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HISTORY OF PHARMACEUTICAL INDUSTRY IN BANGLADESH

The inception of the pharmaceutical industry in Bangladesh dates back to the 1950s when a few

multinationals and local entrepreneurs started with manufacturing facilities in the erstwhile East

Pakistan. By two decades many top ranking Multi-National Companies (MNCs) established their

manufacturing facilities in this part of the world. Pfizer, Glaxo, Fisons, Squibb, Hoechst, May andBaker and Organon were prominent among them. Before liberation the pharmaceutical sector was

largely dependent on import and very few local companies were involved in this sector. The local

companies were only taking part in the distribution channel of Multi-National Companies (MNCs).

The Bangladesh pharmaceutical sector remained as an Import based sector during early 70s. In

late 70s and in early 80s Bangladesh pharmaceutical industry was dominated by MNCs. The

participation of local companies was 15% and the MNCs was 85%. Today the situation is just

reversed in pharmaceutical market as 80% are local companies and 20% are MNCs.

PHARMACEUTICAL INDUSTRY IN BANGLADESH

Pharmaceutical Sector is the second largest contributor to the National Ex-Chequer (Bangladesh

Gazette) of the country. Bangladeshi pharmaceutical firms focus primarily on branded generic final

formulations using imported Active Pharmaceutical Ingredients (APIs). About 80% of the drugs

sold in Bangladesh are generics and 20% are patented drugs, marketed by multinationals.

Today the country manufactures about 450 generic drugs with 5,300 registered brands which have

8,300 different forms of dosages and strengths. These include a wide range of products from anti-

ulcerants, flouroquinolones, anti-rheumatic, non-steroid drugs, non-narcotic analgesics,

antihistamines, and oral anti-diabetic drugs. Some larger firms are also starting to produce anti-cancer and anti-retroviral drugs (Sampath 2007). Domestically, Bangladeshi firms generate 82% of

the market in pharmaceuticals; locally based MNCs account for 13%, and the final 5% is imported.

Although 424 pharmaceutical companies are registered in Bangladesh, only about 140 are actively

producing drugs. The top 30 to 40 companies dominate almost the entire market; the top 12

hold 72% of domestic market share; and the top two, Beximco and Square, capture 27% of

the market (IMS 4Q, 2007). The industry structure is relatively concentrated. In comparison, the

top ten Japanese firms generated approximately 45% of the domestic industry revenue in 2007,

while the top ten UK firms generated approximately 53%, and the top ten German firms generated

approximately 60% (IMS Health 2007).

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INDUSTRY STRUCTURE & PRODUCT VARIETY

The total Pharmaceutical industry can broadly be classified into two categories based on product

lines .These are

a) Patent Medicinesb) Generic Medicines

Patent medicines are the products that are invented by the company, who have their own research

team working on their own laboratories. These products are patented for 15 years to enjoy the

monopoly market. After 15 years of business the formulation is sold in the market so that others

can go into mass production. During patent protection period any company can manufacture

patented products under licensing/franchise agreement.

Generic medicines are the products that are produced in mass scale after the patent period is over.

These are marketed by several companies under different brand names, where the formulation of

this product is almost the same. Prices of the products are under this category are competitive.

Bangladesh mainly concentrates on this category.

FACTORS DETERMINING THE COMPETITIVENESS OF BANGLADESHS

PHARMACEUTICAL SECTORA pharmaceutical sectors international competitiveness is determined by four factors:

manufacturing costs, workforce, business environment, and market as shown in table 6. In

Bangladesh, some manufacturing costs are less than world averages, but some are higher. The

workforce significantly lags global averages and pharmaceuticals are a brain-intensive industry.

The government and regulatory environment do not appear to be conducive to producing the

safest, most effective and accessible drugs. Some macro factors favor success while others are less

decisive. This does not mean Bangladeshs pharmaceutical sector cannot be highly competitive.

Rather, it means that some factors are not working in its favor. To successfully proceed into the

global marketplace, industry and government must plan strategically.

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Literature review

WORKING CAPITAL - OVERALL VIEW

Working Capital management is the management of assets that are current in nature. Current

assets, by accounting definition are the assets normally converted in to cash in a period of one year.

Hence working capital management can be considered as the management of cash, market

securities receivable, inventories and current liabilities.When analyzing the working Capital

there are three elements of special importance:

y Accounts receivable (current assets)y Inventory (current assets)y Accounts payable (current liabilities).

In fact, the management of current assets is similar to that of fixed assets the sense that is both in

cases the firm analyses their effect on its profitability and risk factors, hence they differ on three

major aspects:

1. In managing fixed assets, time is an important factor discounting and compounding aspects

of time play an important role in capital budgeting and a minor part in the management of

current assets.

2. The large holdings of current assets, especially cash, may strengthen the firms liquidity

position, but is bound to reduce profitability of the firm as ideal car yield nothing.

3. The level of fixed assets as well as current assets depends upon the expected sales, but it is

only current assets that add fluctuation in the short run to a business.

An increase in Working Capital means that the company has either an increase in current

assets or a decrease in current liabilities.Working Capital Management makes it possible to

control these adjustments, and thereby getting an overview of the company's financial

activities.

To understand working capital better we should have basic knowledge about the various aspects of

working capital. To start with, there are two concepts of working capital:

GrossWorking Capital

Net working Capital

Gross Working Capital: Gross working capital, which is also simply known as working capital,

refers to the firms investment in current assets: Another aspect of gross working capital points out

the need of arranging funds to finance the current assets. The gross working capital concept focuses

attention on two aspects of current assets management, firstly optimum investment in current

assets and secondly in financing the current assets. These two aspects will help in remaining away

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from the two danger points of excessive or inadequate investment in current assets. Whenever a

need of working capital funds arises due to increase in level of business activity or for any other

reason the arrangement should be made quickly, and similarly if some surpluses are available, they

should not be allowed to lie ideal but should be put to some effective use.

Net Working Capital: The term net working capital refers to the difference between the current

assets and current liabilities. Net working capital can be positive as well as negative. Positive

working capital refers to the situation where current assets exceed current liabilities and negative

working capital refers to the situation where current liabilities exceed current assets. The net

working capital helps in comparing the liquidity of the same firm over time. For purposes of the

working capital management, thereforeWorking Capital can be said to measure the liquidity of the

firm. In other words, the goal of working capital management is to manage the current assets and

liabilities in such a way that a acceptable level of net working capital is maintained.

Importance of working capital management:

Management of working capital is very much important for the success of the business. It has been

emphasized that a business should maintain sound working capital position and also that there

should not be an excessive level of investment in the working capital components. As pointed out

by Ralph Kennedy and Stewart MC Muller, the inadequacy or mis-management of working capital

is one of a few leading causes of business failure.

Current assets, in fact, account for a very large portion of the total investment of the firm.

Negative Working Capital Can Be a Good Thing for High Turn BusinessesCompanies that have high inventory turns and do business on a cash basis (such as a grocery store)

need very little working capital. These types of businesses raise money every time they open their

doors, then turn around and plow that money back into inventory to increase sales. Since cash is

generated so quickly, managements can simply stockpile the proceeds from their daily sales for a

short period of time if a financial crisis arises. Since cash can be raised so quickly, there is no need

to have a large amount of working capital available.

A company that makes heavy machinery is a completely different story. Because thesetypes of businesses are selling expensive items on a long-term payment basis, they can't

raise cash as quickly. Since the inventory on their balance sheet is normally orderedmonths in advance, it can rarely be sold fast enough to raise money for short-term financial

crises (by the time it is sold, it may be too late). It's easy to see why companies such as thismust keep enough working capital on hand to get through any unforeseen difficulty.

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To analyze the working capital issues in pharmaceuticals industry we have selected Beximco

Pharma, Square, ACI companies and focusing on the performance based on working capital

management.

Beximco Pharmaceuticals Ltd

Beximco Pharmaceuticals Ltd (BPL) is a leading manufacturer of pharmaceutical formulations and

Active Pharmaceutical Ingredients (APIs) in Bangladesh. The company is the largest exporter of

pharmaceuticals in the country and its state-of-the-art manufacturing facilities are certified by

global regulatory bodies of Australia, Gulf nations, Brazil, among others. The company is

consistently building upon its portfolio and currently producing more than 400 products in

different dosage forms covering broader therapeutic categories which include antibiotics,

antihypertensives, antidiabetics, antireretrovirals, anti asthma inhalers etc, among many others.

With decades of contract manufacturing experience with global MNCs, skilled manpower and

proven formulation capabilities, the company has been building a visible and growing presence

across the continents offering high quality generics at the most affordable cost.

Ensuring access to quality medicines is the powerful aspiration that motivates more than 3000

employees of the organization, and each of them is guided by the same moral and social

responsibilities the company values most.

Ratios useful to analyze working capital management

Ratios 2007 2008 2009

Working Capital Turnover

(times)

1.52 1.71 0.56

Inventory turnover (times) 1.31 1.35 1.59

Current Ratio 1.8 1.01 2.98

Acid Test Ratio 0.89 0.52 2.24

Cash Ratio 0.05 0.03 0.46

Days Inventory Held 272.73 274.32 245.06

Days Sales Outstanding 50.70 45.86 52.04

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Days Payables Outstanding 50.43 47.96 58.30

Cash Conversion Period 273 272.22 238.8

Ratio Analysis Interpretation

y The performance of Beximco Pharmas working capital turnover ratio is quite satisfactory.For 2007 to 2008 it has increased significantly. But in 209 it has decreased by 70%

y The performance of Beximco Pharmas Inventory turnover ratio is quite satisfactory. For2007 to 2008 it has increased significantly. But in 209 it has decreased. If we look at the

efficiency with which individual elements of working capital have been utilized, the picture

of inventory turnover is not very bright.

y The performance of Beximco Pharmas current ratio is quite satisfactory. For 2007 to 2008it has increased significantly. But in 209 it has decreased.

y The performance of Beximco Pharmas acid test ratio is quite satisfactory. For 2007 to 2008it has increased significantly. But in 209 it has decreased.

y The performance of Beximco Pharmas cash ratio is quite satisfactory. For 2007 to 2008 ithas increased significantly. But in 209 it has decreased.

y The performance of Beximco Pharmas days inventory held ratio is quite satisfactory. For2007 to 2008 it has increased significantly. But in 209 it has decreased.

y The performance of Beximco Pharmas days sales outstanding ratio is quite satisfactory. For2007 to 2008 it has increased significantly. But in 209 it has decreased.

y The performance of Beximco Pharmas days payables outstanding ratio is quite satisfactory.For 2007 to 2008 it has increased significantly. But in 209 it has decreased.

y The performance of Beximco Pharmas cash conversion period ratio is quite satisfactory.For 2007 to 2008 it has increased significantly. But in 209 it has decreased.

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Square Pharmaceuticals Ltd

SQUARE today symbolizes a name - a state of mind. But its journey to the growth and

prosperity has been no bed of roses. From the inception in 1958, it has today burgeonedinto one of the top line conglomerates in Bangladesh. Square Pharmaceuticals Ltd., the

flagship company, is holding the strong leadership position in the pharmaceutical industryof Bangladesh since 1985 and is now on its way to becoming a high performance global

player.


Ratios 2007 2008 2009


(times)

3.79 5.33 8.30




Cash Ratio 0.05 0.06 0.05


Days Sales Outstanding 13.53 13.75 0

Days Payables Outstanding 5.18 7.59 0

Cash Conversion Period 140.4 158.5 157.67

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y The performance of Beximco Pharmas working capital turnover ratio is very great as it hasincreased from 2007 to 2008 and 2008 to 2009.

y The performance of Beximco Pharmas Inventory turnover ratio is quite satisfactory. For2007 to 2008 it has increased significantly. But in 209 it has decreased. if we look at theefficiency with which individual elements of working capital have been utilized, the picture

of inventory turnover is not very bright.








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ACI Pharmaceuticals Ltd

ACI carries the legacy of ICI- world renowned British Multinational in providing the people of

Bangladesh with quality medicines and healthcare products. Its state-of-the art pharmaceutical

plant represents Bangladesh's quest for a truly world class manufacturing facility. ACI's rich

heritage leads to innovative and higher value added formulations.The comprehensive product range of ACI pharmaceuticals include products from all major

therapeutic classes and in various dosage forms like tablet, capsule, dry powder, liquid, cream, gel,

ointment, ophthalmic and injectable. ACI Pharma also has state of the art plant on Novel Drug

Delivery System (NDDS). It produces world class Modified Release drug and medicine to cater the

requirement of pharmaceutical manufacturer of domestic and international market.

It exports high quality pharmaceuticals to a good number of countries of Asia, Africa & South

America.


Ratios 2007 2008 2009


(times)

6.43 8.68 8.5




Cash Ratio 0.02 0.05 0.07


Days Sales Outstanding 66.72 64.66 68.12

Days Payables Outstanding 14.85 23.36 28.43

Cash Conversion Period 174.42 190.9 197.21

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y The performance of Beximco Pharmas working capital turnover ratio is quite satisfactory.For 2007 to 2008 it has increased significantly. But in 209 it has decreased by 70%

y The performance of Beximco Pharmas Inventory turnover ratio is quite satisfactory. For2007 to 2008 it has increased significantly. But in 209 it has decreased.








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Conclusion

Our analysis above indicates the areas of concern to management in making best possible use of

resources. Decreasing efficiency in the use of current assets hints of the possibility of problems in

working capital management. By using working capital related ratio we can easily find the

performance of the pharmaceuticals industry based on three companies.

.

Documents

340 project