Saudi Arabia Emerges As Pharma Manufacturing Hot Spot

By Sara Gambrill

The World Bank/International Financial Corporation’s Doing Business report ranked the Kingdom of Saudi Arabia 12th in the world out of 183 economies for ease of doing business in 2011 — up from 67th in 2005. The speed with which Saudi Arabia has risen through the ranks can be attributed directly to the efforts of the Saudi Arabian General Investment Authority (SAGIA), which aimed to make the country one of the top 10 most-competitive economies in 2010. The country’s “10 x 10 program” encompasses all efforts toward achieving this goal.

Saudi Arabia is focused on encouraging the growth of its private sector to diversify its economy beyond petroleum — which accounts for 80% of the country’s budget revenue — to include knowledge-based industries. For example, building a life sciences industry is one of the Saudi government’s top economic priorities. In addition to transforming the economy and its infrastructure to support knowledge-based industries, the government is supporting the sector’s development through a broad range of direct and complementary investments. With nearly 30% of its population under the age of 15, Saudi Arabia is keenly focused on providing private sector employment opportunities for its next wave of working-age citizens and lowering the current rate of nearly 30% unemployment among its youth. Only about 10% of private sector jobs in Saudi Arabia are held by Saudi nationals currently.

As part of an effort to attract foreign investment, Saudi Arabia joined the World Trade Organization in 2005. The following year, SAGIA established the National Competitiveness Center (NCC) to monitor, assess, and support competitiveness enhancement in Saudi Arabia. NCC’s recommendations, including the streamlining of business start-up, construction permitting, and property registration, combined with tax incentives entered into the tax code in 2006, have contributed to Saudi Arabia’s efforts to increase its attractiveness to industry.

‘Economic Cities’ Attract Big Pharma
The most ambitious project SAGIA has undertaken as part of its 10 x 10 program is facilitating the construction of four “Economic Cities.” At a cost of more than $60B, this development project is expected to promote economic diversification, create new job opportunities and new homes for 4 million to 5 million people, and contribute $150B to Saudi Arabia’s GDP.

King Abdullah Economic City (KAEC) has attracted the notice of Big Pharma, leading a few companies to strike agreements to build manufacturing facilities there. The most recent one to announce such an agreement is Pfizer. “Triggered by exceptional growth of the Saudi market, Pfizer has joined efforts with SAGIA to set up a legal company entity and establish a manufacturing plant at KAEC,” says Guy Lallemand, regional president, Pfizer AfME. “It’s intended that the plant will be able to serve both the needs of the Kingdom and neighboring countries. It will also help create new employment opportunities to local manpower in KSA [Kingdom of Saudi Arabia] and develop their skills.”

Pfizer’s KAEC facility will be operational by the end of 2014 and will include solid dose manufacturing, packaging, and warehousing. The new facility will produce a broad range of Pfizer’s best-in-class brands.

KAEC alone will be the size of Washington, D.C. and is projected to have a population of 2 million and create 1 million jobs, according to SAGIA. In 2010, Sanofi-Aventis also announced plans to build a new manufacturing plant there. Its facility will produce oral antidiabetics and cardiovascular drugs.

Important Pharmaceutical Market, East-West Hub
Ease of doing business alone can’t account for why two Big Pharma companies have recently announced plans to build manufacturing plants in Saudi Arabia and why others already have. The Saudi pharmaceutical market is the largest in the Middle East and accounts for roughly 2/3 of all drug sales in the Gulf Cooperation Council region, which, in addition to Saudi Arabia, comprises Kuwait, the United Arab Emirates, Oman, Qatar, and Bahrain. The Jeddah-based National Commercial Bank (NCB), in its Saudi pharmaceuticals sector review, predicted that the Saudi pharma market would grow to SR14.04 billion [$3.75B] in 2012.

Saudi pharma market growth drivers include increasing population, aging, and affluence; modernization; and the establishment of more private facilities. According to Espicom, Saudi Arabia’s pharmaceutical market “is expected to rise by a CAGR in the high single digits during the 2011-2016 period.” The pharmaceutical company in Saudi Arabia with the largest share of the pharmaceutical market in country is GSK.
GSK has had a presence in Saudi Arabia for 50 years. In 1992, the company formed a joint venture with Banaja Holdings, establishing Glaxo Saudi Arabia Limited. GSK has operations in the capital city of Riyadh, Jeddah — where its headquarters are — and Dammam, with nine locations in all, including a manufacturing site in the Jeddah suburbs. The company employs just under 500 people locally.

“We are different from other pharma companies in the country as we are the only one to have a joint-venture pharmaceutical manufacturing company,” says Youssry Nawar, general manager and VP Saudi Arabia, GSK. “With regards to SAGIA, we do not directly benefit from any incentives, as we were established before this group was formed. However, it is a great initiative for driving further foreign industry investment in the country, as well as supporting existing ones.”

Nawar adds, “Saudi Arabia is an important market for GSK, both in terms of improving medicines for patients and in developing our business in the Gulf. The Saudi Arabia pharmaceutical market is the largest among the Gulf Cooperation Council countries and the whole Middle East. More importantly, economically and politically the country proves to be stable, which will further drive growth of the healthcare business.”

In addition to stability, Saudi Arabia has a legal infrastructure that offers industry assurances other emerging markets cannot always provide. “Saudi Arabia has strong legislation addressing areas of IP protection, import licensing, and customs tariffs and fees. Innovative patented medicines are still leading the market growth,” Nawar says.

SAGIA’s vision is to make Saudi Arabia a “major hub between East and West.” The country’s geographic location helps make this vision attainable. Pfizer’s Lallemand says that in addition to the favorable business environment, competitive advantages, and other investment opportunities offered by the Saudi government, “Our decision to establish a new manufacturing base in Saudi Arabia is also based on its central geographic location and the well-established routes of distribution to all parts of the Middle East and beyond.”

Government Investment In Healthcare
Saudi Arabia has a population of more than 26 million, which includes about 5.5 million nonnationals residing there. Eighty-two percent of the country’s population is urban. Saudi Arabia has five cities with a 1 million+ population: Riyadh, Jeddah, Mecca, Medina, and Dammam. With its growing population, its healthcare needs will rise. The country’s healthcare spending is projected to increase.

Saudi Arabia has “a prevalence of disease in areas such as diabetes, which affects 25% of the population, and asthma, which affects 15% of the population,” GSK’s Nawar says. “Health expenditure in the Kingdom has more than doubled in the past decade. The government has allocated £11.3B [$17.8B] to health services in 2011, an increase of 12.3% [compared to] 2010.”

Saudi Arabia has 400 hospitals, 2,075 primary health centers, and 850 private clinics. “The government’s plan is to proceed with the construction of 56 new and 51 replacement hospitals and 750 primary health centers in the coming five years,” Nawar says.

The main regulatory authority in Saudi Arabia is the Ministry of Health, and the Saudi Food and Drug Authority was established in 2003 to be responsible for developing and enforcing the regulatory system. Clinical research is a growing component of GSK’s operations in Saudi Arabia. The company has conducted several studies there in areas such as oncology and vaccines. GSK is a research partner with National Guard Hospital, King Faisal Specialist Hospital & Research Centre, and the Ministry of Health.

Investing In The Future
In addition to the 10 x 10 program and the facilitation of the Economic Cities, Saudi Arabia is demonstrating its commitment to investing in science, business, and the Saudi workforce through the founding of the King Abdullah University of Science and Technology, a graduate research university focused on scientific and technological advancement. It is the first coeducational university in the Kingdom. The university aims to be a world-class research institution for the purpose of educating and training future generations of scientists, engineers, and technologists to be leaders in their respective fields. It also intends to foster collaboration and cooperation with other research universities and the private sector. Its vision includes publishing articles in peer-reviewed scientific journals and making a significant number of scientific discoveries and technological innovations.

With a highly educated and technically skilled workforce, a growing population with an increasingly Westernized disease demographic, significant and growing government expenditure on healthcare, and a hospitable business environment, Saudi Arabia has all the right ingredients to continue to grow in importance as a key pharmaceutical market.