Kazakh Government Maintains Ambitious Plans for Pharma Sector Development

Kazakhstan's government is maintaining its focus on increasing the market share of domestic pharmaceutical producers; the country's hospital-drug market grew by 53% year-on-year in H1.

IHS Global Insight Perspective

Significance
The Kazakh government remains committed to raising the market share of domestic pharmaceutical producers to 50% by 2014, while the country's hospital-drug market saw growth of 53% year-on-year in the first half.

Implications
With increasing medicine consumption and growing expectations from its citizens, the Kazakh government is seeking to reduce the costs it will face by boosting domestic production; this is borne out by the figures for the hospital market in the first half, which show a major increase in the consumption of more expensive medicines in particular.

Outlook
The Kazakh pharmaceutical industry is set to increase its capacity, but faces the threat of a strengthened Russian pharma industry with the inauguration of the customs union between the countries in 2012; innovative pharmaceutical producers and generics companies alike will continue to see the important growth potential in the Kazakh hospital market, seeing the dynamic growth shown in the first half of 2012.


Kazakh Drug Makers' Capacity Set for Boost

Domestic pharmaceutical companies in Kazakhstan—all generics producers—currently produce about 34% of the volume of medicines consumed in the country, while the Kazakh government continues to back plans to boost domestic pharmaceutical production so that within three years domestic firms will supply at least 50% of the medicines produced in the country, reports Kazakh online newspaper Zona KZ. The source reports that of some 79 companies involved in the pharmaceutical industry in Kazakhstan, a group of six major factories supply as much as 90% of all the drugs produced in the country, while only two have facilities that are compliant with good manufacturing practice standards.

Some 86% of Drugs Are Imported

Imports of medicines into Kazakhstan are worth around 142 billion tenge (USD939.427 million) annually, the source reports, which represents 86% of the total market, with domestic producers making up the remainder. In its drive to increase the share of the market controlled by the domestic industry, however, the Kazakh government is investing considerable sums in various projects to boost capacity. As stated by Yerzhan Karibaeva, deputy chairman of the Kazakh Committee of Industry within the Ministry of Industry and Trade, quoted by Zona KZ, six projects were launched in 2010, while in total, some 12 projects worth KZT27.7 billion are planned, including projects involving the production of oncology, diabetes and cardiovascular medicines.

Concerns About Customs Union

Marat Ermekov, executive director of BASF Central Asia, a producer of raw materials for the pharmaceutical industry, is reported by the source as warning of the potential dangers of the forthcoming customs union between Kazakhstan, Russia and Belarus. In particular, as Ermekov states, Kazakhstan is behind both the other countries in the prospective union in terms of its production of finished dosage forms, which could mean the Kazakh market is swamped by cheap Russian and Belarusian medicines.

Hospital-Drug Market Grows 53% Y/Y in H1

Meanwhile, in the first six months of 2011, the Kazakh hospital-drug market grew dynamically, with an increase in value in local currency of 53% year-on-year (y/y), to KZT19.398 billion, reports Russian pharmaceutical news provider Remedium, on the basis of figures from the Retail Audit of Drugs in Kazakhstan. In US-dollar terms, the market was up by 55% y/y, the source reports. At the same time, the market's volume increased by 13% y/y, and the average value of one package of medicines used in hospitals in Kazakhstan was up 36.7% y/y at USD3.50.

Chimpharm Remains Number One

The largest producer on the Kazakh hospital market remains Chimpharm, which is the largest domestic pharmaceuticals producer in Kazakhstan. Important changes in the top 10 of the Kazakh hospital market include the entry of UK pharmaceutical giant GlaxoSmithKline, which rose from 12th to 7th position during this period, increasing its sales by around 200% y/y. Germany's Bayer rose from 11th to 8th place, with a 1.7-fold sales increase. The sales of Janssen-Cilag (the UK headquartered subsidiary of US pharma giant Johnson & Johnson) and Roche (Switzerland) grew by a remarkable 2.7 times and 2.2 times, respectively, occupying the second and fifth places. In contrast, Israeli generics major Teva saw a 21% y/y reduction in sales and a drop from 7th to 10th place.

Oncology Medicines Dominate Top 10

The biggest-selling medicine in the Kazakhstan hospital market remained cancer agent Taxotere (docetaxel; Sanofi, France), sales of which grew 46% y/y, while in second place was Roche's oncology drug Herceptin (trastuzumab), with sales at 2.7 times those of the first half of 2010. In third place was anaemia drug Eprex (epoetin alpha; Janssen Cilag), sales of which grew 3.2 times y/y.

Outlook and Implications

The development plans for the Kazakh pharmaceutical industry were unveiled in 2010 (see Kazakhstan: 23 August 2010: Kazakh Government Initiates Pharmaceutical Development Plans). These plans have come under criticism for being overambitious and unrealistic, as well as for failing to concentrate on the main areas of need (see Kazakhstan: 3 December 2010: Kazakh Government's Pharmaceutical Development Plans Come Under Fire). The government is maintaining its target though, in terms of boosting the proportion of drugs consumed in the country that are domestically produced to 50% by 2014.

The inauguration of the customs union incorporating Russia, Belarus and Kazakhstan from 2012 potentially carries with it as many dangers as opportunities, considering the fact that the Russian authorities have been strongly focused on boosting the production capacity and technical standards of the country's own pharmaceutical industry in the past few years, with the same aim as Kazakhstan—to increase the share of their market controlled by domestically produced goods. In Belarus, the same phenomenon can be observed to a lesser extent. Thus, the process will have to be managed carefully in order not to damage the fledgling Kazakh pharma industry.

Regarding the hospital-drug market, the very large increase in the market's value in proportion to its volume clearly shows the growing importance in the market of high-cost innovative drugs. As the market is still fairly small, it can be expected that it will continue to grow at a dynamic rate for some time and will be an important area of growth for the Kazakh market as a whole, which saw a significant slowdown in its overall growth dynamic in the first half (see Kazakhstan: 9 November 2011: Kazakhstan Pharmaceutical Market Grows 6% Y/Y in USD Terms During H1).