Struggling to keep a competitive edge: Jordan’s pharmaceutical sector
Despite sales tax cuts and low labor costs, the pharmaceutical industry remains challenged by production overlapping, declining profits, a government-controlled pricing structure and enforced regulations that are hindering its growth potential.
According to a study commissioned by Arab Bank Center for Scientific Research and conducted by MMIS Management Consultants, the country's $400 million pharmaceutical industry needs to enhance technological skills and expertise, apply quality standards and invest in research and development in order to be ready to penetrate world markets.
The director of the consultancy firm, Salwa Bamieh, said in a workshop held late Sunday the current Health Ministry's pricing structure which sets the price of locally-manufactured drugs at 25 to 35 percent less than similar imports which discourages potential investors and indirectly restricts exports to major markets. She said Saudi Arabia, which imported 32 percent of the Kingdom's $207 million production in 1999, allows imports of Jordanian manufactured products only if they have similar wholesale prices in Jordan.
“Price restrictions are affecting the volume of exports to regional markets,” she said in a one-hour presentation. “But the government is currently studying a new pharmacy and drug law that will ease price controls and facilitate registration procedures.”
The Health Ministry on average requires between 1-3 years to approve a new drug. A period, international pharmaceutical experts complain, is too long. Prices enforced by the Health Ministry do not reflect the cost of research and development and are significantly lower than the companies' prices in the region. According to industry sources, companies may not find it feasible to introduce new products in Jordan should the government stick to its rigid price control scheme.
The 20-page study said that the industry is dominated by a handful of companies, with 4 market leaders commanding 25 percent of the total market. Over the past decade, the sector was profitable as it was highly export-oriented, motivating nine new firms to enter the market. Last year's production amounted to $207 million, of which 68 percent, or $141 million, were exports mainly to Arab countries.
The recent signing of a Free Trade Agreement with the US requires a higher ceiling of IPR legislation, according to experts. “Profitability is at much lower margins due to the implementation of intellectual property rights (IPR),” added Bamieh. Ahead of joining the Geneva-based, 136-member, World Trade Organization, the pharmaceutical industry reproduced patented products of multinational corporations, which was a violation of patent laws and IPR treaties in developed countries, the study revealed.
“The government did not give us a grace period [to adjust].... but started applying laws that are not Jordanian,” said Raghda Kurdi, general manager of the Hayat Pharmaceutical Industries. “The profit margin, already low, will last for two years as small-sized firms are engaged in bitter price wars, eroding our market in a bad way,” she said. “What we need is a unified strategy for companies to work out an easier entry into the WTO.”
Eighty-five percent of pharmaceutical products are generics, 12 percent are reproductions of in-patent products, while 3 percent are under license. Instead of developing new-patented pharmaceutical products, manufacturing was concentrated on developing new formulas for existing patented drugs. Multinational companies continuously developed new-patented drugs.
Maher Matalka, secretary general of the Jordanian Association of Pharmaceuticals and Medical Appliances said conforming to the regulatory requirements of developed countries is an advantage to Jordan, as the Kingdom can then tap any export market.
He said Jordan is among the few countries in the world including the US, Canada and Israel to obtain the Bolar provision from the US-based Food and Drug Administration which allows pharmaceutical firms to develop patented products two years before they expire.
Outlining the industry's competitive edge, the study revealed that Jordan could be an attractive country for multinational corporations because of low tax rates. No taxes are levied on exports sales while 15 percent are levied on local sales. The labor cost is relatively inexpensive in comparison to international standards, allowing for lower production costs.
The industry, which makes nearly 8 percent of the country's gross domestic product, is advanced in the fields of research and development compared to other countries in the region and it enjoys tax exemptions on imports of pharmaceutical inputs.
If Jordan adheres to the rules and mandates of the WTO and the Jordan-EU Association Agreement, the study said such steps are bound to stimulate more foreign direct investment, enhance technological innovation, the transfer of new technologies and know-how.
The Arab Free Trade Agreement, which envisages a 10 percent annual reduction of tariffs for ten years by the year 2007, will increase the profitability and market share of Jordanian pharmaceuticals in the Arab markets.
As such, it will motivate joint ventures between local and multinational corporations and enable the Kingdom to take part in global research and development programs. But if the industry continues in it present path, it is expected to face major snags. — ( Jordan Times )
By Suha Ma'ayeh
© 2000 Mena Report (www.menareport.com)