Reliance On Imported Pharmaceuticals To Continue
BMI View: Despite domestic drugmakers increasing their share of Nepal's pharmaceutical market, we maintain that the country will continue to be dependent on imported pharmaceuticals. India will remain Nepal's top import partner because of its ability to manufacture inexpensive generic drugs on a large scale.
During the Nepal Pharma Expo 2014, Umesh La Shrestha, president of the Association of Pharmaceutical Producers of Nepal (APPON) stated that 'Nepal is gradually becoming self-reliant on drugs', as domestic firms now occupy 40% of the market. This figure is significantly different from that stated previously. According to Bhakta Sharma, executive director of Kathmandu-based Deurali Janta Pharmaceuticals, more than 68% of the Nepalese drug market is dominated by Indian products.
We highlight that this can be attributed to the ban that Nepal re-enforced in January 2012. Only foreign companies that produce saline, anti-cancer drugs, vaccines, contraceptives and HIV/AIDS treatments are allowed access to the Nepalese market.  As a protectionist policy, the Nepalese government has decided to continue this ban, mainly targeting Indian companies. The increase in domestic pharmaceutical firms' market share can therefore be attributed to a drop in foreign firms selling their products in Nepal, as well as an increase in local drugmakers' manufacturing capabilities.
Nepal's Domestic Pharmaceutical Industry
According to APPON, the country has 45 domestic pharmaceutical companies, with most firms focussing on the production of general medicines. According to Pan Bahadur Chhetri, a senior pharmacist from the Nepal Department of Drug Administration (DDA), the lack of infrastructure means that domestic firms are reluctant to manufacture more complex drugs, potentially limiting opportunities for these companies.
Competition from foreign companies, particularly Indian firms, is a key issue for Nepalese domestic companies. According to Shrestha government procurement of drugs appears 'to be more oriented towards imported drugs'. He added that it is difficult to compete with foreign firms because they are able to give huge commissions and bonuses to dispensaries and retailers. Domestic firms are compelled to do the same at the risk of losing revenues. Consequently, in order for domestic firms to remain competitive, we believe that the country will have to develop its own pharmaceutical development plan similar to that implemented by the Malaysian government using its National Key Economic Areas or China's medical reform plans.
Using trade figures as a proxy, BMI calculates that Nepal's pharmaceutical market reached NPR22.1bn (US$250mnn) in 2013. We forecast that the market will grow at a local compound annual growth rate (CAGR) of 8.9% between 2013 and 2023, reaching a value of NPR52.0bn (US$570mn) by 2023. Development of the domestic pharmaceutical sector, unmet medical demands from the developing economy and the increasing sophistication of the types of medicines required will continue to spur pharmaceutical growth in Nepal.
|Nepal Pharmaceutical Market (NPRbn)|
Continued Reliance On Foreign Drugs
However, we maintain that the country will continue to be reliant on imported pharmaceuticals, due to the product mix Nepal currently manufactures. According to data from the International Trade Center, Nepal imported pharmaceuticals worth NPR13,418.8mn (US$162.5mn) in 2012, while only exporting NPR879.4mn (US$10.7mn) worth of drugs in the same year. Its key import partners include India (US$108.2mn), Switzerland (US$14.0mn), Belgium (US$2.7mn), China (US$1.6mn) and Indonesia (US$1.5mn). Meanwhile, Nepal exports basic medicines to India (US$8.7mn), Czech Republic (US$430,000), the UK (US$304,000), the US (US$161,000) and China (US$124,000).
|Highly Reliant On Imports|
|Nepal Pharmaceutical Trade (LHS) & Top Import Sources (RHS) (US$mn)|
 Business Monitor International - Industry Trend Analysis - Pharmaceutical Market To Remain Low on Drugmakers' Lists - January 10 2012.