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Middle East: The new promised land for pharma?
Economically, the Middle East (ME) is well positioned to be the one of next growth engine of global pharmaceutical sales: several countries in the region enjoy robust economic growth and the highest cash reserves per capita in the world - in spite of the recent "Great Deflation" in oil prices. The pharmaceutical industry is consequently flourishing as the expanding middle class demands better care, and government healthcare spending continues to grow. The tremendous economic and industrial development also sees prevalence of obesity, diabetes and cardiovascular disease on the rise> In fact, as many as six ME countries are among the top 10 globally in terms of prevalence of Type-2 diabetes.
Still, the region is at a crossroads - the Great Deflation certainly alters the picture for government budgets, and consequently healthcare expansion programmes, whilst the risks associated with centralised procurement and international reference pricing are being closely monitored.
Opportunity in Saudi Arabia
Out of the key markets in the ME, oil-rich Saudi Arabia is the largest pharmaceutical market in the Gulf with 59.4% of regional share, and has one of the most sophisticated healthcare systems in the region. Healthcare has been given a high priority by the government: all citizens and expatriates working in the public sector have free access to all public health services, and public expenditure contributes to 78% of total healthcare expenditure.
Saudi Arabia has a growing and exceptionally young population, with around two thirds of it below the age of 30. Like the rest of the Gulf countries, the real health challenge lies in the alarming increase in chronic diseases- Saudi Arabia is the fifth highest country in the world in terms of obesity rates, weighing in at a prevalence rate of 33%. Apart from the huge demand for quality medical services, Saudi patients also strongly favour imported branded products over generics, offering significant potential for multinational companies (MNCs).
The Saudi Arabian pharmaceutical market was valued at USD5.1 billion in 2012, and the government is determined to attract increased foreign investment and technology transfer. This sizable area of untapped growth makes Saudi Arabia a destination for MNCs to expand: Sanofi opened a new production plant in the country last year, and Pfizer has partnered with Tabuk Pharmaceuticals to commercialise its products in Saudi Arabia.
Survival of the fittest
However, simply shipping drugs to the region doesn't readily translate into commercial success - the ever-changing local dynamics make the environment for market access and innovation unpredictable.
Pricing policy is one of the major elements that affect market access. Since the Ministry of Health is the major provider and financier of healthcare services, stringent price controls and enforced price cuts are in place to contain cost, tending to make drug prices in Saudi Arabia lowest in the region. Moreover, in 2014, the Gulf Cooperation Council (GCC) member countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) and Yemen introduced a price harmonisation process to standardise drug prices in the region. Substantial price reductions across multiple therapeutic areas are to be expected, and the process could even potentially impact drug prices of other non-GCC markets that refer to GCC prices.
The region is certainly facing a number of intriguing developments. To make things more complicated, since the government derives most of its income from oil, the government's healthcare budget is vulnerable to fluctuating oil prices. The global oil prices have fallen sharply since mid-2014, and are still looking for a floor: partly because the big oil producers (e.g., Saudi Arabia) refuse to cut back its production. Saudi Arabia's deep pockets will allow it to withstand low prices for some time, while driving emerging oil providers out of the market. However, if low oil price persists and the government runs into a deficit, the country may have to reduce public spending and cut back some of the social programmes it implemented after the Arab Spring. This raises an interesting set of questions as how great the downward pressure will be on pharmaceutical prices.
Hence for MNCs to position themselves as market leaders, they will need to understand the commercial and regulatory requirements at play, so as to generate value and at the same time engage key stakeholders to best meet the unique medical needs of patients in the region. Our next life sciences multi-client study will explore the best practices for navigating the landscape and managing risks when entering the Middle-East market. If you are interested in understanding the scope of this forthcoming study please leave a comment and we will be in touch directly.
Cecilia Chui is a life sciences senior analyst for IHS
Posted on 27 February 2015
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