While drugmakers tend to gravitate towards the mature markets, they’re also naturally keen to identify investment opportunities elsewhere. After all, sales outside of the EU, USA and Japan account for about 20% of the global pharmaceuticals market.
After the turn of the century, the BRICS region – comprising Brazil, Russia, India, China, and later South Africa – was heralded as the future engine of growth.
Investment in the BRICS continues, but the honorific has lost some of its shine.
Political turmoil has undermined Brazil and Russia, growth in India and China has eased, and South Africa, now in possession of a ‘junk status’ credit rating, probably never should have been included in the group.
For investors and business strategists in the industry, a more interesting bet at this time may be the Middle East and North Africa (MENA) – a region full of diversity, mixed commercial opportunities, and an increasingly robust track record of growth.
A diverse bunch
Karim Smaira is co-founder and chief executive of Genpharm Services, a regional market access and pharmaceutical advisory firm. Speaking with The Pharma Letter from his offices in Dubai, Mr Smaira offers a particular view into the dynamics shaping the region.
He says that: “Although there is an effort to harmonize rules and regulations, the region is still very heterogeneous when it comes to the maturity of the markets, the regulations, the approach to pricing or regulatory approval.”
While geographically coherent, the MENA countries are as culturally and economically diverse as those of the BRICS – pharmaceutical companies ought not to regard this as a single market, approachable with a unified strategy.
“We try to cluster the countries in three groups. We treat the Gulf Cooperation Council (GCC) as one entity. Another would be the near east, or the Levant, plus Egypt and Iran. Finally, you have the North African space. But even within these sub-groups there is diversity.”
Genpharm spied a strategic opportunity in rare diseases, linked to the fact that many countries in the region have high levels of inter-family marriage, leading to a higher prevalence of certain rare genetic disorders.
Orphan drugs can also be provided via early access schemes similar to the ones operated in places such as Europe and the USA. Reimbursement is one key point of difference in the region, and a key factor shaping commercial strategy. While the countries of the GCC cover healthcare costs for nationals, for example, Iran operates a co-payment system, and in Lebanon there is 90% social security coverage.
Total pharma sales in the region are estimated to be around $32 billion, with the Middle Eastern countries accounting for about 2% of global pharmaceutical sales.
In reimbursement terms, it’s possible to draw a crude distinction between oil producers and non-oil producers as to the total market opportunity available.
However, the drop in oil prices in recent years has placed enormous pressure on healthcare budgets, which grew fat in the heady days of north $100 per barrel.
Local manufacturing and drug discovery
In the last decade, an indigenous pharmaceutical manufacturing industry has sprouted in the region, focusing mainly in Saudi Arabia, Egypt, Algeria, Iran Jordan and the UAE, creating an increased level of competition for multinationals.
In Iran, for example, Mr Smaira points out that “more than 85% of the need is met by local manufacturers, and the rest are imported drugs, which tend to be the low volume, high value drugs. If you want to go into Iran and ensure a long-term market presence you need to consider partnering with a local manufacturer.”
Local manufacturing is, for the moment restricted to traditional pharmaceutical products that are easier to manufacture, such as tablets and syrups, rather than more advanced biopharmaceutical products.
If this is about to change, it may begin in the GCC area, where the UAE has launched a ‘six-pillar plan’ to promote the adoption of new technologies and industrial practices, with the aim of creating a platform to export products into Africa, Asia and beyond.
Drug discovery in the region is in its infancy. Mr Smaira says that while “some companies have brought Phase II and III trials to limited centers, local R&D is very weak, and it tends to be generics.”
Foundational research remains limited because “you need to have a microenvironment for scientific research, including university hospitals. This does exist in Lebanon and Iran, and it’s starting to exist in the GCC, but it’s not there yet.”
“One challenge related to this is that there’s a different environment here for patent protection. Some markets don’t have any at all, others do.”
Regional risk factors
Mr Smaira, who was previously the regional VP for for Merck KGaA, can testify to the importance of regional sensitivity to avoid losing opportunities.
“Here, people tend to do business with people they like. You need first to establish a personal relationship, before you can open the door for business to be done.”
“There have been cases of foreign companies coming into the region and unintentionally doing the wrong thing, often on an interpersonal level, because they don’t understand the cultural nuances.”
A more unsettling risk is geopolitical uncertainty. In recent years, political and civil unrest in some countries has sent economies tumbling, while countries like Iraq and Syria have been wrecked by war.
This unpredictability requires a level of agility from often quite conservative pharmaceutical firms that may be more comfortable with traditional five-year forecasts and long-term planning.
The other headline issue is corruption. A recent survey in the region carried out by Transparency International found that 30% had paid a bribe to access public services in the 12 months prior.
61% thought corruption had increased in this period, and 68% thought that government was doing a bad job at improving the situation.
Mr Smaira offers a competing view, saying: “Corruption is less of an issue now. It’s more of a stereotype that’s stuck to the region.”
“Now you have the MENA code of ethics which is signed by all the pharmaceutical companies, you have controls at the level of the ministry of health, the sector is highly regulated in terms of pricing, so you don’t see a lot of corruption.”
More of a challenge may be the scarcity of human capital, creating a reliance on expertise from other countries, and associated difficulties retaining staff that “are here to make money and therefore tend to jump at every opportunity that pays more.”
Part of the answer for Genpharm was strong retention programs involving training, staff development, and a stock option plan for outstanding employees.
Demographic changes point to strong market growth ahead. There is a young and expanding population, coupled with an older segment beginning to demand innovative medications for diseases like Parkinson’s and Alzheimer’s.
Looking forward, Mr Smaira is positive about the prospect for continuous growth.
“You have a more educated population, which is linked to greater interconnectivity with the world in terms of social media. This means patients are demanding better healthcare services.”
“Another element driving growth is the fact that, due to the drop in oil prices, governments are often no longer able to provide full service, so you see a trend towards privatization – more clinics and speciality care, but also more privatized reimbursement schemes.”
Large drugmakers are paying more attention. When Canada’s Valeant Pharmaceuticals (TSX: VRX) bought Egypt’s largest drugmaker Amoun Pharma for $800 million, the company described the move as: “a platform for further expansion in the MENA pharmaceutical market.”
With growth overall estimated at between 9% and 11% annually, MENA can truly be regarded as the next frontier of pharmaceutical investment and expansion.