Saudi Arabia increases domestic pharmaceuticals production

As the largest economy in the GCC, by both population and GDP, Saudi Arabia also has the region’s largest pharmaceuticals market. This has been growing by double digits in recent years, and while that expansion has slowed, there should be additional growth in the coming years from a major planned restructuring. Indeed, if current development plans succeed, the Kingdom’s domestic pharmaceuticals industry will play a more significant role in the economy by the next decade.

Facts & Figures

Pharmaceuticals market expansion to date has been driven by a number of key factors. First, there is organic growth – the population has grown from just 9.9m in 1980 and 16.4m in 1990 to 32.6m in 2016, according to the General Authority for Statistics. Around one-third of the population is made up of expatriates. Certain age groups have grown at faster rates than others, as fertility rates have fallen and life expectancy has increased. UN forecasts show a 2050 population of around 40m, 25% of whom will be over the age of 60 – up from just 4.4% in this category in 2010 and a predicted 6.9% for 2020. This implies a higher dependency ratio, as well as the likelihood of increased need for health care facilities and pharmaceuticals.

Second, GDP has increased thus making branded pharmaceuticals products more affordable for the population. GDP per capita was around $16,698 in 1980, rising to $18,753 by 2010 and $20,481 in 2015. A third factor is strong state support for health services, with major government investment in new hospitals and clinics. Lastly, the pattern of disease has also been shifting towards non-communicable diseases (NCDs), many of which require long-term treatment and management, pushing up demand for medicines (see overview).

These factors have coincided with traditional approaches to health care that have focused primarily on curative solutions: less attention has previously been given to raising awareness of prevention via wellness activities, such as sports and healthy eating, resulting in a increase in illnesses such as diabetes and obesity.

As a result, the sector has grown from an industry worth around $3bn in 2008 and $3.8bn in 2012, to around $7.4bn in 2016. This figure breaks down into $4.1bn spent on patented drugs, $2.3bn spent on generic drugs, and $1bn on over-the-counter medicines. It also gives the Kingdom a per capita drug spend some 113% higher than the global average.

The pharmaceuticals market appears to be stabilising now. Whereas before there were many new launches and a lot of local and international companies setting up with local generic manufacturers, there is now strong, stable, organic growth, which is very likely to continue for the next several years.

The market is set to be worth around $9.3bn by 2021, according to the Ministry of Health (MoH), representing cumulative pharmaceuticals expenditure of $42bn during 2017-21. However, growth trends experienced a blip in 2017 when, after growing by 9% each year until 2016, the pharmaceuticals market declined by 5%.

Sector Evolution

Most Saudi-based pharmaceuticals companies began as importing agents and distributors for foreign-made products. Drugs and medicines manufactured overseas continue to account for most of the market. In 2016, 20% of the drugs consumed in the Kingdom were locally made, the majority of which are generics and less favoured by the population. Some 70% of the imports originate in Europe, 13.1% in the US, 12.3% from the GCC, and the rest from elsewhere.

However, efforts by the government to curb pharmaceuticals expenditure and promote local production has resulted in generics becoming a fast-growing product. The value of generics has risen by 3% in Saudi Arabia, even while being hit by an oil crisis. Market share of regional companies in the kingdom increased by 7% in five years – a positive result of the government’s policy of promoting domestic manufacturing.

Leading locally based manufacturers include Al Jazeera Pharmaceutical Industries, AJA Pharma, Banaja Saudi Import Company, Saudi Arabian Japanese Pharmaceutical Company (SAJA), Saudi Pharmaceutical Industries (SPI), SPIMACO, Tabuk Pharmaceuticals and Al Jazeera Pharmaceutical Industries. As of 2012 the sector comprised 27 companies 2012, taking around 18% of the market’s value between them.

Plans To Buy Local

The government, conscious of the growing costs of imported pharmaceuticals – for individuals, the MoH and other health service providers – aims for that share to be boosted considerably. Under the Kingdom’s long-term development plan, Vision 2030, and its shorter-term goals, set out in the National Transformation Programme (NTP), which runs through 2020, a major shift towards locally produced drugs and medicines is set to take place.

Indeed, the NTP outlines a series of key performance indicators (KPIs) that each ministry and government agency will have to achieve by 2020. The Ministry of Commerce and Industry is tasked to “develop six attractive and financially viable pharmaceuticals subsectors”. The development of pharmaceuticals is listed as a strategic objective, aiming to boost the proportion of local manufacturing in the sector to 40% by 2020.The MoH also comes in on this KPI, with an instruction to further localise the industry, both in sources and employment.

At the same time, the NTP targets the share of the sector in non-oil and gas GDP to rise from 0.98% to 1.97%. All these KPIs, if achieved, would place Saudi Arabia above regional benchmarks, with locally manufactured pharmaceuticals accounting for 12% of total market value in the GCC, with a 1% share of GDP.

SFDA

Another agency that has its own KPIs is the Saudi Food and Drug Authority (SFDA). The central objective of the SFDA is to secure complete control over the medicine supply chain in the country. Counterfeit drugs are an issue in the GCC, along with smuggling and the illegal sale of drugs. The SFDA also wishes to ensure the tighter regulation of sales in order to enable accurate market analysis and a closer match between supply and demand, which would thereby cut wastage costs.

The main way to achieve this is via a comprehensive track-and-trace system, which the SFDA is currently rolling out. Barcodes on products ensure that information can be accumulated in a central database at the SFDA – in cooperation with the MoH – to establish a chain of custody from manufacturer to the point of sale at a local pharmacy. This system was still under construction in May 2017, with the SFDA expecting it to be completed by the end of the year.

The SFDA is currently working on upgrading its e-infrastructure, to make it easier for importers, manufacturers and distributors to register, and is also attempting to integrate more closely with other government departments. As part of this, the MoH now heads up the SFDA board, unifying inter-agency leadership.

Doubling Localisation

The industry aims to achieve a doubling of its localisation by 2020, however, challenges remain. “It’s very feasible,” Faisal Bindail, deputy general manager of AJA Pharma, told OBG. “We’ve seen major international and regional companies locating their production here in recent years, so I think it’s quite possible to boost this further.”

Examples of this include Pfizer, which began production at its new, $57m plant at King Abdullah Economic City (KAEC), on the Red Sea coast north of Jeddah, in January 2017. Some 16 products will be manufactured at the facility, building on a 2014 deal the US giant struck with local Tabuk Pharmaceuticals, giving the Saudi company exclusive rights to manufacture and sell “second brand” Pfizer drugs in the Kingdom.

Growth has slowed down for many large multinational companies in recent years, while local and regional companies have gained market share. May 2017 provided an example of regional cooperation with the opening of the $53m Julphar Saudi Arabia plant, also located at KAEC. This facility is a joint venture between the UAE-based Julphar Gulf Pharmaceutical Industries and the Saudi Cigalah Group, a health care distributor. The plant has the capacity to manufacture 1bn tablets, 300m capsules and 30m bottles of suspensions and syrups per year. KAEC is also set to be the site for Indian pharmaceuticals manufacturer Aurobindo Pharma’s first Saudi plant, while AJA Pharma itself is in the final stages of constructing a new, 120,000-sq-metre plant at Hail Industrial City which will locally manufacture drugs under licence on behalf of foreign firms.

In the longer term, localisation will also likely mean the creation of a more substantive local research and development (R&D) sector for the industry, as well. At present, most manufacturers have laboratories and small-scale R&D facilities, while the pharmaceuticals colleges undertake more substantive work. The last few years have seen a substantial growth in specialised colleges. “There was only one college of pharmacy 17 years ago. Now there are more than 20,” Bindail told OBG.

The year ahead is set to be one of continued expansion for the sector, despite recent downturns in other parts of the economy. Pharmaceuticals is largely immune from such trends, as Saudis continue to seek treatments for illnesses regardless of economic conditions. Growth may have slowed, but it remains healthy.