Pakistan Pharmaceuticals and Healthcare Report Q4 2010

According to BMI’s Pharmaceutical Expenditure Forecast Model, combined sales of prescription drugs and over-the-counter (OTC) medicines in Pakistan will increase from PKR136.61bn (US$1.67bn) in 2009 to PKR153.22bn (US$1.74bn) in 2010. Due to the weakening rupee, this equates to growth of 12.2% in local currency terms and 4.0% in US dollar terms.

In BMI’s Asia Pacific Business Environment Ratings (BERs) for Q410, Pakistan has dropped one place compared with the previous quarter. However, this was due to addition of a more attractive market - Sri Lanka - to our proprietary ratings system. Nevertheless, Pakistan’s BER score decreased from 34.0 out of 100 in Q310 to 32.4 in Q410, primarily due to a downgrade in the country’s pharmaceutical market. The South Asian country is now the 16th most attractive pharmaceutical market in the region, behind Bangladesh and ahead of Cambodia.

In July 2010, the chairman and CEO of GlaxoSmithKline Pakistan, M. Salman Burney, said that financial performance had been impaired by a challenging business environment. He added that medicine price controls, ongoing conflict in the northwest of the country and the weakening rupee were major concerns. BMI believes this was an understatement and that the situation in Pakistan is very concerning for pharmaceutical companies and their investors. We would also highlight the country's underwhelming real GDP prospects and our bearish stance on the rupee.

Highlighting this deteriorating situation, it emerged in June 2010 that health infrastructure in the Federally-Administered Tribal Areas (FATA) and the Malakand division of Khyber Pakhtunkhwa had been destroyed as the result of increasing militancy in the region. Mustaqeem Shah, an official at the FATA health directorate, stated that the region requires US$11.7mn for the reconstruction of about 104 health facilities, while Khyber Pakhtunkhwa's health department requires about US$19mn for the restoration of the 55 Swat health facilities that have been destroyed by militants. Despite the worsening operating environment, local firm Getz Pharma announced in July 2010 that it was planning to invest PKR4bn (US$46.4mn) in the production of pegylated interferon to treat hepatitis C over the next two years. The company stated that local production of the drug, which is currently imported at a high price, would reduce the cost of treatments for hepatitis C in the country. BMI notes that this development is in line with one of our Global Core Views for the Pharmaceuticals & Healthcare industry: Drugmakers based in emerging markets will increasingly produce hard-to-manufacture pharmaceuticals.