Business Monitor International forecasts the market will become the fourth largest pharmaceutical market in the Middle East and North Africa region by 2024, in terms of market size.
In its May report on Iran’s pharmaceutical market, BMI, however, said the value of the market in US dollar terms will decline by almost 20% in 2015. It is important to note that these monetary calculations are based on currency distortions, forecasting the third quarter of the year.
According to the report, sales of pharmaceuticals are significantly down in the country, with imports also severely affected.
The value of pharmaceutical market in 2014 was $2.35 billion and the market is forecast to increase to a market size of $2.34 million by 2019, corresponding to a local currency compound-annual growth rate (CAGR) of +12.6% (-0.1% in US dollar terms, highlighting the severe impact of the depreciating rial).
By 2024, the Iranian pharmaceutical market will be worth $3.31 billion.
Efforts of the Ministry of Health to restrict imports will result in a slowdown in the short-term. However, as sanctions are eased, imports will pick up again to reach $1.16 billion in 2019.
Export growth will be strong in line with improving domestic capabilities and reach $136 million in 2019.
To generate pharmaceutical expenditure figures, BMI switched from the official rial/dollar exchange rate to the parallel (or black market) exchange rate, which reflects reality far better.
Iran’s pharmaceutical market will become increasingly reliant on pharmaceutical imports over the next decade, according to the report. Due to ongoing trade sanctions, increasing import reliance puts Iran at significant risk of long-term medicine shortages. Uptake of medicines in the short-term is further risked by currency depreciation and hyperinflation of local medicine prices.
The sanctions have barred multinational banks from any interaction with the central bank or 23 “designated” financial institutions. These have led the country to become a semi-barter economy for foreign transactions, with people first looking for smaller banks to handle their payments, but also trading gold, cattle, hard currency and any other relatively valuable goods in lieu of transactions to pay for medicines. This presents enormous problems for companies looking to trade with the country.
Nevertheless, essential medicines will continue to reach patients despite opportunity-seeking by companies from lower-cost manufacturing locations and loopholes in the financial transfer system. The uptake of locally produced cheaper generic drugs and over-the-counters has strengthened, despite being hindered by hyperinflation.
These issues notwithstanding, key drivers of growth will be volume-based, given improvements in healthcare provision and rising population numbers, as downward pressure on prices remains in place over the longer term. As their purchasing power is lower than that of their regional peers, Iranian patients are likely to opt for generic medicines where possible, especially given the current level of inflation.
Moreover, the population is aware of what a generic drugs is, further driving demand for medicines in this segment.
Key to the future development of the drug market in Iran will be the establishment of raw material production plants. This will enable local drugmakers to reduce costs and increase international competitiveness. It will also make domestic players less susceptible to currency fluctuations, which affect the prices of imports (including raw materials) and increase production costs.
The continuing modernization of local production facilities will gradually ensure compliance with international Good Manufacturing Practice standards and, therefore, boost export potential.
