Alpen Capital announced the publication of its Pharmaceutical Industry report which assesses growth potential of the Pharmaceutical industry by examining a variety of driving forces, in conjunction with the noteworthy trends and key challenges. The report also provides a long-term industry outlook and proposes recommendations that could help attract higher foreign investments, bring regional drug prices closer to the world average, and aid the overall market growth.

The GCC pharmaceutical industry is expected to experience sustainable growth in the medium to long term. Increased domestic production, foreign investments, and consumption of generics are likely to support the market’s evolution. These factors are supported by growth drivers such as population growth, increasing life expectancy and growing income levels which will further enhance the expansion of the sector”, says Sameena Ahmad, Managing Director at Alpen Capital

“We feel that government measures to control pricing of essential drugs and compulsory health insurance will increase local drug manufacturing in the Pharmaceutical sector. The absence of new molecules is pushing global majors to enter the generic drug space, As a result of the above factors, we see a surge in global companies entering the regional markets through joint ventures with local manufacturers”, says Sanjay Vig, Managing Director, Alpen Capital

The GCC Pharmaceutical Industry Outlook

The GCC pharmaceutical sector has witnessed considerable progress over the years on the back of favorable demographic and economic factors, alongside strong government support for healthcare Expansion of pharmaceutical sales in Qatar and Bahrain is projected to outpace the overall regional growth rate, thus translating into a higher market share of these countries at the regional level going forward . The remaining Gulf countries are forecast to either maintain a stable share or experience a decline in their representation in the GCC pharmaceutical industry. Nevertheless, Saudi Arabia is expected to maintain its position as the largest pharmaceutical market within the Gulf in the foreseeable future. The UAE is also likely to retain its ranking as the second largest pharmaceutical market.

Growth Drivers

Population growth in the GCC will be a key growth driver for the pharmaceutical sector. Population is anticipated to expand from 37.5 million in 2007 to nearly 50 million in 2017. High levels of urbanization and a strong expatriate presence also support pharmaceutical sales growth in the region.

Population aged 60 years and above is projected to increase from 1.9 million in 2012 to 17.8 million in 2050. The elderly population forms a big slice of the overall pharmaceutical spending in the GCC and will also drive growth.

Sedentary lifestyles and increasing life expectancy have led to spread of chronic ailments. Such diseases tend to persist throughout the life of patients, thus entailing higher medical expenditure than sporadic forms of illnesses.

Growing income levels and resultantly a higher spending power of people have improved the quality of life and their overall ability to spend on medicines. General health awareness among the residents has also increased.

The GCC governments are providing a number of incentives to boost domestic pharmaceutical production to reduce the reliance on imports.

Compulsory medical insurance schemes for locals and expatriates have either been enacted or are in the process of being launched across the GCC. Increased insurance penetration will make healthcare more affordable and prove beneficial for the pharmaceutical industry.

Regional drug makers are benefitting by making generic versions of drugs whose patents have expired. Newer opportunities are likely to emerge as patents on products with worldwide sales of US$ 223 billion expire in the next six years.

Trends

Growing Use of Generic Drugs: Although branded pharmaceuticals will continue to dominate the market in the foreseeable future due to high brand preference of the consumers, generic drugs are expected to narrow the volume gap.

Increasing Privatization: Government measures to boost local drug manufacturing and penetration of health insurance are forecast to increase the level of privatization in the GCC pharmaceutical sector.

Greater Drug Price Unification: Government efforts to achieve unification of pharmaceutical prices, which have gained momentum over the recent months, are likely to prove effective in regulating inconsistencies in the future.

Higher Imports from Europe: The global financial crisis and regional debt problems induced European drug manufacturers to focus on the relatively emerging Gulf market. As a result, between 2008 and 2011, pharmaceutical imports from the European Union (EU) into the GCC expanded at a CAGR of 18.3%.

GCC Countries Wooing Indian Pharmaceutical Companies: A number of Gulf countries are seeking investments from Indian pharmaceutical companies to benefit from their experience in the generics segment. Signing of the impending free trade agreement between the GCC and India will further open up the market for Indian companies.

Biotechnology Parks Emerging as Centers for Innovation :The biotechnology parks and free zones established in the GCC play a major role in bringing the much-needed foreign investments and technology required to build local capabilities for manufacturing of patented pharmaceutical products.

Medical Tourism: The region may witness a lower disproportion between inbound and outbound medical tourists going forward. A growing medical tourism sector will open up a new growth avenue for the pharmaceutical industry. Adoption of Electronic Common Technical Document (eCTD) for Drug Registration: The GCC countries agreed to adopt the framework in 2009 and have since progressively moved towards its implementation.

Challenges

Pharmaceutical manufacturers in the GCC face several hurdles such as capital intensive nature of operations, small domestic market size, difficulty in raising adequate funds, and shortage of knowledge and skilled manpower.

Regional drug prices are significantly higher than the world average, which may prove detrimental for the overall progress and long-term growth of the industry in real terms. Further, prices vary significantly within the region.

The Gulf countries are highly dependent on imports of manufacturing equipment, pharmaceutical ingredients, and medicines for end use. This makes the industry vulnerable to supply-related problems and fluctuations in foreign exchange rates.

A significant portion of residents still prefer to seek treatment for serious ailments abroad, proving a huge drain on government finances and negatively impacting the domestic sector. Governments’ stringent control and policies such as regulated profit margins pose a challenge to distributors and retailers.

Pharmaceutical companies face severe shortage of local personnel, thus restricting industry development and increasing reliance on expatriate workforce.

The problem of fake medicines is prevalent in the Gulf countries as it is in other parts of the world.

Recommendations

In order to attract private operators and foreign investments into the drug manufacturing segment, governments across the region could set up more free zones for the healthcare industry that offer tax holidays, relaxed ownership laws, unrestricted movement of capital, and other incentives.

Multinational players, who are keen on tapping the opportunities offered by the GCC market, can take advantage of the various incentives offered by the regional governments. Instead of waiting for long registration periods and adhering to strict import requirements and price controls, it may be beneficial for these companies to establish a manufacturing unit in the Gulf rather than cater to the market through the trading route.

Local business groups and pharmaceutical distributors can venture into branded drugs manufacturing with the help of technology transfer and licensing arrangements with multinational companies. 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.

There is a need to review the restrictions on advertising and retailing of OTC pharmaceutical products to boost growth in the market.

It is important for the GCC governments to work towards achieving a balance in protecting the interests of local manufacturers, foreign suppliers, distributors, retailers, and the end-users.

Please click here to access the GCC Pharmaceutical Industry Report online.