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18Экспортно-ориентированный путь роста фармацевтической промышленности Армении с 2018 по 2020 г.
Export-Oriented Growth Path for the Pharmaceutical Industry in Armenia from 2018 to 2020
Дохолян Сергей Владимирович
главный научный сотрудник Института социально-экономических исследований Дагестанского научного центра (г. Махачкала) Российской академии наук, доктор экономических наук, профессор 367030, г. Махачкала, ул. Ярагского, д. 75
Sergey V. Dokholyan
Institute of Social and Economic Research Dagestan Scientific Center (Makhachkala), Russian Academy of Sciences
Y^ragskogo Str. 75, Makhachkala, Russian Federation, 367030
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Макарян Анна Рузвельтовна
научный сотрудник Института экономики им. М. Котаняна Национальной Академии Наук Республики Армения (г. Ереван), кандидат экономических наук
0015, Республика Армения, г. Ереван, ул. Григора Лусаворича, д. 15 Anna R. Makaryan
Institute of Economics named after M. Kotanyan
of the National Academy of Sciences of Armenia (Erevan)
Grigora Lusavoricha Str. 15, Yerevan, Republic of Armenia, 0015
В исследовании рассматриваются актуальные вопросы развития фармацевтической промышленности в Армении.
Цель. Выявить экспортно-ориентированный путь роста фармацевтической отрасли (в том числе фармацевтической продукции) в среднесрочной перспективе, с 2018 по 2020 г. Задачи. Провести анализ состояния фармацевтического рынка в Армении, обосновать возможность перехода и/или создания производства компаний в Армении как платформу для выхода на рынки Евразийского экономического союза (ЕАЭС) и Ближнего Востока. Методология. Исследование построено на основе общий научных методов познания, включая аналитический, методологический и элементы прогнозирования. С помощью аналитического метода исследования, прогнозов в разрезе поиска стратегий различных фармацевтических ТНК и статистических данных экспорта армянских фармацевтических продуктов и динамики роста отрасли на период 2010-2016 гг., опубликованных Национальной статистической службой Армении, UN Comtrade Statistics и других источников, был выявлен экспортно-ориентированный путь роста армянской фармацевтической отрасли.
Результаты. Армения пытается привлечь компании (включая ТНК) или инвесторов (включая инвесторов и инвестиции, связанные с диаспорой) как из ЕАЭС, так и из других регионов,
которые хотели бы проникнуть на рынки Евразийского экономического союза и Ближнего Востока и/или Северной Африки, иранский рынок, а также некоторые азиатские рынки. Местные производители станут более агрессивными, так как будут производить продукцию в соответствии со стандартами ОхР и начнут выходить на новые рынки, сохраняя свое присутствие на существующих, стараясь увеличить свою долю, перейдя на производство более дорогостоящих дженериков и выведя их на существующий и новые рынки. Экспорт вакцин (для ветеринарной медицины) останется одной из ведущих статей экспорта отрасли. Создавая стратегические альянсы, армянские производители будут пытаться участвовать в открытых тендерах в России на региональном уровне, стараясь получить некоторые из них. Правительство Армении могло бы начать оказывать местным компаниям помощь в привлечении внешних подрядчиков и стать КПО для фармацевтических ТНК. Экспорт фармацевтической продукции в 2020 г. может быть увеличен как минимум вдвое и составить около 3540 млн долл.
Выводы. После периода относительно низкого роста сектора аутсорсинга Запада, который начал репатриацию производства с Востока, и в сочетании с инфляционным ростом расходов Армения имеет шансы стать платформой для тех компаний, которые хотели бы рассмот-
реть возможность перехода и/или создания производства в Армении, таким образом проникая на рынки Евразийского экономического союза (ЕАЭС) и Ближнего Востока и/или североафриканских рынков, и/или быть ориентированными на производство активных фармацевтических ингредиентов в среднесрочной перспективе. Полученные результаты могут быть использованы Министерством экономического развития и инвестиций Республики Армения и Business Armenia. с Ключевые слова: фармацевтический продукт;
х фармацевтическая промышленность; дженери-
i ки; экспорт; Армения.
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Для цитирования: Дохолян С. В., Макарян А. Р. Экспортно-ориентированный путь роста фармацевтической промышленности Армении с 2018 по 2020 г. // Экономика и управление. 2018. № 10 (156). С. 21-32.
The presented study examines the relevant problems of development of the pharmaceutical industry in Armenia.
Aim. The study aims to determine a path for export-oriented growth of the pharmaceutical industry (including pharmaceutical products) in the medium term from 2018 to 2020. Tasks. The authors analyze the current state of the pharmaceutical market in Armenia and substantiate the feasibility of transition and/or creation of production companies in Armenia as a platform for entering the markets of the Eurasian Economic Union (EAEU) and the Middle East.
Methods. This study uses general scientific methods of cognition, including analytical and methodological approaches and elements of forecasting. The export-oriented growth path for the Armenian pharmaceutical industry is determined using the analytical research method, forecasts in the context of searching for strategies of various TNCs, statistical data on the export of Armenian pharmaceutical products, and the dynamics of industrial growth in 2010-2016 published by the Statistical Committee of the Republic of Armenia, UN Comtrade Statistics, and other sources.
Results. Armenia is trying to attract companies (including TNCs) or investors (including the diaspora-related investors and investments) from the EAEU and other regions that would want to enter the markets of the Eurasian Economic Union, the Middle East and/or North Africa, Iran, and some Asian countries. Local manufacturers are going to become more aggressive, since they will start producing in accordance with GxP standards and entering new markets while maintaining their presence in the existing ones, trying to increase their share by producing more expensive generics and introducing them to the existing and new markets. Export of vaccines (for veterinary medicine) will remain one of the industry's leading exports. By creating strategic alliances, Armenian manufacturers will participate in regional public tenders in Russia, trying to win some of them. The Armenian government could start supporting local companies through outsourcing and becoming a CMOs for pharmaceutical TNCs. By 2020, export of phar-
maceutical products could be at least doubled and achieve $35-40 million. Conclusion. After a period of rather slow growth of the Western outsourcing sector, which has initiated repatriation of production from the East, and combined with the inflationary rise in expenditures, Armenia now has a chance to become a platform for companies that are willing to explore the possibility of transitioning and/ or establishing production in Armenia, thus penetrating the markets of the Eurasian Economic Union, the Middle East and/or North Africa, and/or being oriented towards the production of active pharmaceutical ingredients in the medium term. The obtained results can be used by the Ministry of Economic Development and Investments of the Republic of Armenia and Business Armenia.
Keywords: pharmaceutical product; pharmaceutical industry; generics; export; Armenia.
Citation: Dokholyan S. V., Makaryan A. R. Ek-sportno-oriyentirovannyy put' rosta farmatsev-ticheskoy promyshlennosti Armenii s 2018 po 2020 g. [Export-Oriented Growth Path for the Pharmaceutical Industry in Armenia from 2018 to 2020]. Ekonomika i Upravlenie, 2018, no. 10 (156), pp. 21-32.
Introduction
Among the challenges that major multinational pharmaceutical companies ("Big Pharma") faced during the second half of the 2000s were "innovation, increasing competition from generics, asymmetry in addressing population health needs and over-concentration in developed markets, quality control, and pressure from regulatory authorities for price control", however "innovative research and development1 (R&D)" was largely considered as the most perplexing challenge [2, p. 73]. In order to reshape the traditional, becoming "increasingly uncompetitive" business model the "Big Pharma" started searching for emerging regions due to the "patent cliff," since these companies were facing severe competition from generic drug manufacturers and the expiration of some of the blockbuster drug patents [3, p. 1889-1890]. Due to significantly decreasing productivity of the own R&D, the "Big Pharma" has started incorporating "emerging regions into a more globalized value chain" [Ibid., p. 1890]. In addition, the global competition resulted in constant restructuring of manufacturing operations by major pharma-
1 Clinical trials are considered as development according to OECD's Frascati Manual, Proposed Standard Practice for Surveys on Research and Experimental Development (2002) see [1, p. 877]. Tijssen provides the definition of 3 stages of pharmaceutical research and development (R&D) as following: "'early stage' research activity (i. e. discovery research and screening), pre-clinical research (i. e. lead development) and clinical trial research" [Ibid., p. 863].
Figure 1. Performance of the manufacture of basic pharmaceutical products and pharmaceutical preparations
from 2011 to 2016
Source: Author's own calculation.
ceutical companies, hence pushing demand for "contract manufacturing of marketed drugs, especially small molecule generic drugs (e.g. intermediates, APIs, finished products)" [4]. And upon enduring a period of relatively low growth the outsourced sector of the West experienced some repatriation of manufacturing from the East due to "supply chain security concerns" [5, p. 4]. Moreover, the cost inflation has consumed the price competitiveness and attractiveness of the Asian Contract Manufacturing Organizations (CMOs) [Ibid.].
With the CMO sector growth prospects in the East, Armenia, that started reporting increase in generic drug exports since 2010 (see Figure 3) and growth in the pharmaceutical industry (manufacture of basic pharmaceutical products and pharmaceutical preparations) real output at a compound annual growth rate of 12.7 per cent [6-11]1 (from 2010 to 2016), can emerge as a platform for those pharmaceutical transnational corporations (TNCs) that would like to consider an option of shifting to or setting up manufacturing operations in Armenia to penetrate both Eurasian Economic Union (EAEU) and Middle Eastern and/or Northern African markets, and/or to be focused on active pharmaceutical ingredient (API) manufacturing. Armenian pharmaceutical product industry could experience the export-driven growth as well (without attracting manufacturing related FDI) with local manufacturers increasing exports of generic drugs both to member states
1 Author' own calculations.
of the EAEU, Middle Eastern and/or Northern African markets. The strong real output and exports performance of the pharmaceutical product industry (see Figure 1 and 2) supports our argument, since the real output growth was accompanied with increase in exports, and the prospects of the Armenian manufacturers are quite optimistic. The local manufacturers could enjoy the benefits of the common market (including access to the public tender systems in the cases of the EAEU member-states), agreement with mutually simplified drug registration (in the case of the Middle East Region), and etc. [12]. Overall, the strong export performance could indicate that Armenian manufacturers are inclined to adopt more aggressive strategies to penetrate other markets as well, including diversification strategies (increased role of vaccines in the world exports (see figure 3)).
The entrance of Swiss-based AZAD Pharmaceutical Ingredients into Armenian market and their intention to set up a laboratory for the reproduction of API formulas [13, p. 30] could allow Armenian manufacturers both to shift to production of new higher value generics, including the drugs being off patent in the future, and APIs' manufacturing. The entrance of Darmantest Laboratories (DTL), a contract research organization (CRO) with US capital [12] and the pharmacokinetic subsidiary of Lannett Company, Inc. [14] into Armenia could allow the local manufacturers to have bio-equivalence tests performed in Armenia in adherence to the US and EU regulatory agencies [15] in the case of production of those off-patent generic drugs
g that could be produced by local manufacturers q and would be exported to the developed nations if or to those countries that would require complice ance with the international standards.
Hence, the main purpose of the article is to
s identify the export-led growth path of the phar-
^ maceutical (including pharmaceutical product)
^ industry in the medium term, from 2018 to
| 2020, by reviewing global pharmaceutical in-
^ dustry trends and forecasts published by vari-
^ ous consulting and research organizations and
El analyzing Armenian pharmaceutical industry
g developments for the period 2010-2016.
Design/methodological approach
By reviewing the global pharmaceutical industry trends, forecasts on the sourcing strategies of various pharmaceutical TNCs and analyzing statistical data on exports performance of the Armenian pharmaceutical products and industry developments for the period 2010-2016 released by the National Statistical Service of Armenia (NSS) [6-10; 16], the UN Comtrade Statistics [5], and other sources, the export-led growth path of the pharmaceutical product industry in the medium term is identified.
Findings/Analysis
Global Pharmaceutical Industry Trends
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement that came into effect on 1 January 1995 affected the globalization of the pharmaceutical industry that was translated into changes in trade pattern from 1995 to 2005 with trade in pharmaceuticals from India and China reporting a tremendous increase during that period [17, pp. 80-81]. The implementation of TRIPS Agreement allowed China and India to be included in the pharmaceutical global value chain [Ibid., p. 82].
From 2001 to 2007 outsourcing of clinical research activities increased tremendously, with biopharmaceutical companies spending circa $8.5 billion worldwide on "contract clinical service providers" in 2007 and annual growth rates of global spending on contract research organization (CRO) services reaching 14.9 percent since 2001 [18]. By 2007-2008 approximately 1,800 companies globally were actively engaged in conducting "at least one clinical trial", a 65 per cent rise compared to the number of companies providing clinical trial services 5 years ago [Ibid.]. According to the 2008 Tufts CSDD study several biopharmaceutical companies started pioneering "strategic partnership-based outsourcing relationships" [Ibid.].
The clinical trials that traditionally were taking place in the developed nations such as
the United States, European nations, Japan and Australia now take place worldwide and according to Homedes and Ugalde the number of clinical trials to be conducted in the in low-and middle-income countries would be on rising in the near future [19, p. 55].The authors by referring to Hurley et al. (2009) state that the 90 per cent of the clinical trials conducted in the Latin America takes place in 6 nations such as Argentina, Brazil, Chile, Colombia, Mexico, and Peru [Ibid., p. 59]. India managed to attract pharmaceutical R&D investment with foreign R&D centers being set up in the country; however, the investments were channeled to clinical trials phase (phase III) and not to "biology and chemistry research for new drug development." [20, pp. 47-48]. China has become one of the major centers for early stage drug and active pharmaceutical ingredient (API) development and clinical trials [3, p. 1890].
Wang by referring to the Parliamentary Office of Science and Technology (June 2005) and etc. states that the amount required to be invested in inventing a new drug could range from $200 million up to $802 million, and by referring to the Tufts Center for the Study of Drug Development (2006) the author indicates that average cost for developing a biotechnology product could amount to $1.2 billion [2, p. 19]. The cost of developing a new drug and bringing it to a market continues to rise coupled with regulatory requirements, the complex nature of trials and advancement in technology development [21, p. 12]. Bali et al. state that "typical total cost" of "bringing a new drug to market" could reach $1.2 billion according to the Credit Suisse 2013 Report [Ibid.]. After decrease in R&D spending that continued for several years, mainly associated with the Global Recession [Ibid.], the global spending on pharmaceutical research and development ranged from $136 billion to $150 billion from 2011 to 2015, reporting an increase of about 4.7% in 2015 (y./y.) according to Evaluate Pharma World Preview 2016 Report [22]. Global R&D spending is forecasted to grow at an annual growth rate of 2.8 per cent (comparing to 1.7% between 2008 and 2015) and would reach $182 billion in 2022 [23, p. 27]. The per new molecular entity spending was the lowest for "at least the past eight years", indicating an increase in R&D productivity due to "clinical development programmes and a growing collaboration between manufacturers and regulatory authorities to align on clinical trial design" [Ibid.]. Buvailo (2017), by referring to the recent report prepared by Visiongain, states that drug discovery outsourcing will be on the rise over the next decade and would reach $43.7 billion by 2026 "as compared to an estimated 19.2 billion in 2016 (or $21.2 billion according to Ka-
lorama Information)" [24]. According to Frost and Sullivan globally clinical trials would grow at a compound annual growth rate of 12.4% and would amount to $57.0 billion in revenue in 2020 as compared to $31.8 billion in 2015, and the Asia Pacific CRO market is expected to grow at 19.9% CAGR associated with the increase in R&D activity and shift to outsourcing [25, pp. 4-5].
According to Downey and Wheelwright from 2004 to 2009 "the trends toward outsourcing production of biopharmaceuticals have shown increasing reliance on CMOs for the production of their biopharmaceuticals" due to increasing share of the manufacturing budget allocated to outsourced activities the accounted for 75% in 2009 compared to 50% in 2004 [26]. In 2011, the global Contract Manufacturing Organization sector was experiencing a solid demand for APIs and generic drugs [4]. The shift to the model of "more achievements for less cost" made many drug companies consider the possibility of "moving some of their operations to low-cost emerging markets" by outsourcing manufacturing work to these nations [Ibid.]. According to 2012 Informa Report, the global spending on CMO services amounted to $31.9 billion, with solid dosage formulation remaining the "largest segment of the CMO industry by revenue" [27]. According to the estimates of the Results healthcare the total outsourced market amounted to $71.5 billion in 2015 and it is expected to grow and would reach $105.0 billion by 2021 [5, p. 8].
The TRIP Agreement has allowed global pharmaceutical TNCs to report higher level of outsourcing activities with Indian suppliers both large-scale companies and small and medium-sized enterprises, since a number of these companies were approved by various international regulatory authorities such as United States Food and Drug Administration (USFDA) and etc., and could ensure low-cost manufacturing opportunities [28, pp. 282-283]. The Indian pharmaceutical LSCs, in their turn have transformed themselves into transitional corporations, becoming focused on "high-value markets of developed countries and the growing middle-income population in India" with established subsidiaries and joint-ventures globally (including United States, Italy, Ireland, China and etc.) and very active "in the global outsourcing of production activities" [Ibid., pp. 286-287]. In 2011, the revenues of Chinese CMOs reached $1.9 billion, accounting for about 6 percent of the global CMO revenue due to low labor and pharmaceutical manufacturing costs, and etc. [29].
The global Pharmaceutical market comprised $1.1 trillion in 2015 and would grow at about an annual growth rate of 5.5% and would reach $1.5 trillion in 2021 [5, p. 6]. The outsourced
manufacturing sector is expected to report even g a higher annual growth rate of 6.6% until 2021, g which is explained by the "strong growth of the 5 overall pharmaceutical sector as well as an increase in the amount of manufacturing work | that will be outsourced" [Ibid., p. 8]. Overall, s the growth of the pharmaceutical outsourcing g sector could be explained by the factors such as g the global economic developments and pharma- | ceutical industry growth pattern that are driven ^ by growing demand for medicines (worldwide | prescription drug sales were expected to report i
lu
a 42.3 percent increase in 2016 compared to ^ 2006 by reaching $772 billion, and the global 2 sales are forecasted to grow and would amount to $987 billion in 2020 [16, p. 10] around the globe, aging population, the increasing number of patients with diseases globally, becoming more established, and sophisticated healthcare care system in emerging markets, and etc. [30].
Upon a period of relatively low growth, the outsourced sector of the West reported repatriation of manufacturing from the East associated with the "supply chain security concerns" [5, p. 4]. The cost inflation that has consumed the price competitiveness and attractiveness of the Asian CMOs [Ibid.] could become a crucial factor along with the "supply chain security concerns" [Ibid.] that would determine the choice of the CMO partners for TNCs.
Armenian Pharmaceutical Industry Trends and Export Performance of Pharmaceutical Products from 2010 to 2016
In 2016, the manufacturing sector of the pharmaceutical industry was represented by 19 licensed manufacturers, 3 of which with foreign capital and/or investment such as Liqvor, Yerevan Chemical-Pharmaceutical Firm, Pharma-Tech [13, p. 10]. The sales turnover of 3 major pharmaceutical companies accounted for 70% of the total turnover of local manufacturers [Ibid., p. 16]. Local producers are mainly focused on manufacturing generic medicines1 that, on average, cost 10-30% less than the ones that are imported and sold in the domestic market, while a few manufacture branded products [Ibid.]. Contract manufacturing is limited [Ibid.] In order to ensure the quality of produced medicines Armenian manufacturers import the majority of raw material and chemical compounds to be used in the production from EU-based and US suppliers. As of the end of 2015, 3 manufacturers had achieved Good Manufacturing Practice (GMP) Certification, and it is planned that by 2019 the remaining
1 Tablets, capsules, eye drops, solutions for injection, ointments, suppositories, herbal extracts, vaccines (for veterinary medicine) and etc.
® ®
2010 2011 2012 2013 2014 2015
D — Uzbekistan □ — Russian Federation | — Georgia □ — Iran
2016 - world
Top,
Figure 2. Exports of Pharmaceutical products by major destination from 2010 to 2016, million USD
Source: [31], Author's own calculation.
producers will have obtained GMP certification, with Government of Armenia working on introducing GxP standards such as Good Distribution Practice (GDP), Good Laboratory Practice (GLP), Good Clinical Practice (GCP), Good Storage Practice, (GSP), Good Pharmacy Practice (GPP) by the end of 2017 [Ibid., p. 12]. Development Foundation of Armenia (2016) identified herbal medicine production, R&D, and development and manufacturing of APIs as the competitive niche sub-sectors with strong development potential [Ibid., p. 28].
With more than 50% of the total turnover (see Figure 1) of local manufacturers comprising exports of the medicines from 2012 to 2016, Armenian pharmaceutical industry is one of the export-led sectors of the economy. From 2010 to 2016, the exports of pharmaceutical products approximately tripled (see Figure 2). In 2016, Russia emerged as the major export destination, with exports to Russia accounting for 38.2% of Armenian pharmaceutical products' exports, while Georgia was the main export destination for Armenian medicines from 2010 to 2015 (see Figure 2).
In 2016, exports of pharmaceutical products to Ukraine, Kazakhstan, Lithuania, Belarus, Moldova, Kyrgyzstan a, and Tajikistan ranged from about $250,000 to $484,500 [31]. Overall, the EAEU market was the major source market for Armenian products. In 2016, the exports of pharmaceutical products to Yemen approximately quadrupled amounting to $188,725 as compared to $48,201. In 2016, similar export growth pattern was reported in the cases of Ukraine ($484,592 comparing to $146,126 in 2015), Hungary ($69,534 comparing to $19,350 in 2015), and Belarus ($119,425 comparing to $346, 152 in 2015) [Ibid.].
Traditionally, exports of Group 30041 products dominated over the exports of Group 3002 products2 (according to Harmonized System of Commodity Nomenclature of the World Customs Organization [32]) from 2010 to 2015, while in 2016, the exports of Group 3002 commodities reported a tremendous increase comparing to the previous period 2010-2015 (see figure 3). This rise was mainly attributed to the growth in exports to Russia, with the exports of Group 3002 commodities to Russia being more than tripled in 2016 as compared to exports in 2015 and reaching $3.9 million (as compared to $1.2 million in 2015) [31]. This phenomenon was associated with the growth in exports of vaccines (for veterinary medicine) (Commodity code: 300230) [Ibid.]. In the case of exports of Group 3004, the commodities enlisted in commodity code 3004903 were the major exported products, and the major destinations were Georgia, followed by Uzbekistan and Russia from 2010 to 2016 [31]. The second major commodity code within the exports of Group 3004 was
1 Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale.
2 Human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses; antisera, other blood fractions and immunological products, whether or not modified or obtained by means of biotechnological processes; vaccines, toxins, cultures of micro-organisms (excluding yeasts) and similar products.
3 Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale // Other.
2011 2012 2013 2014
□ — 3002 □ — 3004 ■ — 3005
Figure 3. Exports of Pharmaceutical products by major groups from 2010 to 2016, million USD
Source: [31].
3004501, with Russia being the major export destination followed by Uzbekistan from 2010 to 2016 [31].
Although the Development Foundation of Armenia hasn't identified manufacturing of veterinary medicine vaccines as a "competitive niche sub-sector" [13, p. 28] of the Armenian pharmaceutical industry, this sub-sector is identified as a booming subsector of the overall life-sciences sector in Armenia [33, p. 2] and could have strong development potential and Armenia could position the nation as a supplier of vaccines for veterinary medicine in the EAEU Region and emerge as a regional supplier for the Middle Eastern and Northern African region over the long-run. Despite the fact that the exports of group 3004 commodities declined in 2016 by about 4.87 percent (y./y.) the group still remains the major export commodity group that accounted for more than 50 percent of the exports of the pharmaceutical products and has a strong potential for growth with both local manufacturers becoming more aggressive in penetrating new and the existing markets and increasing current market shares; and the entrance of new player into the Armenian market. Such an example is the case of the Tufenkchi Group
1 Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale. // Other medicaments containing vitamins or other products of heading 29.36.
that opened its manufacturing plant in April 2017, established by Syrian-Armenian businessmen, with the future plans of increasing exports of pharmaceutical products to Middle Eastern and Northern African markets such as Syria, Lebanon, Jordan, Libya, Algeria, Yemen and etc. [34]. In May 2017, the representative of the Saint-Petersburg based Russian "Geropharm" company that is engaged in medicine development and manufacturing business, expressed the interest of the company to set up production in Meghri Free Economic Zone2 that would allow the company to benefit from various preferential trade regimes [36].
In September 2016, Lannett Company, Inc. announced that the USFDA successfully completed a current GMP (cGMP) inspection of the company's manufacturing unit in Philadelphia, and inspections of two Armenia-located facilities: Darmantest Laboratories, the company's pharmacokinetic subsidiary, and Firmplace, stability laboratory that the company is in strategic relationship with [14]. In June 2017, the chairman of Lannett Company, Inc. Arthur Bedrosian announced that the Abbreviated New Drug Application for amantadine hydrochloride capsules was approved by the USFDA within 15 months, and the bioequivalence study had been successfully performed by the company's
2 During the Government's 30 March, 2017 session, the government of the Republic of Armenia approved the establishment of free economic zone in Syunik province, in the Iranian border, that would allow to strengthen trade links with Iran, and etc. [35].
g pharmacokinetic subsidiary, DarmanTest Labo-q ratories [37]. According to Bedrosian the cap-5 sules were the company's first product that was ce approved by the USFDA based on bioequivalence 5 study performed by DTL [Ibid.]. In May 2017, s DTL was discussing the possibility of expand-^ ing their facility additionally by 1,350 square ^ meters to attract bio-equivalence studies from k Middle Eastern region, and etc. [13, p. 72; 38]. ^ In February 2014, AZAD Pharmaceutical In-^ gredients invested $0.5 million in experimen-El tal manufacturing of drugs in Armenia upon g signing a cooperation memorandum with the s Armenian Ministry of Economy and the Armenian Development Agency and with the aim of launching a raw materials lab and pilot production with the possibility of setting up a full-fledged manufacturing plant (the investments would range from $10 to $15 million) [39]. In cooperation with the Institute of Organic Chemistry and the support of the Government, the laboratory that was set up in March 2015 would be focused on the reproduction of API formulas [13, p. 30; 40]: carrying out development work on APIs for third parties [33, p. 7]. AZAD Pharmaceutical has carried out three projects with international patents since March 2015 and "is ready for investment in different chemical plants and is planning for the next three — five years to open a lab and a pilot plant" [Ibid.].
Export-led growth path of the Armenian pharmaceutical product industry from 2018 to 2020
With the possibility of participating in public tenders in Russia and other EAEU member-states, availability of bilateral agreement with mutually simplified drug registration, and with relatively short period for medicaments registration and opportunity to participate in the procurement process in the case of the Middle East Region [12]; the set "common principles and rules for the circulation of drugs and medical products within the Eurasian Economic Union" [13, p. 46]; the export and industry performance and recent developments, the following growth path could be envisaged over the period of 3 years, from 2018 to 2020.
Armenia would try to attract those companies (including TNCs), or investors (including Diaspora-connected investors and investments)1 both from the EAEU and other regions that would like to penetrate the EAEU and Middle Eastern and/or Northern African markets, the Iranian market, and some Asian markets (Vietnam, Mongolia, and etc.) as well. The foreign
1 Hergnyan and Makaryan provide a detailed description of Diaspora's involvement in FDI attraction process in Armenia and the definition of Diaspora-connected investors [41, pp. 262-264].
companies that would enter into Armenia would set up their manufacturing units in Armenia to produce medicaments in compliance with the international regulatory standards. Armenia could attempt to attract those companies and/ or investors that are interested in establishing APIs producing units in Armenia as well.
Moreover, local manufacturers would become more aggressive with the GxP standards in place and would start penetrating new markets besides the established ones (namely: Asian markets) and increase the current market shares additionally by shifting to the production of higher value generic drugs and introducing them to the current and new markets. The bio-equivalence tests would be performed by DarmanTest Laboratories, and AZAD Pharmaceuticals will be actively engaged in providing the API formulas to both local manufacturers and those foreign-owned companies, which were attracted into Armenia, to produce new higher value-added "off patent" drugs as well. The government could co-fund market research and marketing services; assist the local manufacturers in drug registration process both by partially or fully covering the cost and provide the required information (country specific); and be more active in signing more bilateral agreements with respect to pharmaceutical industry.
The Armenian manufacturers and new entrants that produce or would initiate manufacturing of the same type (group) of generic drugs could build an alliance to increase the chances and have a possibility to participate in public tenders in Russia at the regional level and be awarded with some of the bids. The same practice could be applied in case of participating in the procurement process of the nations of the Middle East Region. The success of participation in procurement process in case of the EAEU member-states, and countries of the Middle East will substantially depend on the networks and business ties that local manufactures will leverage, namely with respect to Diasporan ties that would be utilized to increase the chances for being awarded with the bid.
In the partnership with the private sector and the presence of ADAZ Pharmaceuticals and DTL, as the building blocks of the required infrastructure in place to position Armenia as a reliable CMO destination for those TNCs that would like to produce in Armenia either branded drugs or higher value generics (including Indian TNCs, and etc. that would like to penetrate and increase their shares in the markets of the EAEU, Middle East and the Asia, and etc.), the Government of Armenia would start assisting the local companies to attract outsourced contracts and emerge as CMOs for pharmaceutical TNCs (to build strategic and reliable partner-
ship opportunities with them). The assistance to local companies (including new entrants) could be the followings:
1) to provide additional incentives (including tax)1 to the local manufacturers and/or new entrants that would like to increase production facilities with the main purpose of serving as CMO partners and build strategic alliances with pharmaceutical TNCs;
2) to initiate and facilitate the process of building an alliance among local manufacturers that would agree to establish a joint manufacturing unit either at the premises of Meghri or other Free Economic Zone to start serving as a CMO partner for pharmaceutical TNCs, by providing additional incentives (including tax);
3) to be more aggressive in leveraging Diaspo-ran business ties and/or networks, and carrying out other measures to attract outsourced contracts of TNCs to be served by the local manufacturers or new entrants.
The exports of vaccines (for veterinary medicine) would remain one of the leading export items and have a chance at least to maintain its share in the total exports of pharmaceutical products that would report a strong increase over the discussed period owing to increase in exports of both vaccines and generic drugs. The main export destination for vaccines produced locally will remain the EAEU member-states.
Overall, the exports of the pharmaceutical products could be at least doubled and amount to approximately $35-40 million in 2020 as compared to $14.02 million in 2016 (see Figure 2). The increase in pharmaceutical product exports will largely depend on strong growth rates, and spending on public healthcare system in key and new export destination markets, and business strategies to be adopted by the local manufacturers and the government policy.
Conclusion
Upon a period of relatively low growth of the outsourced sector of the West that reported repatriation of manufacturing from the East that was coupled with the cost inflation [5, p. 4] Armenia has a chance to emerge as a platform for those companies that would like to consider an option of shifting to or setting up manufacturing operations in Armenia to penetrate both Eurasian Economic Union (EAEU) and Middle Eastern and/or Northern African markets, and/ or to be focused on active pharmaceutical ingredient (API) manufacturing in the medium-term.
1 These measures shouldn't contradict the rules stated in Appendix 28 to the Agreement on the Eurasian Economic Union especially in case of the increase of exports to the EAEU member-states [42].
The exports of vaccines (for veterinary medicine) g would remain one of the leading export items. g Moreover, local manufacturers would become if more aggressive with the GxP standards in place q-and would start penetrating new markets besides 5 the established ones (namely: Asian markets) s and increase the current market shares addi- ^ tionally by shifting to the production of higher g value generic drugs and introducing them to the ^ current and new markets. By building strategic ^ alliances Armenian manufacturers would try g to participate in public tenders in Russia at g the regional level and be awarded with some g of the bids. The Government of Armenia could s start assisting the local companies to attract outsourced contracts and emerge as CMOs for pharmaceutical TNCs.
Overall, the exports of the pharmaceutical products could be at least doubled and amount to approximately $35-40 million in 2020. The increase in pharmaceutical product exports will largely depend on strong growth rates, and spending on public healthcare system in key and new export destination markets, and business strategies to be adopted by the local manufacturers and the government policy.
Practical Implications
The growth path of the pharmaceutical industry provided in the article could be of interest to the Ministry of Economic Development and Investments of the Republic of Armenia, and Business Armenia.
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