Promoting Local Production of

Pharmaceuticals in Sub-Saharan Africa

Sudip Chaudhuri

Indian Institute of Management Calcutta

Fondation Maison des Sciences de l'Homme

Paris, 25 September 2013

2

41,50%

28,20%

27,30%

3,00%

World Pharmaceutical Market, 2012 $ 1052.1 billion

Americas Europe

Asia/Pacific Middle East/Africa

$ 31.7 billion

Source: BMI/Espicom

3

343

129,5

49,3 43,3

82,1

26,8 15,7

3,8 0

50

100

150

200

250

300

350

400

USA Japan Germany France China Brazil India South

Africa

$ b

illio

n

World Pharmaceutical Market, 2012

Source: BMI/Espicom

4

0

0,5

1

1,5

2

2,5

3

3,5

4

African Pharmaceutical Market, 2011, $ billion

Source: African Development Bank presentation in African Pharm Summit

Tunisia, September 2013

Disease Burden in Africa

12

57

49

85

67

26

88

43

51

15

33

74

0% 20% 40% 60% 80% 100%

Population

Maternal Mortality

Under five mortality

Malaria mortality

HIV mortality

Underweight

Share of the disease burden

Africa Rest of the world

5

Source: African Development Bank presentation in African Pharm Summit,

Tunisia, September 2013

6

Country Median availability of

selected essential

medicines (%)

Public Private

Burkina Faso 87.1 72.1

Cameroon 60.0 52.5

Chad 31.3 13.6

Congo 21.2 31.3

Congo DR 55.6 65.4

Ghana 17.9 44.6

Mauritius 88.8 70.0

Nigeria 26.2 36.4

Sao Tome and Principe 56.3 22.2

Sudan 51.7 77.1

Tunisia 64.3 95.1

Uganda 20.0 80.0

Tanzania 23.4 47.9

Source: WHO Price Surveys

Import dependence

Local producers

In existence for quite some time

Relatively simple formulations

Unable and unwilling to undertake investments for growth

7

30%

70%

Tanzania and Ghana

Local production Imports

Formulations Imports, 2012

8

36,8%

25,4%

6,7% 5,1% 4,8%

3,9% 3,6% 2,9% 1,2%

Tanzania

42,7%

10,7%

7,2% 6,8% 6,8% 4,5% 3,4% 3,1% 3,0%

Ghana

Source: UNCOMTRADE

Local production: Benefits

Economic benefits:

◦ Employment

◦ Balance of payments

◦ Etc

Access to medicines:

◦ More reliable supplies

◦ Better quality control

◦ Better marketing reach especially in rural areas

◦ Etc

9

But a huge bias against local production

Influential circles argue that local

production should not be promoted

because:

◦ Costs higher

◦ Higher prices

◦ Hence less access to medicines

10

Local production in Africa

African countries face the same problems

as what other countries faced at

corresponding stages:

◦ higher costs of production and finance

◦ deficiency of technical knowledge

◦ difficulty of competing against foreign

companies

11

Lessons from history

Industrial policy crucial – government

need to intervene to support local

production and local producers:

◦ Developed countries such as USA and France

◦ Developing countries including BRIC

countries:

Brazil (e.g., aircraft)

China (e.g., telecom equipment)

India (e.g., pharmaceuticals)

12

What India did in Pharmaceuticals

Invited MNCs – finance/technology etc

◦ Poor response

Public sector company in collaboration with the USSR

Public sector R&D labs

Development financial institutes

◦ Difference between:

Dr Mansoor Daya (Tanzania)

Dr Reddy (India)

Product patent protection abolition

Regulating MNCs

13

In Africa too

A history of Industrial Policy

But before the industry could develop:

◦ Liberalization and withdrawal of the state

particularly from 1990s

Current government support grossly

inadequate

14

What Africa can do

Finance

Technology

◦ Situation more complex and difficult today with GMP requirements

◦ Channels:

Public sector manufacturing and R&D

Foreign companies

Informal channels – importing technical manpower: Government and international agencies can play an

important role here

15

What Africa can do

Ensure market for local producers: ◦ Markets with supernormal profits:

If import prices are high then despite cost disadvantages, local

producers can survive and contribute

◦ Competitive markets:

In the case of competitive import prices, higher costs mean

lower profit margins

Lower profit margins can be compensated by larger markets

How large a market is required to make local production

viable in small African countries?

.

16

Market and Industry structure and

prices of medicines

17

18

Pharmaceutical Market

Patented Generics

Institutional Retail

Prescription OTCs

Donor funded Own

19

Pharmaceutical Manufacturers

Local Foreign

MNCs Generics companies

Indian Others

20

WHO Price Survey in Tanzania, 2004

21

WHO Price Survey in Ghana, 2004

22

India: Median

price

in INR (1

tablet) 2013

Ghana: Median

price

in INR (1

tablet) 2011

Ghana/India

price ratio:

Col (3)/col

(2)

1. Anastrazole, 1 mg 48.50 182.10 3.8

2. Cepacitabine, 500 mg 150.05 267.08 1.8

3. Granisetron, 1 mg 14.05 409.73 29.2

4. Itraconazole, 100 mg 47.50 182.10 3.8

5. Losartan, 50 mg 5.65 12.14 2.1

6. Rabeprazole, 20 mg 2.75 75.88 27.6

7. Risperidone, 2 mg 3.80 75.88 20.0

8. Rosuvastatin, 20 mg 20.36 69.81 3.4

9. Tindazole, 500 mg 5.52 69.81 12.7

10. Sertraline, 100 mg 6.3 98.64 15.7

Source: Chaudhuri and West, 2014

Competitive markets and size of

viable market

23

Our method

Started from concrete Indian situation: A team consisting of a cost accountant, two production

executives of an Indian formulations manufacturing company and an economist estimated the actual cost, production and profitability data of the following formulations unit

GMP compliant plant with three compression machines manufacturing five tablets of different ingredient, strength and different sale prices

◦ Amlodipine 2.5 mg

◦ Ofloxacin 200 mg

◦ Ciprofloxacin 500 mg

◦ Amlodipine 5 mg

◦ Metformin hcl 500 mg

24

Our method

Found out the cost differential between

India and Africa (Ghana)

Simulated the situation in Ghana

Found out the size of viable market in

Ghana

25

26

India

Ghana:

scenario 1

Ghana:

scenario 2

Total sales revenue (Rs million) 197 271 362

Total sales revenue (GHC million) 7 9 13

Total variable costs (Rs million) 124 161 238

Total fixed costs (Rs million) 42 68 68

Total quantity produced and sold

(million tablets) 152 209 405

Breakeven quantity (million tablets) 89 130 224

Total profits (Rs million) 30 41 55

Profit margin (%) 15.3 15.2 15.3

Viability and profitability of tablet manufacturing

in India and Ghana 2012

Costs and prices

India: ◦ Indian costs

◦ Cheapest Indian brand prices (among > = 1% market share products)

Ghana scenario 1: ◦ Higher Ghana costs

◦ Cheapest Indian brand prices

Ghana scenario 2: ◦ Higher Ghana costs

Include distribution costs but exclude sales promotion expenses

◦ Median International Reference prices (from MSH)

27

Policies to ensure larger markets for

local production

Government may prepare a list of products and announce that the imports of these products will be banned if adequate capacities are developed in the country

Insurance agencies may assess the capacities of local firms and where adequate capacities are available, reimbursement may be restricted to locally manufactured products

Restrict public procurement to local firms satisfying capacity and price criteria

Government may intervene to support local manufacturing investments as suggested earlier

28

Acknowledgements

Benefitted from work done for UNIDO and UNDP. Comments and suggestions from Maureen Mackintosh, Alastair West, Juergen Reinhert and Cecilia Oh gratefully acknowledged.

sudip@iimcal.ac.in