Ethiopia country report Pharmaceutical production & technology - - PowerPoint PPT Presentation

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DRAFT Ethiopia country report Pharmaceutical production & technology transfer - a private sector perspective - CAPE TOWN DECEMBER 2009 STRICTLY CONFIDENTIAL Contents IFHA Health systems in Africa Ethiopia country report

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DRAFT

CAPE TOWN DECEMBER 2009

Ethiopia country report

Pharmaceutical production & technology transfer

  • a private sector perspective -
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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East African Pharmaceuticals & Cadila

  • Conclusion
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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer:
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

  • Conclusion

IFHA IFHA

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Anchor Investors in IFHA

Size of Investment Investors

2nd Closing Investors 1st Closing Investors 1st Closing Investors: SIFA

  • IFC
  • African Development Bank
  • Pfizer
  • APG
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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer:
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East African Pharmaceuticals & Cadila

  • Conclusion

Health systems in Africa Health systems in Africa

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Africa spends very little on health care

  • Population

X mio Total health expenditure x $ mio Burden of communicable diseases DALYS Africa Africa Rest of the world Rest of the world

  • Source, WHO 2008

Health in Africa is underfunded

Health systems in Africa

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Traditional approach Aid US$ Traditional approach

Top-down (trickle down) Supply/input driven Patient is passive receiver

Health systems in Africa

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Public services benefit the rich most

Percentage of lowest and highest quintile using public health services

  • Source: Preker AS, Langenbrunner JC et al (2005)
  • Health systems in Africa
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9 Data based on usage, not expenditure (most recent survey year available between 1995-2006; data not available for all countries Source: Africa Development Indicators, World Bank 2006

The private for-profit health sector is an important provider for the poor

Percentage of lowest and highest quintile receiving care from private providers

> 40% in lowest income quintile receive health care from private providers

  • Health systems in Africa
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Health systems in Africa

  • Value received

by customer Value received by customer

  • Source: The World Bank 1994

88% of every dollar of public expenditure on medication is lost to inefficiencies

Public systems are very inefficient

Much money is lost

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Health systems in Africa Social security and private prepaid health care spending

  • Only 4% of total health

expenditure in Africa is financed through health insurance Only 4% of total health expenditure in Africa is financed through health insurance

Source: WHO 2008

Africans lack protection against medical costs; solidarity is limited

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Health systems in Africa

  • Source: WHO 2008

Private out-of-pocket expenses are 50% of total health expenditure

Many fall in a poverty trap

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  • African health systems are stuck in a vicious circle
  • Health systems in Africa

The bill is paid by the poor

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Investments in the private health sector in Africa are non- existent

Amount of IFC’s private investments in health (loans and equity 1997-2007)

  • Source: Improving effectiveness and outcomes for the poor

in health, nutrition & population, World Bank 2009

Health systems in Africa

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Donor funding for health to Africa has increased rapidly

  • Source: Financing of global health: tracking development

assistance for health from 1997 to 2007, Lancet 2009

......to large extent due to the rise of vertical funding Bulk donor funding is channelled to the public system

Health systems in Africa

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Development and health policy

1 2 3 4 5 6 7 8 9 4 5 6 7 8 9 10 11 12 Log GDP/capita Log Health Expenditures/capita

Tight relationship between income and health expenditure leaves little room for impact of policy variables

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Development and health policy

% Out of Pocket Expenses of Total Health Expenditure versus GDP per capita

0% 20% 40% 60% 80% 100% 100 1.000 10.000 100.000

GDP/ Capita (log scale) % Out of Pocket

Africa versus developped countries (GDP/Capita>$15000) Logaritmisch (Africa versus developped countries (GDP/Capita>$15000))

A

  • The second law of health economics; out-of-pocket expenses

Rich countries have lower out-of-pocket expenses than poor countries

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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East African Pharmaceuticals & Cadila

  • Conclusion

Scope of research Scope of research

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Ethiopia – scope of IFHA research Field trip November 2009

  • Companies and government institutions interviewed -

Field trip November 2009

  • Companies and government institutions interviewed -
  • Companies
  • Sinio-Ethiop Associate (Africa) PLC
  • Cadila Pharmaceuticals (Ethiopia) PLC
  • East African Pharmaceuticals
  • Pharmaceutical manufacturing Association
  • GTZ & Engineering Capacity Building Program
  • Government agencies:
  • Drug registration authorities
  • Development Bank of Ethiopia
  • Ethiopian Investment Agency
  • National Bank of Ethiopia
  • Ministry of Trade and Finance
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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report:
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer:
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

  • Conclusion

Economic landscape Economic landscape

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Ethiopia – economic landscape

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  • 80 million inhabitants, 100+ million by 2015
  • Largest cattle population in Africa
  • East African trade zone (Comesa)
  • Very low labor costs / relatively well educated workforce
  • Ongoing privatization of pharmaceutical industry
  • Equal treatment of foreigners
  • No TRIPS until 2016. Ethiopian IP laws offer opportunities for

generic production

  • Substantial investments in infrastructure & utilities
  • Ethiopia forecast (Ernst & Young report Oct 2009):
  • Third-largest sub-Saharan economy by 2023
  • GDP from USD 70 (2008) to 472 billion (2023)
  • GDP/Capita to 4,000 USD by 2023

Potential: rapidly growing market, economy opening up Potential: rapidly growing market, economy opening up

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Ethiopia: GDP per capita comparison Ethiopia – economic landscape

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Ethiopia: real GDP growth comparison Ethiopia – economic landscape

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Ethiopia: forecast key economic indicators Ethiopia – economic landscape

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25 Population 81 million Infant mortalityrate (MR) 77 Under-5 MR 123 Maternal MR 720 Total healthexpenditure (THE) as % GDP 4.9% Total healthexpenditure per capita US$ 7 Private expenditure as % of THE 32% Private prepaid expenditure as % of THE 1% % peopleusing the private health sector 48% (richest 20%), 44% (poorest 20%) # physicians 1936 = 1 for > 40,000 population # nurses and midwives 15544 = 1 for > 5,000 population Nurses & midwives / physicians 7.3 # pharmaceutical personnel 1343 = 1 for 60,000 population # laboratory health workers 2703 = 1 for 30,000 population Hospital beds per 10,000 population 2 % of births attended by skilled personnel 6% Source: WHO November 2009

Ethiopia – economic landscape

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Ethiopia: health financing statistics

Indicator Ethiopia Africa (excludingSouthAfrica)

Central governmentrevenue as % of GDP 17.1% Total healthexpenditure (THE) as % GDP 4.9% 4.4% Total health expenditure per capita US$ 7 US$ 24 (exclSouthAfrica) Out-of-pocket as % of THE 32% 46% Private prepaid expenditure as % of THE 1% 3.3% Source: EIU September 2009, WHO November 2009

Ethiopia – economic landscape

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Ethiopia: health and health care statistics

Indicator Ethiopia

Life expectancy at birth 55.4 years Infant mortality rate 77 Under-5 mortality rate 123 Maternal mortality rate 720 HIV prevalence rate (15-49 years) 2% # people living with HIV 980,000 % people using the private health sector 48% (richest 20%), 44% (poorest 20%) # physicians 1936 = 1 for > 40,000 population # nurses and midwives 15544 = 1 for > 5,000 population Nurses & midwives / physicians 7.3 # pharmaceutical personnel 1343 = 1 for 60,000 population # hospital beds per 10,000 population 2 % of births attended by skilled personnel 6% Source: WHO November 2009

Ethiopia – economic landscape

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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer:
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

  • Conclusion

Competitiveness Competitiveness

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Ethiopia – competitiveness

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  • Today, the Ethiopian market for pharmaceuticals is estimated to

be 200 million USD (at the most)

  • 85% of all medication in Ethiopia is imported
  • All raw materials to be imported (Ethiopia lacks the required

chemical industry)

  • Up until today, local pharmaceutical manufacturers have been

facing severe difficulties. Half of the app. 10 local manufacturers bankrupt over the last years Pharmaceutical market Ethiopia Pharmaceutical market Ethiopia

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Ethiopia – competitiveness

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  • Imported finished products from India and China are cheaper

than locally produced medication

  • China and India far ahead of Ethiopia in know-how, production

capacity, quality, efficiency, logistics, marketing and sales

  • There are no/low tariffs or duties on import of end products

Severe competition from India and China Severe competition from India and China

  • The limited size of the Ethiopian market vs high investments

needed for building pharmaceutical plants

  • Estimated market size: Maximum 200 Million USD
  • Government plans capacity investment hospitals, clinics etc.

Market size Market size Lack of skills Lack of skills

  • University focus on clinical skills
  • Need for more industrial and managerial skills
  • Government plans capacity investment in universities
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Ethiopia – competitiveness

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  • Ethiopian banks underdeveloped. Loans are difficult to
  • btain/approvals take too long
  • Lack of expertise on pharmaceutical sector within government
  • institutions. E.g. the Ethiopian Development Bank (EDB) tops up

70% of loans by local banks (in Birr), but due to the lack of expertise the lead times for obtaining such loans are up to 1.5 year.

  • Multilaterals and NGO’s fail to provide assistance to the EDB
  • Lack of foreign currency needed for importation of raw material.

Waiting lists for foreign currency are long. Only exporting companies have faster, but still limited and regulated, access to USD Lack of working capital Lack of working capital

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Ethiopia – competitiveness

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Potential dilution of profits in hard currency:

  • Financial market closed to foreigners
  • No foreign banks
  • Birr not exchangeable on international currency markets
  • Shortage hard currency (import, dividend, capital gain)
  • Permits National Bank for investments, import, export
  • Foreign loans are prohibited
  • Once a USD investment permit is obtained, the National Bank

guarantees that foreign investments can be taken out freely (in dividend or capital gain), but

  • Bureaucracy in exchanging Birr back into USD
  • Subject to delays
  • Inflation rate: 44.4% in 2008

Investment hurdle: financial restrictions & inflation of the Birr Investment hurdle: financial restrictions & inflation of the Birr

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Ethiopia – competitiveness

  • Government not pro-actively attracting foreign investors
  • Uncertainty about durability of planned protective measures and

investments in health capacity (new hospitals, universities) Investment hurdle: no culture to attract foreign investors Investment hurdle: no culture to attract foreign investors Investment hurdle: distribution and retail excluded Investment hurdle: distribution and retail excluded

  • Distribution/import, services and retail are not open to foreign

investment

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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

  • Conclusion

Protection of local industry Protection of local industry

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Ethiopia – protection of local industry

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Recently the government announced some measures:

  • Lower/no tariffs on import of (most) raw materials (took 7 years

to change)

  • Any foreign investment is matched by loan of Ethiopian

Development Bank up to 70%

  • Local pharma granted a 20% margin advantage over importers

in government tenders

  • 30% advance payment of government purchases
  • 3 million USD paid over last 3 months
  • Potential tax breaks

Stimulus for development of local market Stimulus for development of local market

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Ethiopia – protection of local industry

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Recent government measures: Clear determination to support industry No clarity: durability of measures mid & long term government policy: not embedded in regulations not clear what budget is made available health not official priority area for the government upcoming elections (spring 2010)

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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

  • Conclusion

PIC/S GMP PIC/S GMP

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Ethiopia – technology transfer

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GTZ advises Ethiopian regulatory authorities (DACA) and local manufacturers on PIC/S GMP certification GMP PIC/S drives export (mainly within Africa) and facilitates sales to donors (Unicef, Global Fund) GTZ will continue activities over the coming years

PIC/S GMP PIC/S GMP

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Contents

  • IFHA
  • Health systems in Africa
  • Scope of IFHA research

Ethiopia country report

  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer
  • PIC/S GMP
  • Joint ventures:
  • Sinio-Ethiop
  • East AfricanPharmaceuticals&Cadila
  • Conclusion

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Joint ventures: China and India started to invest in local production in Ethiopia A few pharmaceutical companies established with foreign investments and technology transfer Three companies started export (mainly to sub- Saharan countries)

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop Ownership: 35% shares = Jin Wan (private Chinese company) 35% shares = China Associates (state owned) 30% shares = Zaf (Ethiopian private, former distributor of Chinese partners) Management & staff: MD & senior staff Ethiopian. Chief engineer Chinese Negotiations re equity investments by Chinese

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop Technology transferred: All machines from China (arms length purchases) JV partner (Jin Wan) produces capsules in China Start 2004: one year to become operational transportation of machines 6 to 12 Chinese engineers in Ethiopia for training during one year

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop Produces 1.2 billion hard gelatin capsules annually Production insufficient to meet local demand Total market Africa: 30 billion capsules (today mainly supplied by China, India, South Korea) Obtained GMP/pic in 2009

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop 2006: start upgrading to PIC/S – implementation has cost 2.5 million Birr GMP PIC/S certified (May 2009), sales went up Good quality of capsules confirmed by buyers

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop 71.4 million Birr invested (app. 6 million USD) 2009: 18-20 million Birr revenue. 3.5 million USD investment for expansion planned to increase capacity (loan is slow: no forex in local banks – IFC takes minimum 6–12 months)

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop Ethiopian government companies largest customers: APM – production PHARMID – wholesale & distribution 30% export (RSA, Yemen, Zambia, DRC, Kenya)

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Sinio-Ethiop Local production of capsules cost efficient (as

  • pposed to importing):

High transportation costs All raw materials imported Still 10% tariffs on gelatine Tariffs on some other raw materials reduced to 0-5%

Joint ventures Joint ventures

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Ethiopia – technology transfer

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East African Pharmaceuticals Ownership: UK and Sudan MD Sudanese, senior staff from Ethiopia and India Human and veterinary (only plant in Ethiopia) Export to Sudan Start operations 2000 Had difficulties to survive India competition Was forced by government to rebuild plant Lack of working capital and hard currency Factory runs at 30% of it’s capacity

Joint ventures Joint ventures

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Ethiopia – technology transfer

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East African Pharmaceuticals USD 4.3 million investment (driven up because of rebuilding of plant) 15 – 20 million Birr turn-over Financing need for expansion GTZ GMP PIC/S certification scheduled Q1 2010 No need for other technology transfer (other than hiring key functions from abroad)

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Cadila Machines and all raw materials imported from India Quality plant Ethiopia similar to Cadila India GTZ GMP PIC/S certification scheduled Q1 2010 Considers expanding to veterinary (like Cadila India) Market share: estimated 8% of local production Choice for Ethiopia based on: History with distributor Local market size Sufficient skill level in Ethiopia Free trade agreement for East Africa

Joint ventures Joint ventures

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Ethiopia – technology transfer

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Cadila Ownership: 45 % Almeta (Ethiopia) 55% Cadila India GM from India. Ethiopian technical staff in higher technical management positions. 5% expats Production: March 2008 (30 Cadila India products) Investment: 10 million USD, all facilities newly build Profitability later than planned: import competition Cadila India and Cadila Ethiopia potentially compete within sub-Saharan Africa Export to Djibouti, Kenya, Tanzania, Rwanda

Joint ventures Joint ventures

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Contents

  • IFHA
  • Health systems in Africa
  • Ethiopia country report
  • Scope of IFHA research
  • Economic landscape
  • Competitiveness
  • Protection of local industry
  • Technology transfer
  • PIC/S GMP
  • Joint ventures:

Sinio-Ethiop East AfricanPharmaceuticals&Cadila

  • Conclusion

Conclusion Conclusion

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Ethiopia – conclusion

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Market size is growing, significant future potential GTZ project is very much needed and practical No/very little ‘location advantage’ for the production

  • f pharmaceuticals, due to lack of raw materials

Only possible through protection of local market High discount rate Conditions for profitability, attracting foreign technology and investments: Privatisation needs to continue Issues re discount rate to be dealt with Government guarantees needed on future reliability of recent stimulus-measures Financial market needs to open up

Conditionally attractive market Conditionally attractive market

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Ethiopia – conclusion

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Key questions Key questions

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A situation of insufficiency A situation of insufficiency

No GMP approved factories, no FDA aproved factories with exception of Aspen The key questions are: (1) Can donors purchase drugs that are not allowed on their own markets (2) What premium do you allow to facilitate local production (3) Should you not focus on certain niches WITH a competitive advantage

Conclusions