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Chapter 4
Pharmaceutical Manufacturing The United Arab Emirates may not be the largest pharmaceutical market in the Middle East and Africa (MEA), but it possesses several advantages that make it an attractive prospect to have the largest pharmaceutical industry in the region. Over the next 10 years, BMI forecasts that sales of prescription drugs and over-the-counter (OTC) medications will grow from USD 1.59 billion in 2010 to USD 3.27 billion in 2020, representing a compound annual growth rate (CAGR) of 7.5%. Drivers of growth include increasing public and private wealth fuelled by the oil boom, and a strong healthcare infrastructure that ensures high-tech treatments are always available. A friendly regulatory environment and absence of significant local competitors are other factors influencing a growing number of small research firms locating to the country. The government is keen to attract foreign investment and diversify the country’s economy, which is highly reliant on oil. To
The United Arab Emirates A World of Opportunities
this end, the pharmaceutical and healthcare industries have been identified as important industries to develop. Among the reasons behind such a step is the fact that local production is way behind the level that caters to local consumption. Presently, domestic producers only account for around 20 per cent of the market by volume. Some experts believe that the sector should grow at the same speed as the fast developing biotech and healthcare sectors.A wealthy population with a preference for novel therapies ensures there is a high demand for patented drugs. In addition, the regional demand is a successful factor where the country’s strategic position as a logistics hub can be utilized. Julphar, the UAE’s largest domestic player, exports over 93% of its production capacity to the neighboring countries including the GCC and beyond. Interestingly, a recent study by Dubai Chamber of Commerce and Industry found that pharmaceutical exports outpaced imports over the last 7 years. Since 2003, imports of pharmaceutical products have risen by 275 percent from USD 218 million to USD 817 million in 2010 while exports too have risen by 300 percent from USD 27 million to USD 109 million over the same period. Meanwhile, the UAE continues to lead the region in terms of investment in its homegrown pharmaceutical sector. According to a recent report by Gulf Organization for Industrial Consulting, UAE companies have invested USD 64 million in eight local production facilities. Domestic production is almost exclusively of non-patented drugs, which have been identified as a key growth area if the industry is to survive the entry of foreign generics, even if these are subject to price controls. However, the growing local demand versus limited domestic production is only one of several marketing and regulatory factors that made the pharmaceutical industry increasingly attracted to the UAE. Major international players such as GlaxoSmithKline, Novartis, Abbott Laboratories, Pfizer and Johnson & Johnson have also expanded their operations in the country, attracted by major developments such as the USD 400 million DuBiotech and the US$3 billion Dubai Healthcare City.
Why UAE ?
Both initiatives are part of the authorities’ plan to attract foreign investment. DuBiotech is aimed at developing the UAE’s biotech industry, while Dubai Healthcare City (DHCC) should enhance the country’s healthcare system and should enhance the UAE’s reputation as a centre for premium healthcare, encouraging growth as a medical tourism destination. Some of the world biggest names have already started ghost manufacturing of some of their popular medications in the UAE to cater for the regional demand and to gain a faster time to market. Industry experts say that there is potential for further growth in the pharmaceutical products sector in the light of the changing lifestyle dynamics in the region which is based on an increasingly Westernized disease profile with non-communicable diseases such as obesity. Areas of growth for manufacturers include targeting the overweight and obese residents of the UAE.
of the UAE’s pharmaceutical production. The Dubai Chamber of Commerce and Industry expects the segment to become “one of the key sectors in the UAE” when foreign majority ownership will be granted under a liberalized ownership law, which is under preparation. Current rules specify that overseas investors can own up to 49 percent of most businesses in the country. Foreign investors can only hold full control of companies in government-run free trade zones, such as DuBiotech, which are predominantly located in Dubai. The new law was welcomed by local drug producers, who would benefit through an influx of investment and technology.
Other diseases associated with a relatively sedentary lifestyle such as increased heart disease and diabetes will likely remain the mainstay of growth for patented drug manufacturers. New areas for pharmaceutical product growth could also include tapping the rising demand for medical tourism connected to these changes in lifestyle. Other regional drivers for growth are access-related. The UAE is proving to be an efficient re-export regional hub and several regional markets are proving to be lucrative for companies that are establishing operations in Dubai. This is compounded by the fact that profitability for pharmaceutical products also remains high because they are, in comparison to other sectors, relatively light-weight in distribution and highly profitable at retail despite their regulated prices. At the regulatory level, the UAE has been widely known for its strict and zero-tolerance policy with intellectual property issues. Also, provisional data issued by the World Intellectual Property Organization (WIPO) has revealed that, international patent filed by the UAE under WIPO’s Patent Cooperation Treaty were 29 in 2010, despite the challenging economic conditions. Another regulatory factor is believed to be a major decisive factor in foreign penetration
Entry points Venture Capital The Pharmaceutical production sector in the UAE is in fact in need of greater access to venture capital (VCs) in order to help it develop and expand and to encourage start-ups in fields such as biotechnology and R&D. Large-scale projects, such as DuBiotech and the Dubai Healthcare City, will help raise the profile of the UAE’s drug industry and should help to secure greater foreign investment. There are several VCs operating in the country now, but they mostly focus on soft businesses rather than manufacturing, leaving the door open for manufacturing oriented VCs to penetrate. The Unlimited Opportunities 2012
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