Unleashing the Potential of Pharmaceuticals in Pakistan

Pakistan’s Pharma sector has been identified in a number of studies as a Sunrise Export sector for the Country. The
value of the pharmaceutical sector of Pakistan in 2019 was estimated to be around USD 3.2 billion, doubling from USD 1.64 billion in 2011.1 Including institutional sales, industry posits that this sector easily becomes a retail market worth USD 4 billion. Total exports in 2019 stood at USD 218 million, from USD 44.4 million in 2003. Industry insiders claim that exports from the sector could reach USD 0.5-1 billion in about 3 to 5 years—after reaching this critical mass, export growth could become exponential.

This Study titled “Unleashing the Potential of Pharmaceuticals in Pakistan” is part of the Pakistan Business Council’s (PBC) Make-in-Pakistan initiative. To carry out this Sector Study, PBC engaged the services of the Consortium for Development Policy Research (CDPR). The primary objective of this Study is help formulate a set of policy recommendations to allow the Sector to attain its true potential.

This study provides an in-depth overview and analysis of the pharmaceutical sector of Pakistan to determine its future outlook. The study is the first of its kind: to date, no dedicated study on this sector has been undertaken, despite its economic significance. A comprehensive assessment is presented that could help Pakistan become a cost-efficient manufacturer of high-quality generic drugs,2 and potentially evolve into more lucrative product offerings such as super-generics and vaccines.3 This will require taking key steps today that could help its transition over the next 5-10 years. Through detailed analysis of the bottlenecks at every stage of the pharmaceutical value chain, the study determines the most binding factors that must be overcome to ensure this. This framework of analysis allowed the design of a policy from a competitiveness lens.

Extensive primary research was undertaken to collect data on the value chain and its various bottlenecks. This data
was used to conduct a value chain analysis, with special emphasis on identifying and addressing bottlenecks.
Secondary research was used to collate existing information on the sector, which was blended with insights gained
from in-depth interviews with more than 12 sector experts, including key stakeholders from manufacturers, exporters, government and industry specialists.

This research was complemented with global insights on best practices from peer countries India, Jordan, Bangladesh and Malaysia that were historically similar to Pakistan and have since expanded their exports at least tenfold over the last 15-20 years.

Global pharmaceutical markets are in flux due to major restructuring, there is an opportunity to strategically enter
the global off-patent drugs market that will be worth USD 700 billion in branded generics and USD 381 billion in
generics by 2025. In 2019 Pakistan’s total exports in these lines were USD 210 million. Developed countries have shifted focus to large molecules, called biologics.4 This has created opportunities for developing countries to fill the
gap for production of cost-efficient, competing small-molecule therapeutics, especially for high-quality me-too
generics, super-generics, and simpler biologics like vaccines and antisera.

Pakistan, with a local market of 215 million consumers and more than 700 pharmaceutical companies is poised well to gain from opportunities provided under these shuffling global patterns of supply and demand. However, the current practice of simply importing 95 per cent of the raw material, compounding active ingredients with excipients, coating the pills, and packaging the drugs cannot continue to be the long-term goal of the sector.

The potential can be harnessed through an urgently needed sectoral growth strategy and corresponding action plan,
overhauling of the regulatory regime, deregulation of drug prices, strengthening of intellectual property rights and a
consistent policy regime. These can address, to a large extent, the unique features of the market that have stunted its
transition to maturity.

With MNCs not contributing to new drug registrations at the same rate as in other regional countries, registration of
new molecules in Pakistan has fallen. This may be attributed to two reasons. Firstly, delays in the regulatory channel
have led to lower registrations, with new molecule registrations pending before Cabinet for nearly 3 years. So even
though DRAP and the pricing committee may complete their evaluation and pricing recommendation in a timely
manner, as per the Drug Act 1976 pricing has to be approved by the Cabinet, even for generic molecules. This is unique to Pakistan and leads to unnecessary delays. Secondly, this is because compared to the early years of 2000, the number of new applications has also fallen Issues Analysis of the issues is grounded in the value chain. The value chain comprises three major components:

Issues

Analysis of the issues is grounded in the value chain. The value chain comprises three major components:
manufacturing, distribution and dispensing to the end user. These have been covered in great detail in the Study.

Potential for growth

With China and India shifting focus to the more value-added innovative pharmaceutical industry, shrinking drug pipelines in developed countries, and a scramble to capture off-patent generic drugs, Pakistan can meet global demand for off-patent original block-bluster drugs in low & middle-income countries. In the short-run, there is an opportunity to strategically enter a market that will be worth USD 700 billion in branded generics and USD 381 billion in generics by 2025.

To identify product lines that Pakistan could have latent comparative advantage in, this Study utilized a modified
variant of the Growth Identification and Facilitation framework (GIFF), a policy tool based on insights from New
Structural Economics. The framework emphasizes both effective markets and government facilitation in order to
achieve industrial diversification and upgrading. Product lines within pharmaceutical sector that were instrumental to peer country growth 20 years ago (that they have since vacated and for which Pakistan has lower wage costs) are
identified. A secondary filter for export potential on identified product lines was applied, based on growing global
import demand over the last 5 years and domestic capability (based on industry feedback).

Products

A total of 9 product lines (at the HS 6-digit level) that Pakistan can focus on have been identified. While Pakistan
already exports these lines, its world export shares were less than 0.5 per cent in 2019, with exports of USD 195.6
million.

Markets

The key markets identified are in Africa, East and Central Asia, where Pakistan’s main competitors are India, China,
Jordan, Kenya and sometimes, Malaysia. Given that India, Vietnam and Bangladesh are also supplying these markets, Pakistan could potentially gain entry.

APIs

Access to low-priced APIs is critical for any pharmaceutical sector based on drug formulation. The sector is weakly
developed in Pakistan, with 6-7 local manufacturers producing a little over 30 APIs. Domestic producers are protected by import tariffs ranging from 5 to 25 per cent and supply 12 per cent of the local market.

Vaccines and antisera

Despite having one of the largest birth cohorts in the world (5.5 million babies in 2019), Pakistan has virtually no
domestic vaccine production. The acquisition of vaccine manufacturing capabilities can be a first step towards the
production of next-generation, high-value pharmaceuticals in Pakistan. The global market for human vaccines was
valued at USD 33 billion in 2019 by the WHO Global Vaccine Market Report 2020.

In Phase I, which can begin immediately, local firms having validated biologic production facilities, or that are willing to invest in the required standards will use imported bulk vaccine concentrate to fill-and-finish vaccines into individual doses. The government will provide long-term purchase/buy-back agreements for these locally produced vaccines, under a public private

Recommendations based on value chain analysis

To address impediments to competitiveness with cross-cutting implications for all firms, regardless of size and export orientation, the study makes five recommendations.

1. A dedicated body that coherently translates a government vision for the pharmaceutical sector of Pakistan.
2. DRAP like other regulators must fall under the purview of the Cabinet
3. The pricing role of DRAP must immediately shift to the Ministry of Commerce.
4. Phased price deregulation.
5. DRAP must be revamped

Recommendations for Export Growth

The key policy recommendations that could support companies in establishing a global presence are:

• Include the pharmaceutical sector in the five priority export sectors of the country
• A dedicated body for pharmaceutical sector with trade, diplomatic and technical wings to implement the 5-year action plan proposed above, possibly by revamping the Pharmaceutical Export Promotion Council.
• DRAP should ONLY focus on regulations & enforcement
• Allow contract manufacturing without limitation:
• Pursue policy of developing vaccine manufacturing capabilities under public private arrangements, where government agrees to long-term buy-back for locally produced vaccines.
• The Ministry of Commerce using the Export Development Fund (EDF) may conduct product and market studies focused on Africa, Central and East Asia, as is done in India by PharmExcil.
• DRAP should continue its reforms for quality regulation and enforcement, for e.g., by DRAP achieving international standards, clearing certifications as per WHO Global Benchmarking Tool, and attaining the PIC/S membership,which could allow access to SRA countries.
• DRAP may also reduce access costs for smaller firms that wish to export by establishing a secondary reference library for molecules and sell these for a suitable charge.
• The government could legislate and enforce minimum consistent quality standards for any manufacturer that wants to operate in Pakistan
• WHO-approved laboratories that meet international standards and operate independently may be set up as PPPs.
• For vaccines production, DRAP must apply for and achieve WHO certification of its National Control Laboratory for Biologics (NCLB)
• A global presence requires upgradation of plants and premises to achieve GMP and other quality compliances.
• If the government’s API Action Plan is approved, its role must be limited to providing an overall enabling environment for manufacturing in industrial parks, no targeted allocation of government funds.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 86) of Pakistan’s largest
businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and
global competitiveness. More information about PBC, its members, objectives and activities can be found on its
website: www.pbc.org.pk

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