Key drivers of growth in Iran’s pharmaceutical market will be volume-based, given improvements in healthcare provision and rising population, 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 levels of inflation, wrote the Business Monitor International in a recent report.
BMI continues to adjust its forecasts for Iran’s pharmaceutical market to account for the sanction-induced currency crisis. The rapid depreciation of the rial means that the market value in US dollar terms is estimated to have declined by almost 20% in 2015. It is important to note that these monetary calculations are based on extreme currency distortions.
The value of Iran’s pharmaceutical market in 2014 was $2.35 billion and is forecast to increase to a market size of $2.39 billion by 2019, corresponding to a local currency compound-annual growth rate of +13.1% (0.3% in US dollar terms, highlighting the severe impact of the depreciating rial).
By 2024, the Iranian pharmaceutical market will be worth $3.37 billion, corresponding to a local currency CAGR of 11.8% (3.7% in US dollar terms).
To generate pharmaceutical expenditure, BMI switched from the official rial/dollar exchange rate to the parallel (or black market) exchange rate, which reflects reality far better.
“We stress that these calculations have a high degree of uncertainty due to the volatile nature of the situation in Iran,” the report added.
> Structural Trends
In the aftermath of sanctions on the country’s banking system in 2012, Iran’s pharmaceutical sector faced severe difficulties for several years, despite medicines being exempt from sanctions.
Due to restrictions on financial transactions, imports of pharmaceutical raw materials and finished products were affected, resulting in subsequent drug shortages. The scarcity of medicines was further exacerbated by the rial’s significant depreciation, making imports even more expensive.
Difficulties with money transfer increased the prices of medicines and many essential drugs were absent from the market completely.
Drug shortages for more sophisticated medicines became common, as many western companies chose not to do business in Iran given the challenging operating environment.
Given the more basic nature of domestic manufacturers, the shortages were unable to be accounted for by local companies.
Officials consider the outlook for Iran’s domestic pharmaceutical sector to be positive. Deputy Health Minister and Chairman of Food and Drug Administration Rasoul Dinarvand claimed in September 2014 that the drug supply crisis was over. He noted that medicine prices are now under control and customs clearance on imported medicine has resulted in an adequate supply.
Nasser Riyahi, the head of Iran’s Drug Import Union, has stated that a large number of previously imported medicines are now manufactured by domestic companies and the Health Ministry’s policy is to restrict imports to further support the domestic industry.
Many previously imported medicines are now produced locally, with domestic companies gaining a greater market share as a result of sanctions. Eight Iranian companies unveiled 12 drugs for the treatment of multiple sclerosis, cancer and diabetes in February 2015.
In July 2015, Iran reached an agreement with P5+1 countries over the former’s nuclear program, resulting in a gradual unwinding of sanctions on Iran. This agreement is seen as positive news for multinational pharmaceutical companies with Iran viewed as one of the biggest untapped emerging markets in terms of the pharmaceutical sector.
“Although we caution that long-term forecasts are at high risk owing to the still challenging situation in Iran, we expect steady growth,” reads the BMI report.
The challenging regulatory environment, which operates in favor of the local industry, weak patent protection and a low percentage of patented drug sales compared to the Middle East and North Africa region will provide significant challenges to multinationals wishing to operate in the Iranian pharmaceutical market, despite the clear demand for chronic disease drugs.
The uptake of medicines in the short term is further risked by currency depreciation and hyperinflation of local medicine prices.
BMI notes that the medicines market contracted sharply in US dollar value in 2015.
Key to the future development of the drug market in Iran will be the establishment of raw material production plants. This will enable local drug producers 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.
Highlight 1: Eight Iranian companies unveiled 12 drugs for the treatment of multiple sclerosis, cancer and diabetes in February 2015
Highlight 2: Key to the future development of the drug market in Iran will be the establishment of raw material production plants
