Currently estimated to worth $8bn, the MiddleEastern pharmaceutical market could prove a strong growth opportunity for the leading global pharma markets.
Middle Eastern countries are increasingly adopting liberal policies that are leading to marked changes in the healthcare sector. For example, having found itself burdened by the escalating needs of a fast-growing population, Saudi Arabia is gradually introducing cooperative health insurance for its large expatriate population. Likewise, the United Arab Emirates (UAE) has introduced a compulsory health insurance mechanism for foreign workers residing in one of the seven emirates, and has made this a necessary prerequisite in order to obtain a work permit. Israel, on the other hand, has recently liberalised its over-the counter (OTC) sector, following the British model.
Saudi Arabia has permitted 100% overseas equity investment in local companies, and foreign firms have much to gain from the large number of capital projects that oil-wealthy Gulf States have initiated. Saudi Arabia's King Fahd Medical City in Riyadh represents a $534m project, while the launch of DuBiotech, a 100% foreign-owned, tax-free biotechnology park allowing full repatriation of profits, is but one of the numerous ventures of the UAE that is designed to appeal to healthcare specialists.
Markets in the Middle East are less sophisticated than their European counterparts and one does not observe the range of supply and demand cost-containment measures used in most European countries. The challenge to pharmaceutical companies is the (mostly inappropriate) level of intellectual property rights protection. Pharmaceutical Research and Manufacturers of America (PhRMA) has estimated that the combined losses to its members in the Middle East amounted to $555m in 2004 through lack of patent protection.
However, the situation has been steadily improving in this respect. As part of its recent accession to the World Trade Organisation (WTO), Saudi Arabia has pledged to apply the Trade-related Aspects ofIntellectual Property Rights (TRIPS) agreement. Egypt's 5-year WTO grace period has expired, while Jordan's modern intellectual property laws have been praised as a model for the region.
Bilateral free trade agreements (FTAs) exist between the EU and Jordan, Lebanon, Israel and Egypt. The US has signed FTAs with Jordan and Israel and has been negotiating with a number of other countries. As the region moves towards free trade, pharmaceutical import prices will decrease, offering remarkable opportunities for the well-positioned firm.
Dominating imports
Apart from Egypt, they all share the same characteristic of being high importers of branded drugs. More than 70% and 80% of pharmaceuticals consumed in Jordan and Saudi Arabia, respectively, are imported, while Lebanon imports over 94% of its medicine needs.
Multinational pharmaceutical companies have established an especially strong presence in Egypt; AstraZeneca, Eli Lilly, GlaxoSmithKline, Novartis and Pfizer are some of the international companies that maintain manufacturing facilities in what is the largest pharmaceutical market of the region. The marketing efforts of most companies operating in the Arab market have included the development of anArabic version of their websites in order to target the large native population more effectively.
The Middle East stands as a high-growth market, and has been estimated to have achieved an impressive 10.6% combined annual growth rate (CAGR) between 1999 and 2003, around 4% more thanthe estimated world average and second only to Southeast Asia and China.