Pharmaceutical sales as a percentage of Gross Domestic Product (GDP) in the GCC are lower than that in many countries in the Middle East and North Africa (MENA), and elsewhere. Average pharmaceutical sales as a percentage of GDP in the GCC was 0.6% in 2012, compared to 3.3% in Lebanon, 2.2% in the US, and 0.8% in India. This points towards untapped growth opportunities for companies as healthcare development and awareness in the region are gradually gaining traction.
The GCC governments are the chief sources of healthcare funding in the region, with a consolidated contribution of approximately 70%. High budget surplus due to a booming hydrocarbons sector and strong economic growth have provided the governments sufficient room to allocate considerable funds towards providing a high standard of healthcare for the citizens. The regional governments allocate between 6%-12% of their annual budgets on healthcare spending. However, in order to gradually reduce the pressure on public funds, governments across the GCC are actively working towards increasing private sector involvement in the healthcare industry.
The pharmaceutical sector is still an emerging industry in the GCC, and drug manufacturing is at a relatively nascent stage due to limited focus on developing indigenous production capabilities, restricted allocation of funds towards research and development, and shortage of skilled manpower. Currently, the region has less than 40 companies engaged in drug making. With limited progress achieved so far in drug research and manufacturing, imported drugs dominate pharmaceutical sales in the Gulf. Around 80% of pharmaceuticals consumed in the region are imported. However, the GCC governments have been trying to increase local drug manufacturing and reduce reliance on imports by encouraging joint ventures and licensing deals with multinational pharmaceutical companies.
A vast majority of manufacturing plants in the GCC are located in Saudi Arabia. Major indigenous pharmaceutical producers in the region include the Saudi Arabia-based Saudi Pharmaceutical Industries and Medical Appliances Corporation (SPIMACO) and the UAE-based Gulf Pharmaceutical Industries (Julphar). Leading multinational companies like GlaxoSmithKline and Abbott Laboratories have also set up manufacturing units in the region.
The GCC pharmaceutical market is dominated by patented drugs, with generics having only about a 5%-6% market share. Since the domestic manufacturers primarily focus on generic drugs, they have managed to capture only a small portion of the overall market value. However, non-GCC markets like Iraq, Lebanon, Afghanistan, Egypt, Libya, and Yemen are major sales avenues for many of the local manufacturers who typically export a significant percentage of their annual production. Nevertheless, the region ranks low in the context of capabilities within the overall pharmaceutical industry value chain, and particularly with respect to research and discovery of innovative products.
Foreign drug manufacturers are required to sell their products in a GCC country only through local importing and distribution companies registered with the health ministry. Entry of foreign investors in the pharmaceutical whole-sale and distribution segment is restricted. Hence, local distributors play a larger role in the market than the domestic manufacturers. Large distributors operate their own warehousing facilities and distribution networks for delivering products to pharmacies, hospitals and clinics, and government agencies. These companies own exclusive import and country-wide distribution rights for supplying products from a number of regional and foreign manufacturers. Some of the distributors are vertically integrated and have their own pharmacy operations for selling medicines directly to the end-users. Leading names in the private pharmaceutical distribution segment in the region include the UAE-based Pharmatrade, Banaja Holdings and Tamer Group in Saudi Arabia, Kuwait-based Al Mojil Drug Company, Al Baker Trading Establishment and Ebn Sina Medical in Qatar, and Bahrain Pharmacy and General Store.
The pharmaceutical sector in each GCC country is mainly regulated by its respective health ministry. In countries like Saudi Arabia, independent agencies such as the Saudi Food and Drug Authority have been established to partially take up a part of the regulatory role of the health ministry. Apart from regulating investments and drug registration, these ministries and other government agencies also administer prices of pharmaceutical products. However, despite government control, drug prices in the Gulf are among the highest in the world. A World Health Organization study found prices of pharmaceuticals in the region to be 13 times higher compared to the global standard. Moreover, prices vary across the region with medicines being more expensive in the UAE and Qatar, compared to Saudi Arabia.
All the GCC governments are gradually consolidating the regulations related to the pharmaceutical industry with the goal of having a centralized registration process, free movement of drugs, and standardization of prices across the region.