Arab Drug Industry Challenged. (Business & Finance)

By Martin, Josh | The Middle East, January 2002 | Go to article overview

Arab Drug Industry Challenged. (Business & Finance)


Martin, Josh, The Middle East


For over 70 years, the Arab pharmaceutical industry has enjoyed a protected market -- benefiting from both government subsidies and sanctions to deliver low-cost medicines to the general public. That is about to be swept away, due to changes in local economies, and the stringent patent protections mandated through Arab countries' membership in the World Trade Organisation. Walk into almost any drug store or pharmacy in the Middle East, and you can easily purchase almost any medication desired, at a small fraction of the cost one would pay in Europe or the United States. This reflects long-held government policies designed to guarantee an adequate supply of affordable medications for the general public.

But those conditions are changing, under both domestic and international pressures. As governments privatise, new owners of formerly state-owned drug companies are raising prices to reflect the real cost of manufacture. At the same time, government membership in the World Trade Organisation (WTO), and the linked agreement of Trade-Related aspects of Intellectual Property Rights (TRIPS), mandates that those drug companies respect international patents and trademarks, further increasing the end price of many pharmaceutical products.

Until recently, Arab drug companies have, with tacit government acceptance, ignored international patents on medications, which helped keep costs low. But as local pharmaceutical industries adjust to real economics and global standards, they will need to make substantial investments either in local research and development, or in the purchase of patent rights from more advanced pharmaceutical giants in Europe and North America. Either course will be expensive. Patent and licencing fees can represent as much as 90 per cent of the price a consumer pays for a medication.

What of the alternative? According to an industry analysis by Ahmed Al Ansari, director of the Department of Investment in the UAE Ministry of Finance and Industry, Arab pharmaceutical companies have made little or no investment in research and development (R&D), which is crucial to the development of new or indigenous drugs and medicines. By contrast, American drug companies invest 14 per cent of total sales in R&D; for British companies, the figure is 12 per cent. In order to match this effort, Arab drug companies would have to invest between $1.2 and $1.5 billion annually.

The Arab pharmaceutical industry, and the governments which own a large stake in that industry, face difficult choices: In order to reach western research and development (R&D) investment levels, most Arab drug companies would have to sacrifice profitability. But in order for governments to successfully privatise those companies, profits have to be shown.

For example, in Egypt, all 11 of the state-owned pharmaceutical companies held in the government's "Law 203" portfolio, slated to be privatised, now show profits ranging from 6.6 per cent to 15.8 per cent. If they were currently investing 10 per cent of sales in R&D, only six of the 11 companies would be profitable.

Fortunately for them, there is a significant time window provided under the WTO and TRIPS agreements, allowing companies to be brought up to global standards. TRIPS, for example, does not come into force until 2005, and many experts say the governing body will allow extensions similar to those allowed under various WTO provisions, to ease the transition of local industry to global standards. Within that time, many of the Arab drug companies can be privatised, allowing new owners to make R&D investment decisions.

In Egypt, Jordan and Morocco, the list of bidders for those companies reads like a "Who's Who" of the global pharmaceutical industry, including Lever Brothers, Johnson & Johnson, Union Carbide, Colgate-Palmolive and Glaxo Welcome.

But the eagerness of these companies to invest raises another awkward issue: Who will ultimately control availability of medications, and consequent local health costs?

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