Pakistan Pharmaceuticals and Healthcare Report Q4 2009

In BMI’s Business Environment Rankings (BER) matrix for Q409, Pakistan slightly improved itsposition, now ranking joint 13th out of the 15 markets assessed in the Asia Pacific region. While Pakistanoffers more positives than some smaller markets that are not included in the BMI’s matrix, itsfundamentals are clearly far from optimal. Despite the massive potential provided by the population ofover 160mn (and rapidly growing), key drawbacks to involvement in the Pakistan’s drug market includedeficient pricing and regulatory environments and low per capita spend on pharmaceuticals. Out-ofpocketspending represents the largest source of drug expenditure, making the whole market vulnerable tothe current economic climate. Nevertheless, while somewhat downgraded, our forecasts stipulate that themarket will experience a compound annual growth rate (CAGR) of 12.37% in local currency terms,taking the value from PKR126.8bn (US$2.02bn) in 2008 to PKR227.1bn (US$2.52bn) in 2013.

While the government remains reluctant to fulfil its international regulatory and patent obligations, arecent development has seen drugs registered in two major advanced markets (with the list including theUS, the UK, and Japan) processed through a fast-track mechanism in Pakistan. This system avoids theneed for expert review and can therefore significantly improve registration times, which are currently aslong as two years. Still, Pakistan remains on the 2009 Priority Watch List of the Special 301 reportpublished by the United States Trade Representative (USTR) following input by the PharmaceuticalResearch and Manufacturers of America (PhRMA) - evidence of the considerable difficulties facingforeign companies operating in the market.

In the meantime, the domestic drug industry - which is largely dependent on foreign-sourced rawmaterials - has welcomed the July 2009 news that the government had slashed rates of duty on imports ofsome chemicals and active pharmaceutical ingredients (APIs). Custom duties have been reduced from 25and 10% to 5%, covering APIs such as aspirin, amlodipine and loratadine, with the potential of boostingproducer margins as well as exports. Additionally, customs duty on four types of diagnostic kits(including those for detection of breast and blood cancers) has also been lowered from 20 to 5%, whileduties on import of stents and a number of other items has been removed completely.

In the same month, local experts warned that more effort is needed to educate the public about hepatitis,given that type C and B, respectively, affect some 4.7% and 2.6% of the population. Annual cost ofhepatitis treatment is estimated at over PKR250bn (US$4bn). However, public healthcare funding islimited, making Pakistan vulnerable to outbreaks of various infectious diseases, especially in the face offrequent flooding and other natural disasters. The role of international aid agencies in providinghealthcare to the population during such times is significant, although the existence of parallel healthcaresystems exist makes their operations more difficult.