Abstract Pharmaceutical is the core of Bangladesh’s Healthcare sector, and serves as one of the most important manufacturing industry. With a history since 1950s, the industry has now turned one of the most successful pharmaceuticals manufacturing industry among the developing countries. Presently, the industry meets 97% of local demand and exports to more than 80 countries. The industry has been experiencing robust growth over the last few years. A local industry supporting drug policy and effective regulatory framework, along with TRIPS relaxations are the key reasons for success of the industry.
While the industry is achieving self-sufficiency, it yet procures 70% of raw materials from abroad. But developments are already taking place, with a number of firms now manufacturing raw materials locally. In addition, an API project has already been undertaken to accelerate the vertical integration within the industry. The industry has been expanding locally and internationally. Local market grew at 23% in 2010, while import reached USD 50 Million landmark. A number of firms got accreditations from USA, UK, Australia etc. developed markets, and are underway toward expansion into the developed markets.
Locally, firms are preparing themselves for post 2016 scenario, when TRIPS will be implemented. Almost all the firms are upgrading their facilities and taking up precautions for post 2016 scenario, while aggressively expanding in both local and export markets. While TRIPS and import dependence on raw materials put challenges to the growing sector, prospect of the sector depends largely on the interactions among the players, regulatory bodies and the govt. , whether they can meet up the requisites to continue growth of the sector while facing the challenges Industry Analysis of pharmaceutical industry
Preface Pharmaceuticals industry is the core of healthcare sector of Bangladesh. Being part of healthcare sector, its performance is related to demographic variables like population growth as well as economic growth and healthcare policy. In our country, with improving demographic characteristics, recent economic growth and favorable policy, the industry has seen good growth. The following table represents changes in our demographic variables, economic growth and performance of Pharmaceuticals industry – Source – 1 World Bank, 2 IMS, 3 WTO, 4 National Budget 2011-12
Industry overview A brief history the history of Pharmaceuticals industry dates back to 1950s. Over the years, the industry has gone through some significant changes. After liberation in 1971, the industry was largely dominated by MNCs, and the country was very much import dependent. In 1982, through the formulation of national drug policy, and drug control ordinance, a defined guideline for the development of the industry was created. By then, 75% of the market was dominated by the MNCs, whereas the rest were shared by some 133 local firms.
Since then, the local firms have established a stronger foothold, and the country has become from an import dependent to an active exporter of pharmaceuticals products. At 2010, top 5 MNCs have approximately 9. 05% of the market share and 97% of total local demand is met through local production. Industry Classification As per Global Industry Classification Standard (GICS®), it can be defined as Pharmaceuticals industry, a part of Healthcare Sector. Industry Structure The industry has some distinct features compared to other countries.
First, R&D activity is virtually nil in Bangladesh pharmaceutical industry – it is a branded generic market. At present, there is approximately 258 manufacturers, with approximately 8000 branded generics in Bangladesh pharmaceuticals market. Companies basically manufacture finished formulation by assembling known generic and patented (in some cases) product combination. Some firms have been engaged in producing APIs, the core of pharmaceutical products, but these productions are limited to synthesis stage (final stage) only.
Porter’s Five Forces Analysis The framework for the Five Forces Analysis consists of these competitive forces: 1. Industry rivalry Market Dominance Prior to formulation of National Drug Policy and Drug control ordinance, the market was chiefly controlled by MNCs, holding about 75% of total market (1985). Since then, market structure has changed, and now local firms dominate the industry. At present, 97% of local demand is met from local production, and the top 10 MNCs possess only 9. 05% of market share, compared to 67. 6% held by local top 10 firms.
Being Branded-generic product oriented business, manufacturers usually are able to charge a premium for established brands, and enjoy a relatively stable market share. As a result, the list of top performing firms have been quite consistent over the years, with the leader, Square pharmaceuticals topping since 1985. Over the last three years, the top 4 players are consistent, with 5th to 10th position interchanged among 6 market players. As a total, top 5 firms capture on average 45% of the aggregate market. Adding 5 more to the list brings on average 66% of total market to Top 10.
Thus the market is very much concentrated. Key Players: Due to the branded generic nature of products, companies are usually able to charge a premium price, while enjoy stable position. As a result, the top performing companies in the industry are relatively consistent over the years, often along with their respective market position. The market leader is Square pharmaceuticals, which have enjoyed the top position since 1985. At present, it has a 19. 19% market share. The next player is Incepta, followed by Beximco, Acme, Opsonin, and others.
The top 10 firms are almost the same over the years, often with little change in order. Market share of the top 10 firms over two years are presented 2. Threat of substitute products or services Pharmaceutical industry is facing competitive product market domestically. Square, Beximco, Incepta, Acme, SK-F, Drug International, AristoPharma, ACI, are the competitors of one another in medicine market. Availability of substitute products prohibiting companies to do monopoly business in the market. Again this threats force low brand image companies to stop production of this products.
Top leading companies here gets benefit, they have low substitutes threats because they have big brand value with their product and product also ensure quality benefit. As we discussed earlier about the ranitidine and omeprazole are the same element of gastric related medicines. So, they could be substitute to one another. If pharmaceutical company can get greater accepting by producing medicine with the element ranitidine and doctors can refer that medicine widely for its effectiveness, it will be a threat for the other company who produces medicine with omeprazole.
We can give another example of substitute product threats, like some people might be allergic to aspirin while others might have medical conditions where the blood thinning properties of aspirin are dangerous. in that case, Paracetamol might be the wiser choice because it does not thin the blood. For example if one has had a blood clot in his leg and is on Coumadin or some other blood thinner, one would not want to take aspirin for a headache because it could over-thin ones blood and make them more prone to hemorrhage, whereas Paracetamol would be a safe choice.
If someone’s allergic to aspirin Paracitamol would be the headache medication of choice for obvious reasons. 3. Bargaining power of buyers Customer is a person who buys the products as well as consumes the products and consumer only consumes the products (Chowdhury, 2000). Pharmaceutical industries are dealing with lifesaving drugs; here customer choice does not change so rapidly. People may prefer one brand to another. But the medicine may carry the same compound/ same ingredients. Customer choice depends on the customers’ reliance upon the company and the price.
The pharmaceutical companies of Bangladesh do influence medical practitioners, wholesale and retail distributive shops of pharmaceutical products to promote their own brands. One can infer that anticompetitive/restrictive business practices in the form of unfair collusion among the companies, doctors, and distributive shops are the striking features of this sector. In the case, real consumers like us do not have much bargaining power. Because every company price their medicine almost relatively same level and medicine is the most important need for people, they do not have much bargaining power.
4. Bargaining power of suppliers IN Bangladesh 70% of raw materials of medicine comes from outside of country that means by import and 30% produces locally. With regards to raw materials sourcing, the pharmaceuticals manufactures in Bangladesh procure raw materials from various countries namely UK, France, Germany, Japan, Holland, Italy, Denmark, china , Switzerland, Austria, Hungary, India, Ireland etc. In case of raw materials that are locally manufacturer of raw materials, this is an area that could provide some ‘’niche’’ opportunities for the Bangladeshi firms down the road.
So, suppliers of raw materials of pharmaceutical companies do not have much bargaining power. Because, pharmaceuticals can switch supplier if they start to bargain inappropriately. 5. Barriers to entry Pharmaceutical industry of Bangladesh is a matured industry. This industry has gained vast growth and keeping huge contribution to the economy. In pharmaceuticals industry there are many big companies operating their business successfully like Square, Beximco, Eskayef, Novartis, Opsonin, Incepta, GlaxoSmithKline, Rentata, Aci, Acme, Jayson, Globe, Aristopharma, Drug International etc.
So, there any new pharmaceutical company who will be referred as new entrants will face tremendous competition with these big companies. Though the new entrant with big amount of investment they may not be able to capture market because they are new and as a medicine company they are not reliable. On the other hand if the new entrant company tries to compete with the existing companies they may have to face the rivalry of the competitors who has large amount of resources.