Although he is neither a politician nor a civil servant, Hank McKinnell, the chairman and chief executive of Pfizer, the world's largest pharmaceuticals company, says that government takes up a lot of his time. The pharmaceuticals industry is arguably the most politicised sector of the global economy, the consequence of combining huge private sector investment in new products with government intervention to keep down the cost of medicine.
The combination would be anathema to most business people but it is particularly frustrating for McKinnell, whose company this year will spend about $8,000 million - equivalent to almost the entire gross domestic product (GDP) of Bahrain - researching and developing new drugs. 'The major challenge in the Middle East is the issue of access to medicine,' McKinnell told MEED in late October. 'Government efforts to reduce healthcare costs are reducing access to the best medicines. This also means that countries end up paying more in the long term for the treatment of illnesses such as heart attacks and strokes. Some governments are so focused on lowering the cost of healthcare that they will not pay for the cost of research. I have said it before and I will say it again: investment in health is investment in wealth.' As well as calling for governments to liberalise their markets, Pfizer and the other multinationals are demanding that governments modernise their legal systems. This year, pharmaceuticals companies will spend about $33,000 million developing new drugs. McKinnell says that if this level of investment is to continue, governments must provide protection from counterfeiters through strong intellectual property rights (IPR) protection. Every year, fraudsters cost the industry hundreds of millions of dollars, as well as jeopardising patients' health. It is an issue that is particularly pertinent in the Middle East & North Africa (MENA) region, which, although highly fragmented, has a common characteristic - weak IPR protection. In 2003, Pfizer recorded sales of about $48,000 million, just over 11 per cent of the global pharmaceuticals market. In MENA, however, the company has only 5-6 per cent market share. 'One reason that we are not bigger in the region is because in some Middle East markets there is no IPR protection,' says Ozer Baysal, president of Pfizer Middle East & Africa. 'But the region is going in the right direction. It has made important advances in establishing laws, free trade agreements and better regulations. But to build a business takes time.' Egypt offers an interesting case study. Its large domestic market, low labour costs and early introduction of patent laws have made Cairo the centre of the region's pharmaceuticals industry since the 1960s. But drug manufacturers say this position is now under threat. Tight price controls imposed by the Health Ministry coupled with last year's currency devaluation have left the country's drugs manufacturers unable to recover their costs. The result, according to the US' Pharmaceutical Research & Manufacturers of America (PhRMA), is a crisis. PhRMA estimates losses in the sector of about $300 million last year. Even more unsettling are fears that ambiguities in recently introduced IPR protection laws could allow counterfeiting of expensively developed products. Under these conditions, drugs companies have held back from investing in the country. PhRMA claims that Cairo's policies have halted planned capital investment worth $300 million in Egypt's pharmaceuticals sector (see box). Cairo's woes have been compounded by regional competition. 'Egypt was first in the region and is still strong but others are emerging,' says Ahmed el-Hakim, secretary-general of PhRMA Egypt. 'Jordan is aiming to attract investors and the UAE and Oman are also emerging.' Amman's approach is certainly dynamic
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