Summary
Israel represents the most advanced pharmaceuticals sector in the Middle East. At US$179, annual per capita pharmaceutical spending is the highest in the region. The market is dominated by institutions, with the four main 'not-for-profit' healthcare/sick funds accounting for more than 80% of sales. Pharmacies and government bodies represent the remainder. The continuing strong performance of Generics giant Teva and the expansion of the biotech industry will drive industry growth in the short term. However, government cost-containment measures are having a negative impact. Growth in generics is likely to outstrip the prescription market, and the sector is expected to account for about 18.6% of the market by 2010. The over the counter (OTC) sector will also continue to develop, mainly due to gradual deregulation, rapidly reaching US$324mn by 2010.
Largely due to its sizeable generics industry, Israel has remained on the Office of the US Trade Representative (USTR)'s Priority Watch list of states infringing the rights of US patent holders. The continued low status of Israel is largely because of reforms to data protection laws and inadequate compensation for regulatory approval delays. Furthermore, the pricing and reimbursement system is another market access barrier; officials are reluctant to add novel products to the basket of centrally-funded life-saving treatments. Due to its poor image with the research-based industry, the US association PhRMA is calling for Israel to be excluded from joining the OECD.
Israel has a substantial life sciences sector, and key reforms enacted in 2005 liberalised the sale of Israeli-originated technologies to foreign interests. Although the state is active in funding early-stage ventures, local developers are a strong target for the private sector, including research-based multinationals. BMI expects the biotech sector, which was worth approximately US$2bn in 2005, to go from strength to strength over the course of the next decade. If successful, the emergence of new life science technologies would help resolve Israel's historic reliance on exports of generic products. The Manufacturers' Association of Israel says that pharmaceuticals are the country's leading export industry, with foreign sales valued at US$2.2bn in 2005.
These strong prospects for the industry are reflected in BMI's regional Business Environment Ranking, which places Israel 7th of 14 markets surveyed in the region. Although the country remains isolated from many neighbouring states, multinationals may consider deeper involvement in local research as a potentially lucrative option. However, the market's small size and relative maturity, the considerable share of sales and technical capacity of indigenous generic companies as well as the country's periodic political and economic problems are considerable disincentives to investment.
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