Drug companies target Kazakh market

By bne IntelliNews January 23, 2013

Clare Nuttall in Astana -

A growing number of multinationals are entering the pharmaceuticals sector in Kazakhstan, drawn by steadily growing demand. The government wants to accelerate this process and officials are busy negotiating with foreign firms to persuade them to set up in Kazakhstan, but the government's target of boosting domestic pharmaceutical production to 50% of total demand by 2014 still looks over-ambitious.

Several new pharmaceutical sector deals were signed off in the final months of 2012, bringing yet more international companies to a market where three of the top five firms are now controlled by foreign investors.

Prague-based Favea Europe signed an agreement with Romat, one of Kazakhstan's largest drug makers, on October 24 during Kazakhstani President Nursultan Nazarbayev's visit to the Czech Republic. Romat plans to build two new modern pharmaceutical production facilities in the northern towns of Pavlodar and Semey at a total cost €37m. Also in late 2012, Alma Pharma and Turkey's Abdi Ibrahim Global Pharm announced plans to build a $60m pharmaceuticals factory in the country.

The most significant deal to date was struck in September 2011, when Poland's Polpharma acquired Kazakhstan's largest pharmaceuticals company Chimpharm, and announced plans to invest $85m in the Shymkent-based company that included the construction of a new factory. Chimpharm and Nobel, an offshoot of the Turkish company that set up production in Almaty in 2004, are two of Kazakhstan's top six drug companies, which together account for up to 90% of all pharmaceuticals produced in the country.

Kazakhstan has also seen several other international drug giants open offices, including GlaxoSmithKline, which in June last year signed a cooperation agreement with the government that will involve the local production of the company's vaccines and drugs.

Healthy growth

The steep increase in demand for pharmaceuticals, driven by the growing middle class and increasingly sophisticated medical system, has caused a corresponding rise in imports. As of 2011, Kazakhstan imported around KZT142bn ($940m) worth of medicines, around 86% of total consumption, according to IHS Global Insight, with the remainder - almost entirely generic medicines - produced by local companies.

Astana has responded by launching a new strategy for the sector, aimed at increasing domestic production to supply 50% of the drugs consumed within Kazakhstan by 2014. This is part of the government's general policy of diversifying the economy, but it is also intended to prevent state healthcare costs from spiraling, since the state accounts for around 45% of pharmaceutical purchases.

There has already been some success in increasing both the quality and the quantity of domestic pharmaceuticals. Polpharma is bringing Chimpharm's manufacturing into line with the Good Manufacturing Practice (GMP) standard; the factory Abdi and Alma are building will also comply with the standard. "Both of the two largest domestic producers are in the process of implementing GMP standards, with the state planning to rely on seven domestic companies to drive forward domestic industry growth via different investment programmes," says Kavita Rainova, an analyst at IHS.

The government's plan has, however, been criticised for being over-ambitious and unrealistic. There are also various obstacles to competition in Kazakhstan's pharmaceutical and medical markets, according to research from Kazakhstan's agency for competition protection, which was released in December . The agency is now drawing up proposals for removing barriers to entry in the pharmaceuticals and related sectors.

As of late 2012, "domestic production in Kazakhstan is estimated to account for around 15% of the market in value terms. This is considerably below the 50% domestic share target by 2014, which may potentially lead the government to consider revising the timeframe," Rainova says.

Market dynamics are also set to change when Kazakhstan, a co-founder of the Customs Union with Belarus and Russia, enters the World Trade Organisation (WTO). "While the Customs Union is expected to be beneficial to the domestic pharmaceutical industry, Kazakhstan has secured a five-year transition period before fully implementing the Customs Union requirements," says Rainova. "One angle of Kazakhstan's entry to WTO which would be positive for the foreign originator companies is the enforcing of TRIPs [Trade-Related aspects of Intellectual Property rights] and data exclusivity."

WTO director general Pascal Lamy told journalists in Moscow on January 17 that Kazakhstan's entry to the WTO "could be doable this year."

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