Imported medicine
Azerbaijan is overcoming pharmaceutical dependence

ANALYTICS  08 December 2023 - 12:52

A series of crises and hyperinflation in recent years have revealed the critical dependence of developing countries on the import of medicines, vaccines, and medical equipment. Azerbaijan is also facing this problem, where they intend to overcome drug dependence through the localization of import-substituting industries. In particular, pharmaceutical factories designed for export will soon be created in the Alat FEZ. In turn, five residents already operate on the territory of the Pirallahi Industrial Park, and specialized enterprises have been formed for the production of medicines and hygiene products. The day before, in the Pirallahi industrial park, the Azerbaijani Investment Company (AIC) and the Turkish holding GEN İlaç ve Sağlık Ürünleri Sanayi ve Ticaret A.Ş laid the foundation of a joint venture for the production of medicines.

Over the past decade, Azerbaijan has faced several objective problems that have led to a significant increase in prices for medicines and other medical and hygiene products. The energy crisis of 2014-2017 and the subsequent devaluation of the manat multiplied the cost of importing medicines, and this situation only worsened during the COVID-19 pandemic, when there was a shortage and rise in prices of antiviral medicines and immune drugs all over the world. Finally, another round of growth in prices for pharmaceutical products occurred in 2022-2023 against the backdrop of an unprecedented increase in global imported inflation.

For Azerbaijan, the rise in the price of medicinal imports is a more than an urgent problem, since until recently the republic practically did not produce such products. Negative events of recent years make the localization of pharmaceutical production directly in the country the only solution: the capacity of the domestic drug market is increasing every year and, with a population of over 10 million, Azerbaijan is attractive to potential investors. Moreover, due to the depth of regional business ties, the presence of customs agreements with the CIS countries, an agreement on preferential trade with Turkey, and soon with Pakistan, with members of the Organization of Turkic States, our republic has high export potential, supported by the optimal exchange rate of the national currency.

As evidenced by the experience of many countries in Eastern Europe, the Middle East, and Southeast Asia, it is possible to form a competitive and quite effective national pharmaceutical industry through the construction of relatively small “packaging” factories, where drugs are produced from imported substances and other components supplied by global pharmaceutical companies. This is the optimal path for emerging markets, since the margin between the cost of raw materials and the final packaged product remains very noticeable, providing a high-profit margin. Azerbaijan is also moving along this path, where since 2019, five residents have been gradually registered on the territory of the Pirallahi Industrial Park, and several enterprises have been created for the production of disposable syringes, baby diapers, a saffron processing factory, and an Azerbaijani-Russian joint venture for the production of antidiabetic and other medicinal products.

The number of residents of the Pirallahi Industrial Park is increasing, and last Thursday the foundation-laying ceremony for the new Azerbaijani-Turkish joint pharmaceutical plant Gen Pharma Caucasus Manufacturing Operations LLC took place here. The new joint venture was created with the participation of the Azerbaijani Investment Company with a share of 29%, and with the partnership of Turkish companies - GEN İlaç ve Sağlık Ürünleri Sanayi ve Ticaret A.Ş, which owns 66% and SIA Pharmaceutical LLC - 5% of the share. The pharmaceutical plant will produce 42 types of medicines (tablets, capsules, syrups, suspensions) in various dosages using advanced Turkish technologies. Total investments in the enterprise with a design capacity of 50 million packages per year will amount to 59.3 million manats (about $34.9 million), of which 34% are private investments, and 66 per cent are borrowed funds.

The construction of the pharmaceutical factory will be carried out in two stages: the first is planned to be completed at the end of 2025, covering 5.1 hectares of area, and approximately in 2026, the second phase of construction will begin, and the area of the enterprise will increase by another 2.7 hectares. 165 people will be provided with permanent jobs here, and medicinal products are planned to be exported to post-Soviet countries.

“In Azerbaijan, drug prices are expected to decrease by 15% after the commissioning of the Gen Pharma Caucasus Manufacturing Operations drug production plant. This project will contribute to the development of healthcare in Azerbaijan, provide the country with important pharmaceuticals, and also provide employment to graduates of the Faculty of Pharmacy and become a platform for the implementation of their projects,” said the head of the joint venture, Abidin Gulmus, who took part in the foundation laying ceremony, emphasizing that the capacity of the pharmaceutical market of Azerbaijan is growing by 10% annually, and this promises stable demand.

In turn, Turkish Ambassador to Azerbaijan Cahit Bagci, who spoke at the event, noted that the creation of a pharmaceutical enterprise will become an example for Azerbaijani-Turkish cooperation in the development of sectors of the non-oil economy. “We organize joint meetings of Turkish investors with AIC OJSC, and recommend that they invest in Azerbaijan".

The importance of implementing high-tech projects in the non-resource economy, based on the development of human capital, was also stated by Azerbaijani Economy Minister Mikayil Jabbarov, who participated in the ceremony. “Azerbaijan has chosen a policy of developing industrial production, and direct investment from a Turkish company is an important step towards the formation of a domestic pharmaceutical industry."

It is extremely important that the construction of a new plant will not only cover domestic demand, reducing dependence on imports for several pharmaceutical products but will also provide an opportunity to export products with a higher level of added value. The basis for this trend today is the Pirallahi pharmaceutical cluster, where there are six residents, and the total investments in the industrial park exceeded 115 million manats. But, apparently, investments in the production of medicines and other medical and hygiene products will increase and cover new geographical locations.

In particular, the current tax and customs preferences regime in the Alat FEZ is very attractive for turning this zone into a regional center for the production of pharmaceutical products, three-quarters of which are planned to be exported. Such plans are being considered by companies from Israel, Turkey, Pakistan, and many other countries, and one of the first foreign residents of this FEZ was the Israeli pharmaceutical company BioPharmax, which plans, by localizing production in the free economic zone, not only to fully supply the domestic market of Azerbaijan but also to expand supplies of its medications (about 50 items) throughout the Caspian region.

At the same time, many encouraging negotiations have been held this year through the Ministry of Economy, the Ministry of Health, and several other government agencies, promising to attract investment and the participation of international pharmaceutical companies in projects in Azerbaijan. Such negotiations have recently been conducted with pharmaceutical companies in India, Uzbekistan, Cuba, Hungary, Austria, and Qatar, which are studying the potential of the Pirallahi and Alat clusters and the possibility of localizing their “packaging” factories here.

Thus, there is a very high probability of creating specialized joint ventures with Pakistan, where today 800 pharmaceutical companies are producing more than 30,000 types of medicines. The first steps in this direction were taken in January 2023: representatives of the leading Pakistani pharmaceutical company IBL Group visited Pirallahi, exploring the possibilities of investment and transfer of know-how to set up production. In November 2023, the heads of Pakistani pharmaceutical companies Searl and Mercury ME DMCC discussed with the Economic Zone Development Agency (EZDA) the prospects for localizing production in Azerbaijan.

Another promising vector is cooperation with the Thai company Supreme Pharmatech Co., LTD, with which the Small and Medium Business Development Agency (SMBDA) and EZDA signed a memorandum of understanding in July of this year. This document provides for the implementation of several joint programs and projects in the field of pharmaceuticals, support for personnel training, and measures to develop the local raw material base, including the production of pharmaceutical products and food additives.

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