History of Contemporary Medicine in Iran
PHARMACEUTICALS IN IRAN: AN OVERVIEW
Kavoos Basmenji Pharm D·
Author affiliation: Health Sector Reform Unit, Ministry of Health and Medical Education, Tehran, Iran .
·Correspondence author and reprints: Kavoos Basmenji, Pharm D, Health Sector Reform Unit, Ministry of Health and Medical Education, Fax: +98-21-2044045,
E-mail: kavoosb@ yahoo.com.
he advent of modern pharmaceutics in Iran roots back to one hundred years ago when Austrian, German, and French pharmacists opened the first modern drugstores in Tehran. Around the same time, European academicians started holding pharmacology lectures in the Polytechnic School in Tehran (Dar-ol-Fonoun). The ratification of the 1920 Medicine Law and also the foundation of a school of pharmacy in Tehran University in 1934, were among the initial steps taken in the 20th century with respect to the modern Iranian pharmaceutical sector. Nevertheless, as late as 1955, Iran's link to the world's modern pharmaceutical industry was more or less summarized in the importation of a meager volume of manufactured pharmaceutical dosage forms from Europe and the United States. The first supervising law on the regulations of pharmaceuticals, drinks, foods, and cosmetics was passed in I955. The same year marked the establishment of the first actual pharmaceutical factory in the country.1
In the 1960s, the increase in the Iranian household's purchasing power, combined with the sudden growth in the number of governmental and nongovernmental licensed healthcare providers, imparted a great impact on the country's culture and patterns of healthcare. These developments translated into serious new incentives for domestic and foreign investments in the pharmaceutical industry.
On the eve of the 1979 revolution, a myriad of domestic, foreign, and domestic-foreign private companies were operating in Iran's pharmaceutical sector. By that time, the country's pharmaceutical sector had been transformed into a market that boasted a $300 million annual cash flow. There were nearly 4,000 kinds of pharmaceutical products available in Iran; 70% of which was provided by imports and the remaining 30% was produced domestically. More than half of the latter market served the sales of products under the concession of foreign companies. There was practically no investment made in the domestic production of the pharmaceutical ingredients.2
The postrevolution era
The year 1981 witnessed the beginning of a roundup of actions aimed at adopting and implementing policies to modernize the Iranian pharmaceutical sector, which influenced this industry all the way up to 1994. These programs, entitled Generic Scheme, sometimes also called the Generic Concept, formed the foundation of the new pharmaceutical system in the country.
There were around 40 Iranian pharmaceutical manufacturing companies at that time. The government officially confiscated 28 of them. These 28 firms grew to be the most powerful governmental companies in the production of pharmaceuticals, whereas the maximal share of the domestic private sector in this field was limited to 12%.3
According to the Article 44 of the Iranian Constitution, the government is in absolute charge of foreign trade, including the import of medicines, although it has frequently turned a blind eye on the violation of such authority. The government, however, delegated this responsibility over to Iranian Pharmaceutical Incorporation (IPI), Daru Pakhsh (DP), Khosroshahi Baradaran Company (KBC), and the Red Crescent Drug Emergency Center from the early 1980s. KBC is a small importer of pharmaceuticals, currently operating under the umbrella of the public 15 Khordad Foundation.
The responsibility for the nationwide distribution of pharmaceutical products at wholesale was passed on to six state-owned companies. The domestic products were manufactured under their generic names. The pharmaceutical products were also essentially imported under their generic names wherever possible; any kind of warfarin-formulated medicine from different producers, for instance, entered the market under the single name of warfarin.4
Effects of the 1980 1988 Iran and Iraq war and sanctions
Obviously, executing, institutionalizing, and sustaining the profound changes described above required centralized policymaking on the part of the government, as well as introducing comprehensive regulations. The 8-year Iran-Iraq war (1980 1988) and the consequent sanctions exerted against Iran by western states played a decisive role in the government's determination to define and implement those policies.
It was as a result of such requirements that the government authorities and the parliamentary commissions involved in medical affairs at the time, formally categorized pharmaceuticals basic and strategic commodities. Owing to that situation, for over a decade, the exports and imports of medicines enjoyed the highest amount of support by the government.
According to this new definition, the government was obliged to back domestic production of pharmaceutical products and to encourage the development of this sector. It was also committed to make sufficient quantities of low-cost medicines available to the entire nation (i.e., in the most remote and deprived provinces). The Iranian government's desire to minimize hard currency expenditures, particularly during the critical years towards the end of the war, further contributed the burgeoning of the domestic pharmaceutical industry as imports of medicines reached its lowest rate.5
Providing domestic pharmaceutical companies with foreign currency at the official rate (which was considerably lower than the free-market rate, at times even by a factor of 20), was the strongest and most comprehensive support the pharmaceutical system was given by the government between 1980 and 1993. All drug manufacturers, at every level, were entitled to take advantage of this favored exchange rate.6 The producers and importers spent this subsidized hard currency to import pharmaceutical products as well as pharmaceutical ingredients necessary for domestic production. The latter included active ingredients in medicines, additives, packaging equipment, machineries, spare parts, etc. The government's all-out support resulted in unrealistically low prices for Iran-made pharmaceuticals, giving them a relative economic advantage over imported medicines.6
Responsible bodies and pricing policies
The obvious, inevitable implication of the said policies was an absolute centralization in policy-making and decision-making throughout the pharmaceutical sector. Many different government organizations and institutions, namely the National Industries Organization, Ministry of Commerce, the Central Bank of Iran, etc. were involved in the pharmaceutical sector. The main responsible body for pharmaceutics, however, was the Ministry of Health and Medical Education (MHME). The Ministry was put in charge of making decisions, drafting outlines, and also adopting policies in each part of the sector. Therefore, the MHME was responsible for deciding how to allocate governmental supports, particularly the foreign currency quotas due to be granted to various related industries. The government's authority had several aspects: the imposition of a single generic designation as the nomenclature framework for goods produced by various suppliers, the creation of a government-administrated mechanism for pricing different kinds of drugs, and also imposing rigid profit margins on producers, importers, distributors, and pharmacies.
Between 1980 and 1993, the combination of the government's extensive protective policies vis-a-vis the pharmaceutical industry which was already a state enterprise and a strict pricing mechanism resulted in the drug price index showing very little change. Lack of a comprehensive health insurance system in Iran, which could have ameliorated the drug price increase as the potential third party payer, further contributed to the stability of drug prices during that period. Thus the average drug price index climbed by only 118.2% at the fix prices of 1982, while the other goods read a 706% growth in their price index during the same period.7
Pharmaceuticals during the First and Second Five-Year Plans (1990 2000)
Since the end of the war with Iraq in 1988, the outlook of the pharmaceutical sector can be summarized as follows:
● Some 44 domestic companies produced over 90% of the pharmaceuticals consumed in the country, out of which 87.6% was produced by state-owned companies and public bodies, with the remaining 12.4% provided by 18 private companies.
● Iranian Pharmaceutical Incorporation, Daru Pakhsh, and KBC had a 71.6%, 26.4%, and 2% share of the total drugs imported respectively. In other words, the entire imports of pharmaceutical dosage forms were monopolized by the government sector.
● Six state-owned firms wholly administrated the country's centralized medicine distribution. The Red Crescent Drug Emergency Center held a small share.
● All domestically-made drugs and also a large number of the imported medicines were supplied to the market solely under their Generic names.
● The annual domestic pharmaceutical produc-tion totaled 9.6 billion units, indicating an annual growth of 13.5% between 1977 and 1988. To produce this amount of drugs, some $211 million in hard currency was spent in 1988.
● The volume of pharmaceutical sales increased from 27 billion rials in 1977 to 121.5 billion rials in 1988, showing an annual growth of 38.9% at relatively fixed prices. In other words, drug consumption registered a 4.5-fold growth over a 10-year period. Such a growth, together with the frozen prices, was only possible owing to the foreign currency allocated at the government-administrated rate. As of 1985, the country's foreign currency deposits lessened a reality to which the pharmaceutical industry was not immune. Therefore, despite a 64% consumption growth between 1982 and 1989, the foreign exchange allocated both to imports of pharmaceutical dosage forms and domestic production during the same period increased from $370 million to $390, reflecting only a 5.4% growth.
● In 1989, some 563 million units of medicines worth $91 million were purchased from abroad. In other words, while some 23.3% of the foreign currency used in the whole sector was spent on the imports of drugs, the imported volume covered only 5% of the market requirements.
● By the end of that period, 95% of Iran's pharmaceutical consumption in terms of the domestic currency value, and 89.44% of it in terms of quantity, was produced domestically.
● After the end of the Iran-Iraq war, Iran embarked on a massive reconstruction scheme, and the First Five-Year Economic Development Plan (1990 1995) was drafted. The goals set for the pharmaceutical sector during this period were based on the assumptions and targeted models foreseen in the Plan. Among its major objectives, the First Plan envisaged that the population growth rate should slow down to 1.3% between 1990 and 1994. Furthermore, one of the most important presumptions was the financial stability of the rial and its parity with foreign currencies during the said years. Another chief concern of the pharmaceutical sector in the First Plan was the increase of per capita drug consumption from an annual amount of 2,170 rials ($31) at the beginning of the Plan to 2,870 rials ($40) at the end of the five- year period. It was also expected that the total drug consumption should increase from 131.7 billion rials (12.4 billion units) in 1990 to 178 billion rials (17.4 billion units) in the closing year of the Plan. The foreign currency resources earmarked for the sector stood at $2.6 billion, i.e., an annual average of $520 million. The obvious and fundamental orientation of the Plan was also towards handing over of the state-owned drug-manufacturing units to the private sector.8
● Almost the same forecasts, presumption, and peripheral factors were reconsidered in the Second Five-Year Economic Development Plan (1995 2000). There is no need to note that achievement of such ambitious goals required fundamental and radical changes throughout the whole pharmaceutical system of the country.8
Winds of change
The subsequent changes in the economic structure of the country under what was later named the Policy of Structural Adjustment gradually influenced the pharmaceutical sector from the middle of the First Plan. One of the most outstanding and effective developments during this time was the beginning of removal of the government's cheap foreign exchange allocations to the sector.
This development came in two stages. Starting in 1992, the Ministry of Health and Medical Education, in accordance with the macro-policies of the government as well as the sectoral policies of the Plan, called for the sector to use the competitive foreign exchange for importing some of the excipients and packaging equipment. This turn of attitude in some cases encompassed active ingredients too. As of 1994, the entire sector had to import all the pharmaceutical dosage forms as well as ingredients and equipment necessary for local production at the floating foreign exchange.9
Given that the floating rate at the time was some 27 times higher than the previous governmental allocation, it was clear that without another form of government interference the new order could give rise to an unmanageable increase in the drug price and disturb the pharmaceuticals sector, depriving a great number of people the ability to afford medicines. For the producer that would mean that not only would their production price explode, but also that their sales would plummet, since many consumers would be priced out of the market. To prevent a shock wave resulting from such a disastrous scenario affecting people's purchasing power and the producers' required liquidity, the government opted to give a direct subsidy in rials to producers and importers.10
The problem, however, rooted in the fact that the Iranian pharmaceutical sector provides a great part of its consumption, intermediate and investment goods through hard currency credits. In other words, the imports of manufactured drugs and local production lean respectively 100% and 80% upon the available foreign exchange. The centralized policy of quotas and the fact that the producers had to use the foreign exchange at the official rate, restricted the sector's foreign exchange resources to those earned by the government itself. Consequently, every decrease in the governmental foreign exchange sources caused occasional disturbances in the pharmaceutical supply.
Since mid-1994, the privatization policy on pharmaceutical production was started. Owing to the government's large investments during the 1980s, a number of new production plants were developed and others were close to being set-up at that point. Some 52 private companies were operating in the sector in 1999. These companies spent $211.6 million of hard currency and produced 15.8 billion units of drug worth 1,600 billion rials in the same year. In comparison, in 1995, the year marking the start of the Second Five-Year Economic Development Plan, these figures stood at 11.4 billion units and 581 billion rials, respectively. The available foreign currency for domestic production fluctuated between $211 million and $338 million (with an annual average of $281 million) during the Second Plan. The growth rate of the value of the domestic products averaged 22% and that of the growth in terms of produced unit averaged 7% per year.11
During the Second Plan, per capita expenditure on pharmaceutical products ranged from 11,919 rials (for 212 units of domestic pharmaceutical products), to 25,857 rials (for 255 units of domestic pharmaceutical products). During the said period, the average price of domestically produced medicines appreciated from 56.2 rials to 101 rials per unit, showing an annual growth of 14%. Domestic production catered to 84.6% of the country's pharmaceutical needs in terms of rials value (96.7% in terms of volume).12
No significant structural or legal changes were made in the imports of pharmaceuticals over the Second Plan. The imports of manufactured drugs were carried out under state policy-making and planning, with hard currency allocated by the government. Bodies entitled to import manufactured drugs under the said procedure were the state-owned Iranian Pharmaceutical Incorporation and the Red Crescent Drug Emergency Center, as well as Daru Pakhsh, owned by the Social Security Organization, an operator of the government's policies.
During the Second Plan, the volume of the imported products ranged between 426 million units of medicines worth 157 billion rials ($197 million) and 401 million units worth 154 billion rials ($112 million). In 1999, only 15.4% of the Iranian pharmaceutical requirement in terms of units was covered by imports. However, 43.2% of the total foreign exchange spent on the pharmaceutical products went to the imports of manufactured drugs.12
At the beginning of the new millennium, Iran's economy is burdened by a number of structural handicaps. To perform a proper role in the new epoch, Iran has no way but to follow the spirit of reforms inaugurated in May 1997, despite all the obstacles and challenges it is facing. The Iranian pharmaceuticals sector is not an exception here. Various big and severe impediments jeopardize the ability and flexibility of the sector to thrive in the first decade of the 21st century. In a fleeting glimpse, a collection of shortcomings, inefficiencies, failures, and hurdles could be marked.
However, a more in-depth analysis will trace the roots of most of those problems to two major, interrelated bottlenecks, giving rise to vicious circles that adversely impact the entire operation of the sector. The said bottlenecks are:
● The absolute dominance of the government over policymaking, decision-making, and centralized executive planning; and
● The compulsory dependence of the pharma-ceutical sector on the limited resources of foreign exchange available to the government.
For close to two decades, all the drugs on the Iranian pharmaceutical compendium were regarded as strategic commodities. This concept did not remain restricted to manufactured drugs, but spread to all the investment, intermediate and consumption commodities. As a result, to preserve the low prices and also to sustain the accessibility of medicines for all individuals, maximum government support was needed, which included taking advantage of cheap governmental floating foreign exchange.13
The government's resources in this regard were obviously limited. The resources relied on oil income and were thus affected by the fluctuating oil prices. Besides, the volume of the available foreign exchange in the market suffered from periodical reductions.
The government, inevitably, had to adopt spontaneous policies and draft unstable regulations to maximize the efficiency of the foreign exchange reserves. The mentioned regulations and policies were a function of oil revenues. The government also imposed programs on the imports and exports agenda. All in all, the government had to interfere directly with the production, supply, distribution, and consumption of pharmaceuticals.
The government is the owner of a big part of the healthcare facilities of the country. It is also the main purchaser of the healthcare services and goods by providing credits for health insurance organizations. Therefore, the government itself, apart from its initial task to preserve the consumer's rights, is a direct beneficiary of keeping pharmaceutical prices low.14
This is obviously a serious paradox facing the pharmaceutical sector. The majority of the Iranian producers are now privatized, with their bonds being offered in the country's stock market. Nonetheless, they cannot operate on the basis of the market's supply-demand forces. Rather, they have no option but to produce medicine according to what the government's foreign currency quota and policies at the given time call for. This forex quota is in turn influenced by the government's strength or weakness in providing resources, depending on a number of factors completely unrelated to the pharmaceutical business, such as world oil prices. It is no wonder then that the maximal utilization of the pharmaceutical industry reaches only 65% of its potential capacity.15
Due to the limited governmental reserves, the policymakers of the sector have to require that domestic producers provide their basic materials, excipients, and equipment from the cheapest sources and lowest qualities. The executives strive to achieve the most efficient usage of the governmental resources as well as the highest possible supply volume to the consumption market. Under such conditions, the government is not reasonably capable to meet its defined task, namely quality control, thus invariably persuading the producers to lower the quality of the operation and the finished products.
The continuation of the imposed Generic Scheme, a lack of options in acquiring basic material from a variety of suppliers, and the absolute dependence of the sector on government-provided forex resources lead the government to direct and imperative pricing mechanism. The leading goal of such mechanism is obviously to contain a possible increase of the financial burden imposed on the government, as the main sponsor of healthcare insurance organizations. Yet, the artificial suppression of prices leaves little room for investment or for initiatives towards improving the quality and developing the industry.
Ironically enough, among the many negative side effects of the artificial low prices created by the government is medicine smuggling from Iran into its neighboring states. This is above and beyond expected consequences such as over-consumption of medicines within the country itself.
Meanwhile, the government's absolute control of policymaking has further translated into the creation of inefficient monopolies in the country's pharmaceutical industry. The inefficiency of state-owned monopolies in the face of a noncompetitive market have at times reached such excesses that since 1999 the Ministry of Health and Medical Education has been forced to issue occasional import permits for the private sector in order to dissipate intermittent shortages.
Strategies foreseen in the Third Five-Year Plan
To address these serious challenges, the architects of the Third Plan, which started in March 2000, concentrated the central objectives and orientations of the Plan on the following:
● Optimization of resources;
● Replacement of unanimous subsidies with targeted subsidies;
● Reduction of the government's authority;
● Enhancement of the investments in production; and
● Attraction of foreign investments.
For the first time in the two past decades, the Third Plan has defined two different categories for medicines:
● Essential Drugs - encompass a small group of the very vital and necessary drugs which the government must protect through low-priced foreign exchange and subsidies paid in rials.
● Nonessential Drugs - drugs that are not included in the government support in the form of foreign exchange and other measures. The additives and excipients as well as the packaging equipment of these medicines are to be financed with the foreign exchanges at the stock market rate.15
For the second category, the producers could opt to provide higher quality goods, since they can price their products free from the governmental strict and inflexible pricing mechanism. The Third Plan allows the producers to market their products under their own trade labels, if they so choose. The government only sets a base price (minimum allowed price) and a ceiling price (maximum allowed price) for the market, and the producers can compete within this determined range for better quality and marketing.
In addition, the Third Plan has anticipated that the government sells half of its forex revenues from oil and gas exports to the stock market at a rate close to that of the free market each year. The resulting difference balance between the stock market rate and the official rate will be earmarked to finance the subsidies that the government intends to provide.15
To make the prices of goods and services more transparent and realistic, and also to make subsidies targetable, the Third Plan includes provisions to protect the needy from the increased prices on non-essential medicines. This targetable subsidy is among those that the government intends to provide through the revenues it earns by selling currency on the stock exchange. This governmental contribution will be given to the healthcare insurance organizations.
In order to utilize the underused capacity of the domestic manufacturers the Iranian parliament has a bill on the agenda which will, if ratified, authorize drug producers to offer products under their desired trade name and packaging using non-subsidized forex, once they have fulfilled the production levels set by the MHME.
Lessons learned from past experience also spell optimism for the future of Iran's pharmaceutical sector. Although the experts of this sector have repeatedly tried their best to make new formulations, particularly in the 1990s, the targets they set could never have been completely realized. They have learned by now that it is over-ambitious to expect reaching self-sufficiency in the production and packaging of all pharmaceutical products. In the same light, doing away without imports of higher-tech products is also nothing but an illusion.
The imported pharmaceutical products took one-fifth of the foreign exchange allocated to this sector in 1990, while the figure rose to one-third in 1999. Furthermore, the average price of each imported produced unit of medicine soared from $0.16 to $0.30 during the said period. This clearly shows that the absolute value of the need for imported pharmaceuticals is steeply rising on the one hand, and that Iran is apt to require more expensive, modern, and high-tech medicines each year.
In the summer of 1999, the Iranian parliament approved a law according to which the private sector was allowed to import medicines using foreign currency at the stock market rate. The private sector should have a permit from the MHME to do this. However, another step was to allow the private sector to set up one-off-prescription (single-permit) centers in winter 2000. Thus, the private sector can import medicines and sell under a more relaxed pricing mechanism if necessary.
Meanwhile, the Third Plan's point of view regarding the imported pharmaceutical products is of highest significance. The Plan legalizes the importation of nonessential medicines by the private sector using the stock market rates and no longer places these kinds of commodities on the list of strategic and essential commodities.15
Despite all the deficits and shortcomings we have discussed, which are predominantly the result of the ruling economic-political circumstances of the past twenty years, the Iran's pharmaceutical sector has much potential. The country enjoys several important advantages in its pharmaceutical industry:
● Good industrial infrastructure: Since 1980, this industry has been able to offer the market more than 600 different kinds of products. Around ten industrial units of the pharmaceutical sector are less than ten years old; owing to extensive government investment using low-priced foreign exchange, they are equipped with modern tools and machinery, and are able to produce complicated products such as soft-gelatin capsules, pearls, freeze-dried preparations, and sustained-release preparations. Some of these factories have also entered buy-back contracts with foreign partners.
● An inexpensive and highly educated workforce: The academic pharmacy training in Iran dates back to 60 years ago. Around 50 graduates complete PhD courses of various fields of pharmaceutics each year, excluding some 250 PharmD graduates. About the same number of graduates from universities abroad return to Iran every year after completing their training.
● A large and growing domestic market: The country covers a 62-million-population market inside. (One should not forget that the medicine usage per capita had soared from 186 units to 262 units during a ten-year period).
● Access to other regional markets: Iran is located at the heart of three regions - Central Asia and the Caucasus, the East Mediterranean, and the Middle-East.
Combined with relative advantage of Iran's pharmaceutical industry-including inexpensive labor force, adequate industrial infrastructure, and the necessary expertise-this unique geographical situation provides the opportunity to eye foreign markets. Having achieved 65% of the total nominal capacity of its pharmaceutical industries, Iran does have the potential to expand into neighboring markets. Having considered the realities of the world pharmaceutical market and the domestic needs of the country, both the large-scale and sectoral policymaking bodies in Iran have come to the conclusion that investment and development work in transferring biotechnologies have become inevitable. Therefore, the Third Plan has attached priority to projects such as the production of hepatitis B vaccine, interferons, erythropoietin, streptokinase, anti-hemophilic factors, etc., in granting financial facilities to the private sector and foreign investors.
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