◢ Iran's ability to deliver primary care and preventative medicine is strong, but an aging population will create demand for chronic disease treatments and therapies
◢ The pharmaceutical market is expected to see significant growth rising from USD 2.4 billion in annual sales in 2015 to USD 4.2 billion in 2021
Rising Demand For Healthcare
A key demographic fact often mentioned about Iran is that two-thirds of the country’s population of 80 million individuals are under the age of 30. Just 12% of the country’s population are senior citizens age 60 or older. But the population is aging and by 2050, the percentage of senior citizens will total 21%. Accordingly, there will be increasing demand placed on the healthcare sector and on the families, insurance companies, and government welfare providers who pay for the medical care of the elderly.
Per capital medical expenses in Iran currently average at USD 290 dollars, but the depreciation of the rial against the US dollar has increased the cost of healthcare in recent years. This is especially true given that the healthcare sector continues to rely on imports for the most advanced (and therefore most expensive) medicine and equipment. Fluctuations in the cost of the products are typically passed on to the consumer.
The value of Iran’s health market stood at IRR 820 billion (USD 22.5 billion) in 2015 and is expected to rise sharply to IRR 920 billion (USD 24 billion) in 2016, an increase of 13.9 percent in IRR terms. This increase reflects increased sector activity following the lifting of international sanctions.
While the value of Iran’s healthcare sector is increasing in absolute terms, the sectors growth relative to GDP is flat. According to the World Bank, the healthcare sector was responsible for 7.1% of GDP in 2011 and just 6.9% in 2014. In the same period, the average contribution across the Middle East and North Africa (MENA) region rose from 4.85% to 5.29%. By comparison healthcare contributes 10% of global GDP, and 17% in the United States.
A common proxy for the level of investment and overall capacity of the healthcare industry is the ratio of hospital beds per 1,000 people. In Iran, that ratio stands at 1.72. This compares with a regional average of 2.5 beds per 1,000 people. The total number of beds is 134,000 of which about 96,000 are operated by the Ministry of Health and Medical Education, with the rest managed by other government entities such as the Social Security Organization, or by private companies. But Health Minister Hassan Qazizadeh-Hashemi has stated that 65% of the Ministry operated capacity is substandard and needs replacing. Overall capacity needs to reach above 200,000 beds to reach global standards. As such, the sector is ripe for further investment by both public and private sector actors.
Iran’s Medical Equipment and Pharmaceutical Industries
While the medical infrastructure of Iran’s hospitals has degraded due to limited government investment, increasing private sector activity in the medical equipment and pharmaceutical industries has made Iran a regional standout. Overall, while 40 years ago Iran’s domestic manufacturers accounted for only 14% of market share, that figure is now 95%.
Reduced dependence on foreign pharmaceuticals reflects the development of over 160 production facilities, which were established to produce commonly used medicines and therapies. But in the last 15 years, Iran has taken a knowledge-based approach to the industry, investing in research and development to the extent that Iran has now begun exporting advanced therapies within the region.
The pharmaceutical industry generated USD 2.4 billion in sales 2015, with strong growth expected in the coming years. By 2021, the sales value of the industry is estimated to reach USD 4 billion by 2021, following CAGR of +11% in the intervening period. Reliance on imports is expected to be stable in this period, accounting for USD 1 billion a year in sales value.
Still, the trade deficit in the industry remains high at around 75%. In 2015, exports amounted to USD 200 million while imports were USD 800 million. This reflects the fact that imported medicine and equipment, which is typically not produced in Iran, often represents advanced therapies such as cancer treatment. The high prices of these therapies exacerbate the deficit as Iran primarily exports less sophisticated pharmaceuticals.
The largest domestic companies by market share are Darou Paksh (3.5% market share, government owned) and Abidi (3% market share, private sector). Other notable companies include Cinnegen, Alborz Darou, and Dana. Key multinationals active in Iran include Sanofi (with the largest domestic market share at 4.5%), as well as Novartis, Novo Nordisk, and Roche, which is seeing the fastest growth in the industry at nearly 50%.
For Iranian pharmaceutical companies, producing more advanced medicines will not only open the door to export opportunities, but will offer greater margins domestically. The majority of domestically produced pharmaceuticals are covered either by the Ministry of Health as part of efforts to keep healthcare affordable or by insurers. There is a strong pressure from policymakers and the general public to keep prices low, and pharmaceutical prices in the Iranian calendar year 1394 (ended in March 2016) actually tracked below inflation.
But structural challenges remain in the industry. Recently, the head of the Iran Food and Drug Administration (IFDA), Rasoul Dinarvand, revealed that the new electronic database for IFDA approved medications was not working as intended—the integration with the custom’s database had errors. This has meant that USD 80 million worth of perishable medicines have remained stuck in the clearance process, with possible knock-on effects for practitioners and patients. Getting such systems to work reliably reflects the key investments needed in healthcare information technology.
Policymakers and the Healthcare Sector
Iran’s Ministry of Health draws on the recommendations of planning committees in each province, who propose local interventions and schemes for consideration. Policymakers have a range of priorities as they consider new guidelines or initiatives. These include a move towards preventative medicine to reduce costs, continuation of the campaign to reduce the birth rate, maintaining and expanding the affordability of healthcare, supporting further training and capacity development, investing in new infrastructure, expanding the range of available therapies, pushing for privatization, and reducing the bureaucracy of healthcare administration.
Key stakeholders in the healthcare sector include the Ministry of Health and Medical Education, which oversees the country’s medical universities. Importantly, over 70% of hospitals are affiliated with and supervised by medical universities. The largest insurance provider in the country, the Social Security Organization, provides government-backed insurance to economically disadvantaged Iranians. It also operates nearly 3% of treatment centers.
The private sector controls nearly 19% of medical centers, and is particularly active in the management of more advanced centers such as laboratories (23%) and radiology centers (37%). This proportion is expected to grow in coming years.