The size of the GCC pharmaceutical industry reached USD 8.5 billion by the end of 2012, compared to USD 7.7 billion in 2011, according to last year’s Alpen Capital report on GCC pharmaceutical sector. The same source predicts the 6% to 8% sector growth, with Qatar and Bahrein outpacing the regional growth due to an industry expansion.
A the moment, the KSA pharmaceutical market is by far the largest and most promising in the region, with 51% of the regional market share and valued at around USD 5.1 billion in 2012. In addition, Saudi pharmaceutical companies produce almost 60% of medicine produced in the region, followed by UAE producing 18 percent. Meanwhile, UAE leads in the annual sales per capita on medicines (around USD 282 compared to the GCC average of USD 208). The expansion of healthcare infrastructure and future reforms in healthcare financing are likely to increase the demand for pharmaceutical products within GCC and IHS Insight Global industry report on GCC healthcare system listed 56 infrastructural projects worth USD33 billion underway in 2013. But despite the rapid growth of the sector, pharmaceutical industry in the Gulf is still in its infancy, facing many obstacles. Depending on the source, GCC countries import 80 to 95% of pharmaceuticals. Furthermore, when it comes to raw material and manufacturing equipment, Gulf countries are almost entirely dependent on imports. This makes the industry vulnerable to supply-related problems and fluctuations in foreign exchange rates.
Branded drugs vs generics
A major problem for regional pharma companies is the fact, that branded drugs comprise the major share of the regional import, and generics represent only 5 to 6 % of the market share. As Gulf manufacturers are primarily focusing on producing general medication and generic drugs, they have been able to secure only marginal slice of the market pie. On one side, the small production creates enormous cost pressure on the regional companies, while on the other, the share of (imported) branded medicines, puts enormous financial burden on the health system. The rise in use of locally produced generics would therefore be beneficial for all, including the end consumer as it would lower the prices. GCC governments have been attempting to promote local pharmaceutical production and reduce the reliance on the imports by encouraging joint ventures and licensing deals with multinational pharmaceutical companies. Furthermore, GCC governments are lunching insurance schemes for citizens and expatriates, aimed at providing an affordable health system. These measures are expected to increase the use of local pharmaceutical products across the region.
Unhealthy lifestyle and growing population
A growing population and quickly emerging middle income class, alongside strong government support for healthcare, are expected to drive the expansion of the regional pharma industry. According to Economist Intelligence Unit forecasts, the GCC population will reach 53 million by 2020. As incomes rise, spending on healthcare typically rises as well, as consumers tend to become more health-focused.
Majority of studies reveal that great potential for further growth of pharmaceutical sector is, quite sadly, linked with ever more adopted sedentary Westernized lifestyle, causing obesity, increased cardiovascular diseases and diabetes. According to the World Heart Federation, 66.8% of the population in Saudi Arabia is physically inactive, followed by 63% in Kuwait, 58% in the UAE and 47% in Lebanon. IHS Global Insight’s statistics suggest that costs of treating non-communicable diseases may total USD 36 billion in 2013. This trend is expected to grow in the future, significantly contributing to the increase in sales of the patented drugs. Another indisputable demographic argument which will boost the industry’s growth, is an increase in the aging population, as elderly people have greater medical needs. Number of citizens aged 60 and above is expected to increase from 1.9 million in 2012 to 17.8 million in 2050, says last year’s Alpen capital report.
Foreign Investments welcomed
In order to promote the growth of the regional pharmaceutical industry, Gulf countries have to attract more foreign investors together with their technology, which is crucial in development of local capabilities. The Alpen capital report emphasizes that “The joint venture can benefit from the brand name and superior technology of the foreign partner, while capitalizing on the market knowledge and distribution network of the local partner.” One such case is Indian pharmaceutical companies’ investments, expected to bring the necessary know how and experience, especially in generics production sector. Signing of free trade agreement between India and GCC would clearly further stimulate Indian investment in the regional pharmaceutical companies. Furthermore, IHS Global Insight predicts that many foreign companies will very soon enter strategic partnership with regional companies and institutions for R&D, production and license manufacturing deals, contributing to the overall sector growth. Same source cites examples of existing good practice partnerships between local and foreign companies. One such is a joint venture between the UK’s GlaxoSmithKline and the Saudi Import Company; one of the largest domestic producers in the region. New players on the market are also expected to promote healthy competition, lower the extremely high prices of medicaments and break down monopolies on entire drug trade held by some companies, like in case of Oman.
According to the World Health Organization estimates, pharmaceuticals in the GCC are priced 13 times higher than the international standard, with exception of the Saudi Kingdom. There is no standardization in the pricing, due to the small size of the market and increasing privatization within the sector. Wide disparities exist in the prices of medicines, with Oman topping the list, followed by Kuwait, while Saudi Kingdom has the lowest prices due to a variety of reasons such as the high density of population and higher market competition. Saudi Arabia is therefore considered an example of ideal drug pricing.
As a result of all of the above, GCC Supreme Council of Health has decided to take decisive measures in order to provide Gulf States with safe and effective medications at a reasonable price. GCC member states have begun with introduction of drug price standardization mechanism. The process was agreed on in November 2013 and is currently underway; the implementation plan and targeted products haven’t been disclosed yet. The process of reaching agreement on uniform prices can take more than four years as the project will be implemented in stages, according to the Dr. Fahad Al-Dosari, head of medicinal pricing at the executive office of the Council of Ministers of Health of the GCC. It is still unclear what will be the size and the scope of the ongoing harmonization reform; however it is expected that harmonization measures will result in lower import prices. Recent reports suggest that prices of 2884 drugs are expected to come down as much as 40 percent across the GCC in the near future.
GCC pharmaceutical sector will face considerable challenges in the future. The sector is still in its early stage of development and still struggling with lack of qualified man-power. One of the primary tasks in the future is certainly going to be attracting qualified experts from abroad and educating domestic work force. In order to secure necessary foreign investments in the sector, GCC governments need to accelerate adoption of new policies set to remove trade and legislative obstacles which are seriously hampering the entire sector. Liberalization of ownership legislation and unrestricted capital flow are among primary objectives. Fragmented market and regulatory disparities are the most important barriers, discouraging foreign investors and limiting industry revenues. This is why unification, coordination and harmonization is required to enable further growth of the sector.