The Malta Independent 20 October 2017, Friday

A Growing industry

Malta Independent Friday, 20 January 2006, 00:00 Last update: about 4 years ago

The pharmaceuticals industry is one of the largest and most profitable in the world. Over the years, Malta has carved a niche market in it, providing a base for generic pharmaceutical companies to produce and sell their products worldwide. Gerald Fenech takes an in-depth look at the industry, how it is evolving and, at the same time, clears up some misconceptions about how these companies operate locally.

A recent report in The Financial Times highlighted the growing importance of the pharmaceutical industry to Malta’s economy.

The government, conscious of this sector’s importance, offers an excellent package to attract generic companies to set up production centres here in Malta.

A number of these companies have been extremely successful, to the extent that they have increased production, expanded their operations and recruited more personnel. Generic companies listed on the Malta Enterprise website – Actavis Ltd, Amino Chemicals Ltd, Phoenicia Organics Ltd, Starpharma Ltd and Siegfried Holdings – mainly produce medicines after their patents have expired.

All the large global players in the pharmaceutical industry are also represented in Malta, including Glaxo-SmithKline, Novartis, Faiser, Astra Zeneca, Sanofi, MSC and Johnson and Johnson. However, these are geared towards research and development, and do not produce any medicines here.

Industry sources explained to The Malta Independent the main differences between these two groups.

“The business model of companies like Actavis is totally different to that of research-based companies like GSK. For instance, to market one particular medicine, thousands of products have to be screened, narrowed down and eventually tested before the finished product can be sold. This process can cost up to half a billion dollars,” the industry sources explained.

They added that research-based companies agree to spend this money against a patent period during which they should eventually recuperate the cost of production in sales at premium prices.

On the other hand, a generic company does not have to undergo this screening process. It simply takes a product, the patent on which has expired, and produces it at a much lower cost, with the result that prices fall accordingly.

So, if the larger research-based companies do not have a production line in Malta, why are they here at all?

One pharmaceutical company source said they were not aware of any research-based company that conducts research in Malta and has production centres in other countries.

“However, we market the product and provide an educational service for professionals and patients through television programmes, public lectures and the distribution of brochures. We also spend money on educating the medical community as well as some philanthropic activity.

“In recent years, pharmaceutical companies have helped patient associations such as the Asthma Association and the Diabetes Group. This is done all over the world,” the source said.

As things stand today, the possibility that a major research-based pharmaceutical company will open a research centre or production line in Malta is remote.

“Although everything is possible, there are a number of problems. First, there are economies of scale. Second, the way legislation on intellectual property rights is structured, it favours generic-based companies over research-based ones. The government has apparently chosen the former because of a legal loophole that is being exploited by these generic companies,” said the industry sources.

Although the generic market exists in its own right, the added value for these companies is much less. That said, why has the price of medicines been going up?

“If a research-based company decides to open a factory in Malta it would obviously concentrate on exports because the local market is negligible. Establishing the price of medicine is a balancing act,” the sources added.

Since joining the European Union, registration costs for new medicines have risen considerably, so this obviously has an impact on the eventual sale price. Another issue is that we are now members of an exclusive club that is Europe and our prices have to reflect the market in which we are operating.”

A lot has been said about Malta’s ranking on the research and development list and the need for more R&D initiatives in Malta. But is the setting up of a research centre in Malta viable?

“I know of an epidemiologist who has said that Malta is an ideal place to study certain fields of medicine owing to our captive population and stable population mix. Having said that, because clinical studies involve a huge degree of control, with strict ethical standards and government reviews, any interested company would have to incur significant costs to conduct them.”

However, the legal infrastructure could be the main reason why these companies are holding back.

“The fact that the law is more in favour of generic companies plays a great part in this decision. However, a research centre in Malta is still a possibility,” the source added.

Pharmaceutical companies have received some bad press in recent months. They have had to pay considerable sums of money after some of their products have had to be withdrawn from the market.

With regulations being stricter than ever, it has now become more expensive to produce medicines for the international market.

“This emphasises the fact that the production of medicines can be an extremely risky business. Technology develops quite fast. A product may have been tested properly with older technology, but a few years down the line, new technology changes the situation and that product may have to be withdrawn.

“The debate continues as to whether companies could have been more careful. One has also to bear in mind that such settlements, which amount to hundreds of millions of liri, can kill off a company and leave tens of thousands of employees without a job.”

Stricter guidelines lead to increased costs that in turn will be reflected in prices. So what does the future hold for the industry?

There are still many medical conditions that are incurable, so research companies play an important role in finding a cure or treatment.

“A leading company is currently working on a vaccine that will eventually cure cervical cancer in woman. Developing this, and other vaccines, costs money, but that is where the future is. Another point is that the average lifespan of people is getting longer and that is due, in no small way, to increasingly effective medicines.”

Another problem encountered by the pharmaceutical industry is that of parallel trading.

“Parallel trade is a situation where one country purchases medicine at a low price and then sells it to another country at a higher price. There is the mistaken belief that patients will pay less for their medicine, but this is definitely not the case because the profit margin will eventually disappear.

“There is also the issue of stocks, storage conditions and other related quality controls.

“These all suffer when parallel trading occurs,” said the source.

All eyes on Malta as generic pharmaceutical industry develops

Malta appears to be in the eye of international business analysts and the larger research-based pharmaceutical companies as it continues to exploit the Bolar Provision, which legally allows low cost, generic pharmaceutical companies to operate a booming trade.

A recent article in The Financial Times said that Actavis, one of the premier generic companies operating in Malta, is just one of the organisations that is benefiting hugely from the government’s attractive investment package for pharmaceuticals.

It quoted Parliamentary Secretary Tonio Fenech as saying that pharmaceuticals is becoming a very important sector and that it can help transform Malta into a knowledge economy.

However, the Bolar Provision will not last forever and Malta Enterprise are conscious of the fact, the FT said.

Former ME chairman Joseph Zammit Tabona said that this window of opportunity could last between 15 to 20 years, with generics being viewed as a stepping stone to other things such as health tourism.

Post-graduate courses on pharmaceuticals

The University of Malta’s Faculty of Science has designed a post graduate diploma specialising in the pharmaceutical sector for chemistry and pharmacy graduates.

The course, which is due to commence next month, has been set up in an attempt to address the dearth of specialists in the pharmaceutical sector as Malta continues to exploit a loophole created by the Bolar Provision that favours generic pharmaceutical companies.

This provision governs intellectual property rights for research and patents in the cut-throat competitive world of the pharmaceutical industry. It was first introduced by the United States and then by the European Union.

Although the government has committed itself to supporting the generic side of the business, many leading research-based pharmaceutical companies have started registering their patents in Malta while pressure is mounting so that the loose ends of the Bolar Provision are tightened accordingly.

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