Why African pharmaceutical manufacturers struggle for sustainability

Universal Corporation Limited sits on the outskirts of Nairobi — a two-decade-old pharmaceutical manufacturing factory that produces over 100 formulations of human medicines, such as antibiotics, and drugs for malaria and HIV. It’s the only World Health Organization-prequalified facility in Kenya. And recently, it became the first manufacturer in Africa to receive WHO approval to produce the antimalarial drug, sulfadoxine-pyrimethamine plus amodiaquine. The company operates in about 22 African nations. The facility is a labyrinth of lime green floors, pressurized rooms, laboratories, bottling production lines, vats of chemical ingredients, specialized lighting, and cameras to detect and then reject medicines with flaws. Its employees walk through the sterilized, specialized chambers dressed head to toe in jumpsuits, face masks, and hair and shoe coverings to prevent contamination of the medicine. It’s a model for what there should be more of — medicines produced in Africa, by Africans, for Africans, which help ensure health security of the continent’s burgeoning population. As much as 70% to 90% of the drugs consumed in sub-Saharan Africa are imported. In some of the lowest-income African countries, more than half of the population doesn't have regular access to essential medicines. But despite the urgent need for companies such as Universal Corporation Ltd., and despite its accolades, it’s not been a smooth road to profitability for the company. The company is reliant on donor support from entities such as the Global Fund to Fight AIDS, Tuberculosis and Malaria, UNICEF, and USAID. "We are not yet sustainable. We are surviving,” Palu Dhanani, managing director of Universal Corporation, told participants at a conference on global health supply chains held last week in Nairobi. "At the moment, I think we are not making money, but we are not losing money. We are making enough to pay our bills,” he said during a conference attendee tour of his factory. During the COVID-19 pandemic, global supply chains fell apart, and that left African nations without critical medical supplies, such as vaccines. This led to a substantial push for a change in the status quo — with a barrage of new project announcements and momentum behind launching a Pan-African medicines regulatory body. Creating a landscape conducive for pharma manufacturing won’t happen overnight. In the meantime, pharmaceutical companies face major hurdles in becoming sustainable — including challenges with competing on price with foreign companies that benefit from economies of scale, a disjointed continental regulatory regime, and accessing affordable finance. But there is optimism the continent is heading in the right direction. And that includes taking a regional approach to manufacturing, integrating markets, developing the workforce, and creating a local value chain. “It's not an easy road, but we can get it done,” said Pushpa Vijayaraghavan, who is a member of the governance board of the Medicines Patent Pool, during the conference. She has supported multiple pharma manufacturing projects on the African continent. Stitching together markets Key to ensuring local manufacturing is sustainable is by ensuring there is long-term demand for the products produced. But demand also shouldn’t be confused with unmet need, said Dr. Priya Agarwal, vice president, global head of HPV vaccines at Merck. Just because large members of a population need a drug doesn’t mean it will be purchased on a large enough scale to ensure the manufacturer has a return on their investments. “The critical thing that we need is a true sense of demand — and demand that is stable, predictable and measurable,” Agarwal said. Across the continent, governments procure drugs, but so do development partners such as UNICEF, USAID, Global Fund, and Gavi, the Vaccine Alliance. And so the question for manufacturers has been: If we make it, will they buy from us as opposed to buying from international companies that might be able to produce the drug at a lower cost? “I don't think anybody wants to put an investment and hope and pray that the business will come,” Universal Corporation’s Dhanani said. And key to ensuring demand is ensuring manufacturers can access markets — which despite the large population on the African continent, is a problem. The Africa health care sector, overall, will be valued at roughly $259 billion by 2030. But currently, a lot of the products to meet the population’s health care needs are imported. For a country like Kenya, the total health expenditure in 2022 was about $4 billion, with $800 million spent on medical products — of which 70% were imported, said Dr. Charles Githinji, chairperson of the Kenya Pharmacy and Poisons Board. “We are not self-reliant, in that sense,” he said. Globally, there are few countries dominating the pharmaceutical and biotech manufacturing sector — including India, China, the United States, South Korea, and countries in Europe, which benefit from economies of scale. Both India and China each have a population of about 1.4 billion — and these countries have one national medicines regulatory agency. That means once a company registers a product with the regulator, a company has access to a market of over a billion people. The story is not the same for African manufacturers that struggle to sell products to the entire continent’s population. Without an overarching, Pan-African regulatory body, companies must register their products individually with the regulators in each of the continent’s nations, which is time-consuming and burdensome. “If we have to register that product in the 52 countries, it is going to be my lifetime, or maybe more,” Universal Corporation’s Dhanani said, adding that registering his products in another African country could take anywhere between two to five years. And while there are mechanisms at the East African Community level to register products, that process is slow-moving and can take three to four years to get registration, Dhanani said. He added that before a country decides to sell his products, they may send an inspector to his facility — another resource-intensive and time-consuming endeavor for his team to have a continuous influx of inspectors coming to his facility. “We have to stitch our markets together — and do that quickly, with a pragmatic approach,” said Medicine Patent Pool’s Vijayaraghavan. And this is happening. The African Union is setting up the African Medicines Agency, or AMA, in Rwanda, which will be tasked with harmonizing the regulatory process across the continent. But it’s not currently operational and its timeline isn’t clear. But in the meantime, AMA could set up a small team of experts to look over pharma product dossiers, Dhanani said. The dossiers are the evidence a company shows to regulators to prove the product is of a certain quality to be granted market authorization. If the AMA team accepts the dossier, then other countries could feel comfortable accepting the registration of that product within their borders without conducting their own investigation, Universal Corporation’s Dhanani said. “Africa-to-Africa trade will become much easier,” he said. The African Continental Free Trade Area, also a work in progress, is expected to be a game changer in removing barriers to the free movement of medical supplies and services across borders. And these changes will make a regional approach to pharma manufacturing possible. It won’t be practical to build an antimalarial manufacturing facility in every country, said Noel Watson, founder of OPS MEND, a research consulting firm focused on supply chain operations for organizations in the private and public sectors. Market forces will push for consolidation in a few countries — which will then serve the rest of the countries. Cost of doing business Universal Corporation Limited received WHO prequalification in 2011 for the production of an antiretroviral drug for individuals living with HIV. But Dhanani said his company hasn’t had any orders for the product because purchasers are only comparing prices. His facility is a complicated, highly regulated plant with large operational expenses. Many raw materials are imported and when equipment needs repairs, like the heating, ventilation, and air conditioning system, he may need to import specialized labor to fix it. It’s more expensive for him to ship a container to Zambia than for a container to arrive in Zambia from India — even though his shipment is faster. “Anything that we do here, initially … it is going to be a bit more expensive than our counterparts. Eventually, the prices will start coming down as we build volumes and get everything under proper operation costs,” Dhanani said. “But today, it’s going to be difficult.” In particular, he said local manufacturers aren’t competitive against vertically integrated companies — companies that produce both the active pharmaceutical ingredients themselves, and the finished product. This allows them to have control over the price. Asked why his company doesn’t produce the active pharmaceutical ingredients — which are the key components in a medicine that produce the intended health effect — he said there isn’t a captive market, a market where consumers face a limited number of suppliers. “We cannot fight vertically integrated companies if it's only based on price,” Dhanani said. Even some bigger players struggle with this, including India, which is often perceived as largely vertically integrated — manufacturing its own active pharmaceutical ingredient. “It’s not. India has had a steep problem of import dependence of [active pharmaceutical ingredient] from China for years now,” Vijayaraghavan said. Beyond pricing, local manufacturing provides other advantages. Universal Corporation’s Dhanani said his company can provide countries with smaller quantities of a medicine — such as a month's supply. Whereas, if they buy from a company abroad, they may need to buy a year’s supply. Smaller shipments help a country reduce warehousing costs — and prevent product theft or damage when they spend a long time in a warehouse. His company was also able to maintain shipments to other African countries during the COVID-19 pandemic, whereas some countries that relied on products from abroad had stockouts. ‘We need to build it’ Local manufacturers face a high cost of financing. If a company were to borrow from a Kenyan bank, for example, the instability of the Kenyan shilling creates risk and interest rates are high, Dhanani said. But when local manufacturers have funding from the United Nations or USAID, for example, the projects don’t carry that same country-level risk. “I think the world should look at Africa differently. The financier should look at it differently,” Dhanani said. And there’s a key role for development financiers looking to have an impact. Creating conducive environments for pharmaceutical manufacturing is complex and isn’t going to organically happen on its own. Medicine Patent Pool’s Vijayaraghavan said there’s a need for financiers to “shape” the manufacturing projects and ecosystems. The International Finance Corporation is one of the entities working to shape these conducive environments. “This doesn't exist. We need to build it. And so it’s going to take time, and it’s going to take capital, and it's going to take lots of energy,” Malick Antoine, principal investment officer at IFC. During the pandemic, IFC was approached by several African countries that wanted to move forward with vaccine manufacturing. He said their strategy is to “tool” themselves with a number of financial products and the use of blended finance to work to make the projects competitive. And there’s also a need to look beyond return on investment, he said, adding that if investors look at these types of projects from purely a market fundamentals perspective, or analysis of the returns, then they won’t even get started in the first place, Antoine said. He said that not all pots of money look for the same level of returns — and so it's crucial to identify the right sources of funding. One of the challenges with working with partners such as the World Bank, he said, that provide concessional funding to governments, is that this funding then needs to be budgeted. And that’s tricky because it might also need to be repurposed. “It's a delicate balance of identifying the pots of funding, then essentially channeling those fundings to where they are needed at a specific point in time,” he said. “It's really important to essentially move public funding to capacitate the private sector to do more. That's where the future is.” And countries are also working to incentivize pharma manufacturing within their borders. The Kenyan government, for example, has mandated a list of essential medicines products the government must buy from local manufacturers, said Kenya Pharmacy and Poisons Board’s Githinji. Other areas include fostering special economic zones, and tax exemptions on equipment for production and raw materials. And while there is a long road ahead, a willingness to frequently course correct is also crucial. “It's not a prescriptive thing when we say we're going to get from point A to point Z, and follow the steps,” Antoine said. “At a point in time we have to say: ‘Stop, we've wasted money. Let's just refocus, and just go down this path because it makes more sense.”