Spurring development: New regulations and incentives are changing the pharmaceuticals landscape

With an increasing population where lifestyle-related illnesses are ever more common, pharmaceuticals companies should see steadily rising demand for their products in Dubai and throughout the GCC. Successful entry into the market is no easy task, and although demand is indeed growing in the region, the Middle East still only accounts for between 1% and 1.5% of pharmaceuticals sales worldwide, making some companies wary of risking too much too soon. For those businesses that do choose to invest in the GCC region, however, there will be an estimated $12bn spent on the industry through 2020, with new regulations and incentives for local production opening the possibility for new revenue sources and opportunities.

Sales and Spending

Pharmaceuticals sales in the UAE hit an estimated $1.6bn in 2012, up 3% from 2011, according to investment bank Alpen Capital’s report on the GCC pharmaceuticals industry published in March 2013. It also reported that the UAE has the highest per capita spending on medicines in the region at $282 annually. With 18.3% of total sales, the UAE was the second-largest market in the GCC, though Saudi Arabia dominates the region, accounting for 59.4% of all purchases. Medicines are largely imported and locally manufactured products make up around 15% of all sales. Laws regulating the sales of pharmaceuticals to patients in the UAE are fairly strict, with a doctor’s prescription required to obtain most drugs. As in other countries with similar rules, this makes doctors’ suggestions and preferences an important factor in the trends of sales. Due at least in part to this fact, generic drugs account for just 15-20% of total sales in the UAE and are a major reason for its high per capita spending.

Although there are some 90 international pharmaceuticals companies present in the UAE, Alpen Capital reports that only eight are manufacturing drugs there. Nayel Faleh Al Jawabira, director of Lance Regional Bank in Dubai, identified this as a problem in the region, saying, “There are many challenges to manufacturing pharmaceuticals in the GCC, such as the lack of expertise and skilled manpower which limits the growth of the industry and increases the reliance on foreign supply.”

Developing The Industry

 This is starting to change, though, and the government has eyed domestic production as an effective way to ease rising drug prices and spur Dubai’s development as a regional centre for the industry. In one of its most recent and concrete steps the government increased the total number of companies licensed to manufacture drugs locally to 14. Ameen Hussain Al Amiri, assistant undersecretary for medical practices and licensing at the UAE Ministry of Health, said, “Consumers will benefit from the lower-priced alternatives and immediate access whereas manufacturers in the UAE can immediately sell the drug the moment a drug’s patent term ends. Through the resolution we saved them money and time. The move also supports the pharmaceuticals industry in the UAE.”

Like the modest but steady growth in domestic demand for locally manufactured drugs, exports, too, have risen over the past five years. According to official statistics, pharmaceuticals exports topped out at over Dh100m ($27.2m) in 2012, up from Dh79.66m ($21.7m) in 2010 and 80% more than the total in 2008.

Price Control

 In addition to the promotion of the industry, the government has also taken action that more directly affects sale prices and the final cost for consumers. In 2011 it took steps aimed at reducing the prices of drugs in the UAE, which were the highest in the region at the time. Even though the government mandated that prices for hundreds of medicines be lowered by 20%, costs remained high and in the beginning of 2013 regulators continued their efforts by lowering the final costs of thousands of drugs, this time anywhere from 1% to 40%. To supplement the additional price controls, the new regulations also limit advertising and made direct marketing of certain drugs illegal.

“The increased complexity of regulation and downward pressure on prices are some of the most formidable challenges that international pharmaceuticals companies face when attempting to expand in the Middle East,” Joe Henein, president and CEO of New Bridge Pharmaceuticals, told OBG. Rashad Hassan Al Moosa, joint managing director and partner of Gulf Drug, agreed, telling OBG, “Health care is certainly a stable business in the UAE, but margins in pharmaceuticals are limited by government regulations in many cases.”

New Scheme

 Even if profit margins for certain drugs and companies are affected by the regulations, the coming compulsory medical insurance will bring millions of residents into the market and gross sales should soon rise dramatically as a result. The new scheme, which follows the model already in place in Abu Dhabi, could increase insurance claims by as much as 300% in the next three years. Furthermore, the type of spending that will come with universal health insurance will be much more focused on preventive and longer-term treatments, an area where pharmaceuticals are extremely important, especially since there are a growing number of chronic lifestyle-related illnesses such as diabetes that can require prolonged medicinal care.

Regionally, demographic trends also indicate that demand will continue to grow going forward. The population of the GCC is expected to rise from 37.5m in 2007 to around 50m by 2017. The population is ageing as well, and there will be an estimated 17.8m people over the age of 60 in the GCC in 2050, compared to just 1.9m in 2012, according to Alpen Capital.

Looking to meet the increasing demand in the emirate and the broader region, several pharmaceuticals companies have recently entered Dubai in a variety of different capacities. Spanish pharmaceuticals company Cinfa increased its presences in the UAE, introducing three new drugs to the market, as well as bringing its manufacturing expertise to Dubai. Speaking about the firm’s plans, Khalid Amin, the regional director of Cinfa, said, “We now have products in the market to address the need for more quality choice in medicine in the UAE, and we are using the country as our springboard for growth into other regional markets.”

A Growing Presence

 Following Cinfa’s move, in June 2013, Eli Lilly announced it would open a regional headquarters, covering 70 markets, in Dubai Health Care City. The office in Dubai would also serve as the headquarters for not just the Arab countries, but Turkey as well. In another sign of how international firms are increasingly viewing Dubai as the regional centre for the industry, US trade group Pharmaceutical Research and Manufacturers of America (PhRMA) announced that it would be opening a MENA headquarters in the emirate’s biotechnology free trade zone, Dubai Biotechnology and Research Park. PhRMA represents a number of the leading US firms engaged in biopharmaceuticals research and one of its primary objectives is to advocate for favourable policies on behalf of its members. The group’s presence signals that the MENA region is of growing importance to the companies it represents and the fact that the group chose Dubai as its base serves to solidify the emirate’s standing in the sector.

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The Report: Dubai 2014

Health chapter from The Report: Dubai 2014

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