Why Iran Pays More for Each Kilogram of European Medicine

Since the year 2000, Iran has about doubled its annual imports of pharmaceutical products from the European Union, reflecting both advances in Iranian healthcare and the growth in Europe-Iran trade ties. This growth has remained durable in the face of multilateral—and more recently—unilateral sanctions. Pharmaceutical products can be sold under longstanding humanitarian exemptions under both the US and EU sanctions regimes.

Yet, reporting from Iran has highlighted the significant disruptions in the price and availability of many medications in Iran. Iranian medical professionals complain that despite the exemptions, sanctions are making it more difficult for patients to reliably and affordably access medication. US officials have countered that there has not been an dramatic drop in pharmaceutical exports to Iran, but their defense relies on an incomplete picture of the nature of the trade disruption. Iranian patients are not principally struggling because of a supply disruption. They are suffering because of a price distortion that can be observed in the relationship between the quantity of European pharmaceutical exports to Iran, and the declared value of those exports.

To contextualize the distortions in European pharmaceutical exports to Iran, it is possible to conduct Pearson correlation analyses for the quantity and value of monthly pharmaceutical exports from the European Union to Russia, Turkey, Pakistan, and Iran for the period between January 2000 and June 2019. Intuitively, we would expect that an increase in the quantity of exports from Europe to these countries would be correlated with an increase in the declared value of those exports—if Europe is selling more it should be earning more. 

This is clearly the case when looking to European pharmaceutical exports to Russia, Turkey, and Pakistan in this period. The observed correlations are strongly positive and statistically significant. However, the underlying data tell slightly different stories for each country. In the case of Russia, the magnitude of the increase in the value of exports since 2000 has been greater than the increase in quantity. In Turkey, the opposite is true. To put it more simply, Russia is buying slightly more medicine at a significantly higher price, while Turkey is buying significantly more medicine at a slightly higher price. That is an observation that deserves its own analysis, but in the context of understanding comparative differences with Iranian purchases of European medicine, what matters is that in both cases an increase in quantity of medicine exported correlates with an increase in the value of medicine exported.

The data for Russia, Turkey, and Pakistan shows relatively low levels of volatility. This can be seen when the value and quantity of monthly exports are indexed. Fluctuations each month can be explained by a range of factors such as seasonal or cyclical demand, as well as variation in the composition of exports, particularly in terms of price. Many medicines weigh roughly the same amount, but have vastly different prices—consider the price of aspirin and the price of pills used in the treatment of rare diseases.

Sudden spikes in pharmaceutical exports are often related to disaster response. The December 2005 spike in European exports to Pakistan corresponds to the 2005 Kashmir earthquake, which killed nearly 90,000 people. The August 2010 spike in exports to Russia corresponds to a weeks long heatwave that led to thousands of deaths and triggered extensive wildfires. 

Putting these spikes in context, and looking to fluctuations over time, we see that the expected relationship holds—the greater the quantity of pharmaceutical products exported from Europe to Russia, Turkey, and Pakistan, the greater the declared value of those exports. 

In the case of Iran, the expected relationship also holds, but not so definitively. Looking to the period between January 2000 and June 2019, the correlation between quantity of exports and value of exports is still positive and statistically significant, but is notably weaker. The explanation becomes clear when looking at a chart of indexed export quantity and value. Sales of European pharmaceutical products to Iran are marked by huge volatility. In more recent years, it appears that the declared value of exports has increased without a commensurate increase in the quantity. 

There has been extensive reporting on the impact of sanctions on Iran’s ability to reliably important pharmaceutical products. To test whether the relative weakness in the relationship between export quantity and value is sanctions related, it is possible to test the relationship in two time periods. Multilateral sanctions on Iran reached their apogee in July 2012, when the United States imposed strict sanctions intended to cut off Iranian banks from the global financial system. The number of correspondent banking relationships dwindled, meaning that even for trade in pharmaceuticals, which remained an exempted category, European exporters and Iranian importers faced significant challenges in identifying viable banking channels. When such channels were found, their use typically entails higher transaction costs and payment delays. 

Looking to the period prior to July 2012, we can observe a moderately positive and statistically significant correlation between export quantity and value. When limiting the analysis to the period after July 2012, that relationship is only weakly positive. This is a remarkable finding, suggesting that since 2012, the price paid by Iranian importers for European pharmaceuticals is only loosely related to the quantity of goods ordered. Sanctions may have exacerbated whatever factors led the relationship between quantity and value to be weaker than that observed for Russia, Turkey, and Pakistan.

As a consequence of the weakened relationship between quantity and value, Iranian importers are paying significantly more for each kilogram of European medication they purchase than importers in Russia, Turkey, or Pakistan. In the period between June 2018 and June 2019, European exports to Iran can be “priced” at EUR 8464 for each 100 kilograms exported. By comparison, exports to Russia were just EUR 5707 for each 100 kilograms, while exports to Turkey were EUR 5645. In the case of Russia and Turkey there may be economies of scale at play—the value of monthly European pharmaceutical exports to these countries are on average 9 and 3.5 times higher, respectively, than those to Iran. But even Pakistan, which imports less than half the pharmaceutical products that Iran imports from Europe each month, benefits from a significantly lower price of EUR 7509 per 100 kilograms. Taking the average of the price enjoyed by Russia, Turkey, and Pakistan, in the most recent 12 months for which data is available, Iran paid EUR 2723 more for each 100 kilograms of pharmaceutical products. This premium is almost certainly being passed onto consumers, with devastating effects. 

It is difficult to say to what extent distortions in Europe-Iran pharmaceutical trade are attributable to sanctions impacts. Certainly Turkey, Russia, and Pakistan do not share the same experience of being targeted by unilateral and multilateral sanctions, though they do share many of the same political and economic risk factors that can serve as an impediment to bilateral trade. There are other possible explanations for Iran’s highly volatile pharmaceutical imports, including issues related to the devaluation of the Iranian rial, the use of middlemen in transactions, and changes in the composition of imports related to protectionist policies.  

Looking to total relative proportion of total export quantities in 2018, it is possible to take a snapshot of the composition of European exports to the four countries. What we find is that the composition of exports is broadly similar, with nearly all of the top ten export categories for Iran represented among the top ten for Russia, Turkey, and Pakistan, albeit with differences in proportion. What is clear is that all of the countries import significant volumes of pharmaceutical ingredients, such as vitamins, for use in domestic pharmaceutical manufacturing. Iran imports significantly more vitamin E than the other countries, but significantly less wadding. Neither is a particularly expensive good.

What is most remarkable about the price distortion is that it can be observed through European customs data. In this data, the value of goods is reflective of the value declared by the European seller at time of export. This distinguishes the analysis here from reports focusing on the price increases observed by Iranian consumers. It would appear that at least some of the exorbitant increases in the price of medication for Iranians are attributable to disruptions in trade that originate outside of Iran, rather than tariffs, hoarding, price gouging, or other market disruptions that are known to exist within Iran. 

The price distortion also challenges the conception of sanctions impacts on pharmaceutical trade as being principally about reduced export volumes or shortages within Iran. The analysis presented here suggests that European pharmaceutical exports to Iran could theoretically grow in both absolute value and quantity under sanctions, and yet there could still be harms felt by Iranian consumers if the price of medication continues to rise unchecked. This means that sanctions policy cannot be defended on the basis that trade data shows limited disruption in the value or quantity of exports. The price related disruption shown here only becomes clear when looking to the relationship between export value and quantity over time. Any significant increase in the price of medication at time of export will necessarily lead to circumstances where the sick and dying in Iran cannot afford the medication they need.

Photo: IRNA

Iranian-Made Exoskeleton Highlights Potential for Hardware Start-Ups

A new crop of entrepreneurs are making Iran a hub for hardware development, drawing on the country’s deep pool of mechanical and electrical engineering talent.

Iran’s burgeoning startup ecosystem has enjoyed extensive international attention over the last few years, but the focus has remained almost exclusively on app developers and software creators. Behind the scenes, a crop of inventors and engineers have been launching new companies that seek to bring “made in Iran” into the 21st century.

One such company is Pedasys, which was founded in 2013 by a group of researchers from Tehran University, Sharif University of Technology, and Tarbiat Modares University. In 2015, the group was accepted into SATI, Sharif University’s prestigious technology incubator.

The company has designed and manufactured a lower-body exoskeleton called Exoped, which is currently being trialled in clinical settings around Iran. The robotics in Exoped allow paraplegic or elderly individuals who are lower-limb disabled to walk, helping these individuals break free of the limitations of wheelchairs.

There are just a handful of companies worldwide that have developed such technology, but Iran may prove an ideal environment. In addition to engineering expertise, Iran boasts an advanced healthcare system. From the standpoint of social impact, Exoped can make a meaningful difference in the lives of Iranians living with spinal cord injuries, including the elderly, those injured in natural disasters such as earthquakes, war veterans, and those suffering from musculoskeletal degenerative diseases. One 2015 study on the prevalence of spinal cord injuries in Iran estimates the figure at 320 per million individuals. But the researchers note that this is likely an significant underestimation.

A sense of social responsibility is a key motivation for Mostafa Naghipour and his fellow Pedasys co-founders. After nearly a decade of collaboration in robotics research, the team decided to establish a company to bring a new exoskeleton solution to the market. They secured seed capital from Shenasa, the venture capital arm of the Pasargad Financial Group. Shenasa has focused on hardware companies as it builds out its portfolio, which includes a company developing a 3D-printer for industrial applications and a start-up developing new technologies for cochlear implants.

To date, foreign investment in Iran’s start-up ecosystem has focused almost exclusively on software. With lower capital requirements, shorter research and development timeframes, and scale-driven business plans, software can seem a safer bet for foreign investors. But Naghipour believes that while hardware development is more difficult, the business potential with hardware is often greater. He notes, “investing in hardware can create businesses with protected market share and export potential. While it is unlikely that international markets would adopt Iran’s clones of already popular apps, Iran can create hardware technologies that are competitive globally on pricepoint and core capabilities.”

Naghipour believes that Pedasys’ addressable market in the Middle East is six million individuals. For this market, an Iranian product will have an inherent cost advantage. Pedasys’s creators expect their technology to be up to fifty percent less expensive than comparable American, European, or Japanese technologies, without compromising on functionality.

Moreover, as Naghipour explains, the cost of treatment isn’t limited to the cost of the exoskeleton. He notes, “patients require as many as twenty clinical sessions to customize the exoskeleton for their use and to teach them how to operate it effectively. Being able to provide this clinical care is a crucial part of the offering and is almost as important as the technology itself.”

The clinical approach is being refined in Iran to meet local needs. “Four medical centers have purchased their own Exoped unit for research purposes, and we are about to begin the application process for approval by the Iranian Food and Drug Administration,” says Naghipour. The approval process will take about one year. With the FDA approval in hand, Naghipour plans to “begin negotiating with insurance companies to get Exoped covered. We hope to demonstrate to insurance companies that the overall improvements to quality of life are worth their coverage.”

Importantly, applications for Exoped extend beyond rehabilitation. Similar solutions are now being tested by industrial companies worldwide as a means to improve comfort and reduce the risk of injuries for manufacturing workers. Exoped could find a large market in Iran’s automotive manufacturing sector, where chronic lower back pain is a major occupational health issue on assembly lines. Iranian workers who suffer from lower back pain self-report considerably lower overall quality of life scores.

To achieve these ambitions, Pedasys will seek to raise its Series A funding from both domestic and foreign backers. Although the company declined to disclose its fundraising target, Naghipour assures that is it “significantly lower than what Western companies are seeking to raise even before they have a working prototype. In Iran we do much more with much less and we think investors can see that.”

Photo Credit: Bourse & Bazaar

American Medical Company Second Sight Enters Iranian Market

Second Sight, a publicly-listed American company which develops and manufacturers visual prosthetics, has announced its market entry into Iran with two landmark procedures. Two patients in Shiraz suffering from Retinis Pigmentosa, a category of genetic disorder which leads to the degeneration of cells in the retina, have had their sight partially restored with the implantation of the company’s Argus II device.

The milestone procedures were carried out last month at Shiraz Pars Hospital and the Khalili Hospital of the Shiraz Medical Science University. The devices were successfully implanted by Professor Mohsen Farvardin and his team. The Argus II system uses a small video camera mounted to a patient’s glasses to send images to a small patient-worn video processing unit. This small computer then processes the images and sends corresponding visual instructions to an antenna in the retinal implant. The implant emits small pulses of electricity to the stimulate the remaining photoreceptors in the retina, allowing the patient to perceive visual patterns.

 The procedures were facilitated by Second Sight’s exclusive local distribution partner, Arshia Gostar Darman Company, an established supplier of sound processors and cochlear implants that help remediate hearing loss. Second Sight and Arshia Gostar Darman entered into a partnership in July 2016, at which time Second Sight had received a specific license from the U.S. Office of Foreign Asset Control (OFAC) to permit the sale of the company's medical devices in Iran.  

Second Sight’s market-entry announcement came just one day after the U.S. Department of Treasury levied a USD 1.2 million fine on another American medical company, Dentsply Sirona. US regulators found that between 2009-2012, Dentsply made 37 shipments of dental equipment and supplies to Iran via its international subsidiaries. Company personnel concealed the fact that the goods were destined for Iran. In its public notice, OFAC indicated that products sold by Dentsply “were likely eligible for a specific license.”

The divergent experiences of Second Sight and Dentsply point to persistent challenges for specialist American medical companies that wish to supply the Iranian market. These companies, though smaller than the global behemoths such as Merck or Johnson & Johnson, play a vital role in the healthcare sector as they bring advanced therapies and innovative devices to market. While U.S. licensing policy is generally accommodating of the sales of medicines and medical equipment to Iran on humanitarian grounds, the regulatory burden and legal costs for these companies can be inhibitive. Securing an OFAC license is nearly always necessary in order to operate in a compliant manner. 

At a time when the prospects for renewed American trade with Iran have dimmed, Second Sight's recent success offers a welcome reminder of the opportunities that persist in the pharmaceutial and healthcare sector. 

Photo Credit: Second Sight

A Case for Public-Private Partnerships: Supporting Iran's Disabled

The situation currently afflicting many in Iran’s disabled community is difficult to say the least. A staggering 400,000 of these disabled individuals—primarily men— are veterans who fought against Iraq during the 1980’s.

These brave ex-servicemen do have support of government agencies like the Social Welfare Organization of Iran and the Iranian Red Crescent Society, along with other charitable and religious organizations. However as time moves on these men’s medical needs will inevitably increase with their age. It is time we rethink how healthcare and funding for these men is provided

Care for the disabled community has primarily been in the hands of the state from the outset the Islamic Revolution of 1979. This top down approach to care was a necessary structure during the first years after the war and while the country was rebuilding itself through the Rafsanjani presidency. However, in recent years the needs of these disabled people have increased considerably, thus putting a strain on the existing medical support structure.

Moreover, the situation in the wider community of those with limited physical ability continues to be burdened under the weight of claimants coming forward with long-term issues seeking adequate care and support over long periods of time.

The State Welfare Organization (SWO) the government body which provides welfare benefits to the veterans, defines disability through four types: physical, auditory, visual, and mental. On the outset, this breakdown seems rather elementary, however the organization role is all-encompassing. The role of the SWO has expanded so much over the years that they must now care for the recently disabled as well as the groups like the veterans. Their budget—like for any organization of its kind worldwide— is finite. To overcome challenges and provide the best care possible, the Iranian government and the SWO must now understand that help can be provided in partnership with the Iranian private sector and international specialists.

Through my company, KTMA, working with the help of occupational therapists in Europe, we have spent two years researching the needs of the physically disabled, while also considering the budgets of the funding authorities. One thing I have found in my time building our company is the lack of support for more than the basics. Yet it is understandable that budgets are limited, and clearly the government, which has helped so many people, needs help itself sometimes.

What Can Be Done

This is where a unique form of public-private partnerships (PPPs) comes in. KTMA has teamed up with both the Social Welfare Organization along with the Red Crescent Society to assess the needs of the disabled and to offer solutions with its growing catalogue of equipment. 

The Paralympic Committee of Iran is another worthwhile organization with which we have worked in partnership. They have been invaluable for their excellent understanding of the current needs of the physically disabled. As part of continuing efforts, they also introduced me to one paraplegic veteran whose 24-hour carer was his wife. He shared his story with me.

“Everywhere I go am I with my wife” the man said, adding "I really need more assistance in my daily activities and maybe my wife would like a day off, I hate to be a burden on her."

What surprised me most was that considering the man's severe disabilities, he was still able to get out and about. This is mainly due to the recent introduction of disability access DAF buses by the Tehran municipality. The rest of the help the family receives is either from charitable organizations or from religious groups who help with food and utility costs.

As these caring costs rise further, and Iran's revolutionary generation continue to age, there now is an opportunity for groups like my own, to help in the assistance of the disabled in Iran. However it will take a comprehensive action-plan and cooperation between the public and private sector.  

Ultimately this would require the government to overhaul how it distributes its funding for the disabled and those of limited ability. It has been proven time and again that the large state organizations lose effectiveness as they grow, it is just a consequence of the burdens placed upon them. There has been no systematic review of how funding is provided to the organizations and this in itself adds another layer of inefficiency to the system.

Another serious issue afflicting the disabled is the lack of employers willing to take them on. The government did however pass a bill in 2003 that urges large state companies and state bodies to make allowances for the disabled and to get at least a small proportion of them back in to work.

How PPPs Can Help the System

What can, or rather what must be done, is that governmental agencies should relinquish some of their overall responsibilities to third party agencies to carry out specific jobs based on deep expertise. By this method, the country's coffers remain intact and waste which would normally remain in the system would be reduced. The overall quality of care provided to disabled Iranians would also likely increase, as new therapies, equipment, and even personal development opportunities are made available. 

Through PPPs we can serve the needs of the disabled by empowering specialized companies to provide for each client’s specific needs.

Moreover, if partially disabled people were able to earn a living, their overall costs are reduced over a period of time. This is particularly advantageous as not only do the financial benefits mean less reliance on the state, but they also give the veterans and other disabled individuals a sense of self-worth, something that many of them have said to me would help their case.

Innovating PPPs to tackle welfare challenges is most achievable. It both helps the state and helps these men and women in many more ways. But the general hesitance of the state to deal with private organizations is holding back the quality of care and service otherwise available. Europe has shown the way in this regard and by learning from their experience we can help Iran’s veterans and disabled people by reorganizing the way these individuals are provided for from the point of first contact. 

Photo Credit:  Morteza Nikoubazl/Reuters