Africa is a continent south of Europe, between the Atlantic Ocean and the Indian Ocean. The value of Africa’s pharmaceutical industry jumped to $20.8 billion in 2013 from just $4.7 billion a decade earlier. That growth is continuing at a rapid pace: we predict the market will be worth $40 billion to $65 billion by 2020 (exhibit). That’s good news for multinationals and pharmaceutical companies seeking new sources of growth as developed markets stagnate. It’s also good news for patients, who have gained access to medicines previously unavailable on the continent. Yet it isn’t enough to know where the industry’s next growth engine can be found. Leaders must also understand what is driving growth, what challenges they are likely to face, and how to collaboratively work with health systems to win in this complex environment.
Taj Pharmaceuticals Limited manufactures and distributes medicines. The company’s products include prescription solutions, lifesaving drugs, anti-cancer drugs, veterinary products, consumer brands, and CNS drugs. It focuses on medicines of anemia, anxiety disorders, cancer/oncology, ear infections, heart failure, hepatitis, HIV/AIDS, influenza, non-Hodgkin’s lymphoma, obesity, osteoporosis, Parkinson’s disease, pneumonia, transplantation, and common diseases. Taj Pharmaceuticals India Business is headquartered in Mumbai, India.
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What’s driving growth
Africa’s pharmaceutical markets are growing in every sector. Between 2013 and 2020, prescription drugs are forecast to grow at a compound annual growth rate of 6 percent, generics at 9 percent, over-the-counter medicines at 6 percent, and medical devices at 11 percent. Three factors are driving this growth:
- Urbanization. Africa’s population is undergoing a massive shift. By 2025, two-fifths of economic growth will come from 30 cities of two million people or more; 22 of these cities will have GDP in excess of $20 billion. Cities enjoy better logistics infrastructures and healthcare capabilities, and urban households have more purchasing power and are quicker to adopt modern medicines.
- Healthcare capacity. Between 2005 and 2012, Africa added 70,000 new hospital beds, 16,000 doctors, and 60,000 nurses. Healthcare provision is becoming more efficient through initiatives such as Mozambique’s switch to specialist nurse anesthetists and South Africa’s use of nurses to initiate antiretroviral drug therapy. The introduction of innovative delivery models is increasing capacity still further.
- The business environment. To create a more supportive environment for business, governments have introduced price controls and import restrictions to encourage domestic drug manufacture; required country-specific labeling to reduce counterfeiting and parallel imports; and tightened laws on import, wholesale, and retail margins. In the pharma industry, meanwhile, pharmacy chains are consolidating, horizontal and vertical integration is on the rise, and manufacturing is expanding. A flurry of mergers and acquisitions, joint ventures, strategic alliances, partnerships, and private-equity deals are further extending Africa’s markets.
What it takes to win
In a world of slowing and stagnating markets, Africa represents perhaps the last geographic frontier where genuinely high growth is still achievable. Early movers can take these four steps to pursue competitive advantage:
- Focus on pockets of growth. Africa is not one unified market, but 54 distinct ones, with wide gaps between countries in terms of their market size, growth trajectory, macroeconomic landscape, legal structure, and political complexities. Over the past decade, ten countries have delivered more than two-thirds of Africa’s GDP and cumulative growth.1 However, much of the opportunity lies not at country level, but in cities. In fact, our analysis shows that 37 percent of African consumers are concentrated in 30 cities, which will have more consuming households than Australia and the Netherlands combined by 2025.
- Build strong local teams. Real talent is key and requires investment in big, effective local marketing and sales teams. That means hiring more pharmacy representatives, building teams’ technical skills, and selecting and developing strong local managers to lead them. Sales teams also should be set up in a flexible way that enables them to be responsive to the needs of local markets.
- Forge partnerships. Global pharmaceutical companies need local business partners—manufacturers, packaging companies, and distributors—to help them navigate the continent’s many markets, with their widely varying consumer preferences, price points, manufacturing, and distribution infrastructures. In the absence of a pan-African pharma regulatory body, they also need to invest in local partnerships to understand varying regulatory environments. Partnerships with governments are equally important, whether they involve working with medical opinion leaders to guide research priorities and secure funding, or collaborating with health ministries and nongovernmental organizations to provide public-awareness campaigns, health screening, treatment, equipment, and training for hospitals and clinics. Johnson & Johnson, for example, has partnered with the South African government to introduce an education program for maternal, newborn, and child health that operates via mobile-phone messaging.
- Address supply and distribution challenges. In parts of Africa, supply and distribution mechanisms still pose challenges: regulations are evolving, transport and logistics infrastructures are patchy, and lead times can be long. The ability to innovate the distribution channel and set up effective operations against this challenging backdrop is critical to capturing growth opportunities. Helpful strategies include locating fixed assets in countries with well-established political and business structures, outsourcing supply chains to third-party operators, and partnering with local logistics providers to identify efficient transport routes. In the key area of customs and border control, companies should work with the most reliable agents to minimize shipping delays, use only bonded distribution centers, and ensure all customs paperwork is airtight.
In a world of slowing and stagnating markets, Africa represents the last geographic frontier where high growth is still achievable. As ever, the key to success lies in understanding individual markets in granular detail. Early movers with the right approach should be able to capture competitive advantage. Africa will continue to grow for the foreseeable future. Now is the time for drug companies to decide whether they want to be part of that growth and, more important, play an active role in improving public health.
The value of the African pharmaceutical market is growing rapidly, but the continent still imports over 70% of the drugs it consumes. David Thomas investigates what can be done to boost pharmaceutical manufacturing and R&D in Africa.
On the southern edge of the Sahel, the dusty, sun-parched frontier post of Makalondi regulates a centuries-old flow of goods between Niger and Burkina Faso.
Buses and trucks piled high with household wares and agricultural produce travel back and forth, but little of consequence draws the attention of the wider world.
However, in early 2018, this unassuming border post was the location of a raid linking Makalondi to an intricate West African crime network.
Local police, coordinated by Interpol, intercepted and seized 29 tonnes of counterfeit medicines in two trucks thought to be travelling from Ghana. Three were arrested, and a wider investigation began.
The Makalondi seizure was one of several raids organised across the continent between March and May 2018 by Interpol’s Illicit Goods and Global Heath unit to smash the smugglers and forgers responsible for a multi-billion dollar trade in fake and illicit drugs.
In Dar es Salaam, Tanzania’s Food and Drug Administration seized $8,300-worth of counterfeit medical products, including antibiotics and antimalarial tablets, while in Zimbabwe, police seized 5,700 counterfeit tablets.
Across West Africa, smuggling routes were uncovered linking inland markets to seaports in Benin, Ghana and Togo.
In Mauritania, authorities seized tens of thousands of counterfeit medical products including antihistamines, corticosteroids, antibiotics, pregnancy tests and vitamin supplements.
According to a 2018 report funded by the European Union, counterfeit medicines account for up to 30% of the global market.
Counterfeiters prey on poor countries with porous borders, who suffer up to 30 times greater penetration of fakes in their supply chains compared to their wealthier peers.
With Africa’s immense and changing disease burden and perpetual funding challenges, combined with an increasing need for pharmaceuticals and a reliance on foreign drugs, the continent is particularly vulnerable.
Supply chain regulation, track-and-trace technology and enforcement regimes are lacking.
As a result, the EU estimates that fakes may cause up to 158,000 deaths a year on the continent from malaria alone.
Such criminal activity is piggybacking off a vast and increasing demand for genuine drugs across Africa, driven by economic growth, rising personal incomes, improving health systems and increased public spending.
According to data from consulting firm McKinsey in 2015, the value of Africa’s pharmaceutical industry jumped from $4.7bn in 2003 to $20.8bn in 2013.
By 2020 the market could be worth between $40bn and $60bn, the firm predicted, with over-the-counter, generic and prescription drug demand all expected to grow.
Despite this vast appetite, it is estimated that the continent imports between 70 and 90% of the drugs it consumes, compared to 5% for China and around 20% for India.
The continent only has around 375 drug makers, mostly in the North Africa region, South Africa, Nigeria and Kenya.
By contrast, China and India are thought to have around 5,000 and 10,000 manufacturers respectively.
Research and development for drugs is confined to a tiny handful of African universities, despite the fearful local toll of HIV AIDS, malaria and tuberculosis.
Boosting manufacturing and R&D on the continent could be a source of immense untapped value and improve public health responses, according to Professor Bernd Rosenkranz, president of the Fundisa African Academy of Medicines Development.
“Starting with research, the diseases are different and there are genetic differences in the response to treatment, so the drugs that may work well in New York may not work well in a local region of South Africa…
“It’s good to have [manufacturing] in local countries for local health priorities.
“There’s the financial and business side, the medical side, and political issues manufacturing in Africa… I think there’s a good prospect for that but it has to be stepped up.”
While there is a broad agreement that Africa could play a much greater role in the industry, experts acknowledge that there are huge gaps in the continent’s technical expertise, resource availability and regulatory architecture.
With key organisations swinging behind the creation of domestic industries – including the United Nations, the African Union and regional economic communities – the continent is only beginning to understand how best to exploit the opportunities.
At the Drug Discovery and Development Centre (H3D) at the University of Cape Town, founder and director Professor Kelly Chibale oversees a team of over 60 staff working at the cutting edge of pharmaceutical research.
In 2012 the centre scored its highest profile result yet, announcing the discovery of MMV390048, a compound that could be used as a single-dose treatment for malaria, in collaboration with international researchers and the Medicines for Malaria Venture.
In 2014, it became the first new antimalarial medicine to enter phase 1 human studies in Africa.
Emboldened by this success, Chibale’s scientists have joined a global consortium of pharmaceutical companies and research institutions working on tuberculosis, another major killer of Africans.
Emerging from humble origins and a small team in 2010, Chibale says that H3D’s success is a refutation of those who believe that ambitious and world-leading African pharmaceutical research outfits are a pipe dream.
“The perception of Africa is as a place where you can only do clinical trials. The other perception is that you have some good universities that can do good basic science.
“But what has lacked is bridging this gap between basic science in medicine and the clinic and patients – creating something that bridges this gap to provide the translational aspects of research that we can develop, such as lifesaving pharmaceutical products.
“We as Africans need to get involved in addressing these health challenges.”
While H3D is a champion for African science, Chibale stresses that its success is dependent on robust, mutually beneficial engagement with some of the world’s largest and richest pharmaceutical companies.
Often viewed with suspicion on the continent, these global giants have provided infrastructure and equipment, funded joint research projects, and taken part in staff exchanges with H3D.
In the early days, Chibale visited Pfizer to learn about research and management strategies, and saw the need to bring different sciences, including biology, pharmacology and chemistry under common projects.
One of his conclusions was that universities and governments simply do not have the financial muscle to embark on cutting-edge research alone, and that the involvement of international firms like Swiss-based Novartis and the US’s Merck, alongside donor foundations like the Bill & Melinda Gates Foundation, are integral to success.
He argues that capacity building, talent and infrastructure have all flowed from these collaborations.
“Industry is important – they are a partner and we need them to help build this. If you look at China and India they have built research centres – Africa is the next thing that’s going to happen.
“Most of the big pharma companies have an Africa strategy. But we need to create an environment that makes it easy for them to be attracted to set up shop.
“They need government to provide the right incentives… all agreements have to have something in it for them because companies are answerable to investors.”
Chibale says that the involvement of major investors need not be limited to the research phase, pointing to opportunities for collaboration across the manufacturing value chain.
“There is an interaction between the R&D value chain and the manufacturing value chain.
“There are multiple opportunities for companies to span out along the value chain. In 2012 when we announced the discovery of the drug, we had to outsource toxicology studies to China.
“We could not get that done in South Africa… there are opportunities to bring in manufacturing at various stages.”
Professor Rosenkranz envisages research and manufacturing hubs based in Africa’s most economically developed countries, which could act as a petri dish for local manufacturing and research champions supported by the involvement of major international investors and research institutions.
Yet many firms require continued commercial incentives to operate in Africa.
In January 2018, major UK drugmaker GlaxoSmithKline announced that it was cutting back its operations in sub-Saharan Africa, leading to unspecified job losses following disappointing sales in the region.
In a sign that the industry will not simply develop itself, IQVIA, a research company which had predicted drug sales of $45bn by 2020, downgraded its forecast to $25bn.
Without the right incentives, say critics, successful collaboration cannot be taken for granted.
Chibale argues that Africa’s fragmented regulatory approach to medicine is one major stumbling block.
While the EU has an effective pan-European regulator known as the European Medicines Agency, which offers drug companies a centralised marketing authorisation across all EU states, Africa has a patchwork of individual regulators offering conflicting rules, standards and approval procedures.
In 2018, the African Union adopted a treaty to establish the African Medicines Agency, which aims to promote and harmonise regulatory policies, standards, and scientific guidelines.
While welcomed by most as an encouraging step forward, the AMA will work to coordinate activities among countries and regional economic communities, rather than having the sweeping overarching power of the EMA. Individual regulators are likely to retain significant power.
“To get approval for a product takes a long time. In Europe if you get approval for a product, it’s harmonised.
In Africa it’s not, so each company has to go to each country or region and pay its fees. That cost is passed on to the patient,” says Chibale.
While vaulting Africa’s formidable and varied regulatory standards may be a challenge worth taking for foreign drugmakers with vast lobbying budgets given the longer term potential of the market, Africa’s emerging manufacturers are particularly hard hit by onerous regulatory standards.
As the demand for pharmaceutical products has grown exponentially on the continent, the concept of encouraging domestic manufacturing has seized the attention of policymakers.
There are sound economic reasons for this – McKinsey estimates that tablets, capsules and creams produced in Ethiopia and Nigeria tend to be about 5 to 15% cheaper than the landed price of imports from India, which are subjected to freight costs, duties and VAT.
Those numbers are encouraging for cash-strapped health ministries attempting to secure cost-effective supplies for the populace.
But many African manufacturers remain uncompetitive and struggle to match up to internationally recognised regulatory standards, including World Health Organisation pre-qualification, a necessary rubber stamp for those supplying drugs to major distributors such as the Global Fund to Fight AIDS, Tuberculosis and Malaria.
The United Nations Industrial Development Organisation is working with local manufacturers on a Good Manufacturing Practices (GMP) roadmap, but the challenges are many and varied, according to UNIDO business plan coordinator Alastair West.
“There are internationally recognised standards for producing drugs, and they can appear pretty daunting.
“There’s a lot required to meet those standards. It requires investment and expertise amongst other issues.
“The range of quality within and across countries is quite stark, from pretty low standard to WHO pre-qualified products being manufactured by companies.
“We’re trying to support local companies to be GMP compliant. We establish a baseline of the current standards.
“Depending on the country we take a sample of companies and identify the critical issues that need to be addressed as a matter of priority in terms of risk to product safety.”
UNIDO has implemented its GMP roadmap in Kenya, and is currently working with the West African Health Organisation to develop a GMP roadmap framework for the ECOWAS region alongside work with the member states.
Yet West says that achieving WHO pre-qualification is only one challenge facing the domestic industry.
“The situation varies but in general, increased numbers of skilled human resources are required as is affordable financing, amongst other obstacles.
“This is a capital intensive industry, payback periods are long, and nascent industries need time-limited support from government.
“Other issues include fragmented regional markets, a lack of market data to inform decision making and the need (to a greater or lesser extent) for enhanced regulatory oversight.”
Given the immense challenges, not all analysts see domestic production as a catch-all solution.
Earlier this year, McKinsey published an analysis of domestic drug production in Africa, concluding that domestic production is feasible in half a dozen sub-Saharan African countries at current and projected levels but that pharmaceuticals would remain a “relatively small sector of the overall economy”, even assuming significant growth.
They predict that the industry will boost trade balances, but could be worth a modest $190m per year by 2027 for Ethiopia and $230m per year for Nigeria.
Furthermore, they argue that local production will not be a significant engine of job creation owing to mechanised factories.
“The total job creation affected by increased local pharmaceutical production is likely to be on the order of a few thousand jobs at best, even including any impact it has on jobs upstream and downstream, in its suppliers and distributors.”
Nevertheless, UNIDO’s West believes that the sector is worth what McKinsey calls “decades of sustained and careful effort”.
“My belief that the continent should, can and will develop its industry has been strengthened not only by what I’ve seen and the work we’ve done but also by the progress being achieved…
“In the future there is an expressed desire from African countries, regions and the continent as a whole to become less reliant on imports.
“This objective takes into account both public health and economic development considerations.
“Expanding the product range is important. Demonstrating market demand is going to be important. There are all sorts of things that need to happen for investment to be mobilised.”
For Chibale, the challenges facing manufacturing – including the struggle to acquire intellectual property for drugs developed elsewhere – only deepen the need for the continent to pursue a combined approach to discovering and manufacturing its own drugs.
“The question is what are you going to manufacture and who will give you the licence – you can’t just manufacture a product discovered by someone else.
“We cannot justify manufacturing when we don’t have a pipeline of products.
“Focusing on manufacturing, you forget that it has to be discovered.
“Resistance will render some drugs useless, you have to keep innovating. R&D is not a luxury, it creates jobs and infrastructure.
“We need to see the value chain as a continuum. It’s not just about discovery, it’s about development, clinical testing and manufacturing.”
Nevertheless, he believes that with the right government support to mobilise deep-pocketed foreign investors, such an ambitious value chain can be realised to the benefit of local researchers and manufacturers given the immense future opportunities of the African market.
“The best way to build capacity, including building infrastructure and platforms, is to prosecute a globally aligned project.
“That will tell you what you need to have in place.
“Tap into your network for things you don’t have and build brick by brick. It’s about showing success on a project – and success brings success.”