Money Matters

Contract manufacturing

November 13, 2017
By Kashif Mustafa Qadri

INTERVIEW

Q. How would you define contract manufacturing?

A. Contract manufacturing is an outsourcing of certain production activities that were previously performed by the manufacturer to a third-party. A company may outsource the manufacture of certain components for the product or outsource the assembly of the product. In plain words contract manufacturing are a facility provided legally to multinational companies to hire a domestic company to produce a number of their brands as per the specifications provided to them.

This helps MNC do transfer of technology and explore business opportunities in countries without initially committing huge capital investment. The Make in India philosophy is based on this, whereby, companies like GE can enter the market without high commitments initially and create opportunities for economies of scale and tech transfer.

This enables them to sell medicines at a cheaper rate in the local market. In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the rates based on processes, labour, tooling, and material. Typically, a hiring firm will request quotes from multiple CMs. After the bidding process is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm’s factory, producing and shipping units of the design on behalf of the hiring firm.

 

Q. Why is contract manufacturing not being fully tapped in Pakistan?

A. The DRAP (Drug Regulatory Authority of Pakistan) it appears has not fully understood the benefits of contract manufacturing. Perhaps we have not explained it well enough and it is plausible that the regulators believe that if contract manufacturing is allowed it might affect the quality of the medicine which, as stated earlier is not true, because the pharmaceutical companies very carefully scrutinise and select the local manufacturer and ensure that medicines manufactured by them under contract are strictly in accordance to the specification provided to them. Since DRAP has still not understood the concept of contract manufacturing, they instead of giving blanket approvals for two years, are issuing licences for contract manufacturing only for three months at a time.

As anyone with any knowledge of the industry and what is involved will tell you. This is far too short a period for any pharmaceutical company to avail this facility. DRAP must understand that contract manufacturing is a global practice and to boost our pharmaceutical industry it should be allowed as per internationally accepted norms. Pharma industry experts have also demanded reforms in the existing regulatory framework in order to unlock the potential of the local pharmaceutical manufacturing sector.

They also sought to secure access to global markets for products manufactured locally. On the other hand, the restrictions on contract manufacturing have engendered a huge increase in the illegal manufacturing and trade of spurious, substandard and unlicensed medicines in the country. Pharmaceutical companies have, therefore, many times urged DRAP to allow contract manufacturing in the country to help boost local manufacturing operations that would make it competitive in the global market.

 

Q. What are the consequences of not allowing contract manufacturing in Pakistan?

A. Since pharmaceutical companies have huge overhead expenses it is not possible to produce a number of medicines at the very low prices set by the government. This has resulted in the production of several spurious, sub-standard and unlicensed drugs selling in the market at cheap price.

The patients ignorant of the fact buy such drugs. The manufacturers of these fake drugs are playing havoc with the lives of the people who have nowhere to go and are left at the mercy of these death-mongers. The sale of counterfeit drugs costs the national exchequer a sum of Rs12 billion per annum and hurts the pharmaceutical sector at large. If contract manufacturing is allowed in Pakistan, the prices of essential drugs and other medicine will definitely come down, making it affordable for general public.

 

Q. How are our neighbouring countries benefitting from contract manufacturing?

A. In India 40 per cent lower cost of drug manufacturing through contract manufacturing has encouraged multinational pharma companies to consider India for their outsourcing needs. Japanese companies are setting up pharmaceutical plants in India and signing joint ventures with the local industry. The current market value of contract manufacturing in India is estimated at 50 percent of domestic production, translating to roughly $5.3 billion. Similarly, Bangladesh is encouraging contract manufacturing to boost its local pharmaceutical industry.

Subject to approval of the licensing authority, foreign manufacturers are allowed to formulate any drug with any manufacturer, provided it is research-based and registered under the same brand name in these countries

Q. How are the restrictions on contract manufacturing affecting the availability of drugs in the country?

 

A. DRAP’s unnecessary restrictions are very much against the global practice of contract manufacturing resulting in a colossal loss to the national exchequer and both national and multinational pharmaceutical companies, and causing shortage of low-priced medicines in the country. If measures are not taken to change the policy we may see further slowdown in the availability of life-saving drugs that are already facing shortage due to pricing issues. Companies have already reduced the production of many important life saving drugs because they are incurring losses. The restriction from DRAP on contract manufacturing will further burden the companies.

 

Q. Do you think contract manufacturing could give a boost to the pharma sector?

A. It goes without saying that with the introduction of contract manufacturing as per globally accepted standards, the industry would expand and the benefit to the country would be tremendous. Foreign investment of millions of dollars would flow in, resulting in the creation of thousands of jobs for both skilled and semi-skilled workers. Pakistan will then be seen as an ideal location for investment purposes by multinational companies.

The existing regulatory mechanism governing contract manufacturing organisations does not take into account the many innumerable opportunities available to local manufacturers and restrains the local industry from forming conglomerates with global players. Active partnerships between local and international companies would improve the standards of production, encourage healthy competition, facilitate transfer of technology and enable local manufacturers to gain access to global markets. Above all, contract manufacturing will result in considerable foreign investment in the country as developed countries like Japan would prefer to get drugs manufactured in Pakistan at reasonable cost.

 

Q. Through contract manufacturing, can Pakistan expand its pharma exports?

A. To grab the export opportunity which has a lot of potential, and to take a due share in the world pharmaceutical market, it is now imperative for DRAP to come out with rules in line with other medicine-exporting countries of the world.  On the other hand, the government should also take this as a challenge and organise pharma exports, give incentives to the pharma exporters and assist them in upgrading and automating their manufacturing facilities. It should provide incentives to the national pharma industry and encourage investment in R&D and bio-technology. Incentives should also be allowed to pharma exporters. Manufacturers, exporters and the government need to coordinate efforts that can develop the export market and the industry can become a big revenue generating industry for the country just like garments, textiles, etc.

The writer is a PR professional