In what was a first for the region in the pharmaceutical sector, Dubai Investments (DI) sold a majority stake in its subsidiary Globalpharma to the French multinational Sanofi last month.
The move helped DI net Dh385 million, or a 26 per cent in internal rate of return for over 10 years, as it expects to benefit from Sanofi’s generics portfolio and pipeline besides brand equity. It gives Sanofi a wider access to regional markets.
“Our investment in Globalpharma was well timed as we capitalised on the rapid growth in the pharmaceutical sector in the region,” says Khalid bin Kalban, the managing director and chief executive of Dubai Investments.
Globalpharma is registered in 14 countries in the Middle East and Africa including Kuwait, Bahrain, Qatar, Iraq, Lebanon, Jordan, Yemen, Libya and Sudan.
It manufactures products such as antibiotics, cardiovascular medicines, painkillers, food supplements, vitamins and anti-allergic formulations among others.
Sanofi declined to comment.
The deal comes after Sanofi signed a manufacturing deal with Globalpharma.
Such tie-ups are usually long-term agreements renewable at regular intervals.
The outlook for the cost of medicines in the Arabian Gulf, among the highest in the Middle East, could brighten as more multinationals tie up with local companies.
While it gives a broader portfolio of medicines to the local firms, the foreign multinationals gain a wider market access and a preference in contract awards for medicine supply from governments in this region.
“A lot of local companies are looking for such tie-ups but we are not seeing a lot because it takes a lot of time,” says Marwan Abdulaziz, the executive director of DuBiotech, a Tecom Investments free zone.
“There’s a lot of training to be done and local regulatory authorities need to be aware of the products.”
Once in place, tie-ups are healthy for the local economy, according to Mr Abdulaziz, as they make local companies more aware of global standards.
Moreover, if an Asian pharma company wants to manufacture medicines in the UAE, the price it can demand in the Gulf could be higher than that in the country of origin.
Indian companies such as Biocon and Hetero have deals with Abu Dhabi’s Neopharma to manufacture generics in its Mussafa factory.
Neopharma also has tie-ups with India’s Glenmark, Saudi Arabia’s Deef Pharma, Sharjah’s Medpharma and Swiss company Lagap.
Called Neobicon, the tie-up with Biocon has a breast cancer medicine in the market.
In the case of companies from the United States or Europe, manufacturing costs could be cheaper here and a local presence give pharma companies preference while bidding for Gulf tenders.
“That is one of the biggest drivers for such tie-ups,” Mr Abdulaziz says.
UAE health-care spending as a percentage of GDP was 3.3 per cent in 2012, one of the highest in the Gulf after Bahrain and Saudi Arabia, according to Colliers International.
Comparatively, it is still less than in the United Kingdom at 9.3 per cent, the US at 17.6 per cent, and Japan at 9.2 per cent, according to an Al Masah Capital report in April.
Being a regional hub also helps the UAE attract such partnerships. Some 17 deals, or 40 per cent of all those signed in the Middle East and North Africa between 2004 and 2013 were in the UAE and were valued at US$453 million, Al Masah says.
DuBiotech-based Pharmax will be ready to manufacture medicines next year and it has identified the company with which to share knowledge.
The free zone will also see two new generic manufacturers – a local company tying up with a global one and the other an international pharma. Such tie-ups are usually for the long term, 10 years or more and the initial capital expenditure can run between $10m and $15m, Mr Abdulaziz says.
While such deals have traditionally been in the generics sector, oncology is another area that could see a pick-up. “We can’t be just doing generics and insulin,” Mr Abdulaziz says.
“We have to manufacture specialised medicines.” And the trend for investment from abroad in the local health sector is growing, analysts say. “We also see the Gulf governments moving towards more liberal policies and signing free trade agreements with countries of interest to encourage foreign direct investments into the region,” says Sanjay Vig, the managing director of Alpen Capital Middle East.
As the approvals process for the set-up of a new manufacturing base and the distribution process for drugs is quite long drawn in the Gulf, these tie-ups also provide global pharmas with a faster route to expansion.
And with rising medical expenditure and growth of the local pharma industry, such partnerships and acquisitions promise the multinationals a bigger share of the pie.
Such deals, however, are at present limited to the manufacturing of generic medicines as global pharmaceutical companies prefer to manufacture patented medicines in their home markets for the sake of confidentiality.
“A lot of these patents used to treat chronic diseases are expiring or expected to expire in the next few years,” Mr Vig says.
“Global companies realise this is likely to cause an upsurge in the manufacturing of new and cheaper generic substitutes in the market and see a huge potential in the area.”
While there is a transfer of knowledge involved, this tends to be limited to production capability and distribution channels.
The transfer of research expertise is also expected to be limited, Mr Vig says.
While the Dubai-based Globalpharma teamed up with Sanofi to promote its generics portfolio, Ras Al Khaimah’s Gulf Pharmaceutical Industries, or Julphar, announced a five-year licensing agreement with MSD, the international operations arm of the US pharmaceutical major Merck.
Abu Dhabi-based NMC’s Neopharma signed manufacturing deals with Merck Serono and Wyeth, a Pfizer unit. With Wyeth, it manufactures drugs in cardiovascular diseases, women’s health and pain management.
The partnerships allow increased capacity utilisation of the UAE company’s manufacturing and marketing capabilities besides developing local talents, says BR Shetty, the managing director and chief executive of Neopharma.
“The main advantage of such collaborations is the assured availability of medicines in the region, regardless of factors such as international exchange rate fluctuations,” he says.
The German company Boehringer Ingelheim signed a deal in April with the Saudi Arabian manufacturer Cigalah for local production for 26 medicines.
The move is expected to lead to a primary manufacturing presence for Boehringer Ingelheim in the kingdom.
Local production in Saudi Arabia meets 15 per cent of demand and imports the rest even though it made up 59.4 per cent of the Gulf’s overall pharmaceutical industry size, according to a study from Boehringer Ingelheim. And in terms of manufacturing plants, it has the most in the Gulf at 27 with a total investment of $619m.
Despite the flurry of activity, challenges remain.
There is a a lack of local companies, which is preventing more global pharmas from entering the region through buyouts and manufacturing tie-ups, Mr Abdulaziz says.
The cost of manufacturing is also higher in the UAE than say Saudi Arabia with higher rental costs.
A preference for well-known medicines over generics also hampers the development of home-grown brands, he says.
“People in the Gulf prefer branded goods,” Mr Abdulaziz says.
“Generics should be the same regardless of the brands but some people don’t know that and think that a brand has more value for example [than the generics].”
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