Increasing local drug production and use of generics are driving a "surge" of global drugmakers entering the markets of the Gulf states through joint ventures with local producers, says a new report.
The pharmaceutical sector in Gulf Cooperation Council (GCC) member states - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE) - will show sustainable growth in the medium to long term, supported by increases in local production, foreign investments and consumption of generics, and driven by the region's population growth, rising life expectancy and increasing income levels, says the study, from Alpen Capital.
"We feel that government measures to control pricing of essential drugs and compulsory health insurance will increase local drug manufacturing," adds Alpen's managing director, Sanjay Vig. And, with the absence of new molecules pushing global majors to enter the generic space, "we see a surge in global companies entering the regional markets through joint ventures with local manufacturers,” he says.Alpen predicts that expansion of sales in Qatar and Bahrain will outpace overall GCC growth rates, but that Saudi Arabia and the UAE will retain their positions as the largest and second-largest GCC pharma markets, respectively, in the foreseeable future.
GCC population growth will be a key driver of market advance, with numbers in the region expected to rise from 37.5 million in 2007 to nearly 50 million by 2017. High levels of urbanisation and a strong expatriate presence are also supporting market growth, as do the rising number of people aged 60 and above - set to soar from 1.9 million in 2012 to 17.8 million by 2050 - plus higher levels of lifestyle-related chronic illnesses.Moreover, GCC governments are providing a number of incentives for domestic drug production to reduce their reliance on imports, while compulsory medical insurance schemes for locals and expatriates will make healthcare, including pharmaceuticals, more affordable, says Alpen.
Looking to the future, the study says that branded pharmaceuticals will continue to dominate the GCC markets due to strong consumer preference, but generics are expected to narrow the volume gap. Also, due to the global financial crisis and regional debt problems, European drugmakers have turned their focus to the relatively emerging Gulf markets - during 2008-2011, pharma exports from the European Union (EU) into the GCC expanded at an average rate of 18.3% a year.
Several Gulf states are seeking investments from Indian drugmakers to gain from their experience in the generics sector, and the upcoming GCC/India free trade agreement (FTA) will further open up the market for Indian firms. Also, the GCC biotechnology parks and free zones are playing a major role in bringing in the foreign investment and technology required to build local capabilities for manufacturing patented drugs, while the GCC countries are progressively moving towards implementation of the Electronic Common Technical Document (eCTD) for Drug Registration, for which they agreed the framework for adoption in 2009.
However, the region does present challenges, the study finds. GCC drugmakers face hurdles such as the capital-intensive nature of their operations, small domestic market size, difficulty in raising adequate funds and shortages of knowledge and skilled manpower. Also, regional drug prices are not only significantly higher than the world average but also vary significantly within the region, and the Gulf states are highly dependent on imports of manufacturing equipment, pharmaceutical ingredients and finished products, making the industry vulnerable to supply problems and fluctuations in foreign exchange rates.Moreover, a significant proportion of residents still prefer to seek treatment for serious illnesses abroad, which is a huge drain on government finances and negatively impacts the domestic sector, while stringent government controls and policies such as regulated profit margins pose a challenge to distributors and retailers.
In order to attract private operators and investments into the sector, governments across the GCC could set up more healthcare free zones that offer tax holidays, relaxed ownership laws, unrestricted movement of capital and other incentives, the report suggests. Also, multinational players can take advantage of the various incentives being offered by the region's governments, and could find it beneficial to establish a manufacturing unit in the Gulf rather than enter the market through the trading route, it adds.
And local business groups and distributors can move into branded drug manufacturing with the help of technology transfer and licensing arrangements with multinationals - such joint ventures can benefit from the brand name and superior technology of the foreign partner, while capitalising on the market knowledge and distribution network of the local partner, says Alpen.