Khalid Mahmood has been the CEO and Managing Director of Getz Pharma since the company's start in 1995. From a near-zero base in 1995, the company has now become the largest generic company, and the largest pharmaceutical exporter of Pakistan for the last ten years. Mr Mahmood is the past president of the Board of Directors of World Wide Fund for Nature Pakistan (WWF). He has a Bachelor's of Science degree in Industrial Engineering from California State University, USA, and an MBA from Rutgers School of Management, New Jersey, USA.

Mr Mahmood sat down with BR Research for a detailed discussion on Getz Pharma's growing operations in Pakistan; the state of the pharmaceutical sector; pricing and regulation; and his vision for the sector going forward.

<B>BR Research: Shed some light on Getz Pharma's consistently high growth for the past 21 years and also your success as being the highest exporter. Tell us Getz Pharma's story.</B>

<B>Khalid Mahmood:</B> Getz Pharma is the third-largest pharmaceutical company in Pakistan, in a sector of nearly 650 companies. The largest pharmaceutical company is GSK, which is a conglomerate of six or seven large companies, then Abbott. Abbott is itself a conglomerate of five different companies. The ratings and rankings are published by a Switzerland-based statistical index called International Marketing Survey (IMS). The ranking is based on revenues and units both.

In 1995, Getz acquired a small company with 30 employees with revenues of Rs 29 million per year. We built the company up consistently and passionately and we will close this year with revenues of Rs 24 billion. On average, the pharmaceutical market is growing at 12 percent per annum, whereas our average annual growth rate has been 35 percent per annum, for the last 20 years.

Getz Pharma reinvests in new technologies, systems, people and facilities - investments made during 2006 to 2015 stood at Rs 10.1 billion while ongoing planned investments are Rs 20.24 billion for 2016 to 2020, unless the prices are not revised in which case we will have to reduce the investments.

We are also Pakistan's largest pharmaceutical exporter, accounting for about 35 percent of total pharmaceutical exports. We have 5,400 employees world-wide; 1,200 working outside Pakistan, and we export about to 22 countries in the world. The highest share of exports goes to South East Asia.

Pharma is an extremely regulated industry in the world. We decided to enter the most competitive markets such as Philippines, Hong Kong, Malaysia, Vietnam, and some in Central Asia, and now we are also expanding in Africa. We market our products in the target country, generate demand, manage distribution, and meet regulatory compliance standards.

<B>BRR: What are some of the growth drivers and determinants of the sector?</B>

<B>KM:</B> The 2015 market size of pharmaceuticals in Pakistan is about Rs 300 billion, growing by 12 percent annually. Many decades ago, most medicines used to be imported. Today, the pharmaceutical industry locally manufactures about 90 percent of the country's requirement.
The growth of the market is due to the increasing birth-rate. Secondly, those who used to turn to homeopathic (when there were good practitioners) or other alternative means of cure are turning to allopath, so there is a cultural change. There is also more accessibility, affordability, and awareness has also gone up.

Most importantly, our economy's size is larger, so demand for healthcare management is higher. We have a larger undocumented economy, so more money in circulation has resulted in access to medicines, which has resulted in a healthy growth of the pharmaceutical industry.

However, there is a downside and a caution. Most of the growth has come from volume increases and there has been no price increase of medicines for the past 15 years. For the first time after 15 years, the government approved only a 1.3 percent price increase of 80 percent of medicines. If this trend continues, there is a danger that the pharmaceutical industry will meet the same fate as that of other industries which have either closed down completely or downsized their local production and employment as well as exports.

<B>BRR: What is the portion of exports of your top line?</B>

<B>KM:</B> Exports are currently 35 percent of our total revenues. We wish to bring it up to 50 percent.

<B>BRR: The rest is local then. If there are no price increases, locally, where do you and firms likely take the hit, Quality or margins?</B>

<B>KM:</B> It is different for different companies. Of the 650 companies, top 50 companies have about 79 percent of the market share. 100 companies have 98.9 percent of the market share. So there are basically only 100 players; the remaining 500 companies have less than two percent market share.

The market is of two kinds; trade market and institutional market. We usually deal in trade market, which is more transparent and has larger market share. Recently, initiatives made by the Punjab government to ensure supply of quality medicines by testing them in an independent quality control laboratory may allow companies like us to bid for tenders also.

So where do we make up? We make up in three places: First in exports - the tablet that sells here for Rs 20, sells in other countries for Rs 80 with almost the same amount of operating costs, so our exchange completely gets hedged. Secondly, we make up with volume - when your volume increases, you get better rates on raw and packaging materials, you can achieve production efficiency, productivity and economies of scale. Third, we have the liberty to buy the best machines, mostly German, even though machines from China and India cost 20 to 25 percent of the cost of German machines.

I believe that the extra money you pay for a good machine becomes viable because cheaper machines have higher operating costs, low productivity and higher rejection rate.

<B>BRR: Tell us about your product portfolio.</B>

<B>KM:</B> We started with gastroenterology. From there, we went to hepatology, then cardiology, orthopedics, diabetology, and we are opening up more and more segments. We started with four products, we now have 160 products. And these are all generics. We have an R&D center with 60 scientists. Some of the products are developed in Europe.

As for raw material, globally countries have shifted to two countries. Around 80-90 percent of raw material comes from India and China now. Even US and Europe have stopped making them.

<B>BRR: But the quality of what China may sell to the US may be different from what it would sell to a developing country like Pakistan.</B>

<B>KM:</B> That is true. Between China and India, there are 60,000 raw material manufacturers. In Pakistan, formulation companies are about 500 to 600, compared to India which has about 22,000 raw material manufacturers. Of these, at least 25 percent companies are FDA-approved or WHO-compliant. There is a marked difference in prices of raw material for these two types of companies. Getz Pharma, as a company, goes through a very stringent process of bringing a raw material supplier on board. We send our consultants who are internationally recognised; to audit the raw material manufacturer before approving it. We then test the samples and then make a batch from the sample and do extensive testing on the final product before finalising it.

<B>BRR: How competitive are you in the export markets?</B>

<B>KM:</B> Take Sri Lanka for instance; when we entered Sri Lanka, back in 2006, there were 200 companies and we were ranked 200th by IMS. We are now the ninth-largest pharmaceutical company in Sri Lanka. Similarly, in 2005 when we entered Philippines, there were about 500 companies. Today we are the 14th largest company there. Philippines has companies marketing their products from several countries; India, Thailand, Indonesia, Europe, etc; we beat those to reach the 14th spot. Pakistani pharmaceutical industry has a lot of potential if the government lets it become competitive, has consistent policies, and DRAP's efficiency and regulatory system is improved and becomes industry friendly.

<B>BRR: In that case, what is your unique selling point (USP)?</B>

<B>KM:</B> It was always very clear to us that quality is the price to entry. Therefore, we invested heavily in people, quality management systems, facilities and technology. In a market like Philippines, you cannot expect that you can be successful in that market and your quality is not world class. They have extensive testing. Their regulatory processes in the pharmaceutical sector are one of the best in the world. We can't sell it there if our quality does not match up. Our scientific marketability to doctors and the medical community is also very important. What sells? Quality, service, customer service and availability sell. Having the right product at the right place, being the first to market. Our USP you can say is the quality of our people. It's our talent management process.

We are the second-largest tax payer of the sector in this country, the seventh-largest WPPF payer in the entire country. How are we the seventh? It's because people don't pay taxes. This is the biggest reason for this country's decline. If you are spending time on creative accounting, you are not doing other creative things like organisational and talent management, or research. I firmly believe that those companies that pay taxes and are transparent stay ahead and we are a living example of that. We started here as 200th company, and those who were 7th-8th at the time are still there and we are at the 2nd-3rd spot.

<B>BRR: Do you think health awareness has evolved? At the same time, do you think health issues have also increased over the years?</B>

<B>KM:</B> As far as pharmaceuticals is concerned, there is more awareness. More people know about diseases that are prevalent. People know about blood pressure and diabetes. But as citizens, health awareness is at the lowest level in history. Our food intake consists of poly-saturated fats, sugars and chemical-laced processed food etc. As a result, the prevalence of diseases is increasing.

<B>BRR: You earlier said prices have not increased. Tell us about regulations and pricing difficulties in the sector.</B>

<B>KM:</B> Pakistan is one of the most unfortunate countries in the world where approximately 50 percent of the drugs as per WHO's Essential Drug List (EDL) are not available. The last time the government gave a price increase was fifteen years ago! The products are mostly first line and low-priced products and, when they stopped giving price increases for these drugs, companies stopped making them because they were no longer viable. And these same drugs are now either imported or replaced by higher-priced drugs. This has resulted in the increase of infant and maternal mortality rate in Pakistan to twice that of Bangladesh.

But the government is absolutely inflexible to the needs of the medical system, come what may. No cost is too high for them as long as they can boast to their electorate that they have not allowed price increase. Millions of deaths and loss of jobs is less important for them. Deception and insensitivity to the needs of the industry, health system and the masses rules.

There are more than 80,000 registered drugs. Of them, only 150 products were given a price increase, which was obtained by the companies through the courts, on merit. If the price increase on these 150 products were not obtained, many multinational and local generic pharmaceutical companies would have closed down. But in this country, where there is no truth and accuracy, this systematic campaign of disinformation is spread by some vested interests that the pharmaceutical industry has increased the prices several times during the past year! This is absolutely untrue.

<B>BRR: Can you give an example of price freeze in the face of cost escalation?</B>

<B>KM:</B> Take folic acid for example. It used to cost 80 paisa per tablet, the government gave 1-2 percent price increase while raw material price in the international market went up by 300 percent. Hence it was not feasible for it to be produced locally and the imported product costs about Rs 24 per tablet, and is only available in selected outlets. Had they given a reasonable price increase the locally produced folic acid tablet would have cost Rs 3 to 4 per tablet.

This was not done and health experts say that this factor alone was instrumental in increasing the maternal mortality rate because of the non-availability of the locally manufactured product.
Penicillin is another example. It used to cost Rs 2. They wouldn't bring it up to Rs 4. Now it is not produced in this country. There are several such examples.

<B>BRR: But there are companies that are in fact increasing prices without DRAP taking any action. Doesn't that lead to unfair competition?</B>

<B>KM:</B> This is not correct. This is disinformation by DRAP.

<B>BRR:</B> From the consumer perspective, if you deregulate the industry and prices are determined by free market, wouldn't that bring prices down since there is so much competition in the sector.

<B>KM:</B> I'm not a proponent of complete deregulation. One view is that you deregulate across the board. Prices can be set by the companies at will. I don't suggest that.

Regulation is important because we are a poor country. And people have poor resources. Theoretically, when there is competition, the prices are automatically adjusted. But the state is afraid that wouldn't happen; some manufacturers would charge more, or form cartels.

I suggest that prices for selected products from the WHO EDL products should be rationalised and then controlled, and the rest of the drugs should be deregulated. If a rational drug pricing policy based on real CPI or cost input increase is put in place, it will result in free availability of drugs locally, as well as promote export which has potential to rise from $140 million to $1 billion.

<B>BRR: What are price increases pegged to globally?</B>

<B>KM:</B> Every country is different. In Philippines, it's purely a market competition. In India, all the raw material prices are regulated, and the formulation and manufacturers are also regulated, which is why EDLs are widely available. In Bangladesh, if one product has five players, that product is deregulated. They know these players will compete and will reduce prices. Then there are other models. But no country has done what Pakistan has: no price increases for 15 years. Whatever price increase we get, we get it through court orders. How much price increase can the court give you and why? It's not the court's job.

<B>BRR: Do you think associations like PPMA or the Pharma Bureau have enough clout to come together and demand the government for changes in policy.</B>

<B>KM:</B> First, PPMA has 500 members and they all have different visions and missions. Second, our bureaucracy is so inefficient.

It would be overestimating the bureaucracy to say anything would work. If that were the case, would we have such a low tax-to-GDP rate? Wouldn't they have resolved the EDL issue? Reduced infant and maternal mortality to at least Bangladesh's standards?

<B>BRR: Are you thinking of listing?</B>

<B>KM:</B> Not until the stock market regulatory system is cleaned up and the government policies are industry friendly and they do not reverse and break the few policies that the do make.