Iran's pharmaceutical ambitions are a Catch 22

Iran's pharmaceutical industry has found itself in a catch-22.

On the one hand, the country is trying to grow its pharmaceutical exports and attract investment in the industry. But on the other hand, an increase in output could potentially have a detrimental effect on the price and availability of certain medicines, according to a note from BMI Research.

In order to strengthen the industry, Iran has been turning to other countries and foreign companies for investment. In the six months since the world's sanctions against the country were lifted, Iran has been making a strong effort to cooperate with and attract investment from foreign drugmakers.

For example, several German delegations have visited Iran this year, with both countries declaring interest in boosting cooperation in the pharmaceutical industry. And as of June, Iran and Russia are in talks to speed up scientific cooperation between the countries and have agreed to cooperate on about 40 scientific projects.

Germany and Russia are the two highest pharmaceutical export destinations for Iran - together they receive over 75% of Iran's exports, so the ties between the countries are strong.

But Iran has also recently made a trade pact with India, with the aim of lifting sagging exports; and the Danish pharmaceutical company Novo Nordisk has announced plans to manufacture insulin in the country.

BMI doesn't think many multinational drugmakers will necessarily follow in these footsteps, though, given Iran's corruption, bureaucracy, and risky legal environment. Rather than establish a direct manufacturing presence, the researchers expect pharmaceutical companies to just partner with domestic drugmakers.

But BMI still expects pharmaceutical output to grow a lot in the next few years, supported primarily by the weakening of the Iranian rial. That means that Iranian pharmaceuticals will become increasingly competitive in international markets, and it'll give a nice boost to domestic drugmakers' output.

It could also have dangerous consequences for Iran's citizens. As the currency depreciates, imports will be more expensive and will drive medicine prices even higher. And if Western drugmakers still choose not to do business in the country, there could be shortages of more sophisticated medicine. Given that Iran's domestic manufacturing is more basic than that of many Western companies, any gaps or shortages are unlikely to be accounted for by local companies.

The situation likely won't be as bad as it has been in previous years, when the sanctions prevented many essential drugs from getting to Iran and made financial transactions so difficult that medicine prices often rose in the process. But if everything plays out as BMI expects it to, with Iran attempting to make its pharmaceuticals internationally competitive but without the benefit of Western manufacturing, it could be grim.