Introduction
Pharmaceutical Industry of Pakistan is amongst one of the most organized and scientifically managed industry of Pakistan. Comprising of over 250 manufacturers, 40000 registered chemists, 6000 wholesalers and distributors and around 1500 importers. The sales turnover was $718.00 million in 1997. Multinational Pharmaceutical Companies (M N P C) are 23 in number and still enjoys 60 per cent market share.
Pakistan has attained 80% self-sufficiency in its requirement of pharmaceutical products. The gradual progress of the pharmaceutical industry has to be appreciated especially in the context of the fact that this industry was virtually non-existent at the time of the independence of Pakistan. At the time of independence, the government busied itself with the provision of most basic facilities such as housing, infrastructure, defense of the country and the administration. Although a number of industries were developed in the later years but industries related to the health sector were ignored.
History of the Industry
The foundation of the pharmaceutical industry of Pakistan was formally laid in 1950 with the establishment of local subsidiaries of foreign firms and formulation of imported raw material based medicines by local entrepreneurs. Popular Chemical Works (Pvt.) Ltd. was established in 1950 and Shazoo Laboratories (Pvt.) Ltd. was set up in 1951. Some of the existing local companies such as the B.I. Drug Company of Lahore and Frontier Chemical Works Peshawar were small units which catered to a little of local requirements. Local businesses were also set up for the import of finished pharmaceutical products.
The Term Paper on Industry Sectors for Pakistan
Industry Sectors Primary industries: Primary industries are environment related (ex. agriculture, fishery, lumber, mining, oil, energy) but they do not always have to be those things. Primary industries are also the most important industries out of all 3 sectors because it is the main business that a country does to obtain natural materials. First important major primary industry in Pakistan is ...
By 1980, 170 pharmaceutical companies were set up in the country of which 150 were local companies and 20 were multinational firms. The industry was able to attract considerable investments after this point in time as more and more firms and local entrepreneurs entered the industry due to its high profitability and prospects for growth. Presently, there are 304 licensed firms in this industry amongst which 31 are MNCs and the rest are local companies.
Such a rapid growth of the industry deserves to be appreciated but inspite of this; the industry is facing major problems especially in terms of the pricing issues with the government. On the other hand the common man is burdened with the high prices of medicines, some of which are of essential nature. The government administers strict control over the prices of the pharmaceutical products in order to make them available to the common man.
Current Conditions in the Industry
There are over 400 licensed pharmaceutical companies in Pakistan, including 35 multinationals that have over 60 percent of the market share. Approximately one-third of Pakistan’s total consumption of pharmaceutical is imported. Imports of finished drugs are expected to increase. There is good market potential for antibiotics, vaccines, therapeutic medicines, analgesics, tranquilizers, hormones, blood pressure control drugs, anti-ulcerants, drugs for the treatment of cardiac conditions, cancer, psychiatric drugs, contraceptives and birth control prescriptions.
Government policy categorizes drugs into essential and non-essential categories. Essential drugs can be imported freely but their prices are fixed by the government. The prices of non-essential drugs are not fixed. At present, nearly ninety percent of the drugs imported are non-essential.
Though local production of drugs increased in recent years, the pharmaceutical industry is faced with high taxes and tariffs. Higher costs, compounded by devaluation of the rupee, have affected market growth. Major suppliers include the United States, the U.K, Germany, Switzerland, Japan, Holland and France. Local production in 1999 rose to $906.9 million from
The Essay on Cannondale Corporation Market Company Bicycles
Executive summary the gift in case that one becomes related with a company, the Cannondale Corporation, leader in the market of the bicycles of great performance. Betting in the innovation and the quality, the Cannondale has been enters the most sanctioned companies of the sector, having already profits some pr " emits for the performance and high quality of its products. Its related bicycles and ...
The industry of Pakistan comprises of over 250 manufacturers, 40000registered chemists, 6000 wholesalers and distributors and 1500 importers. The Multinational Pharmaceutical companies are 31 in number and have a 60% market share of the industry. The success of these MNCs has motivated local entrepreneurs to invest in the pharma business although they do not enjoy such a vast resource base as compared to the MNCs since the MNCs are supported by their parent companies in this respect. The National Pharmaceutical Companies have emerged in great numbers in the recent years, gaining a sizeable market share within a time span of 5 years i.e. 40% in 1999 compared to 28% in 1994. Fourteen companies are listed on the Stock Exchange with a total market capitalization of RS. 1.46 billion or 0.67% of the total market paid-up capital.
As mentioned earlier, The pharmaceutical industry of Pakistan is one of the most important and well-established industries of the country. Due to the essential nature of the operations and the products of this industry, this industry is also the most regulated and heavily controlled industry of Pakistan. The deteriorating health conditions in the country along with the rapid population growth rate of about 3% are the main factors that contribute to the importance of a proper functioning of this industry. This industry also represents the largest direct foreign investments in Pakistan after the power projects. There is good market potential for antibiotics, vaccines, therapeutic medicines, analgesics, tranquilizers, hormones, blood pressure control drugs, anti-ulcerants, drugs for the treatment of cardiac conditions, cancer, psychiatric drugs, contraceptives and birth control prescriptions in the country.
In terms of its role in the national economy, the industry attracts significant investment in major manufacturing facilities, is a major employer, a major source of tax revenue, a major sector of the stock market and has significant expansion potential.
The foundation of the pharmaceutical industry in Pakistan was laid in 1950 with the establishment subsidiaries of foreign firms and formulation of imported raw material based medicines by local entrepreneurs. Since then this industry has seen many ups and downs but overall there has been a marked improvement in the quality of the formulated products.
The Business plan on Indian Pharmaceutical Industry Companies Market India
The Indian Pharmaceutical Industry... INTRODUCTION The Indian Pharmaceutical Industry today is in the front rank of India's science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4. 5 billion, growing at about 8 to 9 percent annually. It ranks very high in the ...
It is very important to note that, the industry is a highly fragmented one since no firm has more than 6% market share of the industry. This is so primarily due to the reason that the government has imposed a ban on advertising of the pharmaceutical products and therefore, has curtailed the efforts of the firms to establish brand loyalty and recognition for their products. Moreover, the strict price controls from the government on this industry have largely reduced the profit margins of the players of this industry who are incurring high raw material and other costs without any increase in prices of their products. The pharmaceutical industry is also regarded to be at its initial stage since in-depth manufacturing capabilities have not been developed and the industry is still in the packaging and formulation stage. The Pharmaceutical Industry in Pakistan is involved in the formulation (mainly mixing of raw materials according to a given formula), packaging and marketing of prescription and non-prescription drugs.
Almost all (90%) pharmaceutical raw materials is imported, as well as such packing material that is not available in Pakistan. The lack of raw materials manufacturing can be attributed to absence of desired incentives and small size of the market. The pharmaceutical companies argue that small market size makes it nearly impossible to realize the gains of economy of scale for a basic manufacturing plant which needs a lot of capital investment. Consequently, only two companies are engaged in basic manufacturing in Pakistan and both of these companies are facing a hard time financially. On the other hand, import of raw materials exposes the companies to exchange rate risk. On average raw material imports take up 80% of the total cost of goods manufactured of MNCs.
The companies we have chosen for financial analysis are:
Aventis Pharmaceuticals Limited
Wyeth (Formally Cynamid (Pakistan) Ltd)
Reckitt and Benckiser Pakistan
Following is a brief company Profile of the three companies after which, follows the Financial Analysis with Economic Value Added Calculations for the three firms listed above from the year 2000 – 2002. We could not get hold of the Annual reports for 2002, hence we have taken year 2002’s first quarterly report for all the companies.
The Term Paper on American Home Products A Pharmaceutical Empire
History of American Home Products American Home Products Corporation (AHP) was founded in 1926 and has a history of continuous acquisitions of smaller companies that made proprietary medicines. In 1931, AHP purchased John Wyeth & Brother, Inc. from Harvard University. Another important acquisition was that of Canada's Ayerst Laboratories in 1943. Ayerst was a large pharmaceutical company that ...
Corporate Profiles
Aventis is one of the world’s leading life science companies, focusing on the area of pharmaceuticals. Aventis Pharma was launched in December 1999 through the merger of two international pharmaceutical companies: Hoechst Marion Roussel and Rhône-Poulenc Rorer. While the name is new to Pakistanis, Aventis already has a strong presence here, not only in the supply of pharmaceutical products, but also in Research and Development.
Aventis Pharma is the pharmaceutical business unit of Aventis S.A., one of the world’s leading health and nutrition companies, which came into existence from the fusion of Hoechst and Rhone-Poulenc. With its new culture, increased R&D resources, competitive position in emerging technologies, enhanced pipeline and strong marketing muscle, Aventis have a solid platform for sustained medium and long-term growth in both sales and profitability. Aventis has 95,000 employees in more than 80 countries. Its 25,000 finished products are sold in over 120 markets.
Aventis Pharma Ltd. is committed to improve the quality of life. Through the incredible growth of knowledge, its scientists are on the threshold of major innovations in the field of healthcare. Servicing healthcare providers and patients in major markets around the world, Aventis Pharma Limited aims to achieve sustained growth by concentrating on innovative products that meet significant medical needs. In each area, Aventis Pharma Limited is cultivating a continuous flow of new product launches with high potential. Aventis Pharma Limited stands out among pharmaceutical companies for global reach, with a strong presence in major markets, and for the diversity of people in the management teams and business units. The company is committed to a strong multicultural team as a source of innovative thinking and customer-oriented service. Aventis Pharma (Pakistan) Limited has two manufacturing units – one at Karachi and the other at Wah. It also has thirteen regional sales offices in Karachi, Hyderabad, Sukkur, Bahawalpur, Multan, Faisalabad, Sargodha, Lahore, Gujranwala, Rawalpindi, Peshawar, Bannu and Quetta. Aventis Pharma encompasses the following activities:
Prescription Pharmaceuticals — via Hoechst Marion Roussel (HMR) and Rhòne-Poulenc Rorer (RPR);
The Research paper on General Electric Medical Systems – Global Product Company Concept
The Global Product Company concept means ”to concentrate manufacturing – and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost-effectively”. That means that the production is moving to countries where people are mostly underutilized (the example given in the case study tells about engineers from Eastern Europe, who cost only $1,5/h). ...
Vaccines — via Pasteur Mærieux Connaught;
Biologicals — via Centeon, which is fully owned by Aventis and become an integral part of its core business.
Therapeutic Areas Of Focus
Respiratory / Allergy
Oncology
Metabolism / Diabetes
Cardiology / Thrombosis
Arthritis / Osteoporosis
Anti-Infective
Full Range Of Products
Antrima
Amaryl
Avil
Cefrom
Cidomycin
Claforan
Daonil
Frisium
Haemaccel
Idarac
Lasix
Lasoride
Neodipar
Novalgin
Orelox
Roxane
Rulid
Rulid ‘D’
Sofratulle Sterilised Dressing
Streptase
Surgam
Targocid
Tarivid
Tavanic
Telfast
Telfast ‘D’
Tritace
Arpicillin
Arpimox Ascabiol
Avomine
Azmacort
Brulidine
Campto
Clexane
Denoral
Essentiale
Flagyl
Granocyte
Intal
Largactil
Nasacort
Nivaquine
Oruvail
Peflacine
Phenergan
Phensedyl’P
Profenid EC
Rovamycine
Secnidal
Stemetil
Surmontil
Taxotere
Tixylix
Objectives of the Company:
Aventis Pharma Pakistan Ltd. is dedicated to improve the quality of life, treating and preventing human disease through the discovery, development, manufacture and sale of pharmaceutical products, aimed at satisfying unmet medical needs. Its focus is on cardiology, oncology, infectious disease, arthritis, allergy and respiratory disorders, diabetes and the central nervous system. The company is taking a leading role in many global clinical research projects, but it is also committed to promoting uniquely Pakistan initiatives.
Benckiser Inc., a subsidiary of U.K.-based Reckitt Benckiser plc, which was formed with the merger of Reckitt & Colman, plc. and Benckiser N.V. Reckitt Benckiser Inc. manufactures, markets and sells household, cleaning and specialty food products in North America. These products include LYSOL® cleaners and disinfectants, RESOLVE® cleaners, SPRAY’N WASH® laundry stain removers and FRENCH’S® mustard.
The Business plan on Krispy Kreme Financials Donuts Product Company
Krispy Kreme first traded its Shares in the NASDAQ market on April 5, 2000. Under the ticker symbol KID Krispy Kreme started trading on the NYSE on May 17, 2001. Krispy Kreme offers 3, 450, 000 shares for the public to grasp. Financial Outlook When reviewing the financial analysis of Krispy Kreme Doughnuts, Inc we have grown by leaps and bounds in the pass five years. Management has cut expenses ...
Elements for Success:
• Products
• Professionals
• Passion
Reckitt Benckiser Inc., a subsidiary of U.K.-based Reckitt Benckiser plc, which was formed with the merger of Reckitt & Colman, plc. and Benckiser N.V. Reckitt Benckiser Inc. manufactures, markets and sells household, cleaning and specialty food products in North America. These products include LYSOL® cleaners and disinfectants, RESOLVE® cleaners, SPRAY’N WASH® laundry stain removers and FRENCH’S® mustard.
Global Vision
“Passionately delivering better solutions in household cleaning and health & personal care for the ultimate purpose of creating shareholder value.”
Elements for Success
• Products
• Professionals
• Passion
Corporate Business Priorities
• Operational Excellence
• System Integration
Strategy
• Focus on household cleaning
• Leading brands in five growing categories
• A clear strategy for profitable top line growth
• Defined program for improved financial returns
• Strong Focused Team
Reckitt Benckiser began operations in the late fifties in Pakistan. The company was listed in 1977 on the Karachi Stock Exchange. Today there are two RB manufacturing units in the country providing quality household and health and personal care products to a diversified consumer base.The Company manufactures and markets consumer household and pharmaceutical products. Household chemical products accounted for 52% of 2001 revenues and pharmaceutical products, 48%.
According to Mr. Nael Ahmed, Sales Director (Reckitt Benckiser Pakistan LTD):
“Reckitt Benckiser, previously Reckitt & Colman, has been in Pakistan for over 50 years and we certainly take pride in that fact. It is now market leader in most of the categories it operates in. Some of our prominent categories and brands are like household names. In pest control category, Mortein and Coopex brands are the market leaders. In antiseptic category, RB dominates the market in the liquid Dettol. As regards laundry care, RB is the market leader in laundry brightening agents. In pharmaceuticals, our Disprin, Disprol and Aspro enjoy very large market share. With Cherry Blossom range we are also the market leader. AirWick, is our recently introduced category. We plan to be the leader in a short span of time. Our current portfolio includes Aerosols, Bathroom blocks and Agarbattis.”
The availability of smuggled goods, under-invoicing in parallel imports, counterfeit products and a sluggish domestic economy remain the key challenges facing the business, says the company.
These combined with pressures for reducing tariff rates on imports of manufactured products pose a threat to the business, said the company in a review of its operations in the year ended December 31, 2001.
The company, which is facing so many challenges, said: “Reckitt Benckiser will, nevertheless, continue its drive for achieving sales growth and improving profitability.”
Sabir Sami, Managing Director of the Company said:
“2001 has been a great year for the company, which highlights the growth strategy the company launched last year. Business has picked up momentum, which reflects the profits we have generated. We are delighted with the way our initiatives are performing and boosting net revenue growth. Encouragingly, profit margins are expanding strongly behind our cost optimization programmes and cash generation continues to improve. Our performance in 2001 gives us increasing confidence in achieving our targets for the next year. Reckitt Benckiser is now completely focused on executing a clear strategy for the next year to deliver growth by concentrating on our categories and further increasing our rate of innovation to cater to wider consumers base.”
Leading the Way to a Healthier World
About WYETH
Wyeth is a research-based, global pharmaceutical company responsible for the discovery and development of some of today’s most innovative medicines. Their products are sold in more than 140 countries, and their product portfolio includes innovative treatments across a wide range of therapeutic areas. Their worldwide resources include more than 52,000 employees, manufacturing facilities on five continents, and a discovery and development platform encompassing pharmaceuticals, vaccines and biotechnology.
Mission
We bring to the world pharmaceutical and health care products that improve lives and deliver outstanding value to our customers and shareholders.
Vision
Our Vision is to lead the way to a healthier world> by Carrying out this vision at every level of our organization, we will be recognized by our employees, customers and shareholders as the best pharmaceutical company in the world resulting in value for all.
We will achieve this by:
Leading the world in innovation by linking pharmaceutical, biotech and vaccine technologies
Making quality, integrity and excellence hallmarks of the way we do business.
Attracting, developing and motivating the best people.
Continually growing and improving our business.
Values
To achieve out mission and realize our vision, we must live by our values:
1. Quality:
We are committed to excellence—in the results we achieve and in how we achieve them
2. Integrity:
We do what is right for our customers, our communities, our shareholders and ourselves.
3. Respect for People
We promote a diverse culture and an environment of mutual respect for our employees, our customers and our communities.
4. Leadership
We value people at every level who lead by example, take pride in what they do and inspire others.
5. Collaboration
We value teamwork—working together to achieve common goals is the foundation of our success. Their employees are united in a common mission with shared values that they say allows them to achieve an ambitious vision: to be recognized as the best pharmaceutical company in the world…The Company has a unique combination of strategic assets that sets them apart from their competitors globally:
Strong foundation products – Their current product portfolio includes the Premarin® (conjugated estrogens tablets, USP) family of products – which became Wyeth’s first $2 billion product line in 2001- and Effexor® (venlafaxine HCl) Tablets / Effexor® XR (venlafaxine HCl) Extended-Release Capsules, which reached $1.5 billion in sales in 2001. They also have some of the world’s best-known customer health care brands, including, Advil, Centrum and Robitussin.
Successful new products – In the last three years, Wyeth has launched nine new products and, since 1998, initiated three of the 10 most successful prescription medication launches of all time: Enbrel® (etanercept), Prevnar®, Pneumococcal 7-valent Conjugate Vaccine (Diphtheria CRM197 Protein) and Protonix® (pantoprazole sodium).
These three products together produced sales of more than $2.2 billion in 2001 and all have the potential to exceed $1 billion in annual sales in the near future. Two important new products – an innovative intranasal flu vaccine and a locally applied recombinant bone growth factor are currently under health authority review.
Favorable patent situation – With the success of their new products, Wyeth has one of the lowest exposures to patent expiration of all the major pharmaceutical companies over the next seven to eight years – a tremendous competitive advantage. Their broad-based portfolio also means that their growth is not dependent on the success or patent life of one or two products.
Robust pipeline – They have built an impressive new product pipeline across a wide range of therapeutic areas that addresses significant unmet medical needs. By 2004-2005, they expect this pipeline to yield several new first-or best-in-class products.
Unique R&D technology base – Wyeth now is one of the largest biotechnology companies in the world and one of a select few major pharmaceutical companies with significant research programs, manufacturing capabilities and marketed products from three discovery and development platforms: pharmaceuticals, vaccines and biotechnology. This breadth of expertise provides unique research synergies and fuels their ability to explore multiple paths in the search for new therapies.
Our People – All of these assets are driven by their most important resource: the talent, commitment and experience af our dedicated employees around the world.
Ratio Analysis
Liquidity Ratio Comparisons
Current Ratio
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 1.87 1.33 1.45 1.33
Wyeth 1.87 1.46 1.34 1.13
Reckitt Benkiser 1.87 1.44 1.48 1.44
As depicted by the graph and the industry average, all the firms under consideration are relatively aggressive firms as all of them have current ratio less than the industry average that is 1.87. Although Aventis Pharma Increased its current ratio by 9 percent during the year 2000-2001 but in the first quarter 2002, it has again declined to 1.33. Wyeth shows an increasing trend overall. It increased its current ratio by 18% in the fiscal year 2000-2001. Reckitt’s current ratio increased by 2.7% during the year 2000-2001.
Quick Ratio
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 0.68 0.86 0.62
Wyeth N/A 0.8 0.68 0.81
Reckitt Benkiser N/A 1.03 1.03 1.09
Reckitt’s overall Quick ratio is stable than the other two companies. Although Aventis has shown an increase of 38.7% during the year 2000-2001, but its liquidity has again declined to almost the same position during the first quarter of the year 2002. Aventis is also carrying 40% of its current assets as inventory. The Balance sheet of Wyeth Pharma, shows that its inventory values approximately 50% of its current assets hence, Wyeth should be concerned about its liquidity position in the near future. The company has shown an increasing trend in its liquidity position in the first quarter of 2002, which is a good sign.
Inventory to Networking Capital
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 1.93 1.31 2.14
Wyeth N/A 1.43 1.93 2.47
Reckitt Benkiser N/A 0.93 0.94 0.8
Analysis
Reckitt is a relatively aggressive firm, and is holding fewer inventories than the other two firms while both Aventis and Wyeth have inventories almost twice their working capital.
Profitabilty Analysis
Gross Profit Margin
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 34.6 27.80% 27% 32%
Wyeth 34.6 35% 36% 29.60%
Reckitt Benkiser 34.6 32% 30.00% 26.90%
Operating Profit Margin
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 6.20% 6.60% 9.50%
Wyeth N/A 18.68% 19.26% 8.55%
Reckitt Benkiser N/A 7.60% 5% 0.60%
Net Profit Margin
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 6.8 0.90% 2.20% 3.20%
Wyeth 6.8 12.60% 4.60% 8.55%
Reckitt Benkiser 6.8 5.38% 3% 0.58%
Return on Investment
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 8.43 0.48% 5.48% 6.70%
Wyeth 8.43 15.18% 7.50% 1.11%
Reckitt Benkiser 8.43 5.40% 6.60% 1.07%
Return on Shareholders Equity
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 15.64 1.24% 13% 16.70%
Wyeth 15.64 18.50% 25.64% 8.09%
Reckitt Benkiser 15.64 6.30% 15.80% 2.40%
Profitability Analysis:
Out of the three firms, being analyzed, the profitability of Wyeth stands out. It has succeeded in improving the profit margins. Significantly return on share holders equity increased from a negative figure to almost 26%. They have been able to cut down their cost of goods sold by 6.8% which has also contributed to their increased profitability. The management has also striven on controlling their administrative and selling expenses which have resulted in reduction of 27.3% over the last year. Profitability of Aventis has been declining throughout the period under consideration. The net profit margins of Aventis are dangerously low and have declined from 3.2% of sales in 2000 to 0.9% in 2002. Profit margins of Reckitt show a decreasing trend.
Leverage Ratios
Debt to Equity
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 1.19 1.59 1.29 1.49
Wyeth 1.19 1.90 2.38 6.24
Reckitt Benkiser 1.19 1.53 1.33 1.21
Debt to Total Assets
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 0.61 0.56 0.60
Wyeth N/A 0.65 0.70 0.86
Reckitt Benkiser N/A 1.30 0.57 0.54
Analysis:
Wyeth’s Debt to Total asset has decreased from 0.86 to 0.65. Similarly, it has also strived to decrease its debt to equity ratio from 6.24 to 1.90 in order to match the industry average i.e.1.19. The leverage ratios of Aventis show a stable trend but, but they are below the industry average. Reckitt Benckiser’s leverage ratios also depict an increasing reliance over debt financing.
Activity Ratios
Inventory Turnover
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 1.33 7.35 4.93
Wyeth N/A 1.02 3.87 4.42
Reckitt Benkiser N/A 2.09 8.76 11.06
Inventory Period
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 93.80 68.00 109.00
Wyeth N/A 135.60 148.44 117.48
Reckitt Benkiser N/A 63.89 60.10 45.17
A/c Payable Period
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A N/A 25.30 35.20
Wyeth N/A N/A 10.90 5.47
Reckitt Benkiser N/A N/A 12.56 33.00
Accounts ReceivableTurnover
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 2.05 7.81 7.51
Wyeth N/A 2.09 9.07 12.04
Reckitt Benkiser N/A 2.10 28.30 10.17
Collection Period
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 43 43.80 43.70 44.90
Wyeth 43 43.80 34.00 25.00
Reckitt Benkiser 43 12.36 7.00 25.70
Fixed Asset Turnover
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 3.01 14.06 10.60
Wyeth N/A 3.30 12.95 17.80
Reckitt Benkiser N/A 2.95 11.00 7.00
Total Asset Turnover
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma 2.41 0.53 2.46 2.09
Wyeth 2.41 0.40 1.66 1.17
Reckitt Benkiser 2.41 1.00 1.96 1.83
Operating Cycle
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A 137.60 111.70 153.90
Wyeth N/A 179.40 182.44 142.48
Reckitt Benkiser N/A 76.25 67.10 70.87
Cash Conversion Cycle
Name of the Company Quarterly Annual Annual
Industry Avg 2002 2001 2000
Aventis Pharma N/A N/A 86.40 118.70
Wyeth N/A N/A 171.54 137.01
Reckitt Benkiser N/A N/A 54.54 37.87
After analyzing the activity ratios of the three companies under consideration, we’ve come to the conclusion that Aventis has succeeded to improve its inventory handling by increasing its inventory turnover in days from 4.93 to 7.35 days and decreasing its inventory period from 109 days to 68 days. But it is not doing good in handling its payables as it has decreased its accounts payable period from 35 to 25 days against wyeth which has improved its accounts payable period from 5.47 days to 10.9 days. Reckitt & Benckiser has also failed to improve it’s a/c payable period by decreasing it from 33 to 12 days. But on the other hand Reckitt has significantly improved its collection period 26 days to 7 days (This is due to the factoring of their accounts receivables with a local bank) as against Aventis which failed to improve its collection period and remained stable over the period with 44 days. Wyeth was not able to control its receivables as it has increased its collection period from 24 days to 35 days, and hence needs to amend its collection policy.
Operating cycle:
The results above shows that both aventis and Reckitt have improved their operating cycle by decreasing it from 154 to 111 days & from 70 to 67 days respectively. This is due to their good control over their inventory and collection period. On the other hand wyeth is facing problems in controlling its inventory which is 50% of its current assets and its collection period has also deteriorated, as a result of which its operating cycle has increased from 142 to 182 days.
Cash Conversion Cycle:
Resu
dcomic Value Added
Calculation of NOPAT For EVA Purpose
Aventis
2000 2001
Sales 1800607 2072440
Less: COGs 1218270 1511696
Trading profit 582337 560744
Administration & Selling Expenses 409889 422851
Operating Profit 172448 137893
Other Income:
Interest from:
Associated undertakings 2529 2841
Others 464 698
Profit on Bank Deposit 0 1648
Gain on sale of fixed asset
Sale of scrap 643 1270
Exchange gains (net) 2471 0
Licence fees from associated undertakings 4227 4456
Liabilities outstanding for over three years written back
Insurance claims 5456 0
Others 2290 3045
18080 13958
Financial Charges
Other Charges
Auditors Remuneration 2289 1772
Fixed Assets Written Off
Workers Welfare Fund 3761 2402
Donations 133 147
Legal and Consultancy Charges 2299 4682
Contribution for Research and Development Fund 1400 1099
Workers Profit Participation Fund 7492 5826
Others 1288 1146
18662 17074
Profit before taxation 171866 134777
Taxation( 40%) 68746.4 53910.8
Profit after taxation 103120 80866
Less: Capital Charge 55371.5 59003.7
Economic Value Added 47748 21863
Calculation Of Capital Charge For EVA Purpose
Aventis
2000 2001
Current Assets 685204 689489
Less: Current Liabilities
Current Maturity of Redeemable capital
Short-Term Running Finances
Creditor’s Accrued and Other Liabilities
Trade Creditors 117748 104751
Bills Payable 1992 4425
Accrued Liabilities 140600 94952
Retirement Benefits 476 1104
Short Term Compensated Absenses 4708 7358
Security Deposits Non-Interest Bearing 282 282
Accrued Markup On Secured
Redeemable Capital
Short Term Running Finances
Excise Duty 804 804
Royalty 2860 0
Workers Profit Participation Fund 7515 5919
Workers Welfare Fund 5325 7727
Unclaimed Dividend 435 523
282745 227845
Proposed Dividend 24307 24307
Total Current Liabilities 307052 252152
Networking Capital 378152 437337
Fixed Assets
Operating Assets 146164 122821
Capital Work In Progress 23772 24558
Long Term Deposits and Prepayments 2103 1774
Long Term Loans and Advances 3524 3547
Total Fixed Assets 175563 152700
EVA Capital 553715 590037
Aventis
Cost of Capital Calculation
EVA CAPITAL 553715 590037
Cost of Capital 0.1 0.1
Capital Charge 55371.5 59003.7
Reckitt Benckiser
2000 2001
Sales 2081014 2346853
Less: COGs 1519599 1625079
Trading profit 561415 721774
Administration & Selling Expenses 547169 601854
Operating Profit 14246 119920
Other Income:
Income From WAPDA Bonds 380 377
Rental Income 0 2367
Profit on Bank Deposit 5120 25061
Gain on sale of fixed asset
Sale of scrap 2905 1193
Exchange gains (net) 269 0
Licence fees from associated undertakings 4227 4456
Liabilities outstanding for over three years written back
Insurance Commissions 5456 0
Others 2150 2041
20127 32751
Financial Charges
Other Charges
Amortization of Goodwill 3000 3000
Amortization of Deffered Cost 6000 6000
Auditors Remuneration 2559 3158
Fixed Assets Written Off
Workers Welfare Fund 2300 4121
Donations 133 147
Legal and Consultancy Charges 2299 4682
Contribution for Research and Development Fund 500 600
Exchange Loss 0 259
Workers Profit Participation Fund 1160 7834
Others 1288 1146
10239 21947
Profit before taxation 24134 130724
Taxation( 40%) 9653.6 52289.6
Profit after taxation 14480.4 78434.4
Capital Charge 59482.1 60028.2
-45001.7 18406.2
Reckitt Benckiser 2000 2001
Current Assets 767024 872940
Less: Current Liabilities
Creditor’s Accrued and Other Liabilities
Trade Creditors 137283 55348
Bills Payable 23892 74395
Accrued Liabilities 334406 343853
Advance Payment From Customers 8999 4345
Sales Tax 15108 12831
Short Term Compensated Absenses 4708 7358
Security Deposits 535 387
Markup on Running Finances
Contracters Retention Money 864 823
Royalty 2860 0
Workers Profit Participation Fund 1160 7834
Workers Welfare Fund 5781 5902
Research Fund 500 1100
Others 2217 151
538313 514327
Dividends 1486 81624
Total Current Liabilities 539799 595951
Networking Capital 227225 276989
Fixed Assets
Operating Assets 276842 212762
Capital Work In Progress 16703 22244
Goodwill 3000 0
Long Term Deposits 179 139
Deffered Cost 6000 0
Deffered Taxation 58033 80009
Long Term Loans and Advances 6839 8139
Total Fixed Assets 367596 323293
EVA Capital 594821 600282
Reckitt & Benckiser
Cost of Capital Calculation
EVA CAPITAL 594821 600282
Cost of Capital 0.1 0.1
Capital Charge 59482.1 60028.2
Wyeth
2000 2001
Sales 2100840 1876558
Less: COGs 1477746 1192858
Trading profit 623094 683700
Administration & Selling Expenses 443474 322222
Operating Profit 179620 361478
Other Income:
Gain on sale of fixed asset
Sale of scrap 2853 1441
Interest Income 793 11620
Exchange gains (net) 0 19758
3646 32819
Financial Charges
Other Charges
Workers Welfare Fund 0 8893
Contribution for Research and Development Fund 0 2930
Workers Profit Participation Fund 0 15484
0 27307
Profit before taxation 183266 366990
Taxation( 40%) 73306.4 146796
Profit after taxation 109959.6 220194
Capital Charge 143382.5 81359.7
Economic Value Added -33422.9 138834.3
Wyeth 2000 2001
Current Assets 1677155 984348
Less: Current Liabilities
Liabilities Against Assets Subject to Finance Lease
Short Term Loan Unsecured
Short-Term Running Finances
Creditor’s Accrued and Other Liabilities
Trade Creditors 22184 35669
Bills Payable 162566 141537
Advances From Customers 39690 34977
Accrued Liabilities 108201 66804
Interest On Short Term Loans
Markup On Short Term Running Finance
Provisions 9770 13684
Contribution Payable to SESSI 3375 536
Workers Profit Participation Fund 0 15484
Central Research Fund 0 2930
Payable to BCPPL 12613 0
Others 2490 3439
Unclaimed Dividend 541 541
361430 315601
Networking Capital 1315725 668747
Fixed Assets
Operating Assets 101402 115513
Capital Work In Progress 0 13550
Long Term Loans and Deposits 16698 15787
Total Fixed Assets 118100 144850
EVA Capital 1433825 813597
Wyeth
Cost of Capital Calculation
EVA CAPITAL 1433825 813597
Cost of Capital 0.1 0.1
Capital Charge 143382.5 81359.7
Appendix
Significant events in The Development of the Industry
The Generic Act, 1972: In 1972, the Generic Drugs Act was promulgated which the population welcomed in general as it aimed at reducing the prices of drugs. Under this Act, a legislation was introduced that allowed only essential drugs to be manufactured and sold as well as the use of only generic names for all drugs. However, despite its positive effects of bringing the prices down, this Act was withdrawn in 1976 primarily due to strong internal and external pressures and to some extent due to inadequate preparatory work.
The Drugs Act, 1976: With the failure of the Generic Act of 1972, the government soon promulgated another law i.e. the Drugs Act, 1976. The law provides for licensing, drugs registration, surveillance for quality, price controls and contributions towards drug research fund. This Act has majorly contributed to the quality standards of the pharmaceutical industry but the price controls kept the price index to a much lower level. With the relaxation in the price control by the government in 1993, the prices of the drugs were increased continuously by the companies to a great extent. The government was once again forced to freeze the drug prices. Since then, pricing has been the major controversial issue between the pharmaceutical companies and the Ministry of Health.
The government announced incentives for encouraging basic manufacturing of drugs in 1984 followed by a similar package in July 1995. The National Drugs Policy was introduced in 1994 but some of the MNCs in the pharmaceutical industry strongly opposed some of the provisions of this policy on the basis that these were discriminating and against the government’s general policy of free economy. The major issues of controversy related to access to drugs included compulsory manufacture of essential drugs by a certain percentage of turnovers of the companies and transfer pricing.
In May 1991, the Economic Coordination Committee (ECC) of the Cabinet approved an across-the-board price increase of 9.5% for all registered products and formed a special committee to examine the controls on the pharmaceutical industry, possible deregulation, to review of the drug registration system and to suggest measures for the increase of manufacture by the companies.
In 1993, the committee recommended the classification of drugs into three categories. With further refinement, the categories A and B were grouped together for purpose of price control whereas the prices of other products were free from price controls. These were the Controlled and the Decontrolled categories. In the same year, the prices of the controlled category were revised by the government and it also removed price controls from the remaining products. The prices for the controlled group were increased by 5% while an increase of about 50% was allowed for the decontrolled category. In 1994, the Ministry of Health asked the pharmaceutical companies to accept a voluntary price freeze till June 30, 1994 and to roll back the prices of products whose prices were increased by more than 50% since June 1993 to a maximum 50%.
The industry was allowed a 7.5% price increase on the controlled category by the government and a 15% across-the-board price increase was allowed on the decontrolled category in 1995. In November 1995 and 1996, a price increase of 6.5% and 6% respectively were allowed by the government. An across-the-board price increase of 12% was awarded to non-essential or decontrolled category in November 1996.
Since 1996, the government did not allow any increase in the prices of drugs in any of the two categories though the pharmaceutical companies constantly complained of high costs of raw material import, taxes and other costs that have drastically reduced the profit margins of these companies. The pharmaceutical industry was exempted from sales tax in the budget of 1997-98. With the regulatory duty already removed, the industry is now paying only duty at the rate of 10%. The 10% custom duty on raw material still remains.
The present military government has now introduced a price increase for the pharmaceutical products which has come as a relief for the pharmaceutical companies but this action of the government has been greatly criticized by the general public and it is generally believed that a large proportion of the total population of the country living below the poverty line cannot afford to go for such an exorbitant price.
On June 20, 2000 the government announced the long awaited price increase of 10% on the decontrolled category and 8% on the controlled category. Although this price increase is less than what the Pharmaceutical Industry had hoped for given the fact that the last price increase was awarded in November 1996, yet the pharmaceutical companies have welcomed this move by the government and these firms feel that the positive effects of this action will be reflected on increased profitability of the firms in the financial statements of 2001.
Multi-National Companies, The Major Players
As mentioned earlier, the Multi-National Companies are the Major Players in the Industry. They dominate the market with as much as 60% of the market share. As per statistics given in 1999 the following are the growth rates of these Companies
Company Growth Ratio Market Share
Glaxo-Wellcome 0.1 6.04
Smith-Kline Beecham 30.3 5.8
Abbott 11.2 5.4
Novartis -5 4.53
Cyanamid Steady 3.54
Note: Knoll Ranks 16th in this line.
Performance
The total pharmaceutical market of Pakistan is currently over RS. 50 billion, out of which the local industry claims a share of about RS. 40 billion while the rest is accounted for by the imported drugs in finished form. Since 1990, this market has grown steadily at an average rate of 20-25%, rising to 28% and 29% during 1994 and 1995 respectively.
The sales turnover of the industry was about $718 million in 1997. Pakistan, with a population of 137.51 Million in 2000 (Source: Economic Survey of Pakistan 99-2000), ensures a rising market demand for pharmaceutical products. The pharmaceutical industry has grown from sales of RS. 25,800 Million in 1994 to RS. 36,179 Million in 1998 (at an annual growth rate 8.8% over the period 1994-98).
The average per capita spending on health in the country is RS 270.10 in 1997-98.
MNC’S versus Local Companies
The MNCs have been awarded licenses by their parent foreign corporations to manufacture products. These firms have an advantage in the local arena since they do not have to incur high research costs and are provided considerable resource base from their parent companies. In this way, these MNCs provide a tough competition to the local companies since the local firms do not have a large resource base and lag behind in the field of research and development. Also, one of the major problems faced by the local manufactures is the image associated with Pakistani-made products, especially if the products are of such a critical nature as that of medicines.
The local pharmaceutical companies are either engaged in the manufacturing or importing of the pharmaceutical products. Out of the 286 local pharmaceutical companies that have been awarded licenses by the government to manufacture pharmaceutical products, only about 60 are actively engaged in the manufacturing processes whereas the rest have the licenses to import such products.
As many as 18000 drugs have been registered with the Ministry of Health so far. Out of these, about 821 is classified as essential drugs the prices of which are controlled by the government. 12737 are categorized as non-essential drugs. The controlled category accounts for approximately 72% of the total market and is strictly price controlled. At present, nearly ninety percent of the drugs imported are non-essential. The MNCs in the pharmaceutical industry employ 30000 individuals, 75% of which are skilled and possess high standards of education.
The pharmaceutical industry of Pakistan meets 80% of the country’s demand for medicines and related products and previously the MNCs were able to cater to 60% of this demand and the local companies meeting 28%. But at present, the situation is reversed with the unit-wise share of the national companies rising to 65%. The total Pakistani pharmaceutical market consists of RS. 35,269,648 (approx. 35 billion.).
Local production of the industry in 1999 rose to $906.9 million from $831.1 million. According to the Pharma Bureau report of 1998, the pharmaceutical industry of the country has a growth rate of 15%, which has now come down to less than 10%.
Leading Products of the Industry
Drugs of the pharmaceutical industry can be classified according to their formulations and there are five such types of formulations constituting the pharmaceutical products:
ORAL DRUGS Tablets, capsules, syrups, drops etc.
INJECTIBLES Drips, Injections
TOPICAL DRUGS Lotions, creams, ointments, sprays
INHALERS Inhalers puffs
OPHTHALMIC DRUGS Eye ointments, drops
The three leading products of the pharmaceutical industry of Pakistan are Augmentin, Velosef and Amoxil, all three manufactured by Smith-Kline Beecham- Glaxo Wellcome. Most of the pharmaceutical companies focus on producing antibiotics, anti-tuberculosis, anti-bacterials and haematinics since all these cater to the pressing medical and health concerns in the country. Apart form this, some companies also produce consumer/household products that have gained significant market share and have proved to be profitable for these companies since such products are not regulated by the government in terms of prices. Examples of such products are Rashnil, Selsun Blue, Fiberad and Mospel produced by Abbot Laboratories.
Pharmaceutical companies have also started specializing in a particular market segment such as Panadol CF Sinus Relief introduced by Pharmatec Pakistan and Eli-Lilly specializing in drugs, medicines etc. for females only. Also, an important point to identify in this regard is the fact that a lot of the OTC drugs in the Pakistani market are generic in nature in the way that they are close substitutes of each other, such as Paracetamol by Reckitt & Colman and Panadol by Pharmatec Pakistan Ltd.
International View Regarding the Industry
Multi-National Companies give a good picture to the industry on the International front. Their 60% dominance in the market adds to this favourable picture. Due to this there are export potentials for Pakistani Drugs in the International Market. even though Pakistan remains to be an importer of many drugs, a good quantity can be exported. How ever this export Potential is highly Limited at least in some parts of the World.
The export potential for Pakistan in USA and Western Europe is very limited since most of the MNCs that are operating in Pakistan have their parent companies well-established in these regions of the world, therefore MNCs in Pakistan do not have much different tot offer. Regions such as Central Asia and East Europe serve as relevant export potential areas for the Pakistani pharmaceutical industry. However, China with a 20% growth rate in the same industry is most likely to capture this market. Expected to be amongst the Top Five producers by 2000, China also has the competitive advantage in terms of its geographical position and therefore, low transportation costs. Similarly, India’s pharmaceutical industry has grown 500 times since Independence. Its exports in 1998 have also increased by 18% since 1996-1997. India also has a strong national base (61% of the market) as well as local raw material manufacturing capacities. Pakistan possesses export potential in the form of export opportunities in African countries such as Kenya, Zambia, Malawi, Uganda and Ethiopia. Being third world countries, these countries also faced with similar health and hygiene problems and are considered low priced markets by other exporters of pharmaceutical products.
Pharmaceutical exports have increased by 100% from $19.2 million in 93-94 to $ 36.6 million in 94-95 to $ 41 million in 95-96. Exports of medicaments amounted to $ 24.896 million in 95-96 compared to $ 30.312 million in 94-95 and $ 13.386 million in 93-94. In 1999 the exports were about $35.234 million as more drugs were exported to Africa.
Problems Faced by the Industry
• The Pricing Problem
Talking about Pakistani pharmaceutical industry remains incomplete without addressing the core issue of drug prices which never fails to draw a thunderous public resentment on the one hand and the demand for price increases by over two dozen multinational companies which still enjoy the leading share of the market.
Prior to 1969-70 there were no statutory controls on the prices of drugs in Pakistan. The price controls were first introduced the same year and were eventually incorporated into the Drug Act of 1976. The responsibility of regulating drug prices lies with the Federal Ministry of Health.
From 1971 to 1990 no across-the-board price increases were allowed by the government. In May 1991 the government allowed a 9.5 per cent increase and also constituted a committee to examine, among other things, the then existing controls on the pharmaceutical industry. In October, 1992 the committee presented its report which recommended the classification of drugs into three categories — Category A, the life-saving drugs; Category B, the widely used though not life-saving, and Category C, the remaining drugs which did not fall in the first two categories. It was also recommended that the prices of life-saving drugs should continued to be controlled, a check on the prices of leading brand’s market dominance, and deregulation of prices for the third category.
The Committee’s recommendation was referred by the Economic Coordination Committee of the Cabinet (ECC) to another committee heading by the then Deputy Chairman of Planning Commission, A.G.N. Kazi and comprising federal secretaries. The Kazi Committee recommended that the drugs under categories A and B should be grouped together for the purpose of price control. It also recommended that the retail prices of leading brands in each group of product, almost every single one of which were produced by the multinational pharmaceutical companies, be fixed as the lead price. The prices were also allowed to be treated as the ceiling up to which all manufacturers, including local companies, can increase the prices of their comparative group.
In June 1993 the then government revised the prices of drugs in the controlled category, or essential, and removed price controls from the remaining products like baby milk, the prices of which have shown drastic increases since. A 5 per cent increase in the prices of the controlled drugs was announced simultaneously. It also allowed a maximum increase of 50 per cent for the prices in the decontrolled, the non-essential, drugs but asked the industry to limit price increases to 20 per cent for next three months, till September 30, 1993. While many multinationals only increased their prices on an average by 25 per cent price increases in many products was much higher.
This created problems for the ECC which felt that once the prices of decontrolled drugs had stabilized a proper adjustment be made in the prices of controlled drugs to adjust inflation and devaluation. In January 1994, the pharmaceutical industry agreed to roll back the prices of the those decontrolled products which were above the 50 per cent increase allowed in June 1993. Since then the prices of essential drugs have been increased three times — 7.5 per cent in November 1994, 6.5 per cent on January 1, 1996, and 6 per cent on November 1, 1996. The prices of non-essential drugs were increased by 15 per cent in July 1995 and November 1, 1996.
The MNCs lead local pharmaceutical industry had been much vocal to demand price increases in the recent past. The MNCs has been demanding for price increase due to the devaluation of the currency and increasing input costs which have pushed their production costs. However, between 1997 to 1999 the prices of 69 drugs have been reduced by the Ministry of Health by 4-28 per cent primarily as the retail prices of the same in the neighboring countries are much lower. For instance, the price of 10 pack Zentac 150 mg tablets, produced by GlaxoWellcome Pakistan has come down from RS 130 to RS 85 at present. The same drug made by the same company in India retails for RS 15 per 1-tablet pack of still less than one-fifth the price it retails for in Pakistan.
In and interview with a Local Magazine, last year the president of Wholesale Chemists Council Pakistan, Hanif Blue, said that the multinational pharmaceutical companies have adopted an strategy to force the government increase the prices of the drugs in the country. Some of these companies have find ways to create an artificial shortage of life-saving drugs to achieve the desired result.
Looking at the above information, it can be judged that there is no clear pricing policy in this industry. The MNCs are always contacting Government for increase in prices so as to counter the affect of huge raw material Costs. On the other hand some local officials say that a few drugs are over priced and due to this over pricing drug smuggling from Iran, India and Bangladesh has become common.
In conclusion the industry feels that prices for new products should especially be liberalized in order to encourage innovation without suddenly opening up the floodgates to higher costs at once. Progress towards curing the life-threatening diseases and improving he quality of life can not be achieved without drug innovation.
On June 20, 2000 the government announced a 10% increase in the prices of the decontrolled category and 8% on the controlled category. This price increase has been allowed to the industry after a period of about four years and it has come as a relief for the pharmaceutical firms, which have been incurring high costs without any increase in prices of their products.
Besides the main issue of Pricing, the Government Policies are also considered to be a problem in the industry. These Policies are termed to be inconsistent by the industry and especially the MNCs have always requested the Government to adopt to fair policies like that in the USA, UK etc. Such government policies do not permit the multinational pharmaceutical companies to properly plan their operations for at least five years. This has reduced their investments in Pakistan. In addition the failure of the government to honor its written commitments with regard to annual price increases and customs duty, sales tax and other punitive levies, imposed without any price adjustments.
One other problem is that of non-existence of Patent protection and Lack of copyrights. The new research compounds are not given patent protection and thus this creates a problem especially for the MNCs. this lowers their investment and confidence in their industry. Also due to laws of the land it is felt that companies cannot eliminate product lines in which they are unprofitable.
Due to lack of copyrights, new technologies in drugs are not provided easily to the people. This is a problem for both the companies and the general public. Cheap imitations of the products are there and this destroys the image of the product and can lead to further loss of image for the company.
In Pakistan, due to non-existent product patent protection, new research products are being introduced at a very slow pace. Consequently, innovative medicines are available to individuals who can afford to pay a higher price for the abroad than the price at which these would have been available in Pakistan had product patent laws been in place. Over 95% of medicines on the WHO list of essential medicines and vaccines are freely available in Pakistan as generic copies because their patents have expired.
Inflation can also be a problem for the Industry. Due to fluctuations in the Dollar price i.e. constant de-valuations, the industry is faced with huge problems. About 90% of the raw materials are imported and thus their prices get affected because of these dollar fluctuations giving a rise to the cost of production. Moreover, a 10% customs duty is also levied on all imported raw and packaged materials and 35% customs duty and 12.5% sales tax is levied on PVC films sheets used for blister packaging. Imports are made at the composite rather than official exchange rate; the composite rate tends to vary form 10% to 18%. All these combined together serve to increase the costs of production for the pharmaceutical companies with a further shrinkage in their profits.
The biggest problem for Local pharmaceutical companies is that they are faced with the incorrect quality perceptions regarding local products. Generally it is felt that locally manufactured products don’t have the right quality maintained and thus they are avoided.
Besides these main problems, ban on advertising, mergers, heavy taxes and trade related problems are also a threat to the industry.
Opportunities In The Industry
Even though this industry is faced with a lot of threats, there can be very useful opportunities in this sector. There is always a brighter side of the picture as well, even though in the case of Pakistan, the brighter side usually has to be exaggerated, still there are emerging opportunities in the country
All the companies who have had their Patents registered enjoy their rights for 15 years. These companies are free from the threat of imitation and can carry on successfully.
The fact that there are still a lot of drugs being imported can be an opportunity in its own.
Also raw materials are heavily imported, this can be an opportunity in the industry.
Companies, which come up with new and innovative products and formulas as a solution to some problem, related to the health sector can establish themselves in a niche.
The excess capacity can be used for export purposes mainly to some African countries.
The increased health awareness on the part of the consumer can create a good opportunity for this industry. Investments on this side will only be there if the Governmental policies are made consistent and also better administration is provided. The unfair policies as called by the MNCs should be reviewed.
Investment in this sector can definitely promote employment and help the country increase its GDP. Also if the products are corrected in terms of quality, export potential can be increased.
Current Market Scenario
There are over 400 licensed pharmaceutical companies in Pakistan, including 35 multinationals who have over 60 percent of the market share. Approximately one-third of Pakistan’s total consumption of pharmaceutical is imported. Imports of finished drugs are expected to increase. There is good market potential for antibiotics, vaccines, therapeutic medicines, analgesics, tranquilizers, hormones, blood pressure control drugs, anti-ulcerants, drugs for the treatment of cardiac conditions, cancer, psychiatric drugs, contraceptives and birth control prescriptions.
Government policy categorizes drugs into essential and non-essential categories. Essential drugs can be imported freely but their prices are fixed by the government. The prices of non-essential drugs are not fixed. At present, nearly ninety percent of the drugs imported are non-essential. Though local production of drugs increased in recent years, the pharmaceutical industry is faced with high taxes and tariffs. Higher costs, compounded by devaluation of the rupee, has affected market growth. Major suppliers include the United States, the U.K,, Germany, Switzerland, Japan, Holland and France. Local production in 1999 rose to $906.9 million from $831.1 million.
Aventis Pharma Pakistan Limited
2001 Sales: 2,072,440,000
Major Industry: Drugs, Cosmetics & Health Care
Sub Industry: Ethical Drug Manufacturers
Country: Pakistan
Currency: Pakistan Rupees
Fiscal Year Ends: December
Employees 521
Exchanges: KAR
Share Type: Ordinary
Market Capitalization: 354,182,760
Total Shares Outstanding: 6,944,760
Closely Held Shares: 4,641,363
Chairman Syed B. Ali
Managing Director M. T. Umar
Secretary M.Z.M. Mohajir
Company Description
Aventis Pharma Pakistan Limited Formerly known as Hoechst Marion Roussel (Pakistan) Ltd. The principal activities of the Company is to manufacture and distribute pharmaceutical products. The products of the Company include Haemacell, Novalgin, Lasix, Cidomycin, Tavrivid tablets, Tragocid and Tavanic.
Competitor Analysis
Aventis Pharma Pakistan Limited operates within the Pharmaceutical preparations sector. This analysis compares Aventis Pharma Pakistan Limited with three other user selected companies: Reckitt Benckiser Pakistan Limited (2001 sales of 2.13 billion Pakistan Rupees [US$35.71 million] of which 57% was Household), Glaxo Wellcome Pakistan Ltd (2001 sales: 3.25 billion Pakistan Rupees [US$54.40 million] of which 100% was Pharmaceuticals), and Abbott Laboratories (Pakistan) Ltd (2000 sales of 2.54 billion Pakistan Rupees [US$42.61 million] ).
Note: not all of these companies have the same fiscal year: the most recent data for each company are being used.
Sales Analysis
During the year ended December of 2001, sales at Aventis Pharma Pakistan Limited were 2.07 billion Pakistan Rupees (US$34.73 million).
This is an increase of 10.7% versus 2000, when the company’s sales were 1.87 billion Pakistan Rupees. This was the fourth straight year of sales growth at Aventis Pharma Pakistan Limited.
Recent Sales at Aventis Pharma Pakistan Limited
1.44
1.43
1.44
1.68
1.87
2.07
1996 1997 1998 1999 2000 2001
(Figures in Billions of Pakistan Rupees)
During the past five years, sales of Pharmaceuticals have become increasingly important to the company, and in 2001 accounted for 100% of the total sales at Aventis Pharma Pakistan Limited, versus only 85% of total sales in 1997. (In 1997, the remaining 15% of sales at the company were in Chemicals and Indenting Commission).
The company currently employs 521. With sales of 2.07 billion Pakistan Rupees (US$34.73 million) , this equates to sales of US$66,668 per employee. This is higher than the three comparable companies, which had sales between US$32,039 and US$44,304 per employee. Note that some of the figures stated herein could be distorted based on exact classification of employees and subcontractors.
Sales Comparisons (Most Recent Fiscal Year)
Company Year
Ended Sales
(blns) Sales
Growth Sales/
Emp (US$) Largest Region
Aventis Pharma Pakistan Limited Dec 2001 2.072 10.7% 66,668 N/A
Reckitt Benckiser Pakistan Limited Dec 2001 2.131 12.7% 44,304 Pakistan (100.0%)
Glaxo Wellcome Pakistan Ltd Dec 2001 3.246 -0.6% 32,039 Pakistan (100.0%)
Abbott Laboratories (Pakistan) Ltd Nov 2000 2.543 12.1% 43,174 N/A
Recent Stock Performance
In recent years, this stock has performed terribly. In 1996, the stock traded as high as 119.00 Pakistan Rupees, versus 51.00 Pakistan Rupees on 10/26/01. During each of the previous 3 years, this stock has increased in value (at the end of 1998, the stock was at 29.00 Pakistan Rupees).
The current (10/26/01) price of this stock is 51.00 Pakistan Rupees.
During the 12 months ending 12/31/01, earnings per share totalled 6.64 Pakistan Rupees per share. Thus, the Price / Earnings ratio is 7.68. Earnings per share fell 20.3% in 2001 from 2000. This company is currently trading at 0.17 times sales. This is at a lower ratio than all three comparable companies, which are trading between 0.50 and 0.81 times their annual sales. Aventis Pharma Pakistan Limited is trading at 0.96 times book value. Since the price to book ratio is less than 1, this means that theoretically, the net value of the assets is greater than the value of a company as a going concern. The company’s price to book ratio is lower than that of all three comparable companies, which are trading between 1.11 and 2.09 times book value.
Summary of company valuations
Company Date P/E Price/
Book Price/
Sales 52 Wk
Pr Chg
Aventis Pharma Pakistan Limited 10/26/01 7.7 0.96 0.17 N/A
Reckitt Benckiser Pakistan Limited 7/16/02 13.6 2.09 0.50 67.50%
Glaxo Wellcome Pakistan Ltd 7/19/02 7.1 1.11 0.81 -5.14%
Abbott Laboratories (Pakistan) Ltd 7/19/02 7.5 1.73 0.72 21.30%
The market capitalization of this company is 354.18 million Pakistan Rupees (US$5.94 million) . Closely held shares (i.e., those held by officers, directors, pension and benefit plans and those shareholders who own more than 5% of the stock) amount to over 50% of the total shares outstanding: thus, it is impossible for an outsider to acquire a majority of the shares without the consent of management and other insiders. The capitalization of the floating stock (i.e., that which is not closely held) is 117.47 million Pakistan Rupees (US$1.97 million) . These shares are not very liquid.
Dividend Analysis
During the 12 months ending 12/31/01, Aventis Pharma Pakistan Limited paid dividends totalling 3.50 Pakistan Rupees per share. Since the stock is currently trading at 51.00 Pakistan Rupees, this implies a dividend yield of 6.9%. The company has paid a dividend for 5 straight years. During the same 12 month period ended 12/31/01, the Company reported earnings of 6.64 Pakistan Rupees per share. Thus, the company paid 52.7% of its profits as dividends.
Profitability Analysis
In 2001, earnings before extraordinary items at Aventis Pharma Pakistan Limited were 46.16 million Pakistan Rupees, or 2.2% of sales. This profit margin is lower than the level the company achieved in 2000, when the profit margin was 3.1% of sales. The company’s return on equity in 2001 was 13.4%. This was significantly worse than the 18.5% return the company achieved in 2000. (Extraordinary items have been excluded).
Financial Position
As of , the accounts receivable for the company were 297.77 million Pakistan Rupees, which is equivalent to 52 days of sales. This is slightly higher than at the end of 2000, when Aventis Pharma Pakistan Limited had 51 days of sales in accounts receivable. The 52 days of accounts receivable at Aventis Pharma Pakistan Limited are higher than all three comparable companies: Reckitt Benckiser Pakistan Limited had 26 days, Glaxo Wellcome Pakistan Ltd had 16 days, while Abbott Laboratories (Pakistan) Ltd had 43 days outstanding at the end of the fiscal year 2001.
Financial Positions
Company Year Days
AR
Aventis Pharma Pakistan Limited 2001 52
Reckitt Benckiser Pakistan Limited 2001 26
Glaxo Wellcome Pakistan Ltd 2001 16
Abbott Laboratories (Pakistan) Ltd 2000 43
Analysis Summary: Aventis Pharma Pakistan Limited
Note: All figures are in Pakistan Rupees
Ratios Equity Capital Dividends
Year Last
Price P/E P/Bk Earned
Growth
% Profit
Rate
% Book
Value
Begin Yr Earnings
Per
Share %
Chg Divs
Per
Share Avg
Yield
1993 163.0 21.3 6.7 31.6 31.6 24.2 E 7.65 22 0.00 0.0
1994 156.0 17.0 4.9 22.5 28.8 31.9 E 9.17 20 2.00 1.3
1995 116.0 33.0 3.0 3.9 9.0 39.0 E 3.52 -62 2.00 1.7
1996 73.0 n/c 1.8 -2.5 -2.5 40.5 DE -1.00 n/c 0.00 0.0
1997 B 56.8 6.4 1.4 17.5 22.5 39.5 CD 8.90 n/c 2.00 3.5
1998 29.0 3.2 0.7 16.6 21.4 41.9 C 8.97 1 2.00 6.9
1999 31.0 9.7 0.7 1.5 7.2 44.3 C 3.18 -65 2.50 8.1
2000 B 41.0 4.9 0.9 10.7 18.5 44.9 C 8.33 162 3.50 8.5
2001 51.0 7.7 1.0 6.3 13.3 49.8 C 6.64 -20 A 3.50 6.9
10/26/01 51.0 7.7 1.0 n/a n/a 52.9 6.64 n/c 3.50 6.9
(A): ANNUAL DIVIDEND
(B): NAME CHANGED FROM HOECHST MARION ROUSSEL (PAKISTAN) LTD IN NOV 2000, NAME CHANGED FROM HOECHST PAKISTAN LTD IN 1997
(C): BASED ON AVERAGE SHARES OUTSTANDING
(D): INCLS PRETAX GAIN/(LOSS) FROM DISCONTINUED OPERATIONS EQUAL TO 12.6 IN 97, 14.3 IN 96
(E): EARNINGS PER SHARE ESTIMATED USING NET INCOME AFTER PREFERRED DIVIDEND DIVIDED BY THE YEAR END SHARES OUTSTANDING OR THE LATEST SHARES AVAILABLE
Sales & Profitability Summary: Aventis Pharma Pakistan Limited
Figures expressed in billions of Pakistan Rupees
Year Sales Sales
Growth EBITDA % of
sales Inc. bef
Extra % of
sales Emps Sales/
Empl
1992 1.286 n/c 0.118 9.2% 0.043 3.4% 953 1,349,359
1993 1.324 3.0% 0.139 10.5% 0.053 4.0% 941 1,407,294
1994 1.548 16.9% 0.140 9.1% 0.064 4.1% 954 1,623,041
1995 1.978 27.8% 0.148 7.5% 0.024 1.2% 1,007 1,964,456
1996 1.441 -27.1% 0.160 11.1% -0.007 -0.5% 882 1,634,070
1997 1.426 -1.1% 0.110 7.7% 0.031 2.2% 626 2,277,455
1998 1.439 0.9% 0.131 9.1% 0.030 2.1% 521 2,761,190
1999 1.678 16.6% 0.130 7.8% 0.022 1.3% n/a n/a
2000 1.872 11.6% n/a n/a 0.058 3.1% 508 3,685,726
2001 2.072 10.7% n/a n/a 0.046 2.2% 521 3,977,812
Reckitt Benckiser Pakistan Limited
2001 Sales: 2,130,594,000
Major Industry: Chemicals
Sub Industry: Household Chemicals
Country: Pakistan
Currency: Pakistan Rupees
Fiscal Year Ends: December
Employee: 806
Exchanges: KAR
Share Type: Ordinary
Market Capitalization: 1,073,964,708
Total Shares Outstanding: 32,058,648
Closely Held Shares: N/A
Reckitt Benckiser Pakistan Limited. The Company manufactures and markets consumer household and pharmaceutical products. Household chemicals accounted for 52% of 2001 revenues and pharmaceutical, 48%.
Pre-tax profit at Reckitt Benckiser Pakistan-the health, household and personal care producer- increased to Rs 144.1 million for the year ended December 31, 2001, from a year ago pretax profit at Rs 19.2 million , which, the company said in a statement, was due to increase in other income, improved operating profits and lower financial expenses.
After tax profit was posted at Rs79.1 million, reflecting increase from Rs12.2 million in 2000. The company declared a dividend of Rs2.50 per share.
Sales of household products reflected growth of 13.9 per cent to Rs1,223.3 million for the year 2001, with most product categories said to be providing good volume growth. Household division incurred an operating loss of Rs65 million during 2001, as against Rs46.7 million loss an year earlier, despite higher sales, which the company attributed to one-time charges of restructuring measures having been undertaken.
Pharmaceutical sales rose 11.6 per cent to Rs1,123.6 million for the latest year, from Rs1,007.2 million in 2000. Apart from benefit through restructuring, significant savings were achieved in cost of inputs. Operating profit in the division rose to Rs185.1 million, from Rs60.9 million in 2000. Pharmaceutical arm must have benefited also from the price increases allowed in some of the products during 2000.
During the year 2001, the company set up its own distribution warehouse in Multan for fulfilment of orders from its distributors in the North. Selling terms were accordingly revised from credit to cash for most of the distributors, which, the company said, had further improved the company’s liquidity position in 2001.
During the fist half of the year, the company had sold its land and building located at C-36, SITE, Karachi. Sale proceeds of those premises and other assets also contributed towards an increase in other income and better cash flows. With the close down of one manufacturing unit in the latter part of 2001, some of the product lines were transferred to the other factory and the remaining products were said to have been out-sourced.
The company identified increase in availability of smuggled goods, under-invoicing in parallel imports, counterfeit products and a sluggish domestic economy, as key challenges facing the business. Also, the pressures for reducing tariff rates on imports of manufactured products were said to pose a threat to the business.
