A thriving sector in Pakistan’s economy, pharmaceuticals is a $3.2 billion industry, growing at 15% annually, while its exports now at $US200 million are also continually on the rise – quite impressive given the bleak situation of our exports.
One of the pioneering indigenous companies, in about 52 years since its humble beginning in 1965, it is now among the top 10 in Pakistan, and, having recently purchased a unit in Vietnam, CCL has established a base in about 10 countries abroad. A CCL director, Nadeem BJ Sheikh – the Kasuri Sheikh is a second generation entrepreneur inheriting the family business from their father and uncles – gave Profit a lowdown on the company and the industry.
“In 2016, our annual sales were Rs6.5 billion, with around 65% coming from the local market and the rest from exports. We are among the top 10 local pharmaceuticals and 19th overall among pharmaceuticals including multinationals. Currently we are exporting to 22 markets which include South Asia (Pakistan, Sri Lanka, Afghanistan, and Maldives), South East Asia (Vietnam, Malaysia, Indonesia, Singapore, Thailand, Philippines, Laos, and Cambodia), Central Asia (Uzbekistan, Turkmenistan, Kyrgyzstan,) and Africa (Sudan, Kenya, Tanzania, Nigeria, Algeria, Tunisia, Morocco, Senegal). We are among the top five pharmaceutical companies in Sri Lanka and are among the fastest growing companies in our operative markets with double digit annual growth. We employ more than 1500 people all over the world.”
Profit: Why Pakistan’s export volume is low in general compared to other South Asian nations, India and Bangladesh, and in particular to the US and Europe?
NS: Compared to India and Bangladesh, our exports are miniscule, as both export to highly regulated and high-end North American and EU markets. India has 200 FDA-approved plants – the largest number of the US FDA approved pharma units outside the US – and even Bangladesh now has four. We have zero, as no Pakistani company ever got an FDA approval to export to the USA. The Indian pharma industry earns around 50 % of its revenue from exports, which stands at $16.4 billion. India also accounts for 30% of the US’s generic drug imports, and is the fourth largest supplier to the US with $5.1 billion, nearly five times China’s at $1.1 billion in 2016. India is also exporting a huge volume of non-branded generic drugs to the world while ours is almost negligible, and exports were only around Rs200 million in 2016.
Profit: In your reckoning, why our exports are so low? Why have our manufacturers failed to tap high-end US and EU markets?
NS: Our regulatory authority is the reason. On documenting medicines for exports, the fee is huge, besides there are a few other irrational restrictions. The overall government attitude towards pharma industry can be one of the reasons of our low exports. The ministry must allow the third party contract manufacturing facility, which can get itself certified with the World Health Organization or Pharmaceutical Inspections Convention.
As for exports to the and EU, as I said before, presently no facility in Pakistan is FDA approved, only a couple of WHO-certified ones. As a country, Pakistan is not a member of Pharmaceutical Inspection Convention/Cooperation Scheme (PIC/S). They provide good manufacturing practice (GMP) guidelines to be followed for exporting to high end markets. If Pakistan were a member and it obeys the regulations, Pakistani medicines would have access to at least 50-plus countries from Asia to Europe. Only with FDA certifications and the PIC/S membership Pakistani pharma companies will get access to the US and the EU.
Profit: Why do we not have a single FDA approved pharma unit in Pakistan?
NS: Well, most plants in Pakistan were built in the 1980s and the 1970s, and to fulfill the quality requirements of the European market huge investment is needed to buy the latest machinery. Unfortunately, QC equipment, HVAC etc. are under heavy import duty and sales tax. The government does not waive these. Without such incentives the cost of overhaul is very high, and for companies there is no incentive in it.
Profit: Why do we not have raw material units (Active Pharmaceutical Ingredients)?
NS: Many firms want to start production of APIs but cannot because these plants require investment to the tune of billions. Compared to an India pharma manufacturer, our volumes are much lower size and scale of home market. No native Pakistani investor can afford API plants, while multinationals who had promised would have not done so.
Then there is no tax exemption for those who want to invest on basic manufacturing, and there is no incentive and rebate in sales tax etc. Markup rates too are very high, labour is becoming expensive day by day, the security issues add to complications. Owing to of all these reasons cost of API manufacturing is very high.
Profit: Why has CCL preferred to invest abroad instead of other sectors of the economy?
NS: Our focus is on healthcare market because we are engaged in it for the last 50 years. Secondly, the ROI in the healthcare market is still very high. We wanted to grow at double the pace than the local pharma market. That is why we chose to go global and invest in new potential markets with better opportunities than Pakistan.
Profit: Having recently purchased a factory in Vietnam, why did CCL choose Vietnam in South-East Asia as a strategic option?
NS: Well, there are several reasons. One, pharmaceutical export from Pakistan is now very difficult and new regulations are adding to the difficulty. South East Asia is where we are doing well. The Vietnam unit was meant to mitigate the risk; if ever our exports from Pakistan are hampered, we can still continue our operations there, avoiding losses. Then, Vietnam’s economy is growing at a phenomenal rate. The pharma market there represented an opportunity that we wanted to grab for having an early mover advantage. Thirdly, Vietnam is connected by land to many important South East Asian countries such as Thailand, Cambodia, Laos etc. and is in close proximity to Malaysia, Indonesia and Philippines. Exporting to the ASEAN markets from Vietnam is more convenient compared to Pakistan. So, Vietnam seemed to us like a natural strategic choice.
Profit: The pharma market, we’re told, operates differently. How?
NS: Well, yes, it is a little different from the traditional FMCG market as there is an intermediary involved in the form of doctor and the person who is using the medicine is not the direct client/consumer unless it is not an OTC (over the counter) product. There are two ends in this market: one, the pharmaceutical company distributes the product to the drug stores; two, the medical representative of the pharma company markets the products to the doctor who then prescribes it to the patient, who purchases it from the medical store. So, the key success factor is not one, it involves marketing and the supply chain. That said, quality is also equally important. To obtain success, many factors are involved. As for margins, the break-even in a new product is difficult to achieve but once when you get there the margins are good. To improve the bottom line, managing your sales expenses is always a crucial factor, meaning either reduce your sales expenses or improve it to a point to achieve economy of scale. Another important factor in improving profitability is introducing new products with high growth and profit potential as in the pharma sector, the competition is amongst the drugs and not between the companies. The company with the first mover advantage in any drug gets the major market share, making it difficult to compete it.
Profit: Unethical marketing, pharma companies bribing doctors, offering foreign tours or even commissions for every drug they prescribe? Does CCL engages in such practice?
NS: Well, we need to understand how marketing is done in the pharma industry, as it is an ever-evolving market with new research and enhanced drug knowledge coming out every few months or weeks. The doctors who completed their medical degrees just years ago feel their awareness is not upto the mark and that they need to update it about fresh research and consequent drug formulations. Pharma companies help them in keeping them updated through conferences, seminars and other events that also help in marketing their products and building relationships with the doctors. The media sometimes creates a perception of this being a bribe while in fact it is not. Most companies never bribe doctors. But in every industry there are some black sheep; ditto for pharma industry. In my view, it does not give them too much of a leg-up, for out of the 350 companies in Pakistan, around 50 have 90% market share while the other 300 share the rest. If they could buy success, they would not lag behind? Success in pharma sector is a complex process that involves superior drugs, marketing and sales strategy, supply chain management and human resource quality. Producing some medicine, going to the doctors to prescribe these and they will sell easily is not the way it happens.
CCL does cares about doctors and invests in their education, without ever engaging in any unethical practice.
Profit: And what about the spurious medicines?
NS: Every medicine dubbed as spurious is in fact not spurious. According to the law, even if the colour of the outer carton is faded, it would be considered spurious, while in fact it’s not. Spurious drugs is not much of a problem in Pakistan as our laws and regulations are quite strict. Our pharma industry is one of the highly regulated in the country and in the region as well. Our drugs quality is much better than our competitors in China or India. That’s one of the reasons why Pakistani pharma companies are well received and are achieving success in other regions as well. The fake drugs is another issue; somebody in a far flung area producing drugs with any famous brand name. Yes, that is something the industry and the government need to tackle together.
Profit: Why do Pakistani companies spend so little on research and development?
NS: Since R&D requires huge investments, given their limited scope and volume, it is difficult to make such outlays. What we do is follow the alternate path: acquiring R&D-based products from other companies and then marketing them in Pakistan. Having said that, since the last 7-8 years, Pakistani companies are also focusing on and allocating budgets devoted to R&D.
Profit: In the pharma and biotech sector, many interesting things are happening in the startup world. Will CCL invest in any innovative startup from Pakistan belonging to the biotech/ pharma sector?
NS: Over the next 100 or 200 years down the road, the whole paradigm and concept of drugs may change. In this rapidly changing world CCL would want to adapt to stay relevant. For instance, there is research-based drug called interferon which used to be in injectable form but now is available in solid drug form. So, definitely we will be willing to invest in some innovative biotech or in general, a healthcare startup bringing new, innovative and workable ideas to the table.
Profit: From an entrepreneurial point of view, if someone wants with a relatively small capital wants to get into the pharma industry, what should he do?
NS: I would suggest third party manufacturing, where you get the drugs manufactured by some third party and market them with your brand name. Later on, when you develop the demand for your products you can have your own unit as well. The other area is distribution. In suburban areas the market is still open and has relatively less competition. One can get into distribution with relatively smaller capital.
Profit: Any complaints from the government?
NS: Well, the unjustified upper price ceiling imposed by the government on many drugs is an issue. I call it unjustified because for the drug launched 20 years ago, the raw material and packaging costs increases every year but we are not allowed to cater for that. As a consequence, the number of pharma multinationals in Pakistan has come down from 40 to 7 in the last two decades. The second issue is the bottlenecks in various government departments. Pharma industry is a research based industry with new molecules and drugs coming every year. And, when the concerned departments do not register the new drugs or delay the process, this hampers productivity.
Profit: But the governments have to take care of the people too…
NS: No, it does not benefit the consumer in any way because the focus should be on quality, not only on price. If a very low-priced drug is on offer, quality may be an issue. I don’t think it benefits the consumer for he should get quality, and not a low-priced drug with little or no efficacy.
Profit: The CEO of Getz Pharma, one of the top local companies and a multinational now is on record saying the company would reduce its investments if the government does not allow them the increase in prices of drugs. Do you think the government strategy would affect the investment climate in Pakistan in the pharma sector?
NS: Yes, the Pakistani local companies and other multinationals will divert their resources to other countries where they get a higher margin instead of investing in Pakistan. That is the rule of the capital. It flies where it gets a higher return. Secondly, it is not only about pricing, it is also about the regulations and unnecessarily squeezing the pharma industry. Previously, we have seen many multinationals either departing from our market or merging with another multinational because of the policies of our government.
If the government asks pharma companies which were founded three or four decades ago to upgrade in one or two months by doubling or tripling the investments on their plants, I think that is injustice. In this way many of the pharma companies in Pakistan would close down. The government should regulate the industry and should not compromise on quality but the government should not unnecessarily and not resort to hastily implement regulations from the first world by forcing the Pakistani industry to make huge investments in plants or machinery. There should be a reasonable timeline with some benchmarks to achieve. It should be an evolutionary process, not a revolutionary one. That’s how it has happened in the West as well. Secondly, as discussed, there should be some incentives as well in the form of tax breaks or lower markup etc. as it will not only benefit the industry or the investor but also the economy as well.
Profit: How do you view the present economic climate in Pakistan?
NS: Well, we are optimistic. Pakistan is an emerging market and pharmaceuticals has witnessed double digit growth for the past few years. The benefit of the pharma industry, the government and its economic managers must appreciate, is that it provides direct employment all over the country, not only at where the unit is installed. It employs medical and sales representatives nationwide. So, growth in pharma industry means more employment across the country.
Profit: From a skills point of view, what kind of degrees or skills is required by the pharmaceutical industry so that students interested in pursuing a career in pharmaceutical industry may opt for that degree?
NS: From a manufacturing point of view, D. Pharm is important. From marketing point of view, having an MBA degree is utmost with an aptitude to become a sales geek, travelling the country, and having the ability to bear the work pressure as you have to fulfill the ambitious sales targets for the companies and if you are able to achieve them, you will be a precious asset for your company. Sales and marketing career is more rewarding in pharmaceuticals. Most of the people sitting at the top positions in pharma companies belong to the sales and marketing category. One can also have a D. Pharmacy and then an MBA from a good university. That would add another arrow to his bow and would complement his existing skill sets.