Lower cost drugs are in demand. Incentives for manufacturers, including fast track approval, is helping supply
Late next year the UAE-based pharmaceutical distributor Al Ittihad Drug Store (IDS) will leap up the value chain when it opens Pharmax, a $20 million facility to manufacture generic pharmaceuticals in DuBiotech (a TECOM Business Park). By targeting the chronic illness sector with medicines to treat ailments including hypertension, diabetes and depression, the firm hopes to win over customers and then keep them for life, says its group CEO, Ahmad Tabari.
Generics have only about a 5-6 per cent market share in the GCC, with patented drugs dominating the landscape, according to a report from Alpen Capital published in 2013. That means that firms have to work hard to convert patients from branded drugs over to a generic. Tabari says that whether the medicine will be used for a short period, like an antibiotic, or to treat a long-term illness, the effort is roughly the same. “The bang for your buck is much better in the chronic medication sector. That’s our view.” The use of generics in the region is also set to grow as the UAE and wider GCC moves towards an insurance-based system, which creates more demand for lower cost medicine, says Marwan Abdulaziz, executive director of DuBiotech.
For IDS, moving up the value chain will allow the business to reap bigger margins, with prices in the distribution business set by the Ministry of Health. “You’re lucky if you make 3-4 [per cent] net profit at the end of the year,” says Tabari. While there’s the hefty $20 million price tag for the new plant, which will employ around 25 highly skilled staff, Tabari—who received a law degree from Harvard and has worked as an investment banker—says the capital outlay isn’t so significant in the context of their current running costs. “People underestimate the amount of capital you actually have often tied up in the distribution business,” he says, with conversion cycles in the UAE extending to 270 or even 360 days. “Governments who buy medicine sometimes don’t pay for a year or a year and a half.”
The risks in manufacturing are mainly around building brand awareness, where it already has a track record as a distributor. “We don’t see it as much of a risk as somebody else might, because we’ve had the experience in marketing and developing the brand and getting the product accepted by the consumer,” says Tabari.
Eventually the company plans to export its product, across the GCC and to the wider region, with East Africa, Iran, Iraq and Libya all flagged as potential markets. “Setting up a factory for the UAE alone doesn’t make a lot of sense,” he says.
Pharmax will be the first company to set up pharmaceutical manufacturing in DuBiotech, says Abdulaziz. Alpen Capital says there are already eight manufacturers in the country, including Abu Dhabi-based Neopharma, which has tie-ups with Pfizer and Merck Serono, major international players that have offices in DuBiotech. Local players in the generic market include Julphur—the largest pharma manufacturer in the UAE—and Global Pharma, which began production of local generics last October, following Sanofi’s purchase of a 66 per cent stake in the firm from Dubai Investments.
Moves to encourage manufacturing are part of a strategy to reduce costs and improve supply. “The healthcare landscape in the UAE is fast evolving and we are working closely with pharmaceutical companies to make the UAE the regional hub, which will positively impact the supply, distribution and pricing of drugs,” says Amin Hussain Al Amiri, the assistant undersecretary for Public Health Policy & Licensing Sector at MoH, speaking at the launch of Global Pharma’s generic production last October.
Local production is being encouraged by the MoH through a basket of incentives around the fast-tracking of new drugs, and even preferential treatment in federal tenders. DuBiotech has also smoothed the path for its companies: TECOM signed a memorandum of understanding with the MoH in 2012, says Abdulaziz. “We have a concrete agreement with them, that they facilitate the approval for the companies in our freezone.”
Locally produced drugs will receive a fast-track approval by the ministry, within 6-12 months according to Tabari; overseas medicines, especially generics, normally take much longer—as much as 2-3 years. Within the federal tendering system there’s also a preference for local medicines. “If there are two products, one locally manufactured and the other imported, the preference is given to the locally-manufactured one, even if the price is slightly higher,” says Abdulaziz.
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