The local pharmaceutical sector has seen accelerated growth in the last decade in contrast to the years prior.
According to stakeholders, despite being an emerging industry capable of immense growth, this sector does not receive sufficient policy support or attention. Over 85% of Sri Lanka’s pharmaceutical requirements are met through imports, leaving only marginal room for growth in the domestic manufacturing sector and the industry as a whole.
According to Sri Lanka’s export statistics, the value of pharmaceutical products between January and June this year is recorded at $ 3.41 million. There are over 20 manufacturers with an employment level of around 2,500 individuals engaged in the pharmaceutical sector.
Many companies are expanding their operations to offer a wide range of products, producing high-quality pharmaceuticals conforming to World Health Organization Good Manufacturing Practices (WHO-GMP), with certain companies in the process of obtaining European Union Good Manufacturing Practices (EU-GMP) standards as well.
Export Development Board (EDB) Chairman and Chief Executive Officer Dr. Kingsley Bernard shared that the pharmaceutical industry was dominated by imported products. Sri Lanka imported $ 496 million and $ 390 million worth of pharmaceutical products in 2020 and 2021, respectively, while the major sources of import were India, Pakistan, Bangladesh, France, and Germany in 2022.
However, in contrast, Sri Lankan pharmaceutical product exports to foreign markets including India, Japan, and the Maldives were valued at $ 6.02 million in 2022, with the main exports being medicaments and antibiotics.
Supporting growth in pharma sector
To support the pharmaceutical sector, the EDB has established an advisory committee comprising industry leaders and Government representatives. The board is also focused on updating the Bachelor of Pharmacology (B Pharm) curriculum to align with industry needs. Additionally, the EDB has facilitated meetings between industry representatives and Sri Lankan high commissions and embassies to explore potential buyers in the African region.
The EDB, in collaboration with the Health Ministry, is also working on developing a WHO strategy to ensure the quality and continuous supply of pharmaceutical products in Sri Lanka. Furthermore, the EDB organised the Sri Lanka pavilion at ‘Phar-Med Cambodia 2023’ and organised the country’s participation in the 22nd ‘Medi-Pharm Expo Vietnam 2024’.
Speaking to The Sunday Morning, Sri Lanka Pharmaceutical Manufacturers' Association (SLPMA) President Nalin Kannangara elaborated on the current performance of the pharmaceutical sector, specifically with regards to the manufacturing industry. He explained that in the pharmaceutical market in Sri Lanka, nearly 90% was import driven as the market was flooded with Indian, Bangladeshi, Pakistani, and other foreign products.
Kannangara noted: “Interestingly, over the past decade, the local manufacturing industry has experienced significant growth. Although local pharmaceutical manufacturing began in 1956, there was minimal progress until the last 10 years.
“Currently, there are about 23 companies involved in manufacturing, with the local manufacturers’ market share in the private sector averaging 6-7%, and generally less than 10%.
“In 2015, the Government launched an initiative to incentivise local pharmaceutical manufacturers through a buyback agreement between the Ministry of Health and local companies, guaranteeing that the Government would purchase its pharmaceutical requirements from these local manufacturers, effectively halting certain imports. As a result, the local manufacturers’ market share has risen to 20%.
“When considering the total market today, including both the Government and private sectors, local manufacturers hold a 20% market share, which has grown from 7% during the last decade, while the importers’ market share remains around 80%.”
The pharmaceutical manufacturing industry in Sri Lanka produces over 250 products, spanning more than 10 dosage forms and 30 therapeutic categories. The local sector meets 20-25% of the Government’s essential medicine requirements, importing raw materials and handling the finished product manufacturing domestically, as there are currently no local manufacturers for these raw materials.
Difficult market conditions
Speaking on the challenges, Kannangara highlighted that the most significant one in the local manufacturing sector related to issues that accompanied extensive importation of pharmaceutical products, with the Government-imposed 18% Value-Added Tax (VAT) being one of the most pressing concerns.
“Imported finished pharmaceuticals are exempted from all taxes and duties. But when importing raw materials and packing materials required for manufacturing, the Government has imposed VAT and other duties.
“Although it is possible to waive duty, the VAT imposed from 1 January by the Government, particularly on imported packing materials, sometimes adds up to 24-25%. This leads to a situation where it’s extremely difficult to compete with imported products. Due to this added cost, there is no level playing field, which is extremely discouraging.”
No consistent Govt. policy
“Another pressing obstacle, is the lack of a consistent Government policy to develop the local pharmaceutical manufacturing industry in Sri Lanka, which leads to a lack of assurance and support,” Kannangara continued.
“The pharmaceutical industry is capital-intensive, high-tech, and heavily regulated, requiring substantial investments due to the high costs of equipment, technology, labour, registration, and research. Given the investment is as high as this due to significant financial commitments, there must be sufficient assurance to the investors that they will recover the investment within a reasonable period.”
He further added that the National Medicines Regulatory Authority (NMRA), the regulator for pharmaceuticals in Sri Lanka, had inherent issues in the system as well, such as lack of staff. As a result, the registration process becomes lengthy and cumbersome, taking around one to one-and-a-half years to complete the registration process.
The production cost of pharmaceuticals in the country is relatively high and manufacturers mainly cater to the domestic market requirements, which has a limited market share. As a result the batch sizes are small but costs remain elevated, lacking the benefits of economies of scale.
“However, there are numerous opportunities. Investments in manufacturing have already been made, and we produce a range of pharmaceuticals, including tablets, capsules, syrups, inhalation capsules, inhalers, injectables, and ointments,” Kannangara said.
“The market is substantial, with significant export potential. We are working towards obtaining EU-GMP certification for our plants, which will enable us to export.
“If the Government decides to reduce imports and promote local products, it could save and earn considerable foreign exchange. Moreover, further encouragement of the manufacturing industry could create more employment opportunities and facilitate the circulation of scientific knowledge and technology within the country.
“Currently, our manufacturers export to many countries that are part of the Association of Southeast Asian Nations (ASEAN) and certain West African countries as well. Many companies are already seeking registration in these countries for export.
“We joined the Vietnamese expo that was held recently with the support of the EDB and have identified distributors. Certain companies are in the process of registering these products in Vietnam. We are hoping to access the Cambodian market in the near future as well.”
Need to encourage investments
Kannangara assured that there was sufficient investment in the industry irrespective of the challenges. However, there is a crucial requirement to encourage investments, particularly Foreign Direct Investments (FDI), as the country should be able to present foreign investors with a lucrative market in the local manufacturing industry.
“The buyback agreement is coming to an end by the end of this year. The Government has decided to extend this agreement for another five years. Therefore, we are in the process of developing numerous products with the assurance that there is a ready market while working to receive registration in other countries and seeking export potential, supported by the EDB.
“Additionally, we are currently collaborating with local universities for research and development activities and we provide training for undergraduates while working with the Sri Lanka Institute of Nanotechnology (SLINTEC) Research Centre, and Government research institutions.
“In Bangladesh, prior to its independence, 95% of pharmaceuticals were imported, yet just 50 years after independence, it had gained the ability to manufacture over 90% of its requirements within the country. This underscores the fact that Government support is essential. This is a prestigious industry lacking support.
“During the Covid period, the Government lacked sufficient dollars to import pharmaceuticals. Local manufacturers imported raw materials, and manufactured and supplied essential medicine to the Ministry of Health to distribute among hospitals. We want to appeal emphatically to policymakers to give us an opportunity to cater to the local private market.”
Private pharmaceutical market
Speaking to The Sunday Morning, Morison Ltd. Managing Director Dinesh Athapaththu discussed the perspectives of Hemas Pharmaceuticals.
“All the challenges affecting many other companies such as VAT, imports, and regulatory inconsistencies impact Hemas as well, particularly after investing $ 18.5 million in Morison’s new state-of-the-art manufacturing facility, which was built with the expectation of increased buyback volumes. In response, Morison is now shifting its focus more towards the private pharmaceutical market, offering a unique value blend to differentiate itself and drive growth,” he said.
Athapaththu explained that the pharmaceutical industry in Sri Lanka had tremendous potential to flourish, provided the right policies were implemented, referring to countries like India and Bangladesh that had transformed their pharmaceutical sectors through strategic policy frameworks, government support, and building strong local manufacturing capabilities.
“With the correct approach, Sri Lanka’s pharmaceutical industry could follow a similar trajectory. This would involve supporting local manufacturers, encouraging research and development, ensuring a level playing field, and streamlining regulatory processes.
Buyback agreement: pros and cons
Speaking to The Sunday Morning, an industry expert also shared insights, noting that the market for pharmaceuticals remained persistent due to the constant demand for medicine alongside local production and market introduction of many new products and formulations.
“Manufacturers face several challenges. About 10 years ago, local manufacturers were supported through a buyback agreement, which is set to expire this year. Although there has been a call for expressions of interest, the timeline for renewal remains unclear, creating uncertainty for companies that have invested significant amounts in setting up facilities,” the industry expert noted.
“The introduction of new buyback agreements with State Pharmaceuticals Manufacturing Corporation (SPMC) Joint Ventures (JVs) has resulted in those companies receiving priority over other local manufacturers for Government volumes.
“While it is understandable to prioritise new products not previously made in Sri Lanka, the issue arises when SPMC JVs begin manufacturing products that were already being manufactured locally, leaving some plants underutilised and investments unviable.
“The renewal of the buyback agreement poses a twofold challenge, namely the timing of the renewal and the allocation of quantities. This uncertainty may discourage further investments in facility upgrades. Additionally, in terms of private market development, a major challenge is gaining entry into the prescription market, as many importers already dominate this space. Penetrating the private market remains difficult for local manufacturers.”
He specified that prior to focusing on exports, it was essential to access the domestic market adequately, noting that when discussing exports, substantial investments in facilities required assurance, which was currently lacking for some investors. He also added that regulatory timelines and inconsistencies in dossier evaluation have been challenging but there were promising signs of streamlining in NMRA processes at present.
As a sector driven highly by science and technology, the expert pointed out that it required significant technical expertise incentives for research and development while highlighting that the renewal of the buyback agreement was a key form of support expected by the industry. He emphasised that despite these challenges, there were numerous opportunities for exports, and that at present, Sri Lanka had the potential to even manufacture some of the latest molecules recently launched.
“The Southeast Asian market as well as semi-regulated markets present numerous opportunities. In the long term, achieving global accreditation will allow companies to enter additional markets.
“However, domestic issues must first be resolved at the foundational level to better position manufacturers for exploring foreign markets. If the proper policies are in place and if the Government provides the required regulatory support, this industry will definitely flourish,” he concluded.
Government commitment
Speaking to The Sunday Morning, Medical Supplies Division (MSD) Deputy Director General Medical Services Dr. G. Wijesuriya stated that the Government was committed to promoting local manufacturers, providing sustainable support, and offering the buyback guarantee.
“The buyback guarantee is valid until the end of the year. We are in the process of preparing all the necessary documents for extending this for another five years and facilitating new registrations,” he said.
“The market is showing great promise with the emergence of new companies, which we are supporting. We offer technical assistance, assessments, and regulatory support for NMRA registration as well. The NMRA Chairman has expedited the registration process to ensure faster supply.”