Pakistan Pharmaceuticals and Healthcare Report Q3 2012

BMI View: The operational environment for drugmakers in Pakistan has worsened over the past year, partly as a result of the dissolution of the Ministry of Health (MoH) and the subsequent decentralisation of drug regulation. The recent drug contamination scandal in Punjab has renewed calls for the formation of an independent, centralised drug authority. Unless the matter is addressed adequately, multinational drugmakers will continue to struggle with cumbersome bureaucracy, which only serves to compound numerous unresolved existing intellectual property (IP) and market access issues.
Headline Expenditure Projections 􀂃 Pharmaceuticals: PKR171.20bn (US$1.98bn) in 2011 to PRK188.60bn (US$2.05bn) in 2012; +10.2% in local currency terms and +3.4% in US dollar terms. Forecasts lowered since Q212 on account of macroeconomic expectations.
􀂃 Healthcare: PKR456.48bn (US$5.29bn) in 2011 to PKR516.40bn (US$5.61bn) in 2012; +13.1% in local currency terms and +6.2% in US dollar terms. Forecasts lowered since Q212 on account of macroeconomic expectations.
􀂃 Medical devices: PKR35.14bn (US$407mn) in 2011 to PKR40.52bn (US$440mn) in 2012; +15.3% in local currency terms and +8.2% in US dollar terms. Forecasts lowered since Q212 on account of macroeconomic expectations.
Risk/Reward Ratings: In BMI's Asia Pacific Risk/Reward Ratings (RRRs) for Q312, Pakistan ranks in an improved 15th position, out of the 18 markets in the regional matrix, despite receiving the same score as in the previous quarter. However, Pakistan still ranks below the regional averages for both composite risk and reward figures, in spite of its large and growing population.
Key Trends & Developments 􀂃 Already suffering from the government’s move to decentralise regulatory powers to provincial authorities that subsequently caused approval delays, the local industry has been further damaged by the recent scandal, with over 170 patients dying as a result of consumption of contaminated angina drug Isotab (isosorbide 5-mononitrate) manufactured by domestic company Efroze. The tragedy is also expected to hurt the country's already restricted export capabilities.
􀂃 In February 2012, Pharma Bureau, a representative body of multinational pharmaceutical companies operating in the country, proposed that a new centralised Drug Regulatory Authority (DRA) is created at a federal level. Multinationals, critical of the 2011 devolution of pharmaceutical regulatory powers to provinces, are calling for a DRA that has a strong set-up for provincial monitoring to ensure the integrity of pharmaceutical producers and the products. The DRA should also regulate substitute, homoeopathic and all other imported medicines that are not under any control in the country, according to Pharma Bureau executive director Sadia Moazam.
􀂃 Leaders of Pakistan's pharmaceutical industry have condemned the cabinet's recent unanimous decision to grant Most Favoured Nation (MFN) trading status to India. While the decision will benefit Indian trade to Pakistan, including the export of medicines - ultimately enforcing competitive pressure on the local pharmaceutical industry, BMI believes the agreement will be of significant benefit to patients, improving their access to affordable medicines.
BMI Economic View: Headline consumer price inflation (CPI) ticked up for the second straight month in January 2012, to 11.0% year-on-year (y-o-y), from 10.1% in the preceding month, posing upside risk on our end-FY2011/12 (July-June) CPI forecast of 9.0%. Core inflation similarly ticked higher for the second consecutive month, coming in at 10.6% y-o-y in February 2012 (up from 10.2% in January), mainly due to a rise in food and transport inflation to 10.6% y-o-y (from 9.3%) and 18.8% (from 14.8%) respectively. Despite the latest figures, we continue to expect disinflation, given the ongoing weakness in money supply growth, although downward pressure on consumer spending will remain in play, against the backdrop of the still-faltering Pakistani economy.
BMI Political View: We believe that one of the key global risks this year is the potential failure of the Pakistani state, brought about by a possible balance of payments crisis that would threaten to expose and destabilise the country's already fragile political leadership. While the impact of such a scenario on the global economy would be limited, it would almost certainly have dire consequences for regional - and perhaps global - security.