The Global Pharmaceutical Industry Functions Economics Essay Example

Additionally, this industry brings significant socio-economic benefits through job creation, supply chains, and community development.

Some stakeholders believe that the pharmaceutical industry should play a larger role in economic development by not only advancing their own activities but also indirectly enhancing healthcare infrastructure. It is important for healthcare companies to recognize their responsibility towards vulnerable individuals who rely on their products and services.

The Indian pharmaceutical industry has gained global recognition through strategic initiatives, industry efforts, and supportive policies within the highly successful knowledge-based manufacturing sector.The pharmaceutical industry in India currently meets about 95% of the country's medicine demand and is involved in activities such as contract manufacturing, research, clinical trials, R contracts, and exports to both developed and developing markets. It is also becoming a major supplier of generic drugs globally and a hub for R activities including new drug discovery and clinical trials. However, this sector faces challenges from new patent regulations and competition from low-cost production centers like China. To stay competitive, the industry has been adjusting its strategies by embracing joint ventures, foreign direct investments (FDI), mergers, and acquisitions (M). The success of the Indian pharmaceutical industry can be attributed to factors like a well-developed manufacturing base, cost-effective research capabilities, and a skilled workforce. The pharmaceutical market in the Middle East and Africa region is expected to grow at a compound annual growth rate of approximately 9.5% from 2011 to 2013 due to regulatory changes aimed at boosting the domestic industry and attracting foreign players.Currently, South Africa, Saudi Arabia, Algeria, and Egypt dominate the pharmaceutical industry in the Middle East and Africa region due to their superior infrastructure and regulatory environments. The African

pharmaceutical industry heavily depends on importing drugs and therapeutics from European countries, particularly generics that are affordable. Governments in Middle East and Africa are actively promoting pharmaceutical manufacturing through favorable policies, incentives, and investments to support future growth. Russia's recent national population census shows a decline in population over the past eight years primarily due to a high mortality rate. This decline significantly affects Russia's economic development, necessitating government efforts to improve drug quality and affordability for the population. Despite the increased availability of drugs in the pharma market, high prices still hinder access for many consumers. The CIS is working on strengthening their healthcare systems, creating opportunities for Indian pharmaceutical companies to enter emerging markets. Both developed and developing countries prioritize the pharmaceutical sector due to its importance for public health and strategic advantages in knowledge-based economies like India.Countries like India, China, Singapore, Korea, Czech Republic, Brazil, and Argentina are experiencing significant growth in the pharmaceutical industry. The global pharmaceutical market is highly dynamic and involves substantial spending on research and development as well as extensive regulation. In 2006, global pharmaceutical sales reached around $643 billion which was a 7% increase from the previous year. Since 1999 when sales were at $334 billion, there has been a consistent compound annual growth rate of 10%. North America dominates with 48% of global sales followed by Europe with 30%, while Japan accounts for 9%. Key therapy categories in the pharmaceutical market include lipid regulators (5.8%), oncologic drugs (5.7%), respiratory agents (4%), acid pump inhibitors (4%), and anti-diabetic medications (3.5%). According to PwC's pharma 2020 study titled "Challenging business models," it is suggested that global pharmaceutical companies

must undergo a fundamental transformation of their operating model in order to capitalize on future growth opportunities.The study highlights several industry trends, including a focus on delivering results and the impact of changing demographics. It also emphasizes the benefits of monitoring conformity for patients, payers, and suppliers. Another trend is the shift from treatment to prevention. The study notes an increase in mergers and acquisitions activity and the role of new technologies in driving research and development (R&D). There is also a mention of outsourcing pharmaceutical R&D.

The traditional linear R&D process is being replaced with an in-life testing and live licensing approach. Greater international regulatory cooperation is expected, along with growing convergence licensing between biopharmaceuticals. The blockbuster sales model is disappearing, while the money-making potential of supply chain functions remains significant.

Advanced direct-to-consumer distribution channels have reduced the need for intermediaries. Companies like Lilly and BMS have already embraced collaborative models influenced by internal and external factors. These transformative business models have led to an upsurge in mergers, acquisitions consolidations,and partnerships within the pharmaceutical sector.

Understanding various ways to enter the pharmaceutical industry is vital due to the significant costs associated with untreated conditions when there is no market presence. Monopolies or duopolies exist in several markets within this industry.Competition typically leads to lower prices, so it's crucial to comprehend factors that impede further market entry considering concerns about pharmaceutical costs.The pharmaceutical industry consists of branded drug makers, generic drug makers, companies developing biopharmaceutical products, over-the-counter drug makers, and firms engaged in contract research. In addition, universities, hospitals, and research centers contribute to research and development (R) activities.

In terms of the pharmaceutical industry in Africa specifically, there

are challenges despite notable achievements. Insufficient access to essential medications leads to numerous deaths worldwide every year, particularly in low-income developing countries. According to the World Health Organization (WHO), certain African nations have around 50% of their population lacking access to life-saving medicines. Many developing countries within the Organization of Islamic Cooperation (OIC) also struggle with inadequate or non-existent capacities for pharmaceutical manufacturing. These nations heavily rely on imports and medical aid as their domestic pharmaceutical industry only meets a small portion of the demand. In some countries, patients have to pay between 40% and 60% out-of-pocket for healthcare payments related to medications. This lack of access to essential medicines results in preventable diseases causing death among a significant part of the population.Most African countries have limited capabilities for producing pharmaceuticals domestically. However, Egypt's pharmaceutical market is thriving with an estimated value of around US $1.7 billion in 2007. Egypt supplies over 90% of its domestic production and accounts for 30% of the pharmaceutical market in the Middle East and North Africa region.

According to Mahendra Bhardwaj, Ranbaxy's African head, Ranbaxy's manufacturing facility in Morocco demonstrates their commitment to both Morocco and the entire African continent. Recent changes to Morocco's national health insurance strategies will provide additional support for the healthcare sector, particularly for those with lower incomes, states a study by Espicom.

U.S. exporters can find promising opportunities in Algeria with reliable Algerian agents or distributors' assistance;however, developing this market successfully requires time and resources, making it less ideal for small to medium-sized enterprises. The healthcare and pharmaceutical industry in Algeria is considered a highly promising market.

Since 2000, consumer spending in Sub-Saharan Africa has been steadily

increasing at a rate of 4% per year, reaching $600 billion by 2010. However, despite this growth, the region only accounts for 24% of the global burden of disease and less than 1% of global health expenditures. Patients themselves finance around half of Sub-Saharan Africa's total health expenditures.
The World Health Survey conducted in 2003 found that the percentage of out-of-pocket health payments for medicines varied greatly among surveyed countries, ranging from 11% in Chad to 62.2% in Burkina Faso. Sub-Saharan Africa's pharmaceutical market value was valued at $3.8 billion in 2006, representing only 0.6% of the global market. Among the 44 countries in SSA, only a small number have significant pharmaceutical production capabilities. South Africa leads as the largest producer with over a 70% share, followed by Nigeria with a share of around 10%. Other OIC member states like Senegal, Cote d'Ivoire, and Uganda also contribute to medical specialties production on a smaller scale.

Despite its potential beyond real estate investments, companies seeking growth opportunities should not overlook Africa due to its size and potential. The continent is experiencing growth in consumer markets thanks to improved income levels, infrastructure development, and an enhanced business environment. According to a study by Euro-monitor in 2011, consumer spending is projected to reach $1 trillion by 2020 in Africa.

However, companies entering the continent must adjust their strategies and expectations due to unreliable logistics and lagging infrastructure readiness compared to developed countries. This presents challenges when trying to fully understand potential opportunities available.
In the MENA region, specifically in the Middle-East Pharmaceutical market, it made up around 1.8% of the global market in 2006, totaling approximately US $12 billion (Pharmaceutical & Biotechnology

Middle East - PABME). Most countries in this area have a limited domestic pharmaceutical industry. Among the GCC states in MENA, Saudi Arabia leads with 27 local pharmaceutical manufacturing plants and an investment of US $619 million. The Saudi Arabian pharmaceutical industry produced medicines worth US $320 million in 2006 compared to just US $187 million in 2000. However, local production only meets 15% of the demand while imports fulfill the remaining 85% of the domestic market's needs.

Jordan's pharmaceutical industry is another significant player within MENA and consists of 17 factories employing about 3.5% of Jordan's industrial sector workforce. It stands as the second largest export-earning industry after garment manufacturing. The value of medicines produced by Jordanian pharmaceutical industry experienced a notable increase from $185 million in 2003 to $350 million in 2005. Local production covers approximately half of the domestic market demand.

Within MENA, UAE has one of the highest cost pharmaceutical markets with per capita medicine expenditure at around $80. There is a growing global demand for generic pharmaceuticals which is increasing rapidly at a compound annual growth rate (CAGR) of about 12%.The growth in the demand for generics in the GCC and MENA regions is driven by patent terminations and rising healthcare costs. It is predicted that by 2020, the demand for generics in the GCC region alone will reach $1 billion compared to its current level of $300 million. In the larger MENA region, it is expected to increase from approximately $500 million to $2.5 billion by 2020. These growth rates may be even higher depending on healthcare policies implemented by authorities in GCC and MENA countries.

To capitalize on these expanding markets,

generics manufacturers are looking for opportunities through acquisitions or expanding their production capacity in low-cost countries (LCC) like Kuwait, UAE, and Oman where there is currently a low domestic pharmaceutical production base available. While Egypt relies mainly on local manufacturing to meet its pharmaceutical consumption with 90% of the country's needs being produced domestically, Saudi Arabia imports a significant 85% of its pharmaceutical products.

The regulatory environment for this industry is influenced by various factors such as economic conditions, business practices, changes in domestic manufacturing capabilities, and shifting disease profiles. Traditionally, drug imports have been the focus in the region with local production primarily centered around generics. However, addressing issues related to merchandise enrollment and intellectual property rights concerning World Trade Organization (WTO) ranks and European Union Agreements is necessary.Despite challenges related to data exclusivity and intellectual property rights in the Middle Eastern market, there are plenty of opportunities for pharmaceutical companies looking to expand in the region. However, caution should be exercised due to uncertain geopolitical situations and ongoing regulatory and economic reforms. The CIS states have large markets for pharmaceutical products that offer favorable acceptance of Indian products and good value for money. These markets also lack price control measures, allowing companies to achieve better prices. Chairman of the Pharmaceutical Export Promotion Council, DB Mody, sees the CIS pharmaceutical market as a lucrative opportunity worth USD 20 billion. Pharma company Lupin plans to expand its presence in Russia and Ukraine by capitalizing on factors such as an aging population, changing lifestyles, increasing incomes, and government spending on healthcare. To achieve this expansion, Lupin has formed local partnerships with future potential and cross-functional synergies in

mind. Their focus in the CIS region is on offering differentiated products like Value Added Generics, Branded Generics, and their own branded products.In order to adapt to the ever-changing market dynamics in the region, Lupin focuses on brand-building exercises for specific products such as IXIME, Dr.KASHEL, SOFTOVAC, RIBAVIN, ONE-BE, and GATISPAN. The pharmaceutical market in the CIS region is considered highly dynamic and one of the fastest-growing globally. From 2003 onwards, it has consistently grown at an average rate of 10-12% per year. In 2009, despite a decrease of 8% in the country's GDP, the market experienced significant growth of 22% in RUB (Russian currency), but a drop of 5% when measured in USD. Sales only increased by 6% the following year due to consumer activity slowing down and new regulations implemented through the Federal Law "On Turnover of Medicines." However, if regulations remain unchanged or become less strict, it is predicted that there may be a growth rate of up to 12% in sales for2011.

The growth of the Russian drug company market could face challenges due to a decrease in the number of apothecary's shops and limited availability of medical specialties in remote areas. This is expected because apothecary's shops are facing an increased societal tax burden from 14% to 34%. It is projected that by 2011, the market volume will reach RUB400-500 billion (USD13-16 billion) and by2020 it will reach RUB1000-1500 billion (USD30-50 billion) at consumer prices. However, for this growth to occur, per capita consumption of medical specialties needs to increase and match European levels while also improving demographic situations.Per capita consumption in Russia in 2009 was USD123, which is higher than

other CIS countries but still significantly lower compared to Europe. International companies primarily sell branded generics in Russia as it aligns with the current distribution structure of the market. The main consumers are individual buyers who are influenced by advertising and marketing strategies. This benefits international manufacturers as imported medicines dominate the Russian market. Consequently, there has been a lack of investment in research and development by these companies, focusing instead on marketing and publicity efforts.

In 2009, out of the 463 medicines listed by DLO, only 70 were advanced medical specialties while 181 were strictly imported drugs. Domestically produced medications accounted for just 31 on that list. Insufficient production volumes from the national drug company are indicated by the fact that there were 251 medications that were both imported and domestically produced.

The Russian pharmaceutical industry supplies 70% of medications in physical volume to both the national healthcare system and hospital sector but only accounts for 19% of the healthcare sector's medication turnover in value. Most of the industry's production consists of low-profit generics, with a majority being imported and less than a quarter being nationally produced.The industry's limited presence on international markets and unresolved standard harmonization issues cause regular problems. Plans have been made to fully convert national drug company production in Russia to GMP standards by 2014. There are approximately 600 accredited national pharmaceutical industries in the Russian Federation, primarily located in Moscow, Nizhniy Novgorod, Kursk, Kurgan Regions, Bashkortostan, Tatar Stan, and Western Siberia (including Novosibirsk, Tomsk, and Omsk). Currently employing around 65 thousand people, only 10% of them possess sufficient manufacturing skills. An additional 10 thousand employees require training for advanced production. This

shortage of qualified personnel is the main reason for acquiring licenses in the initial two stages outlined in the Strategy. The top 10 companies in the Russian pharmaceutical industry represent 30% of all national medical specialties' value.