By: Aymen Shoukat
COVID is once in a century pandemic event which drastically changed the social and economic landscape. The cataclysmic event led to far-reaching alterations in every field which are directly/ indirectly related to humanity. The most notable impact was felt in Food and Pharma industries, both of which are of prime importance for sustenance of life on this planet. Pakistan being an agricultural economy somehow managed the food shortages felt all over the world but weak and overloaded health care system supplanted by near absence of relevant pharmaceutical production and research created a severe medical emergency.
Population of world is 7.75 billion of which Pakistan’s share is 220 million (2.83%). The world’s pharma industry is $ 1.27 trillion whereas Pakistan’s is only $ 3.2 Billion (0.2%). The average world’s per capita health expenditure in $1,100 whereas in Pakistan it is just $43 (0.39%). The market share of Pharma industry and the amount invested in public health sector is merely a shadow as compared to global markers, though the situation has considerably improved recently but it still is a far away from minimum required standards.
Pharma sector of Pakistan recorded growth of 9% in FY 20 with total revenue of Rs 453 Billion comare FY19 revenue of Rs 416 billion. The manufacturing process of pharmaceuticals starts with Raw materials, which are converted into API (Active Pharmaceutical Ingredients – the most important part of process), which are than converted into excipients and finally transformed into Finished product ready to be packaged for market consumption. Domestic manufacturing of APIs is only 5% whereas 95% are imported from China, Germany, UK, USA and France. Heavy reliance on imported raw material significantly increases the inherent risk of supply chain disruption which manifested during COVID when China being the largest producer of API (40%) disrupted its supply.
In Pakistan, prices of pharmaceuticals are controlled and regulated by DRAP (Drug Regulation Authority of Pakistan), any change in price is made after request from manufacturer and considering Consumer Price Index.. The price of medicine is dependent on raw materials (API) which makes upto 67% of cost of sales of a product. Although production was not stopped during COVID pandemic but supply chain disruptions (95% of raw material(API) is imported) dealt a severe blow to the industry, decreasing revenue and profit margins. A number of manufacturers turned towards unregulated products like multi vitamins, steroids and supplements to increase their revenues and profits.
Cash conversion cycle is another scale to measure industry’s performance. In Pakistan it was 69 days in FY 2019 but increased to 80 days in FY 2020 whereas increase in inventory days was from 112 days to 127 days. COVID not only disrupted supply chain but also impacted the transport system resulting in higher inventories, increase in transportation cost and receivable and payable days by 3 and 8 days respectively. Total Sector borrowing stood at Rs 81 Billion at the end of Mar FY 21 compared to Rs 55 Billion the previous year, indicating not only the uptick in production/ demand caused by COVID pandemic but also due to increase in production cost as a result of disruption in supplies of API which was imported.
Another challenge in Pakistan is policies of DRAP which are consumer friendly and not industry friendly. DRAP prohibits passing of Research and Development cost to users which make’s industry less attractive to investment and affect its capacity to meet future challenges like COVID. A number of multi nationals have reduced their setups due to decrease in profitability.
Overall the sector was not severely affected from COVID pandemic as it was exempted from lockdown but still supply chain disturbance and lack of R&D in this field will hamper future efforts to mitigate such crises. Exports are expected to increase but taking care of local needs in changing and challenging environment of COVID pandemic and its variants will be the real test. The government should ensure that policies of DRAP are not only consumer friendly but also industry friendly to increase its capacity and expansion and get rid of foreign reliance.