A case for contract manufacturing

Pakistan’s pharmaceutical industry has often been highlighted as a sector of potential growth, both domestically as well as in terms of exports. One little thing that can facilitate this growth is called ‘contract manufacturing.’

Contract manufacturing, or third-party manufacturing, is when multinational companies have their products manufactured by local companies possessing specialization in certain formulations. This practice enables MNCs to market their respective brands without investing hefty amounts in setting up plants, hiring hundreds of employees, or paying various taxes. This enables them to sell medicines at a cheaper rate in the local market.

Contract manufacturing has the potential to play a huge role in the pharma sector. In India, the current market value of contract manufacturing is estimated at 50 percent of domestic production, translating to roughly $5.3 billion annually, said Ayesha Tammy Haq, Executive Director of the Pharma Bureau. In Pakistan, however, contract manufacturing is going untapped.

This is because the Drug Regulatory Authority of Pakistan (DRAP) is issuing licenses for contract manufacturing for only three months rather than giving blanket approval for two years, as is the international practice. This is entirely impractical and an enormous hurdle for MNCs to partnering with local firms.

Truly, the benefits of contract manufacturing are manifold. Apart from foreign investment and job creation, contract manufacturing would help tackle the production of spurious, substandard, and unlicensed drugs that, apart from playing with lives, costs the national exchequer Rs12 billion per annum. All this while promoting competition and opening up avenues for exports:

“Foreign investment of millions of dollars would flow in, resulting in the creation of thousands of jobs for both skilled and semi-skilled workers,” said Ms Haq. “Active partnerships between local and international companies would improve the standards of production, encourage healthy competition, facilitate transfer of technology and enable local manufacturers to gain access to global markets.”

At a time when the country is starved for non-CPEC FDI, why is DRAP creating hurdles for multinationals to enter into the country? It’s just another example of red tape that has made the investment climate of this country so abysmal.