Prolonged trade ban with India may hit local pharmaceutical sector

KARACHI: Pakistan’s local pharmaceuticals manufacturing sector could become a casualty of rivalries between the two South Asian nations, if whatever little cross-border trade between the two countries is not restored in the coming months, as sizable raw-material and finished medicines are imported from India, market sources told HUM News English on Saturday.

Although clouds of war are dissipating after US intervention on Saturday, it is not clear how long it would take for the two nuclear armed nations to restore the ties that were severed at the start of the hostilities.

Around 60 percent of the raw material required by the pharmaceutical sector is imported from China, while the remaining 40 percent is imported from India, Nasir Masood Butt, General Manager Marketing Medal Pharmaceuticals told HUM News English.

At the moment, the demand and supply situation is satisfactory in the country as companies keep the raw material inventories for up to two to three months.

“However, if the trade ties remain disrupted for four to six months we could face future shortages,” Butt added.  

Although, we would have uninterrupted raw-material supplies coming in from China.

He said till Saturday afternoon, the hospitals were panic buying from the market stocking essential medicines, which is understandable.

According to the Topline Securities research report, Pakistan’s listed pharmaceuticals sector’s earnings were up by 83% YoY to Rs8.0bn in 3QFY25. This jump in profitability is primarily attributed to higher net sales, improved gross margins, and a decline in finance cost.

Net sales increased by 12% YoY to Rs 85.5bn in 3QFY25, primarily driven by an increase in drug prices following the deregulation of non-essential drugs in Feb-2024. Haleon, ABOT, FEROZ, HPL, and AGP led the sector, showing strong sales growth in absolute terms.

This price increase led to an improvement in gross margins, rising to 39% in 3QFY25 from 31% in 3QFY24. Additionally, the recent decline in raw material prices for many drugs and the stable currency further contributed to the increase in gross margins. AGP recorded the highest gross margins of 58% in 3QFY25, Topline Securities Research stated.

Apart from raw-material, vaccines, blood products and anticancer products in finished form are imported from India. Antibiotics are imported from India, as very few countries make these medicines, Qaisar Waheed, former chairman Pakistan Pharmaceuticals Manufacturers Association said. 

Antibiotics are also being manufactured in Pakistan, but their volume could not cater the needs of the entire country. 

“Immediately there would not be much impact, as the industry has at least two to three months inventory, I don’t see an imminent threat as such,” Waheed said.

If the ban on imports continues for six months or a year, the cost of medicines would rise and will be imported via Dubai, he added.

People also have alternate sources, for instance a product coming from India for Rs 2, will cost for Rs 5 or may be more, if the situation continues, Waheed explained. 

We believe that the deregulation of non-essential drugs will further enhance the margins of pharmaceutical companies, particularly those with a high proportion of non-essential products. Furthermore, the decline in API prices following the drop in crude oil prices will further support the gross margins of pharma companies, Topline Securities Research stated.

Additionally, the recent reduction in interest rates, along with the expected decrease in borrowings by a few companies, is likely to further support profitability in FY25 and FY26.