Money, Money Everywhere, Not a Place to Invest BANK LIQUIDITY

The Boss, 2009

Liquidity in the banking system until the second week of July 2002 was Rs 39 billion, which, according to officials then, was not sufficient to rejuvenate the ailing economy. On July 15 2002 Nepal Rastra Bank (NRB) announced a new monetary policy whereby the compulsory Cash Reserve Ratio (CRR) would be whittled down by 1%. This was the second such cut in six months. The move was prompted by the need to create extra liquidity in the banking system so that the cost of fund would decline and enable banks to provide more soft loans. In a matter of three months Rs 1.75 billion was injected but the move failed to generate a 'visible impact' in the money market. The CRR, cut down by one percentage point neither induced investments nor created any economic activities. However, Dr. Yuba Raj Khatiwada, executive director of Research Department at the NRB had said then, "It is too early to make an opinion about the new policy."

On February 2003 a report in a business magazine stated that, 'One interesting fact is that the Nepalese banking system is the excessive liquidity. Banks are flooded with money and there is no place for investment. The economy is virtually turning out to be remittance economy…The amazing liquidity should be transformed into better investment thereby creating more employment opportunities so that the banking system will not be blamed for pushing the nation towards a failed state.'

So one can assume that Dr Khatiwada was right and that between the third quarter of 2002 and end of 2003, a situation had been created that not only could be said to be a success of NRB's policy, but exceeded the goal. However, one can also presume that it couldn't have been only the cut in CRR alone that prompted excessive liquidity in the banking system. Obviously, avenues for investment had been severely limited and as far as big projects were concerned, there were too few to even matter. In addition, the massive increase in flow of remittance from abroad, now made more transparent through proper money channels, can be assumed to be one of the major causes of increasing bank liquidity.

According to senior officials at the NRB, remittance was said to be the prime reason for the increase in the volume of liquidity in the banking sector. According to the NRB statistics, over Rs. 62 billion in remittances were received in 2003. Over and above this, officials claim that another Rs. 20 billion was remitted through unofficial channels.

It seemed that not only was Nepal's economy facing a situation of excessive liquidity, but that it was a worldwide phenomenon in the year 2003.

A report in the November 2003 issue of the international financial magazine, Money, stated that Warren Buffet, Chairman of Berkshire Hathaway had a hoarding of $28 billion in cash. In June 2000 Buffet had just $1.9 billion in liquid funds. In the same issue it was reported that Bill Gates also had exceptionally large cash reserves, $49 billion, and that in the United States almost $4 trillion was in retail money market and bank accounts. 2003 was obviously not a good year for investment activities.

How has the scenario changed in 2004? According to a report of August 26 2004, 'If the government or Nepal Rastra Bank fails to take timely measures to introduce new investment opportunities, economists fear that the ever-growing volume of liquidity would swallow up a number of banking institutions.' No doubt, the frequent bandhs, blockades and violence are the main reasons for ‘excess liquidity’ but other factors like lack of portfolio diversification, increase in remittances and lack of investment in the primary sector must also be blamed for expanding its size.

Bankers claim that a large amount of their money has remained idle due to the unsafe environment and that despite having adequate liquidity, there is no demand for money because of insecurity. Banking sectors, investors and borrowers are not in a comfortable position, says an official of Nepal Bankers Association.

NRB statistics shows that the deposit in the banking sector has increased by 15 per cent in comparison to the last fiscal year. The broad money this year has increased to 13 per cent in comparison to the 10 per cent of last year. Similarly, narrow money has also increased to 12 per cent.

In an interview to a magazine in March 2004, Jitendra Basnyat, General Manager of Nepal Investment Bank had said, 'Due to volatile situation we had to change focus from long term development to short term loans… our focus is on short term lending and fee based business. It is probably not a good time to invest in long term projects apart from few sectors like hydroelectricity''. Similarly, in the same issue, Radesh Pant, MD, Bank of Kathmandu, says, ''The bank's key focus …in remittance, retail lending and small scale deposit'.

According to SS Dabbas, Executive Director of Everest Bank, 'The banks have sustained growth by diversifying their product line and by keeping their spreads high." He also adds, ' For sometime, there was excess liquidity but Nepal Rastra Bank was trying to follow the peace budget. Big and new investments, like hydropower, will happen only if peace is restored. And if that happens, this liquidity, which seems to be in excess today, would fall short. In that case, we will have to look abroad to financing our projects.'

Well, seeing that the volatile political situation does not look like stabilizing soon, we can presuppose that excessive liquidity in the banking system will be a plague for the country's economy in the future. It does not need an expert to know that decreased capacity for liquidity absorption points toward a decline in economic activities. Doubtless, a robust stock market could definitely be the answer to solving this problem. For example, in the US in 1983, when a similar situation had arisen, just 15% of cash withdrawn from money funds had increased the DOW Jones Index by 36%. Unfortunately the stock market in Nepal can be said to be anything but robust and has little investor confidence with the result that even at low interest rates, money is being hoarded in banks.

The excessive liquidity in banks not only deprives depositors of better interests on their deposits, but the day is not far off when the ever-growing volume of liquidity might well swallow up a number of banking institutions. Restoration of peace and investments in large infrastructure development seems to be the only way out of the morass. However, the government has not been borrowing money from the NRB rather it has been depositing it since the last three years. According to Gokul Thapa, Director of the Public Debt Department of the NRB, the government had deposited Rs. 462 million in the fiscal year 2002/03 and Rs. 2.2 billion in FY 2003/04.

At the same time, the Nepal Rastra Bank needs to up the ante and come out with some original ideas to right the money market. One idea it did implement in October this year was to issue Rs.300 million worth of treasury bills (TB) through auction but most commercial banks shied away from it and instead took more liquidity (Rs. 7 billion) from the NRB's Standing Liquidity Facility (SLF).

Officials declared that 'This has proved that issuance of TB has contributed to reduce the excess liquidity of the commercial banks.' However, Anil Shah, General Manager of Nabil Bank, pointed out that the timing had been wrong as depositors withdrew their deposit before Dashain leading to liquidity crunch in the commercial Banks. He did admit that the issuance of TB had helped reduce the liquidity to some extent but added that 'liquidity will increase after Tihar and TB will have to be issued time and again.'

According to Thapa of NRB, 'Treasury bills were issued to move up the excess liquidity of the commercial banks, in the context that they were being compelled to reduce the interest rate on deposit, which has already come below three per cent (2.5 per cent).' At the same time, he says, “But the money acquired by NRB will have ‘no utility’. However, issuing treasury bills was the right move to maintain the financial stability.”

NRB had till September 2004 acquired liquidity amounting to Rs. 9.55 billion through six auctions of treasury bills whose maturity period is from July12 2005 to September 27 2005.

Bitter Pills, Better Business- Nepal’s Pharma Industry

Published in: The Boss-15 Dec 2004-14 Jan 2005

Good Manufacturing Practice (WHO-GMP)

The 27^th of August 2004 will probably be remembered as the most important day in the history of the Nepalese pharmaceutical industry. On this day, five companies out of six that had applied were awarded the much sought after certificates for Good Manufacturing Practice (GMP) as per guidelines set by the World Health Organization (WHO). The awarding of these certificates was based on stringent inspections and comprehensive audits in October 2003, March 2004 and finally, August 2004. The five recipients of GMP certificates this year are Birganj based Nepal Pharmaceuticals Laboratories (NPL), National Healthcare and Quest Pharmaceuticals as well as Kathmandu based Deurali Janta Pharmaceutical Laboratories and Omnica Laboratories.

The recently awarded GMP certificates have to be renewed every year or two. In the meantime, if the manufacturing site is no more considered to be in compliance with GMP, it can become invalid. GMP requires companies to follow exacting guidelines right from the establishment of infrastructure to manufacture, packaging and distribution. Strict quality control as well as rigid documentation is required at every stage.

According to the WHO Expert Committee on Specifications For Pharmaceutical Formulations, "Good Manufacturing Practices for pharmaceutical products (GMP) is that part of quality assurance which ensures that products are consistently produced and controlled to the quality standards appropriate to their intended use and as required by the marketing authorization. GMP rules are directed primarily to diminishing the risks, inherent in any pharmaceutical production, that cannot be prevented completely through the testing of final products."

GMP requirements include clear definition and systematic review of all manufacturing processes, validation of critical steps of manufacturing process as well as any significant changes in process, trained and qualified personnel, adequate premises and suitable equipment and services. Use of correct materials, containers, and labels, approved procedures and instructions, suitable storage and transport as well as adequate laboratories and equipment for in-process controls also come under GMP guidelines. In addition, GMP also requires manufacturers to have clear and unambiguous instructions and procedures applicable to the facilities provided, documented records during manufacture as well as of distribution, proper storage and distribution, an available system for product recalls and examination and investigation of any complaints.

Other companies have also applied for certification and almost all are upgrading manufacturing facilities to GMP levels. The year 2007 (2064 BS) has been set as the deadline for all companies to attain GMP standards at the end of which time, those failing to comply, will be allowed to function only as repackaging units. Of the 40 industries in operation in the country, it is expected that but for a few whose financial condition may not allow them to make the substantial investments necessary to upgrade facilities as required, most will have received GMP certificates by 2007.

This is especially true for the newer industries since their infrastructure has been built keeping recent GMP regulations in mind. As for the older facilities, those that have acquired significant market share and those that have better liquidity, are no doubt in the latter stages of fulfilling GMP criteria and will soon be applying for certification. Hukam Pharmaceuticals is reportedly undergoing the final stages of GMP audit. The Department of Drug Administration (DDA) which has been playing such a sterling role in providing able support and good guidance will no doubt also lend a kind ear to those applying for more time later on in order to reach GMP standards. "Well we have already extended the deadline by one year," says Pharmacist Gorkha D.C. at the DDA. "Previously the cut off year was 2006 (2063)."

Whatever the case may be, it is heartening to see that a critical section of the country's economy is making all round progress. Particularly reassuring is the fact that people can expect to get medicines manufactured in their own country that is safe and no less efficacious than those of other countries. Besides, in these troubled times, pharmaceutical manufacturers are providing a significant number of employment opportunities. Nepal Pharmaceutical Laboratories has 150 employees in its work force and DJPL has 154 employees out of which 10 are pharmacists, 3 are analysts, 22, marketing personnel, 22 are administrative staff, 60, skilled and highly skilled workers, and 35 are unskilled.  No doubt it has been a synergy of effort between the industry and the DDA that has resulted in such a promising scenario.

Pharmaceutical Market in Nepal

However, it has been a long hard haul for the industry to reach this position since the time Chemidrug Pharmaceuticals first started formulating drugs in 1971, when the DDA was not yet founded. The setting up of DDA in 1979 followed the establishment of Royal Drugs Laboratories (RDL) in 1975. Today there are 40 pharmaceutical companies all over the country manufacturing various formulations and some 3496 brands. Another half a dozen companies will probably come into existence in the coming year. 

As far as the total market of the country is concerned there are differences in estimates among different sources. This obviously is due to the fact that many companies, for a variety of reasons, are reluctant to disclose their true sale figures. According to DDA authorities, the present market for drugs is estimated to be roughly Rs.800 crores of which about Rs.540 crores is in imports from other countries, mostly India, and sales of local companies amount to around Rs. 240 crores, i.e. about 30% of the total market.

According to Radharaman Prasad Saha, Senior Administrator at DDA, sales recorded in 1999/2000 was Rs.590.7 crores with growth of 18.8%. According to DDA records, 237 Indian companies operate in the country with 5197 registered brands besides the 3496 brands registered by 40 Nepalese companies. This potentially favorable ratio implying a promising gap in the market yet to be substituted by local brands is the reason why there has been such an increase in the number of players. It is obvious that drugs manufactured in the country have gained wide acceptance from the primary customers: doctors and chemists, as well as from end users, that is, the patients. Certainly, the recently awarded GMP certificates will further enhance consumer confidence and, naturally, increase turnover.

No doubt it has taken some time to reach this point and for this, pioneering companies like Chemidrug, RDL, NPL, Lomus and others have to be thanked. At the same time one mustn't forget that around the 1980's, production of bottled saline water had started to take off in a big way with full-fledged production in four such industries. But with the advent of later regulations aimed at improving quality, bottled saline production fell drastically and two industries closed down soon after. Factors like newer packaging (PVC containers as opposed to glass bottles) resulted in the need for different bottling techniques making investment in new machinery mandatory. This, coupled with price reductions in bottled saline imports probably contributed to some manufacturers deciding to call it quits. At present only RDL and Vijaydeep Pharmaceuticals are producing bottled saline.

A similar situation exists at the moment with the new regulations that has made GMP mandatory by 2007. It is quite possible that some industries with low turnover/ poor cash reserves but high investment requirements to attain GMP standards may opt to close down in the future. Simca Laboratories, which is in the final stages of up-gradation of infrastructure, says they have had to make additional investments of at least Rs. One crore. That is why concerned authorities, especially DDA, must take a pragmatic overall view in order to ensure the continued progress of all manufacturers. It goes without saying that the DDA is equally, if not more so, responsible to the populace to see to it that the drugs produced in Nepal and for whose quality they are ultimately answerable, are of the best quality possible. Pharmacist Gorkha D.C. has an interesting observation to make, "Now our work will become easier since, with the new regulations, companies themselves have started to become more conscious thereby sharing the responsibility to maintain quality standards. After all, enhanced reputations after receiving GMP certification will be at stake." Mukendra Singh, National Sales Manager at DJPL agrees, "Definitely, our responsibilities have increased a lot."

Marketing Methods

Among the pioneers it should be noted that Nepal Pharmaceutical Laboratories (NPL), established in 1987, is generally credited with promoting locally made drugs in a more professional manner. That is, by promoting their products to doctors and chemists in a more aggressive way as well as by devising more modern methods in marketing. Before that, companies like Royal Drug Laboratories (RDL) and Chemidrug while they produced essential and OTC (over the counter) drugs, were less proficient in their marketing efforts. In fact during earlier years, RDL had not felt the need to actively promote its products as it had been receiving preferential treatment in the supply of government tenders for pharmaceuticals. As a result, RDL's turnover reportedly had soared to a high of almost Rs. 12 crores a decade ago. However, with more open market systems coming into play RDL lost it's preferential treatment in government business and this, added to bad management practices and poor marketing, has resulted in the company showing losses for many years now and the company's turnover has reportedly nose-dived drastically.

Of course RDL's case like so many other government run industries, corporations and businesses is not reflective of similar businesses run privately. Turnover figures of leading Nepalese companies show a healthy growth. For instance, latest figures by ORG (an international market survey group) indicate growths of 38%, 18% and 29% respectively for Lomus, NPL and DJPL in 2003/2004. Lomus Pharmaceuticals, although not yet a recipient of the GMP certificate, nevertheless has a big share of the market due to its effective marketing techniques and large range of products. Other companies are also being relatively successful in making their presence felt in the market. Relative in the sense that, even with the erratic political and economic situation prevalent for so long now, pharmaceutical companies are still managing to grow positively unlike most other industries in the country. 

Companies have become more aggressive in the market with increasing numbers of Medical Representatives in their sales force, ensuring wider coverage, and with newer marketing strategies including better presentation methods and tools besides well planned visiting schedules.  Medical Representatives are also being given better in house and field training and their efforts are being awarded with lucrative incentive schemes. Rapid increase and diversification in product range is also a key marketing strategy being adopted by most companies.

Besides this, companies are fine tuning and making efforts to have more closer rapport with concerned professional like doctors, chemists and medical students by sponsoring medical student scholarships, doctor and intern meets and medical symposiums as well as by participating in functions involving those concerned with the trade. DJPL's Mukendra Singh says, "We have had a scholarship scheme for medical students for quite some time now. We provide scholarships to five students at graduate level studies and one scholarship at postgraduate level. These are based on recommendations from Nepal Medical Students' Society and Nepal Medical Association respectively. We are also willing to fund medical research in the future."

Companies like NPL and DJPL have also established their own in-house market support divisions with qualified pharmacists in the ranks. Pharmacist Jyoti Adhikari heads the Market Development Division at NPL and says, “Our job is to provide the sales force with the newest scientific data and information concerned with recent developments in pharmaceuticals. They in turn disseminate such information to doctors. We also conduct periodic trainings and prepare promotional material in line with the needs of the market.”  Besides, many companies have now sub divided their companies into a number of divisions, each division responsible for the marketing of a specific number of products. Strong distribution networks all over the country are also playing a significant part in local companies' success. NPL has 63 distributors all over the country.

Competition

Local companies' success has to be all the more appreciated because they are operating under difficult circumstances where marketing efforts have been perforce curtailed in many parts of the country due to the ongoing violence. Also, not only do they have to compete among themselves, but also with the 237 Indian and Multinational Companies (MNCs) who have had full fledged marketing operations as well as established brands in Nepal for a long time. Although a small country, Nepal's market is said to have a high brand per capita ratio with a total of about 8693 brands which is said to be higher than neighboring countries like Sri Lanka and Bangladesh. The situation is such that one type of medication, for example, the antibiotic Amoxycillin, may be available in as many as a dozen brands in the market. Similar is the case for many other antibiotics and OTC drugs like vitamins, painkillers and gastro-intestinals.

An excessive number of similar brands often leads to problems of substitution, i.e. chemists substituting a prescribed brand in preference of another that might be more profitable to them. This has obviously resulted in cutthroat tactics by companies, leading to unhealthy and unethical competition such as under-pricing, tempting bonus offers and substantial gifts to not only retailers but also to doctors. However, according to Pharmacist Gorkha D.C. of Department of Drug Administration (DDA), "There is now a decline in number of imported brands because of tougher regulations, and conversely, an increase in domestic brands". Attempts are also being made to control manufacture and imports of brands that are already available in excessive numbers in the country. At the same time some, like Umesh Lal Shrestha of Quest, have a different view, "Having a large number of brands is not a major problem. We are capable enough to compete in any scenario. Besides, controlling the number of brands does not confirm with the spirit of liberalization."

Therapeutic Groups

Since antibiotics (or anti-infectives), respiratory (including cough medicines), vitamins/minerals (including multivitamins, iron and mineral supplements), gastro-intestinals (including anti-diarrheals, digestive enzymes, antacids) and painkillers (including analgesics, anti-inflammatories, anti-pyretics) constitute more than 50% of the total market, it is not a surprise that many companies have them in their product range. As it is, many of the older companies, particularly Indian companies and MNCs, were founded on such products that were once their research products and only later on because of huge popularity, became over the counter (OTC) drugs. Even now, a substantial part of their turnover is dependent on such drugs. For example, when the popular analgesic, Novalgin and the equally popular anti-spasmodic, Baralgan of Hoechst Pharmaceuticals (now Aventis) was banned some years ago due to reports of adverse side effects, the company's sales in Nepal was affected to a significant extent. According to industry sources, DDA is seriously thinking of banning sales and manufacture of general cough preparations (said to be of doubtful use), as well as curtailing sales and manufacture of vitamins (which doctors say is being inappropriately over used).

Local companies who have made it good also have to thank their volume builders like, in Nepal Pharmaceutical Laboratories' (NPL's) case, the anti-inflammatory/analgesic Brucet and the vitamin, Vital, and in DJPL's case, iron preparations like Ferofolic and the vitamin, Fortiplex. Lomus's D-Cold and Lomoplex are some of their major volume builders. National’s major sales volumes come from its Amoxycillin range, Nemox, as well as from its Paracetamol, Niko. Not too long ago, many companies' main bread and butter were such OTC formulations. With high growth and healthy cash flows, these and other leading companies have diversified their range significantly. And even though their popular OTC brands still continue to be major volume builders, a company like NPL that once depended to a large extent on a few such formulations for its up keep, has now almost 150 brands covering 10 therapeutic groups. In fact today its beta-blocker Amlod is among the leaders in cardiac therapy medication and is widely prescribed by doctors all over the country. National Healthcare has 115 brands according to Marketing Director Radheshyam Mahato and has recently launched Amimide, a potassium sparing diuretic.

Similarly, DJPL has carved out a leadership position in anti asthmatic medication with its Beta-2 range, and has 77 other brands covering 8 therapeutic groups. DJPL was also among the first to introduce an antioxidant, called Careage. Many of the local companies are manufacturing newer anitibiotics like third generation Cephalosporins as well as the latest Macrolides and Fluoroquinolones besides of course older antibacterials like Ampicillin, Amoxycillin and Tetracyclines. It should be noted here that antibiotics command higher per unit prices and therefore contribute substantial volume to company turnovers. According to Radheshyam Mahato, Markeing Director of National Healthcare, a major part of the company’s turnover comes from its sales of its Amoxycillin range, Nemox, and Paracetamol, Niko.

It is also worth noting that some companies like Asian and the two-year-old Quest have, right from their inception, decided to walk a different path and manufacture mostly specialty drugs like cardio-vasculars, anti-diabetics and psychotropics. Quest, with 40 brands in 9 therapeutic groups, manufactures cardiovasculars like Mylod, anti-diabetics like Metfor and cholesterol lowering drugs like Bezafibrate. According to Umesh lal Shrestha, CEO of Quest, "We have plans to further introduce a range of drugs that are not me-too products." No doubt it is a good strategy to carve out one's niche in the market, but at the same time, constraints like small market, lack of qualified prescribers in rural areas and poor economy does stifle such companies' ambitions and they too have realized that a few OTCs are needed in their stables.

According to CEO Mahesh Pradhan of Omnica Laboratories, market size has never been that important to them, "We do not have many brands but most are prescription drugs. We would like to stress on quality and not quantity." In fact, according to him, "Even when GMP requirements were not spelt out we had already installed an AHU (Air Handling System), one of the major infrastructure requirements for GMP." Shrestha is proud of the fact that it was due to ethical marketing that he could show profits right from the third year of operations. Perhaps high margins that are inherent in sales through prescriptions drugs allow him to be complacent about market size.

Market Data

As far as market data is concerned, in the absence of any competent reporting organization in the country, one has to rely on professional data collecting agencies from outside Nepal such as ORG/ims which is a leading market research group in India. Data from such organizations, even if they are capable and well trusted in India, cannot be said to be foolproof in Nepal's context, keeping in mind the difficulties of the task demanded. As Umesh Lal Shrestha of Quest says, " ORG reports are very misleading and do not reflect the true picture at all." Of course, it is better to have something rather than nothing at all. At the same time, if ORG figures are anything close to the truth then it belies all claims by concerned authorities about the total market size being what it is, and should be an eye opener for all concerned, indicating the need for more active measures and wariness in collection of data.

According to ORG reports, Lomus, NPL and DJPL hold the first three positions in the Nepalese market with sales of Rs.11.1, Rs.10.0 and Rs.9.4 crores respectively. National Healthcare with sales of Rs. 7.2 crores is in 6^th place, up from 8^th place a year ago. It must be mentioned here that National Healthcare, a comparatively recent entrant in the market, has been reportedly showing very fast growth that is exceptionally good by any yardstick. Their outstanding success is attributed to a large product range coupled with an innovative marketing strategy. Others in the top twelve are Indian and Multinational Companies (MNCs) like Aristo (Rs.8.9cr), Dabur (Rs.8.4cr), Knoll. (Rs.6.8cr),  Ranbaxy  (Rs.6.4cr), Nicholas (Rs.5.7cr), Alkem (Rs.5.6cr), Aventis (5.1cr) and Cipla (4.8cr).

Top Twelve Companies in 2003/2004

(Source: ORG/ims Report--March Mat 2004)

Company                         Country          Rs. (Crores)   Growth %      Mkt Share %

1.      Lomus                               Nepal               11.1                 38                    4.6

2.      NPL                                  Nepal               10.0                 18                    4.2

3.      DJPL                                 Nepal               9.4                   32                    3.9

4.      Aristo                                India                8.9                   15                    3.7

5.      Dabur                                India                8.4                   20                    3.5

6.      National                            Nepal               7.2                   13                    3.0

7.      Knoll                                 MNC               6.8                   4                      2.8

8.      Ranbaxy                            India                6.4                   28                    2.7

9.      Nicholas                            India                5.7                   5                      2.4

10.  Alkem                               India                5.6                   1                      2.3

11.  Aventis                              MNC               5.1                   -18                   2.1

12.  Cipla                                  India                4.8                   49                    2.0

As far as ranking of purely Nepalese companies is concerned, again one has to rely on ORG figures which as mentioned before, should be taken with due caution.

Top Twelve Nepalese Companies in 2003

Source: Nepal Pharmaceutical Index, 2003, ORG/ims

Company                                                 Rs. (Crores)               Mkt Share %

                 

1.      Nepal Pharmaceutical Laboratories                      8.9                               3.9      

2.      Lomus Pharmaceuticals                                        8.0                               3.5

3.      Deurali Janta Pharmaceutical Laboratories           7.1                               3.1

4.      National Healthcare                                              5.8                               2.5

5.      GD            Pharmaceuticals                                              2.8                               1.2      

6.      Royal Drug Laboratories                                      2.5                               1.1

7.      Apex Pharmaceuticals                                           2.1                               0.9

8.      Asian Pharmaceuticals                                          2.0                               0.9

9.      CTL Pharmaceuticals                                            2.0                               0.9

10.  Simca Laboratories                                               1.9                               0.8

11.  Siddartha Laboratories                                         1.2                               0.5

12.  Time Pharmaceuticals                                           1.2                               0.5

Many in the industry are skeptical of the above figures because, as Mahesh Gorkhali, Marketing Director of NPL, says, "It is difficult to get the correct picture since companies do not want to reveal their true sales figures for a variety of reasons."  Seemingly, those with high turnover are wary of tax authorities and those with low turnovers would like to display inflated sales to enhance their reputations. He adds, "The top five Nepalese companies each probably will have from Rs.15 crore to Rs.21 crore in sales this year." Radheshyam Mahato of National agrees, “Yes the top two Nepalese companies have sales exceeding Rs. 20 crores each while the other three in the top five should have about Rs.14-Rs.15 crores each.” According to Umesh Lal Shrestha,of Quest, "Our turnover should be around Rs.5 crores this year." Mahesh Lal Pradhan of Omnica is also predicting sales of about Rs.5 crores in 2004.

According to Naresh Shrestha, Marketing Manager in the Nepal Pharmaceutical Laboratories, "The top five Nepali companies are NPL, Lomus, DJPL, National and GD Pharmaceuticals, and their combined sales should be around Rs.90 crores." His statement perhaps corroborates with the figure expounded by DDA authorities stating that the Nepal pharmaceutical market is worth at least Rs.800 crores and that Nepalese companies account for 30% of that.

Among the therapeutic groups, again according to ORG reports, anti-infectives (Rs.67.4cr), respiratory (Rs.26.6cr), vitamins/minerals (Rs.25.4cr), gastro-intestinals (Rs.25.4cr) and painkillers (Rs.18.7cr) constitute a major part of total turnover. Others like cardiacs, dermatologicals, gynecologicals, anti-allergics, anti-diabetics and psychotropics, etc… make up the rest.

Top Five Therapeutic Groups by Sales--2003/2004

Source: ORG/ims--March Mat 2004

Therapeutic Group         Brands           Rs. (Crores)   Mkt Share % Growth %

1.      Anti-Infectives                  628                  67.4                 28                    7

2.      Respiratory                        337                  26.6                 11                    -2

3.      Vitamins/Minerals             238                  25.4                 10.5                 1

4.      Gastrointestinals               402                  25.4                 10.5                 1

5.      Painkillers/Analgesics       325                  18.7                 7.8                   -7

Dermatologicals	278	15.3
Gyaenologicals	147	11.8
Cardiac	182	11.6
Neuro/CNS	207	7.8
Anti Parasitic	189	7.7
Opthal/Otolog	1253	6.6
Anti Diabetics	49	3.9
Total	4235	228.2

Market Size Comparisons

According to industry sources most pharmaceutical manufacturing units in the country are operating at less than 40% of their capacity. In 2003, DJPL's utilized capacity was 40%. The small size of the market does place a strain on economics of scale. To get a better perspective on this issue it should be noted that the market in India for many Multinationals is generally 1 % of their worldwide turnover and the market for the same Multinationals operating in Nepal is 1 % of their sales in India. For example, Aventis's all India sales was Rs.536.7 crores last year compared to Rs. 5.1 crores in Nepal. With Indian companies too, the same yardstick applies. Ranbaxy had sales of Rs. 920.7 crores in India compared to Nepal sales of Rs. 6.4 crores in the same year and Nicholas had only Rs. 5.7 crores sales in Nepal compared to Rs. 865.3 crores in India.

Looking at the large size of India's population it does seem surprising that MNC 's Indian sales account for only 1% of their worldwide turnover, but one must also consider that due to government control on essential drug prices, Indian drugs are among the cheapest in the world. Nepal's population of almost 2.5 crores also cannot exactly be called small if we are to compare this with many countries in Europe. However, poor economy, poverty, less than ideal health services and relative isolation of many regions within the country forces one to conclude that the full potential of the market is yet to be tapped.

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Export Potential

With the domestic industry becoming increasingly competitive viz a viz imports and recent technological progress as evidenced by the awarding of GMP certifications, there is widespread belief that Nepalese companies will now be able to market drugs abroad. At the present moment however, this optimism should be taken as just that because one must remember that the worldwide pharmaceutical market is among the most competitive amongst all industries.  And protected to a good degree if we are to take the stringent rules of different countries regarding drug manufacturing and marketing to be a form of protection. For example, even in Nepal, DDA does not allow outside companies into Nepal if they do not have WHO-GMP certification, a law that was not there until a few years ago. One must keep in mind that in some countries it is not mandatory that manufacturers have WHO-GMP, instead opting for other kinds of GMP such as ASEAN-GMP in Malaysia.

As far as exports are concerned, according to Pharmacist Gorkha D.C. at the DDA, "No Company has as yet applied for CCP (Certificate of Pharmaceutical Product moving in International Market) which is a necessary requisite for exporting medicines". Some years ago, Nepal Pharmaceutical Laboratories (NPL) did make attempts to penetrate the Indian market by exporting 5 brands worth about Rs.1 crore to India. The long delays in having their products analyzed by concerned Indian authorities (sometimes even as long as 9 months), led to many of their products' shelf life being reduced to near expiry period levels. Here one must understand that drugs on an average have an expiry period of three years and some like antibiotics and vitamins, only 1.5 to 2 years. And then there is the added fact that retailers are free to return drugs when the expiry period left is less than 6 months. Such problems probably resulted in NPL discontinuing their pioneering efforts.

One should of course not be pessimistic and one mustn't underestimate the competitive ability of Nepalese pharmaceutical industries but according to Mahesh Gorkhali "It would be more realistic to first gain more of domestic market share by gradually replacing imported brands with domestic ones". Of course this in itself is a big challenge because foreign companies that are active in the Nepalese market operate from a very strong base. This is especially true for Indian companies who have much larger economics of scale to play with, the Nepal market being only a small part of their overall turnover in India. Besides of course, they do have a number of established brands. However, Gorkhali is confident about gaining increased ground domestically and says, " NPL was the first company in Nepal to produce cardiac, diabetic and drugs for neurological disorders. We were also the first to export. Now with GMP, we will definitely increase our market share dramatically."

DJPL on the other hand have set up an export division and according to Mukendra Singh, National Sales Manager, "We are looking at markets like Africa, CIS countries and Latin America." He is of the opinion that the Indian market is a tough nut to crack not only due to its strong domestic industry but also because of long bureaucratic delays in procedures. Besides, the fact that the Indian market is not as lucrative in terms of prices as are third countries must be on Nepalese manufacturers' minds.

According to Quest's Umesh Lal Shrestha, " The government's attention towards this industry is nil. There is no initiative at all from their side towards developing and promoting an export market for pharmaceuticals. Things like export incentives and sending delegations abroad to explore markets just hasn't crossed the government's mind." One must agree with him since the pharmaceutical industry is one of the few sectors that is still alive and kicking in the country's industrial scenario, and so should get all the support it can receive to make sure it keeps on going.

Future Plans

Besides exploring markets abroad, domestic industries are now feeling the need to diversify further by investing in production of sophisticated formulations like injectables and vaccines. This is one very important area where domestic companies can really contribute to the self-reliancy of the country, but because the manufacture of such formulations requires extremely high investments, it is possible that many will not find it feasible as a business venture. Presently, one company in Dharan, Shiv Pharmacuticals has been manufacturing injectables for some time now but it is yet to be seen how the mandatory requirement of GMP by 2007 affects this company. According to Mukendra Singh of Deurali Janta Pharmaceuticals, "Up-gradation of our manufacturing facilities is going on and we also have plans to manufacture injectables in the future." In the meanwhile, NPL and National are well into the process of setting up injectable plants and reportedly have already started construction of new buildings. According to Radheshyam Mahato, Marketing Director of National, “We are constructing a 30,000 square feet injectable plant which should be operational by next year. This is in addition to the existing 32,000 square feet infrastructure we already have. The new plant will cost us from Rs. 10 crores to Rs. 11 crores." "Quite substantial investments are needed to set up such units," says Pharmacist Gorkha D.C.

Government Policies

Presently, while on the whole, DDA's supportive role has to be appreciated as far as policies for this industry are concerned, the industry does have a few grouses. For instance, while the duty levied on raw materials is only 1 %, duties on packing materials, laboratory chemicals and equipment are reported to be much higher. "5% customs, 2% surcharge and 10% Vat," according to Quest's Umesh Lal Shrestha. Imports of finished products attract only 2.5% according to Mahesh Pradhan of Omnica. As almost all of the main raw materials as well as many packaging materials (for instance, bottles) have to be imported, the higher custom duties do have an effect on competitiveness of local industries. At the same time the industry should be thankful that there are no price controls like in India, but of course, because they have to compete with their Indian counterparts, market forces are in command while pricing.

One area of concern now and in the future is the risk of counterfeit drugs finding their way onto chemists' shelves. This is very real and clear danger keeping in mind the fact that extremely large instances of counterfeiting has been unearthed in India, especially in adjoining states like Bihar and Uttar Pradesh. Because the production of identical packaging is quite easy nowadays, one cannot be but too careful in this matter and surely this is a major area of concern to not only manufacturers and authorities, but to patients as well. One can only pray that the DDA that is doing such a commendable job in other departments under the able guidance of Mr. Bhupendra Thapa and his dedicated team, continues its vigilance in this sector also to ensure that spurious drugs do not enter the country.