Algeria: The Scramble to Localise

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A sudden imposition of import restrictions on pharmaceuticals in 2017 has pushed several multinational companies to establish local production facilities in Algeria. However, the localization process can be fraught both for companies that establish direct manufacturing footprints via joint ventures and those that employ the services of local contract manufacturers.

 

Algeria’s overtly protectionist pharmaceutical manufacturing policy has long proven troublesome for international drug developers. Matters reached a crescendo in the summer of 2017 when the Algerian Ministries of Trade, Finance and Industry, unexpectedly imposed sweeping import restrictions on any incoming pharmaceuticals and medical devices for which there was some sort of domestically manufactured substitute, ostensibly with a view to preventing currency flight at a time when the national economy was deteriorating. This policy prompted many MNCs, keen to protect their market positioning, to begin to engage in some form of local production.

 

Embarking on a localization strategy is no small matter, however, especially if for innovative drug companies with international reputations to maintain. “While in-country manufacturing in Algeria is extremely developed for basic drugs, it is markedly less so for high potency products such as many oncology drugs. To overcome this, MNCs must invest heavily in technology transfer. There are essentially two alternatives: either you sign a commercial agreement, where a CMO is handed the opportunity to update their facilities and integrate fresh know-how and technology in the short to mid-term, or you invest directly in establishing your own plant in conjunction with an indigenous JV partner,” notes Janssen’s Loic Galmard.

 

Some companies, including Abbott, have calculated that they simply do not possess enough Algerian market demand to justify setting up our own proprietary manufacturing facility, so they opt for the contract-manufacturing pathway. “The limitation with third party manufacturing (TPM) is that you can only be in control of the entirety of the other parts of the value chain when the factory is registered under your name,” explains the company’s general manager for Francophone Africa Cluster, Mohamed Benali Khoudja.

 

[There are] a multitude of smaller [CMO] players with questionable quality standards that would be way too risky to enter into partnership with. There are, at a minimum, ten to 15 sites that possess the requisite high-quality standards. They therefore tend to be keenly sought after by the MNCs scrambling to localize

Mohamed Benali Khoudja, Abbott

Identifying a suitable CMO partner can also be tricky. “Not all the 90 odd facilities in Algeria are GMP approved. There are some big players, such as Biopharma, but you also have a multitude of smaller players with questionable quality standards that would be way too risky to enter into partnership with. There are, at a minimum, ten to 15 sites that possess the requisite high-quality standards. They therefore tend to be keenly sought after by the MNCs scrambling to localize,” he points out.

 

IQVIA’s Hocine Mahdi very much concurs. “The handful of indigenous contract manufacturers that have managed to attain international quality standards are left holding the cards because they can choose from an unprecedented number of business proposals,” he observes.

 

That has certainly been the experience of Servier. “Back in 2012, when we first required the services of an Algerian CMO, there were very few players that matched our quality requirements and expectations and it thus took a long time to carry out the requisite due diligence. Nowadays overall standards are higher, and there are noticeably more options. The challenges these days are different. The auditing process is still critical since we have encountered many outfits claiming that they are ready for operations, but who will probably fail to deliver the required quality or quantity, because they have so many other alternatives, and perhaps more attractive, options at their disposal,” claims the general manager, Guillaume Seillier.

 

Opting to establish your own proprietary plant, however, carries its own challenges.

“There are a lot of parameters and variables to consider in a project like this above and beyond securing the requisite financing and the physical construction of the facility. One key consideration will be how to source the human capital needed to staff your site and then there is also the tricky matter of identifying an appropriate indigenous JV partner under the obligatory 49/51 percent ownership rules,” counsels Roche’s Amine Sekhri.

 

AHK’s Marko Ackermann is quick to point out the standard of potential local JV partners in Algeria is actually rather higher than many international investors’ expectations. “Typically, candidates are more interested in technology and know-how transfer than in pure financial investment which they are often easily able to source locally anyhow. In the pharmaceuticals sector their main objective is often to scale the manufacturing value chain and therefore to acquire the capabilities and the competencies to produce ever more complex molecules,” he notes.

 

In spite of the manifest complexities of developing a production footprint, many of the better-known pharma MNCs have not been deterred and have ultimately elected to take the plunge. Pierre Fabre’s managing director, Nawel Baba Hamed notes that the dermatology specialist launched a JV with Algerian partners in May 2018 for the commercialization and production of medicines. “It will operate under the 49/51 rule. The project will benefit from a EUR 15 million (USD 17 million) initial investment and we will produce several pharmaceutical forms (tablets, liquids…) with the aim of being able to produce the majority of our portfolio locally in the mid-term,” she assures.

 

Interestingly, the French oncology-focused midcap, Ipsen, stands out for pursuing both localization strategies concurrently. “It is quite a common trend nowadays within the Algerian market for international drug developers to begin by teaming up with a local CMO, before seeking to build up the infrastructure for independent local production, so, back in 2014, we formed an agreement with AT Pharma, a credible domestic player that was responsible for the manufacturing of our flagship gastroenterology drug, Smecta® as our first stepping stone to full localization. Our rather distinctive approach, however, is to deploy parallel strategies: we will maintain our longstanding local partnerships, while, at the same time, acquiring our own facility,” divulges the firm’s general manager Adlane Soudani.

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