Forecasting opportunities in the Middle Eastern market

Radi Haloub, researcher, University of Huddersfield and former area sales manager for Hikma Pharmaceuticals, talks to eyeforpharma about the evolution of the pharma market in the Middle East.

Radi Haloub, researcher, University of Huddersfield and former area sales manager for Hikma Pharmaceuticals, talks to eyeforpharma about the evolution of the pharma market in the Middle East.

E4P: How do you assess the potential of the Middle Eastern market?

RH: Expert opinions vary a lot. Some consider the Middle East to include all Arab countries (those that speak Arabic as a native and official language), Iran, and Turkey; some experts consider the Middle East countries as the Gulf, Levant, Egypt, Iran, and Turkey. All Arab countries, Iran, and Turkey are considered the Greater Middle East, but the Middle East is a region that spans southwestern Asia, southeastern Europe, and northeastern Africa. It has no clear boundaries.

The coming three years will be very hard to forecast because we are talking about the years following the credit crunch, and several pharmaceutical companies have reduced their workforces, which would affect new investment in new markets and new research projects. And at the same time, additional cautiousness from FDA staff will lead to a reduction in the ability to get approval, which will delay launching drugs and reaching markets. (For more on forecasting in the Middle East, see Forecasting the Middle Eastern market.)

There is a new challenge due to the different changes in the region. So many changes in a short period of time would create huge business opportunities. The local pharmaceutical manufacturers in the Middle East produce mainly generic pharmaceuticals and/or are involved in joint ventures with foreign companies. Generic drugs in the Middle East have experienced higher performance due to the large number of patent expirations, but in the near future this trend will decline as the number of expiring patents decreases, resulting in a golden opportunity for multinational companies to enter the market. The signing of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement by most of Arab countries (except Syria and Saudi Arabia) will pave way for multinational companies to lead market growth. (For more on the development of the Middle Eastern pharma sector, see The Middle East: A pharma market in the making.)

What are the characteristics of various individual markets?

Egypt, Jordan, Lebanon, the UAE, and Saudi Arabia are all Arab countries but each has its own political characteristics and nature of business. There are more than 200 pharmaceutical manufacturers in the Arab World, including private or state-owned companies or joint ventures between foreign and local partners. Sales represent about 1.5% of the global pharmaceutical business, and the Middle East and North African (MENA) region accounts for 2% of global pharmaceutical sales.

Ninety percent of raw materials used by Arab pharmaceutical companies are imported from India, China, and Brazil. The majority of Arab manufacturers produce generic or under-license products, which indicates that Arab manufactures depend mainly on the R&D of foreign companies. While multinational pharmaceutical companies invest about 12-20% of annual sales revenue in R&D, Arab pharmaceutical industries invest less than 0.2%. These expenditures are mostly directed towards new formulations and creating innovative drug-delivery systems of existing, off-patent molecules. Due to this, Arab pharmaceutical industries are obligated to search for new markets to penetrate in order to continue annual growth.

Egypt has the biggest population of the MENA countries, 80 million. Egyptian local manufacturers produce about 93% of its pharmaceutical market. Egypt is a price-sensitive market; its economy depends mainly on tourism, joint ventures and/or providing local Egyptian pharmaceutical companies with new products to be promoted under license in order to decrease the cost to the end consumer while maintaining acceptable profit margins. Egypt joined the WTO in 1995 and continued a decade-long reform process of upgrading its intellectual property laws under the US/Egypt free trade agreement. (For more on Egypt, see The state of play in Egypts pharma market.)

In Jordan, the macro-economic fundamentals are sound and many indicators point to continuing growth. Jordan is considered the number one exporter of pharmaceuticals among Arab countries. The reason behind focusing on exporting is that the Jordanian pharmaceutical market is small. The Jordanian pharmaceutical industry spends less than 0.1% of its sales revenues on R&D. Jordanian pharmaceutical companies focus mainly on gaining FDA approval for their products to penetrate the US market and use the certificate to promote items in other countries. Jordan has a stable political environment in addition its unique location beside Iraq, Syria, Palestine, and Israel. These countries are very promising. The registration time of a new molecule in Jordan is about 180 days.

Saudi Arabia is considered the largest market in the Arab countries, apart from Egypt. Lifestyle diseases like obesity, diabetes, and hypertension are among the highest in the world, which will elevate the countrys healthcare spending in future. The healthcare sector in Saudi Arabia seems very promising and is expected to outpace the growth rate of other countries in the Middle East. Saudi Arabia imports a large amount of semi-finished items to be re-labeled and repackaged. In 2006, imports were valued at $1.9 billion, a rise of 12.5% over 2005. Germany and Switzerland were the leading suppliers. In contrast, exports amounted to just $102.1 million.

The UAE is characterized by the highest priced medicines in the region. There is a marked increase of pharmaceutical business in the private sector due to the fact that the country decided not to provide any more free medical assistance to foreigners, which increased the healthcare insurance business in the UAE, as medical premiums have risen on an average 25-30% owing to rising expensive medical claims. Some 80% of the UAE population is foreign.

Will efforts to liberalize economies, introduce mass health insurance, and become self-sufficient in pharmaceuticals production result in major advances in the region?

Governments are strongly moving towards liberalizing national economies. In Jordan, the government has focused on reforms and investment policy aimed at the liberalization of trade and encouragement of foreign investment, the encouragement of private sector investment, the privatization of previously-owned governmental projects, the implementation of stronger trademark and copyright laws, and the reduction of import tariffs. As for the mass health insurance, today it is obligatory for employers to fully insure their employees and their families. This will provide an opportunity to increase the pharmaceutical market in the region.

The biggest threat to pharmaceutical market growth is the heavy reliance on the fluctuating price of oil. To what extent does this slow down the growth rate?

This is not only a threat to the pharmaceutical industry but also to different industries in the region. The majority of the MENA countries are oil producers, and the economic situation affects the budget allocation in tenders (purchasing drugs for national health services), taking into consideration that more than half of tender purchases are generic molecules. The multinational pharmaceutical companies should focus on the private market, where the patients and/or the private insurance company shoulders the cost of the treatment. This represents a big market share in the region.

How do you assess current opportunities in the region?

There is a huge opportunity for pharmaceutical companies to penetrate the region, especially after signing the WTO, where multinational companies can easily expand their business by launching new and innovative molecules. In Egypt, foreign investments, joint ventures, or giving licenses for some local manufacturers are considered very good options.

Learn more about the Middle Eastern pharma market at the Pharma Forecasting Excellence Summit in Boston from October 5-6, 2010.

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