Pharma Sector Seeking Remedy

While expanding and consolidating, Nepali drug industry needs some growth boosters.

One of the sectors bucking the ongoing downward trend in Nepali business is pharmaceuticals manufacturing. This sector is attracting more and more of the established business houses.

Until a few years ago, only some pharmacy technicians and marketers were setting up pharmaceutical manufacturing units. None of the established business houses, with HC Dugar Group (Hukam Pharma) as the only exception, had entered this sector. But three years ago, Saakha Group entered this sector by way of acquisition (Chemi Drugs) and in late 2004 Sunrise Group launched 50 products from its greenfield project SR Drugs. Early March this year, Sumy Group, known for its meteoric rise in the liquor business, entered this sector launching six drugs from its newly set up unit Sumy Pharma and announcing plan to introduce 100 more drugs within the next one and half years.

With this expansion, the industry is also going through a phase of shake up. While the number of pharmaceuticals units registered is said to have exceeded 40 (as compared to a mere 10 in early 1990s and 33 in 2001), many in the list are virtually non-existent. As Pradeep J Pandey, former president of the Association of Pharmaceutical Producers of Nepal (APPON) and the Managing Director of Lomus Pharma, informs four or five of them have already closed down. But at the same time, some companies are expanding or upgrading substantially.

Five companies have already received the certification from the World Health Organisation's Good Manufacturing Practice (GMP) while about five more are said to be in a position to get it soon. Pandey's Lomus Pharma recently shifted to grand new premises fitted with modern facilities to produce drugs as per the GMP while Chemi Drug's new premise is in the final stage of construction.

Similarly, Hukam Pharma is contemplating the revival of its bulk drugs division in view of the recent growth in the drugs production capacity in the country. Its bulk drugs export to India had to close down after the Indian duty structure was changed making such exports from Nepal unfeasible. "Now we feel that the Nepali drugs industry has expanded enough making such business feasible," says Vijay Dugar, MD of Hukam Pharma.

However, the pharma industry captains are complaining of policy constraints in expanding this sector to realise the potentials visible. And the industry expansion is going on at present without a clear idea about the market size.

According to the popular myth, Nepal's pharmaceuticals sales are estimated at about Rs. 7 billion per annum. But Hari Bhakta Sharma, MD of Deurali-Janta Pharmaceuticals puts it at Rs. 6 billion only. The estimation of the exact figure is made difficult by the smuggling of drugs from India through the porous border. Also a significant quantity comes to the country under foreign aid which is difficult to estimate as a systematic record of the same is not available. But the more important reason is the distortions caused by the government procurement. As Pandey points out, there are instances of government purchasing a drug at below Rs. 1 per tablet while the same drug form the same manufacturer is selling at Rs. 15 per tablet in the market. While this raises question on the quality of the drug purchased by the government and indicates to the corruption on such purchases, it makes it impossible to estimate the precise market size.

Because of this, the market share figure of drugs made in Nepal too (or for that matter of individual companies) is difficult to estimate. This failure to study the market carefully is one of the reasons for the demise of some pharma units, according to the Pandey.

However, the indication that about 70 per cent of the Nepali market for drugs is still being fulfilled by imports has been prompting the Nepali companies to expand their capacity with a view of substituting the imports. While some companies are producing specialised complicated drugs (Deurali-Janta did so recently by setting up a separate unit Suswasthya), there exists scope also in simple drugs or related products that are still being imported though they can be easily produced here, thus substituting their imports.

Policy Constraints

"Nepal is the only country in the world where there is no distinction between the imported drugs or those produced within the country," says Dugar. "It may be logical to have this policy for certain essential drugs to ensure sufficient supply and market competition, but in case of non-essential drugs such as vitamins, cough syrups etc. the Nepali firms should be allowed an edge to compete with the imports," he adds.

One challenge faced by the Nepali drug industry is the speed with which combination drugs are being produced by other countries. But the Nepali firms are allowed to produce only those drugs that are in the pharmac-opoeia. If such control is conti-nued for long, the Nepali drug industry will not be able to grow under the WTO regime, Dugar says. There are prospects for developing patent drugs based on indigenous raw material (herbs).

However, this requires research and development (R&D) capability in the Nepali industry. And that capability is difficult to develop as long as the firm size remains small though some units are trying to increase investment in this field. Therefore the merger of different units to make some 15-20 units is considered a wise strategy. However, this is not happening in this sector so far. The national policy has to be specific on providing special incentives for such integration and investment in R&D, say the industry captains.

Another development in this regard being waited by the pharma sector is the enactment of a new Patent Law with provisions that will be encouraging for R&D investment.

To expand the scale, the industry also needs to explore foreign markets for exports as the local demand is not very large. But the existing policy does not allow that, complain the entrepreneurs. While the Nepali government allows the import of drugs, it has not been able to provide the reciprocal market access to Nepali companies. When talking of the export prospects, the nearest market is India. But the Indian rules are so strict that Nepali companies cannot fulfil them. "The cost of registering a Nepali company and its products in India is much higher than what it costs for an Indian company to do the same in Nepal. Hence our demand for reciprocity," says Pandey. "The cost for us is higher not only in terms of money to be paid but also in terms of the procedures to be fulfilled," he adds. Meanwhile, Hukam Pharma is exploring prospects to export to African countries, according to Dugar. A recent news in the Indian press that India is mulling a change in the existing Nepal-India Trade Treaty with provisions, to among others, easy drug imports into India from Nepal indicates a better future for Nepali pharma sector.

Manpower

About 5,500 people are employed in Nepali drug companies and they are mostly Nepalis-a positive development of the recent years as Nepali universities and technology institutes have started producing such people in a big scale. Also in marketing, qualified people have started joining the pharmaceutical companies. Thus the drugs marketing is now not only in the hands of the medical representatives who have passed the intermediate level in science. MBAs are employed as the marketing managers in such companies.

However, some companies are still employing foreigners, it is complained. And some of these people are working simultaneously in a number of companies. Such companies are obviously not trying to develop their own drugs. It is also claimed that some of the pharmacists employed by drug companies are not registered with the pharmacy council. Most importantly, many companies still do not have high level employees who have worked with them for long as job-hopping is the norm in this industry.

Marketing Anomalies

Despite qualified professionals entering the drug marketing field, one old complaint of the pharma entrepreneurs still remain: the rampant unethical marketing, blamed partly on the over competition and partly on the lack of government oversight. Schemes offering as high as 200 per cent bonus to the pharmacy (pay Rs. 10 and get drugs worth Rs. 30) are rampant. Obviously, the pharmacy owner pushes such drugs due to the high margin he gets on them irrespective of the quality. While the entrepreneurs say that this is more so in the case of imported drugs, they also point out that some domestic companies too are involved in the same practice. As the government agency responsible for controlling this (the Department of Drug Administration) lacks sufficient drug testing facility and market inspectors, these elements are flourishing, they say. "I've heard that the DDA has recently added about a dozen drug inspectors to its existing strength of about eight, but this is still not enough," says Sharma.

All these facts indicate that the National Drug Policy of 1995 needs to be replaced with more contemporary provisions. At the same time, such policy also need more and frequent updating.

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