Insights on the pharmaceutical trends in the GCC.
DH How do you see the UAE pharmaceutical industry overall?
In 2017, the world expenditure on healthcare reached $7682.4 Bn with an increase of +5.2% from 2016. However, the Middle East and Africa recorded a total of $127 Bn (1.7%) of the total world healthcare expenditure.
Regardless of ongoing drug price reductions in the UAE, which will result in lower company profits, two factors will offset the losses. First, an increasing volume of sales aided by an increase in population at one end and a shift in the age group at the other end which will demand more non-communicable diseases pharmaceutical products for diabetes, cancer, cardiovascular & chronic respiratory diseases.
Second, the UAE government is encouraging international companies to move towards locally manufacturing drugs, once done this will decrease the manufacturing and logistic costs and contrary increase profit.
DH Looking five years down the line, what do you see are the opportunities versus associated risks forecasted?
The GCC in general and the UAE specifically, is one of the more developed markets in Middle East and Africa, with a strong healthcare infrastructure & the highest per capita drug expenditure in the region. Major healthcare projects are under construction now which are forecasted to come into operation soon, this all will with no doubts increase the demand for quality pharmaceutical products. It is a logical prediction and easy to believe, especially when we look at:
1.Population increase in number and demographic shift in age group.
2. Credible international positive forecasts on oil prices future versus historical data, one of which is the International monetary fund (IMF).
3. GCC governments’ economic diversification effort into gas, tourism, financial services and high-tech industries offers some protection against volatile oil prices fluctuation if any.
However, any fall in oil prices could result in a reduction in government industry investment, which could slow down the pharmaceutical market growth as well as reliance on imported raw materials.
DH Following this positive outlook, how do you believe it will affect different business models?
In 2015, the UAE pharmaceutical market reached a value of USD2.41bn, representing 15.6% of healthcare expenditure versus USD2.62bn 2016. By 2025, drug expenditure will be worth USD5.92bn driven by population growth, a changing disease profile, and the use of modern medicines such as biotechnology drugs.
The prescription drug market spending is expected to increase, at a compound annual growth rate (CAGR) of 5.8% in local currency reaching (USD3.32bn) in 2024. Among increasing forecast at prescription, generics and OTC in value terms, there are remarkable shifts towards generics perception at both governments and private sectors, the multinational drug makers are to focus on biotechnology while cooperating with the local manufacturer to co-promote their established prescription line. This will give the credit to local drug makers at the prescription level and possibly at OTC in the near future.
DH Some articles talk about a declining UAE economy and thus pharmaceuticals as a key sector. How do you link a positive outlook to those pessimistic expectation?
It is correct to maintain a bullish outlook on the UAE’s economy even in an environment of weaker oil prices. The country has substantial fiscal buffers to shield growth from lower oil prices, also it will continue to record impressive rates of growth over the coming years, the core scenario sees real GDP growth of 3% in 2017, before growth picks up to 3.9% thought 2018.
United Arab Emirates Non-Oil Private Sector Purchase Manager Index (PMI) will remain above 50 throughout 2018. However, as per Emirates NBD the headline Dubai Economy Tracker Index (DET) rose to 57.6 in May from 53.9 in April, signalling the sharpest improvement in business conditions in over a year. Dubai attracted 260,000 medical tourists in the first half of 2015, up 12% from the same period a year ago, generating Dh1 billion in revenues. The Dubai Health Authority aims to grow the number of medical tourists by around 12% annually and to generate Dh2.6 billion in revenue by 2020, according to Linda Abdullah Ali, Head of the Medical Tourism Office at the Health Regulation Department of the DHA. This will no doubt fuel the pharmaceutical sector in the country.
DH What is the key change that the pharmaceutical industry might witness over the coming year?
Despite the authorities’ hard work on several initiatives that aim to improve public health, the non-communicable disease trend shows an increase due to lifestyles. This will unfortunately drive a demand for pharmaceutical solutions. The drug expenditure on the cardiovascular disease, for example, is 2.3% of the total healthcare expenditure in UAE. It is expected at the optimistic scenario to grow at 3.8 CAGR till 2024. Diabetes and musculoskeletal diseases are not an exception. This increases the burden on the healthcare budget.
One of the UAE and other GCC governments’ effort to optimize healthcare expenditure and reverse hard currency trade balance is governments move to revise regulatory conditions which is more likely to further incentivize multinational drug makers to base their Middle Eastern operations in the UAE and KSA.