JEDDAH, 22 August 2005 — The pharmaceutical industry in Saudi Arabia has seen tremendous growth in the past decade but unless it adopts a new strategy, it could face a bleak future once the Kingdom joins the World Trade Organization (WTO).
According to a recent analysis by the Gulf Organization for Industrial Consulting (GOIC), although national pharmaceutical companies have managed to cover some of the local medicine market demand, they will not be able to compete with medicines from abroad. The companies and the government need to invest in research and development, in modern plants and production equipment and in skilled technical labor in order to maintain their market share.
During the oil boom, GCC countries invested in improving their health sectors, including the establishment of pharmaceutical plants. Initially, the bulk of medicines were imported but soon, governments encouraged the private sector to invest in pharmaceutical industries by providing attractive incentives, loans and tax-exempts and smoothing the transfer of technology and know-how. The GCC states set up the Arab Company for Drugs Industries and Medical Accessories (ACDIMA) as a company within the private sector. ACDIMA set up four pharmaceutical plants (Al-Mahaleel Medical in Jeddah, Saudi Arabia, Gulf Pharmaceuticals Company in Ras al-Khaimah, UAE, Kuwait Pharmaceutical Company in Kuwait and the Saudi Medicines and Medical Requirements Company in Qassim, Saudi Arabia). Eventually, these four companies set up other pharmaceutical plants and produced a wide range of medicines. Pharmaceutical plants in GCC member states grew from 18 in 1995 to 55 in 2004, with a corresponding rise in investments from $174.4 million to $793.1 million. Saudi Arabia ranked first among the GCC states in terms of the largest number of pharmaceutical plants totaling 27 and in terms of investments with $619 million. It is followed by the United Arab Emirates with 8 plants and $64.1 million in investments, then Kuwait, Qatar, Oman and Bahrain.
According to the report by GOIC, per capita consumption of medicines GCC states is estimated at $52. In other Arab countries, the figure is estimated at about $20. Imported medicines cover some 55 percent of the total demand for medicines in the Arab countries with a value amounting up to $2.5 billion.
Generally speaking, the Kingdom of Saudi Arabia is the largest GCC market. It is about to enter the WTO and will have to meet international regulations and standards, which include the enforcement of the Trade-Related Intellectual Property Rights Treaty (TRIPS). According to the agreement, all pharmaceutical products manufactured in developing countries, including GCC states, should meet international quality standards in order to be allowed in the market while no subsidies for local drug industries are allowed. These regulations will put national pharmaceutical industries in jeopardy as they will not be able to compete with medicines from abroad. TRIPS may also affect the prospects of seeing new drug factories being set up in developing countries, with the inability of these countries to produce many new brands and lacking the necessary patents to go on line with their production. In addition, some of the world’s giant drug companies refuse to license smaller companies to manufacture what they hold the patents for.
The main obstacle and handicap for pharmaceutical companies in GCC member states and other developing countries is the lack of Research & Development Centers and the required funding. They continue to rely on buying very expensive patents for major drugs manufacturers to produce under their licenses. For Saudi Arabia, like other developing countries, the potential threats posed by economic globalization and its trading agreements are not only the risk that large international drug manufacturers will monopolize the production of certain medicines and consequently have the ultimate say in their pricing, but also that they may oblige governments to cut medical-care subsidies, open up their markets to overseas products and remove all trade barriers.
To avoid a sharp rise in drug prices against the backdrop of TRIPS application, the GOIC report recommends that GCC states take a number of preventive measures. These include unifying the purchase of basic medicines to reduce overall purchasing budgets, rationalizing the health-care services, introducing medical insurance systems and encouraging the private sector to invest in medical services.
Investing in the pharmaceutical industry is expensive due to the high cost of technology, know-how and raw material needed — which are all imported — and good returns are not quickly achieved. Further, there are the issues of standards and quality control. The GOIC report also recommends that GCC governments take a united stand towards the TRIPS treaty and other WTO regulations and demand a grace period of ten years as a transitional period for the application of TRIPS on their medicines industries, to manufacture new brands of medicines at reasonable prices and to import modern plants and production equipment as well as skilled technical labor.