Local production helps meet growing demand for pharmaceuticals
Saudi Arabia today boasts one the largest pharmaceutical markets in the GCC region, and one that has experienced exponential growth over the past century. Several factors have contributed to the expansion of the Saudi pharmaceutical market, including a growing population and rising GDP per capita, as well as an increasing incidence of non-communicable diseases, which typically require long-term treatment and management.
In 2016, Saudi Arabia launched its Vision 2030 strategy, which identifies the local pharmaceutical industry as key to the growth of the Kingdom’s non-oil industrial base. To this end, the government is establishing an ecosystem that encourages domestic and international pharmaceutical players to invest in expanding the sector’s local capabilities.
In this context, the British healthcare company which has a strong focus and leading position in Respiratory, HIV, Vaccines as well as many famous consumer brands, GSK, whom has been selling products in Saudi Arabia for 60 years, has been expanding its operations of late.
Indeed, the company’s history in the Kingdom has largely been told over the last quarter-century. In 1992, GSK partnered with the local Banaja Holding Company Limited and began operating within Saudi Arabia. The plant built by the partners was the first multinational pharmaceutical plant established in Saudi Arabia and a real statement of intent.
The move, which was pioneering at a time when the Kingdom’s pharmaceutical industry was in its infancy, gave GSK a strong position in the market. While the company has faced a number of challenges in the local market in the intervening years, it has retained its preeminent place in Saudi Arabia’s pharmaceutical industry. Its manufacturing facilities have been repeatedly upgraded and modernized over the last 25 years. Today, 80% of its product portfolio is locally manufactured in Jeddah.
Moreover, the local footprint has expanded substantially in the last decade. In 2012, GSK took the decision to localize the manufacture of between 40 and 50 products all at once. Then, in 2013, the company began packaging vaccines locally. It was the first manufacturing of any kind of vaccine product in Saudi Arabia. On the back of these decisions the business grew rapidly, so that by 2014 GSK was the number-one pharmaceutical company in the market. With the wind at its back, the British firm signed a deal with its local partner, Banaja Holding Company Limited, to look at further localization of vaccines. Following a change in the foreign ownership laws in the Kingdom in 2017, the GSK acquired an extra 26% share in the local company and now has an ownership stake of 75% in GSK Saudi.
A promising local landscape
These moves come at a time when the Saudi Arabian pharmaceutical market is taking off. A combination of government support, the drive for diversification and a rapidly expanding consumer market is feeding the local industry. The Kingdom already accounts for 59.4% of all pharmaceutical product purchases in the GCC. This is unlikely to change anytime soon, with the market growing at an average of approximately 10% each year.
Furthermore, under the National Transformation Program (NTP) and Vision 2030, the government has set ambitious targets for the sector, including increasing its share in non-oil GDP from a baseline figure of 0.98% to 1.97% by 2020. Similarly, the government envisages the share of local manufacturing to the total pharmaceutical market value rising from 20% to 40% over the same time period.
Investing with a long-term view
As such, while GSK has certain advantages as an early entrant to the market, it cannot afford to rest on its laurels. The company plans to maintain its preeminent position in the market and has committed to explore all opportunities to invest more over the next three years. This includes plans to expand its production operations in Jeddah by 30% in that period, as well as other investments.
The company calls this a “new phase” and has already begun talks with SAGIA and the government about what else it plans to do in the local market. GSK opened a Technical Scientific Services Office and is now looking at launching a trade entity. The company envisages that such moves and the current investment drive will serve it for the next 10 to 20 years, just as the establishment of a manufacturing facility in the early 1990s laid the platform for its success over the last two decades.
The company takes a long-term view, which is a reflection of its belief in the country. GSK is currently studying the prospect of using Saudi Arabia as an export hub for the entire GCC. These, however, are likely to be medium- to long-term goals. Saudi production currently only supplies the domestic market, while the GCC continues to be served by the company’s global plants in Europe.
Other longer-term ambitions include the possibility of research and development operations within the Kingdom, although this will be dependent on strengthening of the regulatory and technical capacity of local regulatory institutions. On the whole, however, nothing is off the table. The scope of operations in the Kingdom is only likely to be limited by questions of scale and market size. As such, a number of new products, including a range of vaccines and biotech products, could feasibly be added to the company’s roster in the coming decades.
In the shorter term, the company is focused on meeting its localization commitments, not only in terms of content and production, but also in terms of human resources. This includes plans to improve retention rates for Saudi employees and a revitalization of the hiring and training process for local staff.
This willingness to nurture local talent, deploy capital in the Saudi market, and develop a long-term strategy for growth illustrates the success of the localization of pharmaceutical operations in the Kingdom. Indeed, the story of GSK in Saudi Arabia is confirmation of the viability of the government’s plans for the wider industry under the Vision 2030.
Luciano Andrade, Country Manager of GSK Saudi Arabia
What are the current conditions for investment in Saudi Arabia?
When we look at the size of the population, the strategic position of the country geographically speaking, the importance this country has in a political and economic sense for the GCC and the wider Middle East, and the activity being done with the Vision 2030, all these things are unique conditions that make us think differently about the market. And we as GSK – because of our 65 years here and because of our manufacturing facility being located here in Saudi Arabia, with 80% of our products already localized in a certain way – we consider ourselves in a very strategic position to be part of the growth that the Kingdom expects from the private sector and the local pharmaceutical industry in the coming years.
The choices that we make now and the capacity to partner with the government on Vision 2030 will determine whether or not we succeed with our investment. But the conditions are there for it. Saudi Arabia is a country that looks for good healthcare access for the population. That’s critical for us. We are also supporting and aligning with a country that believes in innovation and protects innovation. There needs to continue to be sustainable pricing conditions compared to other emerging markets. This will be one of the determining factors to define our next move – the willingness of the government to make the environment more predictable. There needs to be the right purchasing policy that will incentivize the kind of investment that brings new technology and innovation into the country.
What can feasibly be localized in Saudi Arabia?
I think there are some products and technologies that you can localize, especially tablets. The main condition sometimes is scale. If you go too niche in terms of disease, the localization might not make sense from a scale perspective. One global plant might make the scale more realistic. With a population of over 30m, the scale of the Saudi market is fine for some disease treatments. Having said that, what we need is predictable purchase terms and capacity to export, as well as the technical and regulatory capacity to absorb new production. To bring new vaccines here will trigger new challenges for the regulator, the Saudi Food and Drug Authority (SFDA), in terms of how it sets the right parameters and analysis. It will require adjustments, but I believe we can bring even biotech products to Saudi Arabia. Localization of production is a matter of scale, predictability, price and the patience to develop technical capabilities.
There is an appetite for research and development (R&D) locally. The view is right. The pharmaceutical industry is investing much more in R&D than production. But it is important to keep in mind that R&D is a complex situation from the perspective of local knowledge, compliance and IP protection. At present, it is predominantly located in the US and Europe because of these established ecosystems. We can develop it in Saudi Arabia, but we need to keep in mind that we will be competing with other developed pharmaceutical markets in terms of its capabilities and regulation.
Have there been improvements in regulation and the registration of new products for the domestic market?
Yes, definitely. The SFDA is making a massive effort to speed up innovation, which is a really positive improvement. The country as a whole is showing impressive efforts to make business easier. There are several reasons why we believe that Saudi Arabia will continue to support and create conditions for innovation. One of these conditions is a relatively fast and very reliable regulatory process.
What were the challenges in establishing local operations and how did you overcome them?
In the last year, there have been a lot of changes. I think there is an adaptation that needs to happen with the Saudi population and the way private multinational companies operate. There is an important cultural adjustment taking place in terms of processes and the adoption of global best practices. We welcome the push for Saudization, which we believe is the right direction for the local economy to follow in the long term. We can argue about the speed of the adjustment, but we fully understand where the country is heading. Having said that, we are dealing with a much higher level of turnover than we experience in other markets around the globe, and this requires the adoption of innovative hiring strategies.
We have many good examples of Saudi staff that grew and developed within our local facilities and are contributing to the growth of the industry. We have established a future leader program. We are hiring Saudi graduates each year and rotating them through different positions as well as different global GSK locations. We offer them long-term plan to develop their capabilities, and then count on them to lead the business in Saudi Arabia in the future. In the last two years, we succeeded in landing six people that started this program two or three years ago. It’s paying back. We’re doing it for selected people to accelerate development at the managerial level. On the operational side, we are looking at how we can enhance our selection process to make the adaptation process better. The high turnover is much more about adaptation to the private sector work environment than the technical capabilities.
How would you assess the infrastructure and logistics environment in Saudi Arabia? What are the competitive advantages?
As an established company, we are still facing some issues on the Customs side, as well as on ports and visas procedures. In particular, the latter is critical, because if we want to expand our business and bring in new technology, we need to bring in technicians that come from all over the world. We do, however, see some improvements in this respect.
If you look from the perspective of a new company entering the market, the Kingdom’s main competitive advantages are the investment effort brought about by SAGIA and the new economic cities. This creates an excellent level of incentives to develop new factories locally and discussing partnerships.