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 and
Baker 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 Medicines
b)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 BANGLADESH’S

PHARMACEUTICAL SECTOR
A pharmaceutical sector’s 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 Bangladesh’s 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:

 Accounts receivable (current assets)

 Inventory (current assets)
 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 firm’s 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:

 Gross Working Capital

 Net working Capital

Gross Working Capital: Gross working capital, which is also simply known as working capital,
refers to the firm’s 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, therefore Working 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 Businesses
Companies 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 these
types 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 ordered
months 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 this
must 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 1.52 1.71 0.56
(times)
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
Days Payables Outstanding 50.43 47.96 58.30

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Cash Conversion Period 273 272.22 238.8

Ratio Analysis Interpretation

 The performance of Beximco Pharma’s working capital turnover ratio is quite satisfactory.
For 2007 to 2008 it has increased significantly. But in 209 it has decreased by 70%
 The performance of Beximco Pharma’s Inventory turnover ratio is quite satisfactory. For
2007 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.
 The performance of Beximco Pharma’s current ratio is quite satisfactory. For 2007 to 2008
it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s acid test ratio is quite satisfactory. For 2007 to 2008
it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s cash ratio is quite satisfactory. For 2007 to 2008 it
has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days inventory held ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days sales outstanding ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days payables outstanding ratio is quite satisfactory.
For 2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s 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 burgeoned
into one of the top line conglomerates in Bangladesh. Square Pharmaceuticals Ltd., the
flagship company, is holding the strong leadership position in the pharmaceutical industry
of Bangladesh since 1985 and is now on its way to becoming a high performance global
player.

Ratios useful to analyze working capital management

Ratios 2007 2008 2009

Working Capital Turnover 3.79 5.33 8.30
(times)
Inventory turnover (times) 3.05 2.72 2.41
Current Ratio 1.4 1.3 1.33
Acid Test Ratio 0.84 0.68 0.16
Cash Ratio 0.05 0.06 0.05
Days Inventory Held 132.05 152.34 157.67
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

Ratio Analysis Interpretation

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 The performance of Beximco Pharma’s working capital turnover ratio is very great as it has
increased from 2007 to 2008 and 2008 to 2009.
 The performance of Beximco Pharma’s Inventory turnover ratio is quite satisfactory. For
2007 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.
 The performance of Beximco Pharma’s current ratio is quite satisfactory. For 2007 to 2008
it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s acid test ratio is quite satisfactory. For 2007 to 2008
it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s cash ratio is quite satisfactory. For 2007 to 2008 it
has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days inventory held ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days sales outstanding ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days payables outstanding ratio is quite satisfactory.
For 2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s 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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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 useful to analyze working capital management

Ratios 2007 2008 2009

Working Capital Turnover 6.43 8.68 8.5
(times)
Inventory turnover (times) 3.09 3.20 3.25
Current Ratio 1.16 1.13 1.17
Acid Test Ratio 0.81 0.66 0.78
Cash Ratio 0.02 0.05 0.07
Days Inventory Held 122.55 149.60 157.52
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

Ratio Analysis Interpretation

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 The performance of Beximco Pharma’s working capital turnover ratio is quite satisfactory.
For 2007 to 2008 it has increased significantly. But in 209 it has decreased by 70%
 The performance of Beximco Pharma’s Inventory turnover ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s current ratio is quite satisfactory. For 2007 to 2008
it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s acid test ratio is quite satisfactory. For 2007 to 2008
it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s cash ratio is quite satisfactory. For 2007 to 2008 it
has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days inventory held ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days sales outstanding ratio is quite satisfactory. For
2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s days payables outstanding ratio is quite satisfactory.
For 2007 to 2008 it has increased significantly. But in 209 it has decreased.
 The performance of Beximco Pharma’s 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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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.

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