Can SL’s pharma sector go global?
The factors involved in taking the industry forward
Sri Lanka has a history of over 45 years of experience in the pharmaceutical industry, from production to importation of drugs from other other countries. However, in the backdrop of the Covid-19 pandemic, we need to look at future opportunities Sri Lanka will have with regard to increasing manufacturing, and also expansion to the international market.
Delivering the opening remark at a webinar held on 25 February on the topic “Pharma manufacturing opportunities in Sri Lanka”, Board of Investment of Sri Lanka (BOI) Chairman Sanjaya Mohottala said that the Foreign Direct Investment of Sri Lanka is at $ 4,000 per capita of Gross Domestic Product (GDP). However, BOI is looking at about $ 8,000 in about 10 years, which would require sustaining a growth rate of 5-6 % year on year.
“The only way you can do that is not just by doing more apparel, or more tea, or more rubber, but really thinking about building industry verticals that really matter to the country over a period of time,” Mohattala said.
What’s special in Sri Lanka?
Pharmaceutical plants are available in Sri Lanka, and they maintain production for the benefit of the country. According to Mohattala, there are opportunities in this industry in Sri Lanka. In terms of production, there is the State Pharmaceutical Corporation’s facility in Kandy, which has the capacity to produce the entire local market demand in three months, and another in Hambantota.
Secondly, there is the talent pool available in Sri Lanka. “We have a vibrant set of universities and a lot of our pharmacists work in Singapore, which is also at capacity on certain drug manufacturing, where we would probably have the high end of the manufacturing.”
Commenting on this topic, National Chamber of Pharmaceutical Manufacturers Sri Lanka Exco Member and Seregen (Pvt.) Ltd. Managing Director Dr. Hiran Ratwatte said that Sri Lanka has great opportunities, especially with the positive initiative and commitment taken by the Government, which is creating public-private partnership arrangements and providing the backing of ministries, as well as due to the availability of buyback agreements.
Adding to Mohottala’s statement, Ratwatte highlighted the talent pool availability in the country. “There is a huge number of people; for example, we advertised two positions at work, and we received 120 applications, with the level of analysis required, in developing the R&D sector.” He added: “We just need to guide that talent pool in the right direction and make sure that some vocational training is given, with which they can compete anywhere across the world.”
According to Ratwatte, there is space to expand in the next four to five years to come, as there are huge opportunities in terms of partnering with Sri lankan companies to be able to manufacture products for exports through a contract manufacturing basis for aspects such as R&D, packing, etc.
“New companies that are coming up and already operating are focusing mainly on buybacks, and buying currently to meet the local need, but the next phase for them is to be able to export,” he stated.
Sri Lanka also has the opportunity to cater to the need for high-end products. Explaining this scenario, Ratwatte noted that the production of high-end, affordable products is where we should focus on combining our traditional pharmaceutical industry with new industries that are currently developing.
Opportunities offered to FDIs
Firstly, Sri Lanka offers companies investing more than $ 10 million eligibility for a tax break for about 10 years and discounted tax rates. “If it is a large company, we will consider them as a strategic project, and much higher and larger tax breaks are also offered, depending on the quantum of the investment.”
Secondly, any company that comes in for the certification to supply to the local market will be given certification within the context of Sri Lanka, which will be handled by a particular committee of policymakers and drug regulators chaired by the BOI, Export Development Board (EDB), and the National Medicines Regulatory Authority (NMRA).
Adding to this, Mohottala said that Sri Lanka has always allowed foreign ownership, and there is no change for pharmaceuticals as well. “Local entities can be 100% foreign owned.”
Further, in terms of BOI’s role in welcoming FDIs into the country, it plays a regulatory role in enabling companies to set up, provide electricity, water, and all necessities, and also facilitating a one-stop shop.
Despite how lucrative it seems, the pharmaceutical industry does also have several disadvantages. In referring to Mohattala’s speech, it is important to take some things into consideration. According to him, Sri Lanka has less advantages in comparison to other developing countries such as Pakistan and Bangladesh, as they had an early start in the pharmaceutical sector, and as well as other reasons.
Firstly, they were less developed compared to us in terms of GDP per capita, so they had certain advantages in terms of developing drugs, which we don’t have.
Secondly, they implemented measures for supply chain resilience and diversification. For example, in terms of APIs (Active Pharmaceutical Ingredients), he said: “70% of the APIS are manufactured in either India or China, both with high concentration, etc.”
The third factor is traditional Chinese medicine. “We also do have a very vibrant indigenous ayurvedic medicine industry, which is very well reputed in the world, but we haven’t really taken advantage of it. You need to create that ecosystem, not just for Western medicine, but that on traditional medicine, which can give you at least $ 1-2 billion minimum export capacity in five to six years.”
Moving forward, the country must look at the export of pharmaceutical products in the export market. According to Ratwatte, Sri Lanka has to find its own space in this industry.
“We can’t compete with well-established countries like India and China, as they are already in the large scale markets; hence we have to find our own space specially.”
Sri Lanka also has traditional knowledge in terms of therapeutics, and some of the modern therapeutic methods actually originated from these. Hence, Sri Lanka has a huge opportunity to combine traditional knowledge with the current practices coming up in pharmaceutical industries, to develop new inventions.
“Covid-19 has actually given us a good example – prevention is better than cure. I think Sri Lanka has a huge amount of space to fit into. We can actually change the dynamics in this market environment,” Ratwatte added.
Adding to this subject, Mohottala noted that Hambantota is expected to be an export industry in future. “The plants to be built in Hambantota, we expect to be globally competitive. All the common facilities needed are available, as well as tax incentives to bring the cost down, they are next to a airport where you can do sea air logistics, and it’s a country through which you can actually work across Pakistan, India, and Bangladesh.”
To conclude, the Government and the private sector can collaborate to heighten Sri Lanka’s role in the global pharmaceutical industry, rather than competing with existing generic market players on price points. Hence, Sri Lanka has to look towards a more niche, more technological, innovation-based, R&D-based approach to building the industry.