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Merck tests ground for Iran partnership to produce medicines

German pharmaceutical group Merck is seeking a partnership with an Iranian manufacturer to produce medicines in the country in a sign that western companies are putting their faith in President Hassan Rouhani's reformist drive and an easing of international sanctions.

Dozens of European businesses have visited the country in recent months in anticipation of a thaw in relations over Iran's nuclear programme that could rehabilitate the oil-rich country as a destination for business investment.

(Read more: Iran—the new investment frontier?)

Tehran, Iran
Travel Ink | Gallo Images | Getty Images
Tehran, Iran

Iranian and western businessmen say some tentative deals have been prepared, ready for signature once the interim nuclear agreement struck in Geneva last month is implemented.

The visiting companies – mostly from France and Germany, but also from Italy and Austria – include car makers, miners, energy groups, transporters and manufacturers. They are examining expansion in Iran, while stressing their compliance with sanctions that restrict investment and sales.

"Companies are hungry for a new market due to the bad financial situation in the rest of the world," said one Italian consultant in Tehran.

More from the Financial Times:
US expands list of Iran sanctions busters
Merck explores 'risk-sharing' deals
Drug groups pin hopes on Iran potential

Under the terms of last month's interim deal, the main oil and banking sanctions will remain in place but restrictions on the Iranian car and petrochemicals sectors will be loosened and frozen assets valued by the US administration at $6bn-$7bn will be released.

Darmstadt-based Merck said it was in discussions with several specialist Iranian producers to assess production of two drugs, adding to its existing sales of medicines into the country.

(Read more: Merck earnings top estimates)

Sanofi of France, which already licenses production of several of its cancer drugs to a local Iranian manufacturer and employs 170 of its own staff in the country, said: "We are planning additional product launches next year in Iran. It's a good, solid business."

Medicines are among the humanitarian exemptions to the existing sanctions regime, but foreign companies' sales and investment have been limited by difficulties in payment, insurance and shipping.

That has led to concerns within Iran over deteriorating access to life-saving treatments, alongside a damaged economy after eight years of mismanagement under Mahmoud Ahmadi-Nejad, the former president, which helped propel the moderate Mr Rohani to power in August's elections.

The Institute of International Finance, a Washington think-tank, said in a report last week that US and European Union sanctions had "a major impact" on the Iranian economy, with an oil embargo contributing to a 5.6 per cent contraction in the economy in the year to March 2013.

But it added that without a comprehensive agreement and deep reforms,the Geneva accord would "bring only limited economic relief" by arresting further contraction in the economy next year.

(Read more: Merck drops India from Priority market list)

For pharmaceutical companies facing stagnating sales in many established markets, Iran offers a relatively rich and large population underserved with innovative drugs.

Merck said it was seeking a local producer to make its products Glucophage for diabetes and Concor for high blood pressure to the necessary quality standards.

Bosch, the German technology and services conglomerate, said it was "carefully monitoring current developments" in Iran.

"In general, we see good potential opportunities for our business, provided that the future political and legal framework will make this possible without restrictions," it added.

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