The Gulf pharmaceutical industry, valued at $5.57bn by US-based consultancy Frost & Sullivan, is witnessing rapid growth in demand. The sector is forecast to expand by 6-8 per cent a year by 2020 to reach $10bn-12bn.
The key drivers of this growth are demographics, lifestyle diseases and mandatory medical insurance provision for expatriate employees, who make up 50-60 per cent of the GCC’s population. Another major factor is government commitment to free healthcare provision for nationals. For decades, Gulf states have guaranteed access to healthcare, which many now regard not only as a treasured privilege but also as a right. Basic health indicators are high in the region and people are also living longer.
Domestic pharmaceutical production
These increases in human development have led to parallel growth in healthcare costs and demand for pharmaceuticals. By 2018, the total health expenditure of GCC states will reach $133bn. However, domestic pharmaceuticals production has yet to catch up and most needs are met through imports.
“Local production in the GCC is not enough to meet demand, especially in high-tech product segments. About 70-80 per cent of the medicines sold in Saudi Arabia are imported,” says Rachid Ezzikhe, corporate marketing officer at Jeddah-based Tabuk Pharmaceuticals. Saudi Arabia is the biggest market for pharmaceuticals in the region, accounting for 51 per cent of sales.
The second-largest is the UAE with a 33 per cent market share, according to Frost & Sullivan. The current value of the UAE drug market is $1.8bn and this figure is growing at about 10 per cent a year, according to UAE-based Gulf Pharmaceutical Industries (Julphar).
On the back of rising demand, Tabuk has seen its sales for overall pharmaceutical products sold in the region rise by 103 per cent, from $68m in 2007 to $138m by 2011. But the GCC market continues to rely on imports, with Saudi Arabia and the UAE importing up to 80-85 per cent of their pharmaceutical requirements in 2009, according to Frost & Sullivan. More than $1bn-worth of pharmaceuticals are imported every year into the region from Europe and the US.
Much of the focus of the GCC pharmaceuticals manufacturing market is on generic drug production, with firms heavily dependent on imported raw materials.
Significant local players include Saudi-based firms Spimaco, JamJoom Pharma, Tabuk and Al-Jazeera Pharmaceutical Industrie. Other notable companies include Julphar, Qatar Pharma, Kuwait’s Nour al-Yasmin Pharmaceutical Company and National Pharmaceutical Industries Company of Oman. International firms operating in the market include the UK’s GSK, France’s Sanofi-Aventis and US-based Pfizer, which has set up a wholly owned subsidiary in Saudi Arabia.
Local pharmaceuticals production in the GCC is not enough to meet demand, especially in high-tech products
Rachid Ezzikhe, Tabuk Pharmaceuticals
Moving away from costly imports and developing a domestic pharmaceuticals production capability to meet local demand is the long-term goal. Governments are encouraging existing firms to expand with tax incentives and trying to attract multinationals to set up plants, as well as trying to cut back on time-consuming regulatory requirements.
One example is Pfizer’s manufacturing plant at the King Abdullah Economic City in Saudi Arabia, which was launched in October 2011 under an agreement with Saudi Arabian General Investment Authority (Sagia). The facility will allow for the transfer of knowledge on pharmaceuticals manufacturing and marketing.
Governments have also sought to encourage domestic pharmaceuticals manufacturing by offering free property leases, interest-free loans and subsidies.
Certain states have allowed for up to 100 per cent foreign and private ownership in local manufacturing companies (as in Pfizer’s case) and have offered greater support for the development of in-house research and development (R&D) facilities.
Registering drugs in the Gulf
The length of time it takes local firms to bring a new drug to market is cited as an area GCC countries need to improve on. Currently, it takes about 8-18 months in Saudi Arabia, 3-6 months in Bahrain, 6-12 months in Oman and up to two years in Qatar. But some analysts of the local market are less critical.
“The process for registration [of new drugs] within the GCC is much faster compared with some other economies around the world,” says Ajay Kumar Sharma, head of pharmaceutical practice for South Asia and the Middle East at Frost & Sullivan. “In other countries, it can take at least two to four years for a drug to be registered.”
The GCC market is moving towards complete foreign direct investment in the pharmaceutical sector
Ajay Kumar Sharma, Frost & Sullivan
An evolving regulatory structure is also likely to help. “Patent laws in the region have followed international lines, which has prevented the growth of local production,” says Sharma. “But with the World Trade Organisation accession and movement towards the Trade-Related Aspects of Intellectual Property Rights agreement, we expect some positive outcomes from these steps.”
Most foreign firms operating in the market are encouraged to enter into strategic partnerships with local companies or regional institutions for R&D, production and marketing of products.
Insulin, used to treat diabetes, is increasingly attracting investment. Julphar expects to start commercial production at an AED500m ($136m) insulin plant in Ras al-Khaimah later this year. The facility will produce up to 1,500 kilogrammes of insulin a year, the equivalent of 40 million vials, which would make it the world’s fifth-largest insulin producer and the sole producer in the Middle East. Output from the plant will be sold in the wider Middle East and African markets.
Julphar is developing manufacturing bases elsewhere in the region. It plans to open a new plant in Ethiopia in the third quarter of this year and another facility in Saudi Arabia in 2014. Its partner in the kingdom is the local Cigalah Group. The proposed $40m Saudi-based plant will manufacture various Julphar brand tablets, capsules and syrups and later injectables and biotechnological products.
Julphar has also agreed to build a $32m intravenous fluids plant in Algiers in partnership with the Health Ministry. It is expected to be completed in 2014.
In Saudi Arabia, the National Industrial Cluster Development Programme has attracted interest from Bangladesh-based Beximco and Malaysia’s Kotrapharma, who are in advanced talks involving R&D and potential manufacturing facilities according to Sharma. “Overall, the movement towards a broader role for local manufacturing has begun and we expect the outlook to become more positive in the future,” he says.
Local firms are also investing in their own research departments. “Tabuk has its own R&D, business development, sales, marketing, manufacturing facility and distribution teams,” says Ezzikhe. “We also have partnerships with many reputed international companies.”
Lack of investment in R&D in the past is part of the reason for the current overreliance on imports. It is not that there is a lack of pharmaceutical skills among graduates in the GCC, but that these skills have not been invested in and put to use.
“Local pharmaceutical graduates are certainly trained according to international standards,” says Sharma. “But due to less work happening at the local R&D level, these skilled resources are not absorbed and these scientists and workers migrate to other countries.”
Tabuk sees its main challenges to future growth coming from regulatory restrictions regarding registration and the approval of medicines, patency laws, an increasingly competitive market and drug pricing. At present, the sale of drugs in the GCC is restricted by state controls, with governments setting drug prices and capping profit margins for wholesalers and distributors.
Increased investment in R&D and partnerships with international pharmaceuticals manufacturers are expected to alter the current landscape over the next five years. “We believe the GCC market is moving towards complete foreign direct investment in the pharmaceutical sector, which will boost domestic production,” says Sharma. “We expect to see new players entering the bio-pharmaceuticals manufacturing space in five years.”
Sustained public investment in the healthcare sector, the rise in chronic diseases and the growing importance of over-the-counter (OTC) drugs will all combine to promote further growth in demand.
The GCC will remain reliant on pharmaceutical imports for some time to come, but the early signs of a domestic drug manufacturing base are starting to emerge.
GCC countries are increasingly encouraging growth in the sector by cutting back on regulations and providing tax incentives to local firms, while at the same time selecting foreign multinationals with R&D expertise to set up plants and provide a transfer of knowledge to local firms and workers.
Ultimately, the main drivers of the pharmaceuticals market will remain in place and expand in line with economic growth. Populations who are living longer, mandatory medical insurance for expats and the proliferation of chronic diseases such as diabetes and heart disease will all combine to increase demand for local pharmaceutical production.
Rising healthcare costs have also concentrated minds in health ministries across the region, with total health expenditure set to soar over the coming decades. Promoting a domestic manufacturing capability would potentially reduce some of these costs and increase exports.
Domestic pharmaceutical production is developing in line with a wider trend of involving the private sector in healthcare management and insurance to allow GCC states to maintain the raft of health benefits their citizens enjoy.
Until now, 80 per cent of these drugs have had to be imported and the challenge for local manufacturers will be to invest in their own R&D to reduce this percentage.
$133bn: Total amount expected to be spent on healthcare by GCC countries by 2018
70-80 per cent: Amount of pharmaceutical products currently imported by Saudi Arabia
Source: MEED, Tabuk Pharmaceuticals