Often referred to as "a sunrise industry," pharmaceuticals have now become the ideal prescription to treat the local economy. The industry, which started from modest beginnings some 40 years ago, has developed into a lucrative business. Dana Baradei tracks the trends as the rules of the game change.
The Jordanian pharmaceutical industry, which currently boasts 17 factories, 4,000 employees (nearly double the total registered for 1991), and 3,000 jobs indirectly in supply and related industries, has proven to be just what the doctor ordered. Not only does the sector account for 3.5% of the total workforce employed in the country's industrial sector, it is also the second largest export industry after garment manufacturing, with 70% of its sales accruing from serving 60 markets worldwide with earnings of JD198.6 million in 2005.
Saudi Arabia (JD60.3 million) is listed as the number one client for Jordanian pharmaceuticals, followed by Algeria (JD26.1 million) and Iraq (JD15.2 million). In the local market, 2005 was a good year for the pharmaceutical sector, which grew by 17.5%. The total value of domestic production in Jordan rose to almost $350 million in 2005, which is up an additional $50 million from 2004, and after slipping in 2003 to $185 million due to loss of the Iraqi market. This translates into a 62% increase in nearly 10 years.
Due to a noticeable change in the disease profile worldwide, such as the prevalence of certain lifestyle ailments, namely HIV/AIDS, and the increased longevity of populations, the global pharmaceutical market grew by 7% in 2005, to $602 billion, with the largest chunk of the market, namely 47%, in the U.S. followed by Europe and Asia-Pacific.
The highly publicized blunders of the big players, such as pharmaceutical giant Merck announcing the voluntary worldwide withdrawal of the osteoarthritis drug VIOXX in 2004, a medication more than two million people in 80 countries used, making it the largest voluntary drug recall in history, has left the industry unabashed. VIOXX generated $2.5 billion in worldwide sales in 2003, and its withdrawal reduced the company's market valuation by more than a quarter. The global industry remained undaunted by the Food and Drug Administration's (FDA) request to Pfizer to remove Bextra, another arthritis drug, from the shelves in 2005, which caused an 87% plunge in first-quarter profits for that year in addition to raking up a $766 million charge for halting its sales.
In tandem with international trends, Jordanian pharmaceuticals are growing at a healthy pace, successfully focusing on the production of specific generic brands, and the industry has an even more ambitious agenda to penetrate the less responsive markets of the European Union and the U.S. In fact, the Jordanian government expects that the sector, which is completely private and meets around 50% of the demands of the domestic market, will triple to $1 billion by 2010. So far it looks like at least a few local firms have found a winning prescription while others are not sure the industry has what it take to make the leap. "With the current capital structure and the relatively small size of investment the $1 billion goal does not seem feasible," said Adnan Badwan, general director of Jordanian Pharmaceutical Manufacturing Medical Equipment Company (JPM) and chairman of the Jordanian Pharmaceutical Manufacturing Association. "We should focus on marketing our products in Africa and former Soviet Union countries, where the profit margin is still high, in addition to the U.S. and the European Union," he told Jordan Business.
Double edge
"Perhaps one of the biggest challenges faced by the entire region is the application of the patent laws," said Taghreed Al-Shunnar, vice president for Hikma Pharmaceuticals MENA division. In the past, Jordan followed "process patent" guidelines, which means a company could use any formula to produce a patent product. Technically, companies would use slightly different materials to create a patent product, but since a company did not use the exact formula, it wasn't considered pirated production. However, the country now follows "end product patent" regulations meaning a company cannot manufacture the product with different ingredients and must instead use the exact, already patented formula.
In the mid- to late-90s, Jordan's pharmaceutical market was often under scrutiny by multinationals. So much so that some accused the country of "representing a significant and growing regional source of pirated pharmaceuticals," and critics warned that it would eventually be "crushed by intellectual property obligations." However, the Kingdom's accession to the World Trade Organization (WTO) in 2000, followed by its Free Trade Agreement with the U.S. in 2001, proved its commitment to the protection of intellectual property. Jordan's pharmaceutical industry currently abides by the new Trade Related Aspects of Intellectual Property Rights (TRIPS) patent law, which essentially means that nations' laws must not supersede international copyright obligations. Today, many companies have numerous innovations to protect, such as JPM, a limited private company valued at approximately $17 million, which owns over 52 new patents. Several companies, such as Hikma Pharmaceuticals, have several under license products to lessen the impact of more stringent patent laws. "Obtaining products under license has been our strategy from the beginning," explained Al-Shunnar.
While initially many believed that such a commitment would harm the industry, especially since quite a few companies were essentially "free riders" on the global patent system, five years later the available evidence indicates otherwise. The local market is much more appealing for research and clinical trails, and companies such as International Pharmaceutical Research Center (IPRC), which is a leading full service regional Contract Research Organization (CRO), and Triumpharma, a company conducting clinical trials on animals and humans as specialized services to pharmaceutical clients, are in business.
Once critical multinationals are now reaching large-scale licensing agreements with Jordanian firms. Hikma had a total of nine active licenses from nine originator pharmaceutical companies in 2005, six of which are from the Japanese company Astellas Pharma. Arab Pharmaceutical Manufacturing Company (APM) produces under license for Takeda Chemical Industries Limited in Japan, and Dar Al-Dawa (DAD) produces for the Swiss giant Novartis and Pfizer, the world's largest research-based company. United Pharmaceutical Manufacturers and Advanced Pharmaceuticals produce for numerous European firms. Under license production also serves to accelerate the adoption of good manufacturing practices at the national level.
Additionally, industrial tycoons are making co-marketing arrangements with their local counterparts; Pfizer has doubled their number of staff, Aventis and Novartis's size has tripled, and Merck Sharp & Dohme's team has multiplied five times in Jordan according to a report released by the International Intellectual Property Institute and Achievement of Market-Friendly Initiatives and Results Program (AMIR) in 2004.
United we conquer
One tried and tested formula in the industry is that of mergers and acquisitions. In 2000, Pharmcacia/UpJohn merged with Searle, and SmithKline Beecham joined Glaxo Welcome; a trend some Jordanian factories have already adopted. In 2003, a merger between Al-Razi, which had a shortage in their working capital, and JPM served two ends; it solidified the financial position of Al Razi and expanded the operations of JPM, and now operates under the name JPM. "The market is open for small, specialized niches but it doesn't make sense to have two local companies producing the exact same thing," explained Rakan Rshaidat, managing director for APM. In 2004, APM, a public, limited shareholding company with a paid capital of $28 million merged with Advanced Pharmaceutical Industries, a public shareholding company with a capital of $12 million, to form the new entity the Arab Pharmaceutical Manufacturing, with a paid-up capital of $38 million. APM already had a solid foothold in the market and Advanced had newer facilities.
Another example is Hikma Pharmaceuticals, Jordan's leading pharmaceutical company and the first to export one of its products to the U.S., which in June 2006 acquired a 52% of its Saudi Arabian subsidiary Al Jazeera Pharmaceuticals Industries (JPI) for $21 million. Hikma already owned 47.5% before the acquisition. In 2005, JPI's share of the Saudi Arabian market was 1.6%; however, combined with Hikma's 1.9% it became the sixth largest in the Saudi market. Overall, the Saudi Arabian market for Jordanian pharmaceutical products grew by 23.2% in 2005. There is no doubt mergers of such a kind will fortify the position of Jordanian companies when negotiating agreements with international companies and increase economies of scale, eventually enabling local companies to invest in research and development (R&D), a necessity to stay ahead in the game.
Local manufacturing of both branded and non-branded generic and under licensed pharmaceutical products is definitely on the rise. "We are the largest manufacturing base in the Middle East and the only country in the region to export more pharmaceuticals than it imports," said secretary general for the JAPM, Hanan Sboul. Furthermore, the sector is expanding its product base. Al-Kindi Pharmaceutical Industries, which specializes in the production of insulin and intravenous solutions, will begin production in the beginning of 2007 - the first of its kind in Jordan. "Since we are the only factory to produce insulin we will not be a threat to the other locally produced pharmaceuticals," explained Omar Jaawan, CEO of Al-Kindi, a company with JD14 million in capital. Whether or not the industry has what it takes to stave off the inevitable plateau is a question only time can answer.
Jordan Business looks at some of the heavyweights of the industry Hikma Pharmaceuticals (HIK)
The company, the fourth largest pharmaceutical establishment worldwide, is listed on both the London Stock Exchange and the Dubai Stock Exchange. It announced a gross profit of $13.8 million by the closing of 2005, and boasts a current capital of $1.3 billion. Hikma has factories in Jordan, the U.S. and Europe.
Dar Al-Dawa (DAD)
The pharmaceutical company's capital is currently at JD20 million, with net sales hitting JD28.7 million for 2004. Its group includes NutriDar, a prominent player in health care and food manufacturing; CosmoDar, a provider of high-quality beauty care products; and DADvet, a leading veterinary and agricultural products provider in the region and world wide.
Jordanian Pharmaceutical Manufacturing Medical
Equipment Company (JPM)
JPM is a limited liability company established in 1978 with a paid-up capital of $17.1 million. It is among the first five companies established in Jordan for the production of pharmaceuticals for human use and currently has 52 patent products to its name. The main shareholders of JPM are the Jordan Islamic Bank with 41.80%, and Al Tawfiq Investment Company with 10.60%.
Arab Pharmaceutical
Manufacturing Company (APM)
APM is a public, limited shareholding company with a paid capital of $28 million. It was the first Jordanian pharmaceutical company to start business back in 1962. It merged with Advanced Pharmaceutical Industries, also a public shareholding company, in 2004. APM works under licensing agreements with a number of multinational companies including Takeda Chemical Industries in Japan and Roche Pharmaceuticals Switzerland.
United Pharmaceutical
Manufacturers (UPM)
UPM is a multi-national pharmaceutical company that is part of the Munir Sukhtian Group. The 15-year-old company's capital stands at $4.2 million and states that 90% of its sales are from exports. It is the first company in the Middle East to obtain European-GMP certificate, and boasts a strategic alliance with U.S. pharmaceutical giant GlaxoSmithKline.
Jordan Business 2007
