The pharmaceutical industry is one of the promising sectors of the Iranian economy post-sanctions.
Its allure lies in the fact that not only is it highly profitable, both in niche and generic drug markets, it almost never faces a slowdown in demand. Population growth and increasing demand for healthcare across continents enable the industry to grow while being cushioned against turmoil caused by economic cycles of boom and bust.
This is while the oil, construction and mining sectors–the three main pillars of the Iranian economy–have seen more than their share of ups and downs, proving lucrative but at the same time undependable as sustainable sources of economic growth.
Considering these advantages, many European countries with low population and little natural resources spend relatively large amounts on R&D in pharmaceuticals.
The global pharmaceutical industry turnover now exceeds $1 trillion and is expected to reach $1.6 trillion by 2018. Yet Iran barely has a slice of the pie due to years of underdevelopment and technological isolation.
But the landscape has changed following the lifting of the sanctions against Iran over its nuclear energy program in January. With reintegration into the global economy, Iran seeks foreign investments and production technology in a bid develop infrastructure and revive its industries.
With this aim in mind, the Syndicate of Iranian Pharmaceutical Industries is scheduled to hold the 2nd International Exhibition on Pharmaceuticals and Related Industries (Iran-Pharma 2016) on September 14-16 in Tehran. The expo is expected to draw hundreds of large-cap firms from all around the world in the first major event of its kind after the historic nuclear deal with the six world powers (five permanent members of the UN Security Council plus Germany).
In a press conference held to outline the expo agenda, the syndicate officials discussed the current state of Iran’s pharmaceutical sector as well as its shortcomings and potential for growth. The briefing was held at the National Museum of Medical Sciences History in Tehran on Monday and was attended by Rasool Dinarvand, head of Food and Drug Administration of Iran, and Abbas Kebriayizadeh, head of the Syndicate of Iranian Pharmaceutical Industries.
Toward Maturity
According to Dinarvand, 98% of the domestic demand for pharmaceuticals is met locally. Nonetheless, foreign niche products, account for over 30% of the domestic market value. The industry imports more than half of its raw materials for chemical drugs and is self-reliant in biopharmaceuticals raw materials.
Based on the goals set in the next five-year economic development plan (2016-21), the pharmaceutical industry must garner at least 75% of the domestic market value. The official was confident that the industry can actually reach the target as it will attract close to $2 billion in foreign investment in the first two years of the plan.
The development plans are laws drafted by the government and ratified by parliament every five years, since 1991. The primary aim of the plans is to pave the way for the realization of the economic development targets enshrined in the 20-year Vision Plan (2005-25).
Dinarvand noted that the industry must eventually move beyond borders and set its sights on expanding into global markets.
According to Kebriayizadeh, Iran-Pharma is set to provide the industry with an opportunity to acquire modern production technology and become extroverted, as 90 firms from all around the world have so far signed up to attend, with more than half of them expressing willingness to market their modern production technologies.
Iran’s pharmaceutical exports were at their peak with $200 million in the fiscal year to March 2015, while imports stood at over $1 billion.
Dinarvand noted that the main impediments to the industry’s global growth are the small size and high number of domestic pharmaceutical companies, and their overreliance on government support.
“Iran’s pharmaceutical market is worth $3 billion with our largest firms’ turnover being no more than $100 million,” he said, emphasizing that the merger of smaller firms and pooling their capital is the only way to compete in the tough global market.
Domestic players, however, resist the idea of merging into larger companies as “they are not willing to take on risks and invest in new ventures.” Most of Iran’s big companies are either state-owned or semi-private with government officials at the helm and dictating policy.
Product Diversification Crucial
Hans-Juergen Budde, Global Account Director of M+W Group GmbH told the Financial Tribune on the sidelines of the conference that the path forward for Iran’s pharmaceutical industry is moving towards production of niche drugs, finding a foothold in foreign markets and investing in the domestic medical education platform.
M+W Group GmbH, based in Stuttgart, is a global high-tech engineering company. Established in 1912, the company has operations in more than 30 countries. The group manages projects in various sectors such as electronics, chemicals and pharmaceuticals, energy, and information technology. In the financial year 2015, it generated sales of approximately €3 billion with about 6,000 employees, according to the firm’s website.
Budde underlined the importance of the Iranian market for German industries and said: “We (Germans) have to invest in new markets, we have to be on the line, or we lose our [industrial] leadership.”
According to Budde, Iranian pharmaceutical companies should produce with other countries’ markets in mind.
The industry expert suggested starting with exports to states in the region, and eventually moving toward Europe by establishing strategic partnerships with EU’s large-cap players.
“You should also enter niche markets like biologics, psychotoxics, and high-potency drugs. They should concentrate on patient-dedicated medication, and be flexible,” he said.
The industry expert pointed to M+W’s long-standing presence in Iran before the sanctions were imposed, and said the company provided a number of Iranian firms with pharmaceutical processing technology and especially biotech back in late 1990’s.
To sustain the domestic industry’s technological development, the government must further “support the educational platform to train engineers, pharmacists and chemists so that the industry can help itself.”
Budde voiced confidence that the banking relations between Iran and Europe will resume in time, and said his government is fully supporting their entry into Iran’s healthcare sector after the economic sanctions were eased.
