Issue 2, 2012. April-May

   

GEORGIA'S PHARMACEUTICAL MANUFACTURING SECTOR: RIGHTLY ATTRACTING ATTENTION FOR INVESTMENT

Stephanie Komsa,
Komsa International














The pharmaceutical manufacturing sector in Georgia is attracting attention and for good reason.

Pharmaceutical production in Georgia has grown at an estimated average 35% per year from 2005-2011, totaling $48 million in 2011. Exports of locally produced pharmaceuticals have grown at an even faster pace over the same period, at an estimated 47% per year, totaling $18.5 million in 2011.

The Georgian National Investment Agency (GNIA) recently issued a report on Georgia's pharmaceutical sector (produced by this author) and the report shows very attractive opportunities for local and international investors alike. "Last year GNIA identified the pharmaceutical sector as an under-recognized sector with great potential for growth and attracting foreign investment. We chose to do the report in order to provide potential investors with insights and data about the sector. Already we are beginning to see investor interest. As a follow up effort, this month we participated in an international pharmaceutical conference in Singapore to promote exports of Georgian pharmaceuticals and we will participate in another global pharmaceutical conference in Madrid in October," said Keti Bochorishvili, Director of GNIA.

Pharmaceutical manufacturing in Georgia

Many people have the impression that pharmaceutical production in Georgia consists of packaging only. However, this is not the case. Much of the production, including both branded and generic products, is secondary manufacturing, meaning formulation and preparation. What is not done in Georgia is the production of chemically based active pharmaceutical ingredients (APIs), which is considered part of the chemical production industry.

Among the two major producers in Georgia, Aversi Rational mainly engages in packaging, while GM Pharmaceuticals engages in secondary manufacturing and packaging of branded and generic products. There is also a handful of other smaller but growing producers engaged in a combination of these activities and in the areas of herbal and natural based medicines and bacteriophages, two areas where Georgia has a special niche. In addition a recently launched antibiotics producer is undertaking primary production.

Among investors recently considering the pharmaceutical manufacturing sector is Marc-Milo Lube of Austria. "Our consortium of investors is particularly interested in the pharmaceutical industry in Georgia, both in manufacturing and distribution, based on companies that are able to show a strong record of growth and the promising outlook of the sector overall."

Export markets

Locally produced pharmaceuticals were exported to 15 countries in 2011. The main export markets which are established and growing are Armenia and Azerbaijan, Central Asia, Ukraine, Belarus, Russia and Bulgaria. Recently new export markets over the past two years include Moldova, Libya, Sierra Leone, as well as Australia and India (both for small and/or sample orders). Based on discussions with producers, new markets are under development including countries in Asia, the Middle East and Africa.

Another follow-up activity by GNIA was a Tbilisi conference bringing Georgian pharmaceutical manufacturers together, along with the Ministry of Health, to explore how exports could be promoted and to discuss the impact of the introduction of a government certifying agency for Good Manufacturing Practices (GMP) for the sector, which is planned for 2016. According to George Antadze, director general of GM Pharmaceuticals, "the introduction of a Georgian GMP certifying agency, which could be made optional in the initial years, will provide Georgian producers with the stamp of approval needed to export to a growing number of emerging markets, and to developed Western markets if and when the agency would be recognized by the EU and other international bodies. Our company, GM Pharmaceuticals, is already in the process of obtaining GMP certification from the French authorities, which will allow us to export products throughout the European Union, but a local certifying body will be a benefit to all."

Niche Sectors: Phages and Natural/Herbal Medicines

Since the 1930s Georgia has been a pioneer and leader in the research, development and production of bacteriophages, which are used for treating various bacterial infections. Though bacteriophage pharmaceutical products are not widely recognized and used in the West, there is an existing market in the CIS.

There are three companies focusing on phages production in Georgia and they sell phage products locally and to other CIS countries. Along with overall pharmaceutical market growth in the CIS there is an opportunity to expand phage exports. Additionally, with the growing number of drug resistant strains of bacteria, the potential role of phages is garnering new attention in the West, and Georgia, based on its historical and existing experience with phages, should be considered seriously by Western pharmaceutical companies as a place for R&D partnerships.

Georgia also has potential in the niche of natural and herbal based medicines. The Caucasus mountains possess over 40 varieties of unique medicinal and herbal plants, and there is underutilized pristine, organic agricultural land available for cultivation.

There are already a number of producers of natural based and herbal based medicines in Georgia, including some with unique/innovative branded products. Georgia's exports to the CIS within this niche are growing and there is potential to break into the EU market if there is investment in EU-demanded standards, licensing and marketing.

Potential for growth in the retail sector

Imports of pharmaceuticals to Georgia have grown at 15% per year on average from 2005-2011, totaling $210 million in 2011. Sales of locally produced pharmaceuticals in Georgia have grown at 33% over the same period, totaling $35 million in 2011. Research indicates that the retail pharmaceutical market in Georgia will continue to have robust growth.

According to many global pharmaceutical reports, emerging markets have been and will continue to be the main driving force of growth in the sector. Georgia presents significant room for growth, with notably low per capita pharmaceutical expenditure in comparison with other CIS countries and the West. A recent report cites per capita expenditure in Georgia at $35 in 2010, compared to $62 in Ukraine, $99 in Russia and a range of approximately $200-400 in Europe.

The combination of strong overall economic growth in Georgia along with the development of the country's health sector can be expected to bring pharmaceutical expenditure towards equilibrium with other countries. There has been a trend of increased state expenditure on health over the past several years and we can also expect the demand for pharmaceuticals to increase as insurance coverage in Georgia increases. Currently only 30% of Georgians have health insurance, most of which is a result of insurance for state employees and the recently launched insurance program for the poor. With the recent announcement that pensioners and children under the age of six will also be covered by the state program and potential growth in private and corporate insurance driven by advertising and income growth, this percentage can be expected to increase.

Also notable as an attraction to investors for both the retail and manufacturing sector is that Georgia has absolutely no pricing controls on pharmaceuticals and no VAT is charged on pharmaceuticals and pharmaceutical inputs. Until now the pharmaceutical retail market has long been perceived to operate with high pricing margins and with domination by a small handful of players. However, simplified regulation of the pharmaceutical sector was introduced in 2007 to level the playing field. Since this time, indeed other players have been gaining ground and some data has shown as much as 25% decreases in pharmaceutical prices as a result of increased competition, but the overall dollar value of the retail sector is continuing to grow at impressive rates.

About the author:

Stephanie Komsa is the founder and director of Komsa International, an emerging markets investment consultancy based in Georgia (www.komsa-international.com). The article is based on information from the pharmaceutical report prepared by Komsa International, with support from health sector consultant Levan Jugeli, on behalf of the Georgian National Investment Agency (GNIA). The report is available on GNIA's website, www.investingeorgia.org.
See also:

- Curatio International Foundation: Main Highlights of Pharmaceutical Price and Availability in Georgia (2009 - 2011), by Tamar Gotsadze, MD., PhD and Natia Rukhadze
- Outcomes of the Study on Prices and Availability of Medicines in Georgia - Changes in 2009-2011