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Pharmaceuticals

C L U S T E R

NATIONAL COMPETITIVENESS TEAM


Ministry of Planning
Outline
9Role in the Jordanian Economy
Significance to Consumer
Current Strategy
Cluster Map
Key Issues
Competitive Diamond Model
Future Strategy Options
Industry Overview
• The Pharmaceutical industry has been of great significance to Jordan over
the last three decades:
• 7% of manufacturing GDP
• 3.4% of manufacturing employment
• 9.6% of total exports
– Third largest exporter in Jordan
– Over 70% of its total production is exported.
• The industry remains relatively small, with a total of 17 companies, three
of which have yet to produce a product
• Most companies produce generic medicines and patented medicines
without license agreements from the foreign patent holders
• The actual capital investment in this industry exceeds US$ 400 million.
• In 1999, Jordan joined the WTO: Pharmaceutical companies fear the issue
of compliance with international standards of intellectual property rights.
%

0
2
4
6
8
10
12
14

Phosphates

Potash

Fertilizers

Pharmaceuticals

Vegetables

Textile and
Apparel
Source:Central Bank of Jordan, Monthly Statistical Bulletin, May 2000
Contribution to Exports, 1998

Detergents and
Soap
%

0
2
4
6
8
10
12
14

Potash

Phosphates

Pharmaceuticals

Fertilizers

Vegetables

Textile and
Apparel

Detergents and
Contribution to Exports, 1999

Soap
Exports vs. Local Sales
100

80

60

(%)
40

20

0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

% of Local Sales % of Exports Sales


Source:Drug Directorate,1999

The Pharmaceutical industry is export-oriented; the industry has


been able to sustain over 70% of its total production as exports.
Trade Balance
Exports vs. Imports
JD million
140 Imports Exports
120

100

80

60

40

20

0
1995 1996 1997 1998 1999
Source: Drug Directorate, 1999
Contribution To Manufacturing GDP
10

6
%
4

0
1992 1995 1996 1997 1998
Source: Department of Statistics, Industrial Survey, Various Issues.

Although total manufacturing GDP is a relatively small percentage (12%) of Jordan’s


total GDP, the pharmaceutical industry represented almost 7% of total manufacturing
GDP in 1998
Growth of Employment
4500
No. of Employees
4000
3500
3000
2500
2000
1500
1000
500
0
1976 1980 1984 1988 1992 1998 1999
Source: Naseem Rahahleh, pharmaceutical industry in Jordan

The pharmaceutical industry is considered an important source of


employment. In 1999, the industry employed 3.4% of total
manufacturing employment
Qualifications vs. Wages

Distribution of employees* according to Wage rates for employees according to


academic qualifications,1998 academic qualifications (JD)

2000
High School or Less 1794
Diploma 45.3% 1800
26.5% 1600

Wage Rate (JD)


1400
1200
1000
802
800
600 387
400
Ph.D. 120 185
BA/BS
0.8% 200
25.5% MA/MSc
1.9% 0
High School Diploma BA/BS MA/MSc Ph.D.
or Less
*Total number of employees 3098
Average Monthly Wages Per Employee in JD
500

400 373.5
359 350

300
234 229
JD's

216
197
200 160
145

100

0
Intermediation

Manufacturing
Mining

Education

Construction
Electricity &
Pharmaceuticals

Resturants
Health & Social

Hotels &
Financial

Water

Work
Pharmaceutical industry is considered the highest paid industry in terms
of wages. The average wage of employees holding high school degree
and less is higher than the GDP per Capita for year 1997
Productivity in
Manufacturing industry vs. Pharmaceutical industry
16000 Productivity in
Pharmaceutical
JD’s

12000

8000

Productivity in
4000 Manufacturing

0
1994 1995 1996 1997

Productivity in the pharmaceutical industry scored high in comparison


to productivity in the manufacturing industry
Outline
Role in the Jordanian Economy
Significance to Consumer
Current Strategy
Cluster Map
Key Issues
Competitive Diamond Model
Future Strategy Options
Ability to Serve Local Demand
Pharmaceutical Consumption
Domestic vs. Imported
100%

80%

60%

40%

20%

0%
1995 1996 1997 1998
Domestic Imported

Domestic firms meet more than 45% of quantities demanded locally. Domestic products,
however, only cover 33% of the value as imported drugs are more expensive.
Outline
Role in the Jordanian Economy
Significance to Consumer
Current Strategy
Cluster Map
Key Issues
Competitive Diamond Model
Future Strategy Options
Key Definitions
Patented Sole production rights go to the inventor

Producing patented drugs without


Reproductions
the agreement of the inventor
of in-Patent

End of patented period,


Generics restricted drug can now be produced
by any manufacturer

Producing patented or generic


Under License drugs under contract
of multinationals
Structure of the Jordanian Pharmaceuticals
Industry

Companies established Companies established


before 1980 after 1990

10 Co. 3 Co.
4 Co.
Start-ups
90% of Production 10% of Production
94% of Exports 6% of Exports
Total Sales by Company, 1999

70
Before 1980
60
50
JD millions

40 After 1990
30
20
10
0
JPM

RAM

UPM
DAD

M.E.D

PHILAD
ADVANCED

AMMAN
ACPC

HAYAT
APM
Hikma
Pharmaceutical Companies according to
12
Specialization
10*
No. of companies

10

4
1**
2 2** 1 1 1

0
Hard Gelatin

Insulin
Celphalosporin
Other Therapeutic

Dermatological

Preparations)
Ophthalmologicals
Capsules

Antibiotic

(Topical
Categories

* : Ophthalmologicals and Topical preparations are produced by some of the ten other therapeutic categories
**: Hard Gelatin capsules and Celphalosporin Antibiotic companies are intermediate industries
JD million

0
2
4
6
8
10
12

Antibiotics Systemic

Antirheumatic System

Non-Narcotic
Analgesics

Anti-Ulcerants

Gynae Anti-Infectives

Topical
Corticosteroids

Ace Inhibitors Plain

Expectorants
Local Production

Beta Blocking Agents

Psycholeptics

Sex Hormones-
Systemic Only
Imported

Ophthalmologicals

Laxatives
Product Concentration

Oral Antidiabetics

Ace Inhibitors Comb


• Most Jordanian pharmaceutical companies focus on
the same product categories, mostly reproductions of in-
patent. A result of high profit margins and high local
demand.

• Industry product concentration has led to product overlap,


high domestic competition and excess production capacity.
R&D: International vs. Jordanian Comparison

Synthesis Compound
Clinical

Toxicological
Jordanian companies
Bioequivalence
Formulation and
Stability

• Jordanian pharmaceutical companies conduct research in only two areas: formulation


and stability studies, and bioequivalence studies.

• Most leading pharmaceutical companies conduct research in five areas, including the
critical and complex synthesis compound, toxicology and clinical studies. It is in these
areas that most of the drug development occurs.
R&D Levels
Jordanian Average vs. Leading Multinationals
20

18

16
14

12
% of Total Sales

10
8

6
4
2

0
Jord pharm Teva Merck and J and J HMR SB Eli Lily Pfizer
Co

Most of Jordan’s research in pharmaceuticals is focused on developing new


formulas for existing patented drugs whereas multinational R&D aims at
developing new patented drugs.
Export Destination
of Jordan’s Pharmaceuticals Industry, 1997
OTHERS
13%
ROMANIA
U.A.E 1%

SUDAN 2% IRAQ
2% 39%

ALGERIA
17%

Source: External Trade Statistics, 1998 SAUDI ARABIA


26%

Jordan exports almost 70% of its total pharmaceutical production:


82% of these exports are to three Arab markets.
Export Destination
of Jordan’s Pharmaceuticals Industry, 1999
OTHORS
IRAQ
14%
YEMEN 28%
LYBIA
3%
3%

ROMANIA
1%

SUDAN
5%

U.A.E
4%

ALGERIA
10%
SAUDI ARABIA
32%
Source: External Trade Statistics, 2000

Exports to the same three Arab markets declined from 82% in


1997 to 70% in 1999. The instability of these markets led to…...
Relocating Production

• To Arab countries through partnerships with


strategic endogenous partners, as a safeguard
against political instability and barriers to trade.
– Saudi Arabia gives Jordanian companies access to
the Gulf.
– Algeria and Tunisia gives access to North Africa.
Outline
Role in the Jordanian Economy
Significance to Consumer
Current Strategy
Cluster Map
Key Issues
Competitive Diamond Model
Future Strategy Options
INPUTS PROCESS RELATED AND SUPPORTING
Active and Inactive Synthesis Cardboard University/
Compound Studies
Doctors
Ingredients packaging Research

Toxicological Plastic Hospital Loan


Distilled Water Studies packaging Guarantee Corp
Wholesaler Min.of Trade
Cap Brand Registration
Electricity Clinical Studies Industry Pharmacies Min. of Health
Formulation and Glass Quality Regulations
R&D Packaging Transport
Stability Studies

Capital Pharmaceutical Labeling


Manufacturing

Labor Printing
Bioequivelance Studies Imported
Machinery Hard gelatin
capsules
Needs improving
Packaging
Absent
Package
designers Satisfactory
Marketing
Outline
Role in the Jordanian Economy
Significance to Consumer
Current Strategy
Cluster Map
Key Issues
Competitive Diamond Model
Future Strategy Options
Key Issues

• No shared future industry vision


Firm-
• Weak focus on R&D
Level • Lack of intra-industry cooperation

Industry- 9 Trade liberalization/ Patent Laws under TRIPs


9 Price controls
Level
• Weak links between industry and academia
Key Issue:

Patent Law
Criteria to Measure the Progress in Intellectual
Property Rights Protection

9 Pharmaceutical
Product Protection Compulsory
Licensing Limited

9 Twenty-Year
Patent Term
Patent Term
Pipeline Extension
Protection
Source: Phrma Publications Industry Profile 1998

The 1995 TRIPs agreement includes all of the above


provisions except the existence of a pipeline for drugs
Drug Development Pipeline

Pre-Clinical Clinical
(Average Cost $205 mil.) (Average Cost $99 mil.)

Market

Clinical Development NDA Approval


11 yrs
4 10 11 13 24

Patent Duration (20 yrs)


Patent protection starts, lasting until year 24
Criteria to Measure the Progress in Intellectual
Property Protection

9 Pharmaceutical
Product Protection Compulsory
Licensing Limited
9
9 Twenty-Year
Patent Term
Patent Term
Extension
Pipeline
Protection
Differing Perspectives on Patent Laws under
TRIPs
Multinationals Local Producers
Non-abiding countries are Jordan will witness,
suffering from: by abiding,
• Minimum foreign direct
investment in the pharmaceutical • Minimum foreign direct
sector investment, a result of Jordan’s
• Low quality technology transfer unattractive small local market
• Inclusion in the US “priority valued at US$159 million only
watch list” • 30% average increase in the
• Exclusion from the list of prices of patented drugs
beneficiaries from the GSP • Significantly reduced profit
• Delays in obtaining newly margins or increased bankruptcies
invented foreign drugs of some pharmaceutical companies
• Limited R&D in local
pharmaceutical companies
• Reputation as imitators
Effect of the International Patent Law on
the Local Industry

Reproductions
Under License of in-Patent
3% 15%

Generic
82%

International Patent Law will force firms to restructure


and invest in R&D. It will also push them to attract
multinationals to produce under-license.
However, TRIPs is not the only obstacle facing
pharmaceutical industry, standards and technical barriers
are obstacles as well.

Yet, TRIPs is not a real obstacle since accessing the WTO


offers significant potential benefits to Jordan, including:
– Access to new markets
– Increase of attractiveness to strategic partners
– Creating incentives to upgrade quality and standards
– Supplying the means for challenging the USA and
Germany to open their markets for Jordanian products
Current situation of TRIPs Protection
Country Level of Protection Barriers to entry Market lost
One of largest
Lack of meaningfull protection : duration of markets in the
patents too short. Legislation emerging Middle East/North
with effective patent protection, but not Rigid price Control Africa but exact size
Egypt passed System still undetermined

Piracy not significant,


Some legal protection. Registration of Rigid price Control thus not much room
Bahrain patents in UK necessary System for increased exports
At crossroads, not much piracy now, but Rigid price Control Market of tens of
Lebanon also not safeguards System million of dollars
Rigid price Control US$10 million to
Oman No legal protection. Few few govt. efforts System US$15 million
No legal protection Gov. buys pirated Govt. denied tender US$ 5 million to
Qatar copies offer to US bidder US$10 million
Rigid price Control Large market ( $110
Kuwait No legal protection. piracy increasing System million )

: priority watch list : watch list


Country Level of Protection Barriers to Entry Market Lost
Considering amendment to patent law that Undetermined but
would allow Israeli companies to export could be significant
patented products before their patents as regional supplier
Israel expires None of pharmaceuticals
Regional allow
New patent laws will not offer effective copied products to
protection. Falls well short of TRIPS pass using tests from Approximately $70
Turkey standards in numerous areas original product million annually
Drug prices fixed by
the Govt. using
outdated cost data,
Indian ptanet Act of 1970 only provide s High import tarifffs,
seven years for process patents, which is Difficult for Loss of about $500
so short that the patent "protection" will companies to open million, including
expire even before the relevant product is 100% owned copies domestically
India ready for market launch. subsidies. and their export.
Jordanian government has been
considering new legislations to provide Rigid price Control Loss of about US$
Jordan adequate pharmaceutical patent protection. System 5-25 million

: priority watch list : watch list


Source : ”special 301” report by PHARM,1999
Key Issue:

Government
Price Controls
Influence of Government Price
Controls on Local Sales
• The government has effectively used the private
sector to subsidize drug costs.

• Government sets price ceilings on domestic and


imported products.
– Local prices are generally 25-35% below those of
similar imported products.
Influence of Government Price
Controls on Exports
• Export markets (primarily in the Gulf) set prices based on the
prices in the Jordanian market. Local price controls therefore
subsidize export prices.

• Reviews of locally produced medicine prices are infrequent whereas


import prices are reviewed periodically to adjust for exchange rate
fluctuation.

Government pricing policies force price competition


rather than product differentiation.
Outline
Role in the Jordanian Economy
Significance to Consumer
Cluster Map
Current Strategy
Key Issues
Competitive Diamond Model
Future Strategy Options
-Patent process and Gov't
Gov't
Firm
Firm
Strategy,
Strategy,
Patent Laws
product Structure
+Higher standards
Structure
and
andRivalry
Rivalry under TRIPs
for drug
registration Strategy
Production
Marketing
R&D Demand
Factor Demand
Factor Conditions
Conditions Conditions
Conditions

Basic Factors Local Market


- Higher prices for
- Financing
upcoming patented
drugs (no local
substitute)
Related
Relatedand
and
Specialized Factors Supporting
Supporting Export Market
+8 pharmaceutical colleges Industries:
Industries:
+3 bioequivalence research The
TheCluster
Cluster - No longer register
centers reproductions of
- Lack of intra-industry cooperation in-patent drugs
- Few links between universities - Higher standards
and the industry
Firm
Firm Strategy,
Strategy,
Structure
Structure and
and
Rivalry
Rivalry

Current Strategies:
Production
+Fulfill new international production standards
+Strategic partnerships for production under license

Marketing
+Building factories in large regional export markets
+Entrance into new markets
+Generic products registration in the US

R&D
+New product lines (herbal, dermatherapy)
+Entrance into biotechnology
Firm
-Patent process and Gov't
Gov't
Firm
Strategy,
Strategy, Patent Laws
product Structure
Structure
+Higher standards
and
andRivalry
Rivalry under TRIPs
for drug
registration Strategy
Production
Marketing
R&D Demand
Factor Demand
Factor Conditions
Conditions Conditions
Conditions

Basic Factors Local Market


- Higher prices for
- Financing
upcoming patented
drugs (no local
substitute)
Related
Relatedand
and
Specialized Factors Supporting
Supporting Export Market
+8 pharmaceutical colleges Industries:
Industries:
+3 bioequivalence research The
TheCluster
Cluster - No longer register
centers reproductions of
- Lack of intra-industry cooperation in-patent drugs
- Few links between universities - Higher standards
and the industry
Outline
Role in the Jordanian Economy
Significance to Consumer
Cluster Map
Current Strategy
Key Issues
Competitive Diamond Model
Future Strategy Options
Future Strategy Options
Jordan’s Situation
- Little capital is available for investment in R&D.
Option I - Weak enforcement of intellectual property rights (i.e.
Do it patents) in Jordan which may be a disincentive to
drug development.
Ourselves: To - “Doing it ourselves” will take time and with the
be innovative imminence of the WTO and EU regulations, Jordan
does not have very much time.
leaders in terms
- Weak local research institutions and capabilities.
of inventions, - It is almost impossible for the pharmaceutical industry,
creativity and given the present inadequacies and established habits, to
become an innovative world leader in the short run.
value added.
We can do minor R&D
to: + Jordan can capitalize on local diseases and herbal
• Improve delivery mode products for which it has knowledge.
• Reduce development + Jordan has some good drug development expertise
due to the production of generic drugs.
and manufacturing time + Some Jordanian companies were able to develop
of generics products their own original products. They were patented in
Jordan and registered in foreign countries.
Future Strategy Options
Jordan’s Situation
• The only partnership that currently exist is under
Option II license agreements.
Strategic • Jordanian companies have limited under license
Partnership: agreements due to small local market size
•Joint Ventures/ under compared to other regional markets such as Egypt
License and Saudi Arabia.
•Subcontracting • Currently, there are no partnerships or joint
production of patented ventures aiming at strengthening the capabilities of
and generic drugs Jordan’s R&D.
•Co-marketing and
distribution agreement
This option might be visible due to:
• No longer small markets.
• Jordan’s action plan regarding TRIPs.
• Good reputation of Jordanian
pharmaceuticals industry.
Future Strategy Options
Jordan’s Situation
Option III
• Know-How is expensive.
• Jordanian companies are
Buying the under-capitalized.
Know-How

• However, it might be easier to


buy the know-how than‘do it
ourselves’.
Future Strategy Options
Jordan’s Situation
Option IV Jordanian industry should
review the value chain (all the
stages of the good or service) of
Cost its products and focus on
Leadership increasing efficiency in any or
Strategy all the stages of production.
And, thus become a low-cost
producer.

It is probably the more feasible


competitive strategy
Value Creation
Firm Infrastructure
(e.g. Financing`, Planning, Investor Relations)

Human Resource Management


(e.g. Recruiting, Training, Compensation System)
Support
Activities Technology Development
(e.g. Product Design, Testing, Process Design, Material Research, Market Research)

Profit Margin
Procurement
(e.g. Components, Machinery, Advertising, Services)

Inbound Operations Outbound Marketing After-Sales


Logistics Logistics & Sales Service

(e.g. Material (e.g. (e.g. Order (e.g. Sales (e.g. Installation,


Storage, Assembly, Processing, Force, Customer
Data Component Warehousing, Advertising, Support,
Collection, Fabrication, Report Trade Shows, Repair)
Service, Branch Preparation) Proposal
Customer Operations) Writing)
Access)

Primary Activities

To create a more value-oriented chain, companies should focus on


improving their efficiencies in distribution, marketing, and sales.
Future Strategy Options
Jordan’s Situation
Option V
Jordanian industries might
Early negotiate with foreign
Adoption of companies for the early adoption
International of international patent law in
Patent Law exchange for specific
concessions.

JUSBP, BST, and USAID may


help and facilitate such initiative.
Future Strategy Options
Jordan’s Situation
Other Options
•Shifting from • Stop building factories and
Hardware to invest in technology and
Software marketing.
mentality • Establish an advisory committee
•Collaboration
between industry
for pharmaceutical colleges and
and academia. focus on more specialization in
•Intra-industry pharmacology departments.
cooperation • Enhance intra-industry
cooperation through….
Through….

• Formulating a shared strategy, to upgrade the


industry as a whole including supporting
industries.

• Encouraging specialization in existing


pharmaceutical companies to reduce product
overlap and meet local demands on new
product lines.