December 2010

Alpen Capital expects pharmaceuticals sales in the GCC to grow at a CAGR of 7% to US$ 10.8 billion in 2020 from US$ 5.6 billion in 2010. This growth is driven by favourable demographics such as high life expectancy and sharp population growth, increase in healthcare awareness, increasing incidence of lifestyle diseases, conducive government policies and mandatory medical insurance for employees.

Alpen Capital expects the total students in GCC region to grow at a CAGR of 1.8% during 2010 to 2020 to reach 11.3 million in 2020 from 9.5 million in 2010. Number of tertiary students is expected to grow at a highest CAGR of 5.5%.The share of tertiary education students is expected to rise from 11% in 2010 to 15% in 2020, while primary education share would decline from 46% to 43% during the same period. Private enrolment share is also estimated to rise from 16% in 2010 to 19% in 2020 in primary and secondary education segment.

While the healthcare expenditure is expected to rise, as the sector matures, pharmaceuticals sales as a percentage of healthcare expenditure in the region are expected to decline and eventually reach that of the developed nations. Alpen Capital estimates the ratio to fall from 14.3% in 2010 to 12.4% in 2020.

Industry Trends

There will be a shift in the drug consumption pattern due to the shift in the disease prevalence rate. Urbanization and rising per capita income have led to the consumption of unbalanced diets and a more sedentary lifestyle in the GCC, thereby aggravating the prevalence of lifestyle ailments such as diabetes and cardiovascular diseases. The average treatment cost in the case of lifestyle-related ailments is higher than treating communicable diseases. This will impact the pharmaceutical industry and lead to higher per capital healthcare costs.

The GCC region imports most of its pharmaceutical products and patented drugs dominate the market, with generic drugs accounting for just 5-6%. Most of the GCC manufacturing plants are focused mainly on production of generic drugs and face difficulties in competing with foreign multinationals importing branded pharmaceuticals products.

Challenges

As local manufacturing is limited, it not enough to meet the growing demand and this creates a strong need for private sector participation; making the GCC pharmaceuticals sector an attractive investment destination. The governments of GCC countries are planning to raise their domestic production via investments in the pharmaceutical industry and adaptation to liberal trade policies and international healthcare standards. Moreover, the private pharmaceuticals sector in the region, which tends to favour branded pharmaceuticals, is marked by tight price controls.

Although plenty of opportunities exist for the pharmaceuticals sector in the GCC, they are punctuated by a few challenges. These include high dependence on imports, growth barriers for OTC medicines and high & uneven price distribution of drugs across GCC countries.

Although the sector is still in a nascent stage compared with international standards, it is undergoing a massive change through reforms, simplified government regulations, and upgradation and expansion of healthcare infrastructure. Alpen Capital believes that the GCC pharmaceutical sector will witness a major transition in the coming years and will provide interesting investment opportunities.

For more details please click here to access the complete version of the GCC Pharmaceuticals Industry Report.