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Pharmaceutical Manufacturing and Packing Sourcer

Spanning the Gulf


The pharmaceutical market value in the GCC countries and Yemen exceeds $6 billion (£3.3 billion).This market is growing rapidly and is expected to reach $10 billion (£5.6 billion) by 2020.Despite the growth of this market,GCC countries continue to import up to 80 per cent of their medicinal needs from abroad, while local manufacturing continues to export the bulk of its manufacturing capacity. Therefore, significant opportunities exist for growth and expansion of this sector in the GCC itself. Expanding growth in this sector would also help to achieve the strategic objectives of the region in terms of industrial diversification into knowledge-based industries.

Current Picture

Last year was an interesting one for pharma in the GCC.The industry was, and remains, under intense pressure since many of its customers – particularly healthcare providers and insurers – are facing declines in margins and operating budgets, and the pharma industry is dealing with increasing cost pressures, rising manufacturing costs, and higher regulatory requirements leading to increased compliance and marketing costs.

Several GCC countries are adopting new and innovative approaches with a direct effect on the pharmaceutical industry, from universal healthcare in Abu Dhabi, to liberating the pharmaceutical market from price controls in Qatar.The traditional pharmaceutical marketing model has become less and less effective as payers use aggressive tactics to limit prescription utilisation. Abu Dhabi in the UAE has implemented a generic prescription policy, thereby limiting the ability of physicians to prescribe brand-specific drugs, and other GCC countries are using or planning to use formularies with preapproved medications.

At the same time,pharmaceutical companies’ direct contact with physicians is becoming increasingly restricted and physicians see less value in sales calls, in part because they have convenient access to a wealth of credible information from other sources. Budgetary evidence indicates that pharmaceutical sales and marketing leaders have already begun to shift their efforts from detailing products to physicians to focusing on a broader set of collaboration partners, including payers and regulators, as well as targeting value creation in the disease state.

There are also a few initiatives that represent a paradigm shift from product selling to value selling, which is evident in the case of large multinational pharma companies launching disease management programmes with government regulators and health authorities in the region.

Going forward, pharmaceutical marketing must aggressively promote product value creation to an ever-growing range of stakeholders.The goal is to realign the marketing model towards a holistic view of diseases, patients and other stakeholder needs and outcomes, and position pharmaceutical companies as fully engaged and effective leaders in a sustainable, cost-effective, patientcentred healthcare system.

Most of the GCC countries’ healthcare systems are moving towards consolidation and group purchasing.The tender and contract market – which primarily consists of competitive, simultaneous procurement quote requests by institutional buyers – is large and growing quickly, with companies such as the National Unified Procurement Company for Medical Products (NUPCO) increasing its role and influence in Saudi Arabia, and with other countries increasing their tendering capabilities from the current 40 per cent of the total pharmaceutical sales in GCC markets.

Contract Culture

Due to the local and diverse nature of procurement by tenders, most pharma executives do not yet have a good understanding of this market. For instance, most ‘head office’executives believe that these contracts are essentially awarded on price, while in reality the majority of tenders are determined on wider criteria. Tendering can create ‘all or nothing’ scenarios, which need dedicated planning capabilities, and bulk volume contracts require particularly close coordination between the supply chain and commercial functions.

While tendering and contracting systems vary significantly across markets, these sales generally require specific skills that most pharma companies or their local agents have not yet developed into a dedicated capability.Tender processes are often highly regulated and require different expertise to traditional sales and marketing models,with special attention paid to market access and key account management initiatives.

In the face of changing market dynamics, the potential for economies of scale in manufacturing and the supply chain still remain largely unexploited.There is low industry concentration in the global pharmaceuticals sector today, and many Middle Eastern manufacturers are producing identical generic products.

Such operational scale can be achieved through mergers and acquisitions,or through less complex cooperative models that can create virtual scale in selected areas. In pharma, one of the most promising cooperative efforts could be the establishment of so-called manufacturing utilities, in which a consortium of companies own and operate shared manufacturing plants. Such utilities offer a host of benefits to the member companies, including lower operating costs through the consolidation of production processes, increased utilisation and enhanced flexibility due to the pooling of production assets, the ability to maintain a close-to-the-customer production footprint due to lower costs, sourcing improvements due to the bundling of purchase volumes, and lower capital expenditures and capital costs due to investment smoothing and reduced reserve capacity requirements.While this may have not been possible a few years ago, the changing regulatory environment in the GCC is now more flexible and accepts alternative business models.

As a prime example of the state of the sector in GCC countries, an analysis of the pharmaceutical industry in Saudi Arabia is shown below. It provides an accurate reflection of some of the issues encountered across the region, as well as factors that may affect future growth, both positively and negatively.

Strengths
  • The largest pharmaceutical market in the Gulf states region (at around 49 per cent of the total in 2014), with steady growth projected over the near future
  • Rising government investment in the local drug industry
  • Rapidly expanding population, with more ‘civilisation’ diseases in evidence
  • Constant modernisation and expansion of healthcare provision in the country
  • Dominance of patented drugs expected to persist, given Saudi Arabia’s wealth 
Weaknesses
  • The complex nature of the domestic regulatory system, restricting the entry of drug makers from developing countries such as India
  • Market reliance on imports, particularly at the hi-tech end of the scale
  • Market entry delays due to requirements for laboratory testing in the country
  • Pricing system biased in favour of local industry
  • Reference pricing to other markets negatively impacting price levels in Saudi Arabia
  • Inadequate protection for patented pharmaceutical products
  • Tight government control on prices resulting in some of the lowest drug prices in the region
Opportunities
  • The country’s recent accession to the WTO, resulting in new rules on investment in local companies, which will greatly encourage foreign investment in the sector
  • Potential for generics growth, from a low base, boosted by the need for cost-containment and pending patent expirations
  • An increase in OTC consumption, advertising support and an increase in the number of pharmacies leading to greater customer awareness and demand for drugs
  • Considerable scope for local manufacturing sector growth, especially given the government support for diversification within the economy
  • Saudi Arabia’s involvement in the Gulf Central Committee for Drug Registration (GCC-DR) and other harmonisation initiatives to act as a catalyst for market development
  • Expansion of private insurance policies and healthcare facilities
Risks
  • Improved IP laws will affect local firms’ ability to make generic versions of patented drugs
  • Government’s failure to revise discriminatory drug pricing and reimbursement policy with proposed changes to include more lowerincome countries in referencing basket
  • Uncertain uptake of the compulsory insurance scheme and ability of firms to fund it
  • Mandatory yearly price cuts for many established prescription drugs since 2008
  • New medical supplier with exclusive rights to supply government health institutions could force smaller distributors out of business
Further Reading
  1. Pharma Quality by Design, Feb 2011
  2. First Coordination Meeting of the Pharmaceutical Industry in the GCC and Yemen (Abstracts 2011)
  3. QNB Capital (Report, April 2011)
  4. Business Monitor International, Pharmaceutical Industry Report, Qatar Q1 2011
  5. Business Monitor International, Pharmaceutical Industry Report, UAE Q1 2011
  6. Business Monitor International, Pharmaceutical Industry Report, Saudi Arabia Q1 2011


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Ahed Ghanem is a member of PricewaterhouseCoopers’ Health Industries team based in Dubai. He is responsible for the delivery of advisory services related to healthcare and pharmaceuticals to the Middle East region. He has over 10 years of experience, leading engagements in regulatory affairs, sales, marketing, compliance, business development, as well as general management. He has previously worked in the pharmaceutical industry with various regional and multinational companies and their commercial representatives in the GCC. Ahed has a BSc in Pharmacy, an MBA from tge University of Strathclyde Business School, UK, and has completed the UK Logistics for Health Commodities course at Johns Hopkins School for Public Health. Email: ahed.ghanem@ae.pwc.com
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