Pharmaceutical Industry

In Pakistan

January 2017
 Industry Structure 1

Local Players 630

Top 50: 90%
MNC’s 25
market share
Total Players 655

Listed companies Listed

on PSX: companies: 44%
9 market share

Market Share
Active Products:
Local : MNCs
Approx. 9,000
63 : 37

Revenue CY15: Exports CY15:

USD 2,800mln USD 200mln

Risk Profile
Industry Growth Pharma Profitability
Structure Dynamics Production Prices
Industry Mix and Future
Analysis
Outlook
 Revenue Growth Dynamics 1

 Consistent double digit

Growth, except 2015,
Growth Trend
despite pricing issues taken 350 18% 20%
up with the regulator; CAGR 16% 18%
300 15%
14% 15%
16%

Amounts (PKR bln)

250 14%
 2016 Growth in existing
products clocks in at 13%, 200 12%
whereas new products 10%
150 9%
contributed 5% in the overall 8%
growth
100 6%
 Pakistan Pharma sales 4%
50
contributes 0.29% of the 2%
world’s market, which is 0 0%
very small 2012 2013 2014 2015 2016
Sales (PKR bln) Growth (%)
*Moving Average Total (MAT) sales at end-Mar

Risk Profile
Industry Growth Production
Pharma Industry Profitability
and Future Production
Structure Dynamics Prices Mix Analysis
Outlook
 Production Growth Trend 2

 Tablets and liquids have Production Growth Pattern

been growing at a steady 20%
pace less than 10%
 Capsules, injections, and 15%
ointments have been 10%
taking double digit
growth due to changing 5%
medical practices and
0%
disease patterns – mostly FY13 FY14 FY15 FY16 4MFY17
related to new breed of -5%
injections curing
-10%
Hepatitis in Pakistan
Tablets Liquids/ Syrups Capsules Injections Ointments

Pharmaceutical Production FY12 FY13 FY14 FY15 FY16 4MFY16 4MFY17

Tablets (`000' Nos.) 23,507,509 24,821,427 25,363,352 26,535,885 27,244,484 8,977,602 9,322,772
Liquids/ Syrups (`000' Litres) 92,754 97,246 91,139 98,996 107,956 34,265 36,772
Capsules (`000' Nos.) 2,195,887 2,515,853 2,644,465 3,098,139 3,400,640 972,028 1,059,645
Injections (`000' Nos.) 642,314 717,691 783,611 885,732 996,150 330,651 378,099
Ointments (`000' Kgs.) 2,136 2,340 2,575 2,788 3,085 1,028 1,148
Galenicals (tincture) - `000' Litres 41 34 64 75 47 13 12

Risk Profile
Industry Growth Pharma Profitability
Structure Production Prices
Industry Mix and Future
Dynamics Analysis
Outlook
 Pharma Prices – Regulated

Pharma prices are regulated by DRAP

Drug Pricing Policy – 2015 3

• MRP to be frozen at approved level of Oct’13 until Jun’16
• Reduction of originator/ brands prices to the extent of 10% every year
Industry players obtained stay order from Sindh High Court and raised prices

DRAP has allowed following formulae, w.e.f Jul-16, to raise pharma prices
a. Scheduled drugs upto 50% of CPI (with a cap of 4%),
b. Non-scheduled drugs up to 70% of CPI (with a cap of 6%); and
c. Lower priced drugs shall be allowed maximum increase equal to CPI once in any financial
year till MRP / cap of threshold as specified in para 11 of the Drug Pricing Policy-2015 is
achieved.

Risk Profile
Industry Growth Pharma Profitability
Structure Dynamics Production Prices
Industry Mix and Future
Analysis
Outlook
 Industry Players’ Mix 1

 Multinationals’ exiting Industry Mix

Pakistan market, because of 100%
pricing issues 90%
80% 43% 42% 41% 40% 37%
 Local brands are gradually 70%
capturing market, which has 60%
grown by CAGR of 17%
50%
since 2012
40%
30% 57% 58% 59% 60% 63%
 Indication of more
acquisition and mergers, 20%
going forward 10%
0%
2012 2013 2014 2015 2016
Local Producers Multinationals

Risk Profile
Industry Growth Pharma Profitability
Structure Dynamics Production Prices
Industry Mix and Future
Analysis
Outlook
 Profitability Analysis*
Gross Profit margins stagnant and have
stayed above 30%; after witnessing a drop Profitability 4
of 1% in CY14, margins regained 2% due
40% 3.2
to rise in prices 34% 35%
35% 32% 33% 3.0
Raw material cost: 30% 2.8
 constitutes 33% of the industry’s cost 25% 2.6
of sales 20% 2.4
14% 15%
15% 13% 13% 2.2
 API – main raw material, is
predominantly imported, exposes the 10% 2.0
industry to currency fluctuation 5% 1.8
(CY13: -8%, CY14: +5%, CY15: -4%, 0% 1.6
9M16: 0%) CY10 CY13 CY14 CY15
Gross Profits (%) Net Profits (%)
 Raw material cost Increased by 6%
Opearting Leverage (Times)
YoY in CY15, however, compensated
by 13% rise in revenue price (selected
sample) *Analysis is based on a sample representing 33% of the market share

Operating Leverage (OL)

Pharma industry’s OL, though dropped in CY15 to 2.3times from 2.6times in CY14 on the back of sale price
increase, the ratio still remains greater than 2times. A 10% rise in revenue has the potential to translate into 23%
rise in operating profit. This is because higher sales shall absorb fixed cost; mainly marketing cost which is
traditionally high for the pharmaceutical industry; a strategy used to induce prescription based medicines.

Risk Profile
Industry Growth Pharma Profitability
Structure Dynamics Production Prices
Industry Mix and Future
Analysis
Outlook
 Risk Profile and Future Outlook
┼ DRAP new CPI linked criteria to raise prices is expected to bode well for
industry’s growth, going forward
┼ One-third of revenue translates into gross profits
┼ High operating leverage ratio of the industry reflects potential profitability
given the prices are raised in the light of above mentioned decision by DRAP
┼ Expansion opportunities for local players through mergers and acquisition, in
the wake of multinationals gradually taking exit from Pakistan Market
─ Cost of API exposed to foreign currency fluctuation
─ Multinationals are housed with continuous research and development
activities as compared to locals; as they are gradually taking exit from
Pakistan the quality of locally produced medicines may be impacted
─ Slow registration of new products; as reflected by recent approval of 24
products out of 500 pending applicants by Drug Pricing Commission (DPC)
under DRAP
┼ : Strengths
─ : Risks

Risk Profile
Industry Growth Pharma Profitability
Structure Dynamics Production Prices
Industry Mix and Future
Analysis
Outlook
 Bibliography
1. Pakistan Pharmaceutical Industry | MAT Q1’16 Report | imshealth
2. Pakistan Bureau of Statistics, Government of Pakistan | Industry | Quantum Index of Large Scale Manufacturing
Industries (QIM)
3. Drug Pricing Policy-2015 issued by the Drug Authority of Pakistan with the approval of its Policy Board and the
Federal Government | http://www.pcdapakistan.com/wp-content/uploads/2015/03/Pricing-Policy-2015-Final.pdf
4. PACRA’s in-house research and database – A sample of players representing approx. 33% of the market share

Amara S. Gondal Jhangeer Hanif

Analysts amara.gondal@pacra.com Jhangeer.Hanif@pacra.com

Contact Number: +92 42 3586 9504