At $60 a head, Saudis spend more on medicines every year than anyone else in the Middle East. The market is estimated to be worth at least $1.5bn, accounting for nearly half of all GCC pharmaceutical sales.

Yet the kingdom’s domestic drug production has only had a marginal impact. The authorities are seeking ways to redress this anomaly.

Major new investment is planned in the sector, with more than SR5bn ($1.3bn) planned to overhaul the distribution system.

Foreign competition

But despite cumulative investment of more than $620m in 27 Saudi manufacturing plants, focused mainly on the production of generic drugs, Saudi producers are finding it difficult to compete with foreign multinationals importing branded pharmaceutical products to the market. More than $1bn worth of pharmaceutical products are imported every year, mostly from US and European manufacturers.

Patented drugs dominate the market, with generic drugs accounting for just 5-6 per cent - a sign of Saudi consumers’ preference for the more expensive brand-name medicines.

This consumption trend clearly favours the foreign companies exporting to the kingdom, which, since Saudi Arabia’s accession to the WTO in 2005, have benefited from an open trading environment with minimal tariff barriers.

Although the advent of WTO membership has bolstered Saudi intellectual property rights (IPR) protection, local producers argue that the bias is still in favour of the large, multinational companies. Their attempts to convince the government to introduce a 10-year transition period to protect local producers, following WTO accession, were ignored.

“Even products that are off-patent in many Western countries are not being registered here,” says Noor Sherrif, managing director of Jeddah-based Jamjoom Pharma. “The ministry protects the rights of multi-national firms.”

Foreign companies have an 80 per cent market share in the private sphere, and at least 35 per cent in the public sector. They are benefiting from the booming Saudi economy, and with large marketing and promotional budgets, have managed to grab a large slice of the market.

The UK’s GlaxoSmithKline is the leading foreign supplier to the market, with 10 per cent market share through a joint venture with the local Banaja Saudi Import company. Japanese firms have also invested in the Saudi Japanese Pharmaceutical Company (Saja), a joint venture of Jeddah-based Tamer and two of Japan’s largest Japanese pharmaceutical firms - Astellas and Daiichi-Sankyo - producing generics and licensed products. The largest local firm is Saudi Pharmaceutical Industries & Medical Appliances Corporation (Spimaco), with about a 10 per cent share of the private market.

Saudi Arabia reportedly has some of the most highly priced drugs in the world. One example, the anti-ulcer drug ranitidine, retails at $18 in Saudi Arabia - well above the international average price.

For foreign suppliers, the complicated regulatory environment and the opportunity to charge higher prices make it far more attractive to import into Saudi Arabia than to invest in local production facilities.

But the authorities are aware that high drug costs are starting to hit the consumer.

To address the issue, in late 2007 the government established a new state-owned medical supply firm that has been granted exclusive rights to supply pharmaceutical products to public health facilities. The National Company for Unified Purchase of Medicines & Medical Appliances has been capitalised at SR2bn, and will sell 30 per cent of its shares in three years.

This new wholesaler is intended to spearhead a massive decrease in prices by competing against the flurry of drug importers that service the public sector.

Health Minister Hamad al-Manie says the new distribution company for the public healthcare sector will help drive down the price of about 6,000 medicines.

The government has toyed with price intervention - for example, halving the price of the cholesterol-reducing drug Lipitor to SR76 - which may help boost domestic investment in production, particularly for the generic dugs. But Saudi producers argue that more legislation is needed to firm up the economic case.

Sector regulation

At the start of 2008, the Saudi Food & Drug Authority was established. It has become the main regulatory authority for pharmaceuticals, taking over from the health ministry.

But the heads of the Saudi pharmaceutical industry want more radical changes. Changing patent legislation to favour locals is one option.

“If you let firms first register in the US or Europe, that knowledge will be licensed by foreign companies and sold to us at double the price,” says the Saudi producer. “However, if you allow me, with proper research, clinical trials and post-marketing surveys, to ensure the product has a safety profile, and then allow it to be registered in the country of origin, we could then export it before the international community has it ready. With improved legislation, we can encourage exports.”

Key challenge

To reduce the cost of medicine to the consumer.