Summary
The Israeli pharmaceutical sector is the most advanced in the Middle East and Africa (MENA) region. It is supported by a high level of spending per capita that masks Israel's relatively small population. The market is expected to grow strongly over the forecast period. The generics sector is expected to dominate, encouraged by government policies that aim to contain costs, and by strong domestic generics manufacturers. By 2011, the overall market should reach US$2.2bn, up from an estimated US$1.45bn in 2006.
Israel retains its sixth position out of 13 countries covered by BMI's latest Business Environment Rankings for the MENA region. Israel's score improved one point to 36 in Q307, mirroring the movements of Kuwait and South Africa, with which it remains tied. Concerns relating to regulatory issues are a key factor in the country's average showing. In addition, regional political problems that keep Israel isolated from its peers and a relatively small, mature domestic market will be factors that moderate medium-term growth. The increasingly strong ties being formed between Gulf Co-operation Council (GCC) members will leave Israel's economy even more regionally isolated. Despite this, the US, with its massive pharmaceutical industry, remains a key ally and trade partner.
Regulation remains the market's biggest weakness. The intellectual property (IP) environment is well below international standards - a fact underlined by Israel's appearance on the Priority Watch List of the United States Trade Representative (USTR)'s 2007 'Special 301' report. IP deficiencies will continue to benefit the domestic generics producers, but discourage multinational firms with a focus on patented drugs from having a large production presence in the market. Despite this, most multinationals are present in Israel through distribution agreements. Israel is heavily reliant on imports for patented drugs, and this state of affairs is set to continue. A recent government plan to radically alter the approvals process for imported pharmaceuticals may speed up the entry of foreign drugs onto the Israeli market.
Domestic manufacturing is strong, with a bias towards generics. The sector is dominated by Teva Pharmaceutical Industries, the world's largest generics drug firm. Teva's recent strong growth is expected to continue as the firm weighs up another major acquisition, this time of Merck KGaA's generics arm. Biotechnology is a key area of investment, making use of Israel's strong traditions in research. Biotech strength is surprising given the weak IP regime's lack of support for firms that develop innovative patented product lines.
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