Singapore, May 12, 2010: The pharmaceutical market of the Cooperation Council for the Arab States of the Gulf (CCASG), also known as the Gulf Cooperation Council (GCC), a political and economic union involving the six Arab states—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE), will be worth $7.6

billion by 2014 and $9.6 billion by 2019. Saudi Arabia, the richest amongst these, leads with 49% of the total market in both 2014 and 2019. The UAE, where Dubai is located, follows closely behind, contributing $2.6 billion or 34 percent of the total value in 2014. By 2019, the UAE will comprise 35 percent of total GCC drug market spending.

Within the local pharma industry, the over-the-counter (OTC) medicine market faces significant barriers of growth in GCC region mainly due to tough regulatory conditions, that prohibit the advertising and promotion of OTCs. These drugs can only be purchased in licensed pharmacies and not at retail outlets, although this is possible in the UAE. In the recent past, consumer habits in the UAE has changed—Buying drugs in a retail format allows OTCs to be accessible and open to spontaneous purchasing behavior. Across the border in Saudi Arabia, strict controls on OTC medicines limit growth and are unlikely to be revised in near term. Let’s now look at the pharmaceutical market in each state in the GCC countries.

OMAN

Oman’s pharmaceutical market was worth $124 million in 2009 and that should rise to $171 million by 2014, representing a compound annual growth rate (CAGR) of 6.69 percent. This rate will slow to around 3.6 percent between 2014 and 2019 to give a final market value of $204 million. Oman has one of the smallest drug markets in the Middle East, which discourages foreign investment, but the country benefits from a well-funded and advanced health system.

Business Monitor International (BMI) noted the healthcare expenditure in Oman is forecast to increase from $0.8 billion in 2009 to $1.38 billion by 2014 at a CAGR of 11.53 percent from 2009-2014. Oman’s economy was relatively untouched by the economic downturn, growing at an estimated 2.6 percent in 2009. For 2010,[ BMI expect growth to stand at a healthy 5.2 percent, based on an expected uptake in oil production that will boost consumer spending power.

KUWAIT

Kuwait’s pharmaceutical market was estimated to be worth $365 million in 2009. The market is expected to see a growth of a CAGR of 5 percent over the next five years to reach $466 million in 2014 according to a report from BMI. The report says that the pharma market in Kuwait will grow at 5.1 percent, reaching a value of $601 million in 2019.

Kuwait has a strong pharmaceutical regulatory structure and stable political and economic landscape.As the market is relatively small, it offers potentially lower returns than its large neighbors such as Saudi Arabia and UAE.

Despite efforts to strengthen the local pharma market, only 20 percent of pharmaceutical products in terms of volume are manufactured locally. Kuwait’s only major producer is generics maker Kuwait-Saudi Pharmaceutical Industries (KSP). No multinationals have a direct manufacturing presence in the country, with most companies conducting operations through representative offices in neighboring Saudi Arabia or the UAE.

The pharmaceutical market in Bahrain was worth $112 million in 2009. It is expected to see a steady growth to touch $120 million in 2010, as the market recovers from the global economic slowdown. Drug spending in 2009 was driven upwards by the outbreak of swine flu, which forced the government to spend an additional $13.2 million on drugs.

The other key factors driving up the drug expenditure include an expanding population, increased consumption and the growing cost of medical imports. BMI noted that the growth of the healthcare spending will be above 4 percent in the 2010—2014 period. In the longer term, however, drug expenditure growth will slow, and will stand at 3.86 percent per annum in the 2014— 2019 period, partly due to increased government costcutting as it tries to battle swelling health expenditure.

The increase in health spending in Bahrain is being driven higher by chronic disease. The GCC nations have the highest obesity rates worldwide. Bahrain has the sixth highest prevalence of obesity in the world at 28.9 percent of the population. This is partly due to poor diet but is also a result of the sedentary lifestyles that are a necessity in the country due to the scorching heat. The knock-on effect of this obesity epidemic will be manifest in an increased prevalence of cardiovascular disease and diabetes.

QATAR

According to BMI, the healthcare expenditure of Qatar at consumer prices was estimated as $233 million in 2009, having posted double-digit growth in relation to the previous year. Prescription drugs continued to dominate the market, accounting for close to 90 percent of sales by value, supported by generous and high quality public-sector provision.

Through to 2014, drug expenditure is forecast to increase by a (CAGR) of 11.16 percent, in both US dollar and local currency terms as the latter is pegged to the former to reach $400 million. However, BMI expects a greater focus on cost containment to stimulate greater generic substitution, thus lowering overall market growth to 8.31 percent over the 10-year forecast period.

However, although pharmaceutical regulatory risk is presently low, the government may be forced to take a less generous approach to reimbursement in the coming years, depending on the influx of oil revenues and the cost of healthcare modernization. This is especially pertinent now that a new Supreme Council of Health has been created and is entrusted with setting prices for medical services and pharmaceuticals. The demand for medical services in general and medicines in particular will continue to grow, driven by epidemiological changes as much as by healthcare modernization programs.

In fact, in December 2009, Qatar launched a healthcare conference to promote the sector and attract investment into the country. The healthcare industry is viewed as having strong growth potential given the government’s strategy to diversify the economy beyond its hydrocarbon-based resources. This objective is supported by other measures, such as the collaboration with South Korea and other governments in regards to promoting healthcare sectors. Qatar has no local pharmaceutical manufacturing facilities, developments of modern medical facilities such as the scheduled opening of the state-of-the-art Hamad Medical City (HMC) complex with four hospitals - will inevitably benefit foreign producers, both from the region and further afield. Additionally, the government’s decision to cut the non-oil corporate tax rate for multinationals in the country to 10 percent from the start of 2010 should provide a major impetus for investment, though most multinationals will continue to prefer cheaper regional locations for possible involvement in local manufacturing.

UNITED ARAB EMIRATES

The pharmaceutical market in UAE to increase from $1.5 billion in 2009 to $2.7 billion by 2014 at a CAGR of 12.6 percent. Per-capita drug spending will be $492.81 by 2014, while only 0.75 percent of GDP will be dedicated to pharmaceutical spending. By 2019 the UAE will spend $3.53 billion on medicines, with a 2014—2019 CAGR of 5.4 percent. Growth is driven by the expansion of domestic drug makers and therefore The pharmaceutical market in UAE to increase from $1.5 billion in 2009 to $2.7 billion by 2014 at a CAGR of 12.6 percent. Per-capita drug spending will be $492.81 by 2014, while only 0.75 percent of GDP will be dedicated to pharmaceutical spending. By 2019 the UAE will spend $3.53 billion on medicines, with a 2014—2019 CAGR of 5.4 percent. Growth is driven by the expansion of domestic drug makers and therefore greater choice and availability of cheaper generic medicines.

The UAE has been depending on imported medicines like its neighbors because of a dearth of large-scale generic drug manufacturing in the country and a small population. While a local company called Gulf Pharmaceutical Industries (Julphar) is making strides in expansion and increasing production. This would reduce the demand for imported equivalents in near future.

To overcome the shortage of the essential medicines, the Health Authority in Abu-Dhabi has announced that the country should adopt more cost-effective drug procurement strategies, including the use of generic substitution. The industry feels that this measure from the government will help to reduce inefficiency in the healthcare and pharmaceutical sectors. UAE has revealed a formation of a Middle East Generic Association (MEGA) to promote both proper regulatory and bioequivalence testing and advance generic drug sales in the region.

From 2009 to 2014, the pharmaceutical market in Saudi Arabia is expected to post a CAGR of 6.32 percent in both US dollar and local currency terms. Saudi Arabia would be more capable of higher medicine spending if more rational policies were put in place to encourage domestic drug manufacturing and reduce reliance on imports. For example, joint ventures and licensing deals with multinational pharmaceutical companies would help reduce prices and improve access to medicines. The slow growth of the pharma market is mainly because of strict controls imposed on OTC medicines in Saudi Arabia, limiting their advertisement and promotion. The industry feels that this trend will continue in near future. These controls are similar to others in the region; however, the UAE are already showing signs of change.

Currently companies from Europe and the US are major suppliers of pharmaceuticals to Saudi Arabia. However, other countries, including Japan and Ecuador, have started to gain market share by establishing joint ventures in pharmaceutical manufacturing with Saudi partners. The largest producer of pharmaceuticals in Saudi Arabia is Glaxo Saudi Arabia (a subsidiary of UK-based drug major GlaxoSmithKline (GSK), with a 10.8 percent share. GSK also has a joint venture with local company Banaja Saudi Import through Glaxo Saudi Arabia, which holds a 51 percent stake in the venture.

Local company SPIMACO is the second-largest producer of pharmaceuticals in Saudi Arabia, and holds a market share of 7.4 percent and currently meets 75 percent of Saudi Arabian private pharmaceutical demand. Several large Indian drug makers are attempting to penetrate the Saudi drug market. Ranbaxy – which already has marketing operations in the UAE, Bahrain and Oman – is leading the way, and was the first Indian drug maker registered in the country.

CONCLUSION

One of the most significant forces driving expansion of healthcare systems in GCC countries is rapid population growth, which is estimated to reach over 520 million by 2030. This expansion is also being powered by the concept of health cities and e-health initiatives by gulf governments such as Dubai Health City and King Abdulaziz Medical City.

In addition, per capita health care spending in the GCC countries is expected to continue growing faster than the global average, according to a recent report from Alpen Capital. “Growth in income levels as well as an increase in health insurance coverage will boost demand for health care services,” the report said.

With existing small population and restriction on the OTC medicines, the drug expenditure in GCC countries is relatively small in absolute terms. However, the regional harmonization of pharmaceutical regulation and trade encourage the multinational pharmaceutical companies from East and West to evaluate the GCC as a market of opportunity as a whole.