What you need to know about Pharma sector in Iraq

By Mustafa Muayad - Head of Baghdad office in Salt & Associates - m.ridha@saltandassociates.com - 00964 78 050 10222

By Mustafa Muayad – Head Of Baghdad Office
Healthcare

At the outset, Ministry of Health is the responsible authority to regulate the healthcare practice in Iraq. In regard to the commercial side in the pharmaceutical field, there are two main bodies to deal with in Iraq in this field: Iraqi Pharmacist Syndicate and State Company for Marketing Drugs and Medical Appliances “KIMADIA”.

Pharmaceutical products could follow different business models depending on who the buyer is in Federal Iraq. There are two possibilities: the buyer can be the KIMADIA or it can be a buyer from the Iraqi private market. On the public procurement side, KIMADIA is the only governmental body authorized to import pharmaceutical products on behalf of the federal Iraqi government. According to Iraq’s Pharmaceutical Law (Federal Law No. 40 of 1970) and accompanying instructions (Instructions No. 4 of 1998) regulating scientific bureaus in the business of marketing pharmaceutical products, importing pharmaceutical products to Iraq must be done exclusively through Iraqi registered third parties ‘scientific bureaus’. The only exception is if KIMADIA deems it necessary to import products directly. While KIMADIA has the authority to deal directly with non-Iraqi manufacturers or marketers, it still prefers to deal through Iraqi registered scientific offices whenever possible (as agents for the exporting companies). Where dealing with the Iraqi private sector, the only way to trade in pharmaceutical products is through a scientific bureau.

Based on the laws and regulations that govern the pharmaceutical business in Iraq; in terms of trading medicine and medical supplies and importing said items by the private sector into Iraq, the entities entitled to conduct such business, in ranges specified for each entity by the relevant laws and regulations; are as follows:

  1. Pharmacy: is defined as a place to make and sell in retail, medicine, prepared medical prescriptions, chemicals, poisons, and the ready-made formulations recognized in Iraq.

 

  1. Scientific Bureau: is a licensed entity/ place to advertise medication, medical supplies, and raw material, import and sell the same to drug stores. The Scientific Bureau is also licensed to represent five companies before the Ministry of Health and register said companies with the ministry, the activity of which to be manufacturing and supplying medicine and medical supplies.

 

  1. Drug Store: is the licensed place to store and sell medicine solely to pharmacies and the licensed places

 

The “Licensed Entities”.

The practice of the business of the Licensed Entities is also restricted to Iraqi pharmacists licensed by the Syndicate of Iraqi Pharmacists, subject to the relevant requirements. The Iraqi law has further prohibited licensing a company to open a pharmacy unless all of its shareholders are Iraqi pharmacists, and the shares of the said company are to be exclusively sold to pharmacists. Any agreement of other nature shall be deemed null and void, i.e. the holding of a non-pharmacist of a pharmacy’s shares, its capital, or assets and whichever type. However, and in practice, no company has been licensed as of yet for conducting the same even if all of the relevant conditions are met.

Article 9 (2) of the Practicing Pharmacy Profession Law No. 40 of 1970 (the “Law”) permits granting a license to a factory or a drug store provided that at least 51% of the said entity’s shares to be owned by Iraqis. As long as the said condition is met; the license is valid (and vice versa). However, the Registrar of Companies has not permitted the incorporation of such companies. Noting that the Law prohibits seconding the scientific bureau’s license to another party.

Despite the common use of management agreements by foreign pharmaceutical companies for purposes of conducting business in Iraq through Iraqi Licensed Entities, entering into management agreements entails exposure to the following risks:

  • The licensed person is deemed to be the lawful owner of the Licensed Entity, the entirety of its assets and inventory, and any agreement to the contrary is construed null and void; and
  • An imprisonment penalty of no more than three (3) years or a fine could be imposed against the relevant secondee party of the license. In addition, the pharmacist shall be subject to penalty.

Accordingly, we are of the view that entering into a management agreement exposes investors to high risk and potential legal liability. Particularly in terms of the risk of the local pharmacist holding onto the agreement being null and void and as a result claiming full ownership of the underlying License Entity.