Local manufacturing – a market access tool for MNCs in Egypt

Nader Rizkalla

MSD

Egypt is recognized as a tier three pharmerging country. The Egyptian pharmaceutical market is a very large market, in terms of volume. In 2011, the market sold 1.7 billion units of medicine with a value of around 3.2 B US$ (average unit price~ 1.7US$!).

To access such a market, local manufacturing of pharmaceuticals is a must.

There are currently around 60 local manufacturers, classified as public companies, foreign private producers and local private producers. Most of their pharmaceutical production is for domestic consumption.

All multinational companies (MNCs) operating in Egypt manufacture at least some of their products locally. Some own their factories, for example GSK, Novartis, Pfizer, and Sanofi-Aventis, while others manufacture under license, or toll manufacture in local public or private factories.

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“MNCs with local manufacturing facilities get a market access edge: affordable priced local product portfolio.”

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Among these companies, some had a very early entry into the market with their own production sites in the 1960s, such as Novartis (as Swiss Pharma), Sanofi-Aventis (as Hoechst) and Pfizer.

GSK entered in the 1980s by acquiring a local manufacturer with its own portfolio (and later acquiring another one in the 1990s). GSK has also acquired the manufacturing facility of BMS in Egypt with its portfolio in 2009.

Other companies are still entering the market. One of the most significant recent ones was Astra-Zeneca with a US$40 M facility in 2007.

MNCs with local manufacturing facilities get a market access edge: affordable priced local product portfolio. Those companies are also entering into the branded generic arena, a definitive booming segment in the Egyptian market. It is forecasted that branded generics will constitute around 40% of the market – in value – in the coming few years.

Meanwhile, MNCs which manufacture under license have no flexibility in introducing a locally tailored portfolio that includes branded generics. In addition, they suffer the inconvenience of managing multiple local partners (due to the fact that merging companies had different partners before the mergers). Often, those local partners (especially the public ones) are lagging behind- sometimes painfully so- in terms of quality and innovation.

Egypt’s market prospects look extremely positive on the medium terms: the Egyptian pharmaceutical market is expected to grow at CAGR of 15%, reaching a value of over US$8 billion in 2016.

On the other hand, Egypt is passing through a political turmoil following the January 2011 revolution that resulted in a slowing down of the economy.

Pharmaceutical production in Egypt has been affected by strikes at pharmaceutical companies, and by increased costs of imported raw material.

With the positive and negative forces in play there is an exciting opportunity on the table.

A US investment partnership led by Citigroup has purchased Amoun Pharmaceuticals in November 2007. After years of refurbishing, Amoun is currently the number 6 company with a market share of around 4.5%. It is now offered for sale for an estimated value of US$1B.

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“It is forecasted that branded generics will constitute around 40% of the market – in value – in the coming few years.”

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The market is also watching another top local corporate (which may be one of the top five) placing its factories for sale. The corporate has called for public bidding to purchase its two factories and this will close by mid April 2012. This corporate has not revealed its name in the public bidding advertisement.

The expectations are that those two particular sales will have a significant impact on the dynamics of the market as they are collectively worth 10% of the market share.

Who will have the money and the guts? We will see!

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About the author:

Nader Rizkalla currently leads Business Operations in MSD Egypt. His experience in pharmaceutical business in the Middle East extends back to 1996 when he was working in product management for the Near East-East Africa in Boehringer Ingelheim.

In 2002 he joined Schering Plough and had various positions including running the company operation in Jordan (until the end of 2006), where he achieved the turnaround of SP business. He also led the Primary Care unit in Egypt from 2007-2009 and successfully integrated the newly acquired Organon Women Health Business. He has been an active member of Jordan Country Ethical Review Board (CERB) and he held the position of Vice-Chairman for PhRMA Local Working Group in Jordan.

Is local manufacturing a good market access tool?