy, and the distributor order would come soon. The firm would supply goods, receive money, and leave the rest to the distributor who would do the business the way he wanted to do. This model worked for a long time and is still the preferred model for majority of the exporting companies. Getz Pharma was the first company to do away with this model and adopted a more multinational company working approach. They would take a local distributor who would be responsible for providing distribution services. Marketing and sales teams were the responsibility of the firm, who would raise a local team and may send one person from Pakistan. Pricing and promotion were done by the firm; the distributor got only distribution margin. Getz was hugely successful with their model. CCL and a handful of companies followed suit and raised decent businesses. CCL went further ahead and acquired a pharma unit in Vietnam.
The local pharma industry is growing in every country and the governments are supporting their own, thereby erecting tariff and non-tariff barriers. The distributor-only model is squeezing the prices to an extent where the business is barely interesting. Smaller firms from Pakistan agree on razor-thin margin and then cut corners to save money. It is bad for business and bad for the country reputation. The distributor-only model shall not go away entirely but should be minimized over time.
State of business model is a major barrier as it causes disparities, undue price competition, and payment terms anomalies.
State of Manufacturing Plant
This is our primary undoing. DRAP and MoH before that, have an elaborate system for approval of pharma manufacturing plants. First the site is approved, then the layout is approved, then the inspection is done after all the equipment has been fitted. To cut long story short, DRAP has detailed licensing rules for granting DML – Drug Manufacturing License. Drug manufacturers are required to comply with the basic WHO-GMP guidelines which do not qualify them to compete internationally. Most plants deviate from approved layout at will and DRAP does not even notice. The inspection team does not bring approved layout to compare, and the approving person is not qualified architect. There are holes and gaps in the whole system. The result is that no pharmaceutical manufacturing plant in Pakistan meets the international requirements. In 2007, three inspectors from Drug Administration & Control Authority – DACA came to Pakistan to inspect plants who had applied for registration of their drugs in Ethiopia. They visited 9 plants and rejected all, and their rejection was based largely on merit. The largest majority of pharma industry owners do not wish to invest in their plant upgrades.
Exports shall never increase significantly in this scenario.
State of Competitiveness
Pakistan Pharma is dependent on import of APIs, excipients, and packaging materials. Foreign exchange rates, import duties, taxes and other charges increase the prices manifold. The abnormal utility charges, and government agencies unofficial fees increase the input cost further. It is surprising that Pakistani Pharma firms still can compete and take some business, but their profits are always compromised.
Relative lack of competitiveness is a barrier in increasing pharmaceutical exports.
State of Regulatory Landscape
Huge changes have taken place in the regulatory landscape and shall continue. Pharma companies in Pakistan are still way behind in complying with the ever-changing regulatory requirements. As pointed out in the GOP strategy document also, there is no internationally accredited lab in Pakistan for doing Bioequivalence studies. Getting BE study internationally costs US$ 30,000 to 100,000. Even bigger companies find it impossible to invest such huge amount on export business. Quality Control laboratories within the manufacturing plants are not certified for ISO17025, barring a few. The standard of documentation is also below par.
Export promotion is not possible without improving regulatory compliance.
State of Geographical Coverage
As mentioned in a previous post, none of our plants have regulatory approval from any of the SRA – Stringent Regulatory Authorities – country. Our firms cannot export to any developed country, and are restricted to doing business with small, underdeveloped, and developing countries. These are low-income countries where affordability is a tangible concern. In these markets, we compete with small Indian and Chinese companies who are cheaper because they produce their own materials. We are therefore compelled to do business at marginal prices.
The absence of international regulatory approvals is a huge barrier in increasing export geography and business volume.
State of State Institutions
Export Promotion Bureau, when it was, and TDAP now are typical government offices where officials sit and move around with the air of great importance, but nothing much is ever accomplished. Our biggest exports are in textile, surgical goods, and sports goods. TDAP loves them because they maintain a benevolent relationship with them. The exports are the result of hard work done by the entrepreneurs in their respective industries; government support, if any, has been minimal. Pharma was never a priority, and it never cultivated relations with state institutions.
DRAP offices tend not to facilitate export and try to delay things as much as they can.
State Institutions are a barrier to increasing pharma exports.
The overall situation is seriously depressing. Designing well-written strategies shall help if they address the root causes and develop solutions. The Pharmaceutical Export Strategy 2023-2027 falls short on several parameters.
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