Forecasting the Middle East: An uncertain environment for pharma
Nader Rizkalla explains why, given the political turmoil in the region, forecasting the Middle Eastern market requires local business experience
By on May 31, 2011Many countries in the Middle East region are becoming more visible within the pharmaceutical corporate world as growth potential—and expectation—rise.
Forecasting becomes critical and significant numbers have to be delivered.
Meanwhile, forecasting takes place in a rather inflammatory environment where many major factors are unpredictable and forecasts are often not based on solid data.
Here are some of the major challenges to accurate forecasting in the region
Political turmoil
The area has been under a relative political stability for the past years under various suppressive regimes.
With the recent popular upheavals (Tunisia, Egypt, Libya, Yemen, Syria), this stability is now over.
Many countries are likely to go into a path of uncertainty, at least for some time.
For example, in Egypt the passion to clear up the corruption created by the last regime might create an environment hostile to investment.
Demands for better salaries and social justice will create pressure on companies to restructure based on the current realities.
A couple of weeks ago, GSK—the leading pharmaceutical company in Egypt—created havoc in the market by bringing up the monthly salaries of medical representatives to the level of $1,000.
This is more than double the average salaries paid for reps in Egypt.
If the market follows, many companies will have to adjust their business operation models, which classically relied heavily on face-to-face promotion.
Devaluation of the local currency is a threat for an industry dependent on import of either finished products or raw material.
A sharp devaluation can lead to a sudden halt in the growth of the market, an incident that occurred in Egypt in 2003. (For more on the Egyptian market, see ‘Rx for pharma in the new Egypt’ and ‘The state of play in Egypt's pharma market'.)
Oil
As many countries in the region are dependent on revenues from oil, a rise in price improves the economy.
Countries with good oil production and a relatively big population (e.g., Algeria) have excellent growth potential.
However, not all countries in the region get the benefit.
Oil poor countries (e.g., Jordan, Egypt) suffer when prices go up.
The challenge is to match your forecast with those cycles of oil price changes, especially given that in many countries spending on drugs is mainly out-of-pocket.
Lack of data
This is classically one of the major barriers for accurate forecasting in this region.
Many countries lack basic epidemiological data; some countries do not even have census data (e.g., Lebanon, for political reasons).
Data on drug prescription, dispensing, and sales are often absent or grossly inaccurate.
This creates big difficulties in assessing the actual potential of your market and poses a real challenge if you are trying to apply commonly used models (e.g., patient flow models). (For more on patient flow models, see ‘New challenges and techniques in forecasting’, ‘Patient flow analysis and forecasting’, ‘Forecasting: Patient flow modeling comes of age’, and ‘Forecasting: How to get patient flow analysis right’.)
Pricing
A wave of price reductions (between 5% and 40%) is expected in the UAE following lengthy negotiations with drugmakers.
A price comparison study conducted by a committee of the Ministry of Health found that drug prices in the UAE are the highest of six neighboring Gulf Cooperation Council (GCC) and Arab states, including Bahrain, Jordan, Lebanon, Oman, and Saudi Arabia.
A similar wave of reductions occurred in Egypt in 2010, with a major difference: There were no negotiations with drugmakers!
These cross-regional price comparisons are becoming an issue and are leading to a spiral of price reductions.
Other countries, like Egypt, have completely opaque pricing policies.
It is not possible to predict what tariff price will be placed on newly launched products.
It becomes a real challenge when you are placing a growth forecast based on new launches.
In this environment, forecasting certainly will be based on intuition and local business experience rather than on solid scientific methodology.
You have to be lean, cautious, and able to make quick changes in order to catch the opportunities and avoid the risks.
For all the latest on forecasting, join the sector’s other key players at Forecasting Europe on June 14-15 in Berlin and the 5th Annual Forecasting Excellence conference on October 4-6 in Boston.
For more on the Middle Eastern market, see ‘The Middle East: A pharma market in the making’, ‘Forecasting the Middle Eastern market’, and ‘Forecasting opportunities in the Middle Eastern market ’.
For an overview of eyeforpharma’s forecasting coverage, see ‘Highlights from eyeforpharma’s Forecasting coverage’.