- Saudi Arabia's pharmaceutical industry has grown from USD 3 bn to USD 4 bn over the period 2008 to 2013
- Healthcare budget as a percentage of GDP has increased from 3.4% to 4.9% over the same period
- Main healthcare demand drivers include the growing prevalence of chronic diseases such as diabetes and gastrointestinal disorders, increased longevity and rising wealth levels
- The physical penetration of international players and the market's gradual shift towards low-cost genetics means domestic pharma players face a changing landscape
- Possible strategies to best capitalize on this include a reassessment of the value creation architecture and the adopted business model, as well as the build-up of strong brand equity
"The Saudi pharmaceutical sector is expected to maintain its strong growth momentum. However, a gradual shift towards low-cost generics coupled with stronger market penetration of global pharma players could lead to a redefinition of the competitive landscape," says Dr. Tobias Plate, Managing Partner and Regional Head at Roland Berger Strategy Consultants Middle East.
Currently, domestic pharmaceutical manufacturers account for a relatively small share of the market, currently 18%. While the government supports and encourages the build-up of local value chains, domestic players face two main challenges: Firstly, global pharma giants such as GlaxoSmithKline, Pfizer, Astellas and Sanofi Aventis are entering the market; secondly, low cost generics are becoming more prevalent.
"Consequently, domestic players - manufacturers in particular - must redefine their strategic positioning in the market and assess how to best capitalize on their capabilities in a changing environment," says Michael Caracache, Senior Project Manager at Roland Berger.
Key strategic levers for sustaining a competitive value proposition include redesigning value creation architecture, reconfiguring the business model, building brand equity and recalibrating the scope/scale of the activity coverage.
Redesigning value creation architecture
The potential evolution of the value chain coverage of local pharma players implies that manufacturing might not be the core business for domestic players in the future, with possible outsourcing of manufacturing to low cost countries gradually taking place. Domestic players should potentially focus on packaging, marketing, sales and distribution.
Reconfiguring the business model
A reconfiguration of the business model could translate into pursuing mutually beneficial partnerships through joint ventures, acquisitions and licensing agreements.
Building brand equity
Manufacturers need to invest in product branding vs. corporate branding. The assessment of branding and marketing strategies of niche products on a case-by-case basis, coupled with a holistic targeting of the entire landscape of stakeholders is key to achieving optimal results.
Recalibrating the scope/scale of the activity coverage
A detailed activity assessment aimed at identifying the optimal scope and scale of outsourcing/offshoring selected activities is essential to compete in the generics market.
Dr. Plate concludes: "Ultimately, the best-positioned players will be those who understand their respective strengths and weaknesses and possess the strategic agility to navigate the changing landscape accordingly - only the fittest will survive."