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SAUDI ARABIA PHARMACEUTICALS & HEALTHCARE REPORT INCLUDES 10-YEAR FORECASTS TO 2026

Published by:BMI Research

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017 INCLUDES 10-YEAR FORECASTS TO 2026

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: February 2017

ISSN: 1748-2143

BMI Research 2 Broadgate Circle London EC2M 2QS United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: [email protected] Web: http://www.bmiresearch.com

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CONTENTS

BMI Industry View ............................................................................................................... 7 Table: Headline Pharmaceuticals & Healthcare Forecasts (Saudi Arabia 2015-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

SWOT .................................................................................................................................... 9

Industry Forecast .............................................................................................................. 12 Pharmaceutical Market Forecast ................................................................................................................ 12

Table: Pharmaceutical Sales, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Healthcare Market Forecast ...................................................................................................................... 15 Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Prescription Drug Market Forecast ............................................................................................................ 18 Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Patented Drug Market Forecast ................................................................................................................. 20 Table: Patented Drug Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Generic Drug Market Forecast .................................................................................................................. 22 Table: Generic Drug Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

OTC Drug Market Forecast ....................................................................................................................... 24 Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Pharmaceutical Trade Forecast ................................................................................................................. 26 Table: Pharmaceutical Trade Data And Forecasts (Saudi Arabia 2015-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Table: Pharmaceutical Trade Data And Forecasts local currency (Saudi Arabia 2015-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Industry Risk/Reward Index ............................................................................................. 30 Central And Eastern Europe Risk/Reward Index – Q2 2017 ............................................................................. 30

Saudi Arabia Risk/Reward Index ................................................................................................................ 37

Rewards ............................................................................................................................................... 37

Risks .................................................................................................................................................... 38

Regulatory Review ............................................................................................................ 39 Intellectual Property Issues ...................................................................................................................... 40

Pricing Regime ...................................................................................................................................... 41

Reimbursement Regime ........................................................................................................................... 42

Market Overview ............................................................................................................... 44 Healthcare Sector .................................................................................................................................. 45

Table: National Transformation Plan - Key Pharmaceutical And Healthcare Objectives For 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Table: Healthcare Resources (Saudi Arabia 2011-2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Table: Healthcare Personnel (Saudi Arabia 2011-2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Table: Healthcare Activity (Saudi Arabia 2011-2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Research & Development ........................................................................................................................ 49

Clinical Trials ....................................................................................................................................... 51

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Epidemiology ........................................................................................................................................ 52

Competitive Landscape .................................................................................................... 56 Research-Based Industry ......................................................................................................................... 56

Table: Multinational Market Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Generic Drugmakers .............................................................................................................................. 60

Pharmaceutical Distribution .................................................................................................................... 61

Pharmaceutical Retail Sector ................................................................................................................... 61

Company Profile ................................................................................................................ 62 GlaxoSmithKline ..................................................................................................................................... 62

Sanofi .................................................................................................................................................... 65

SPIMACO .............................................................................................................................................. 68

TABUK Pharmaceutical Manufacturing ....................................................................................................... 71

Demographic Forecast ..................................................................................................... 74 Demographic Outlook .............................................................................................................................. 74

Table: Population Headline Indicators (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Table: Key Population Ratios (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Table: Urban/Rural Population & Life Expectancy (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Table: Population By Age Group (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Table: Population By Age Group % (Saudi Arabia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Glossary ............................................................................................................................. 79

Methodology ...................................................................................................................... 81 Pharmaceutical Expenditure Forecast Model .............................................................................................. 81

Healthcare Expenditure Forecast Model ..................................................................................................... 81

Notes On Methodology ............................................................................................................................ 82

Risk/Reward Index Methodology ................................................................................................................ 83 Table: Indicators - Rationale And Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

BMI Industry View

BMI View: Multinational drugmakers will capitalise on the long-term investment opportunities in Saudi

Arabia. Oil prices - which significantly affect healthcare expenditure - will be instrumental in shaping the

pace of pharmaceutical growth as the government, the primary source of healthcare financing, remains

heavily reliant on hydrocarbon revenues. Despite a number of multinational pharmaceutical companies

reporting a a slowdown in demand for certain products in the kingdom, Saudi Arabia's long-term growth

outlook is still positive - with key drivers coming from the gradual rebalancing of oil prices and the

government's prioritisation of the healthcare sector.

Headline Expenditure Projections

■ Pharmaceuticals: SAR27.9bn (USD7.44bn) in 2016 to SAR28.2bn (USD7.5bn) in 2017; 1.0% in local currency terms and 1.1% in US dollar terms. Forecast in line with Q117.

■ Healthcare: SAR129.1bn (USD34.4bn) in 2016 to SAR133.4bn (USD35.6bn) in 2017; -3.3% in local currency terms 3.4% in US dollar terms. Forecast in line with Q117.

Table: Headline Pharmaceuticals & Healthcare Forecasts (Saudi Arabia 2015-2021)

2015 2016e 2017f 2018f 2019f 2020f 2021f

Pharmaceutical sales, USDbn 7.520 7.443 7.521 7.899 8.313 8.769 9.271

Pharmaceutical sales, % of GDP 1.15 1.15 1.04 1.01 1.00 0.98 0.98

Pharmaceutical sales, % of health expenditure 21.6 21.6 21.1 21.2 21.3 21.4 21.5

Health spending, USDbn 34.750 34.414 35.573 37.197 38.992 40.966 43.210

f = BMI forecast. Source: National sources, Local news source, Domestic companies, UN Comtrade, BMI

Risk/Reward Index

In our Q217 Pharmaceutical Risk/Reward Index (RRI) Saudi Arabia's score of 60.4 out of 100 is in line

with its last quarter score, and maintains its position in second place out of 31 countries analysed in the

whole Middle East and Africa (MEA) region. Regionally, Saudi Arabia ranks relatively well compared to

the other Gulf States - only UAE is positioned higher. Its high composite score is due to its wealth and a

sizeable population, which will support the longer-term development of the pharmaceutical market.

However, issues relating to patent approvals and the regulatory system remain a major issue for foreign

research-based pharmaceutical players.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Latest Updates

■ In January 2017, Pfizer opened its SAR187.5mn (USD50mn) manufacturing facility in the KAEC, reinstating its commitment to the Saudi Arabian government's National Transformation Program (NTP) 2020 and 'Vision 2030'.

■ In January 2017, Dubai's healthcare investment company Amanat Holdings acquired a minority stake in Saudi Arabia's International Medical Company (IMC) - its second healthcare investment in the Kingdom as the Saudi government encourages healthcare privatisation.

■ In November 2016, the Minister of Energy, Industry and Mineral Resources, announced that the Saudi Industrial Development Fund could be used to develop Saudi Arabia's pharmaceutical sector over the coming years.

BMI Economic View

The Saudi economy will enter into recession and contract by 0.2% in 2017, as cuts in oil production agreed

at the November OPEC meeting severely weigh on headline growth. The non-oil economy will continue to

feel the impact of consolidation measures on consumer and business sentiment.

BMI Political View

US-Saudi relations will not experience a fundamental shift under Donald Trump's presidency. Mutual

interests over security issues and a realignment of policy stances towards Iran will drive cooperation

between the two countries. Going forward, we expect political risk in Saudi Arabia to increase significantly

over the coming decade. The country faces major challenges, which have the potential to markedly

destabilise the regime, and even bring it down. The country will embark on far-reaching economic and

social reforms, which will transform Saudi Arabian society, and erode the welfare state.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

SWOT

Pharmaceutical SWOT Analysis

Strengths ■ The largest pharmaceutical market in the Arabian Peninsula, with steady growth

projected over the forecast period.

■ Prescription drug market dominates the market, supported by increasing uptake of

private healthcare services and the emergence of a sizeable medical tourism sector.

■ Rising government investment in the local drug industry.

■ Rapidly expanding population, with an increasing prevalence of chronic lifestyle-

related diseases.

■ Accelerating modernisation and expansion of healthcare infrastructure and provision.

■ The dominance of patented drugs is expected to persist, given the country's wealth,

though pharmacoeconomic measures have been proposed.

Weaknesses ■ Complex nature of the domestic regulatory system restricting the entry of

multinationals and drugmakers from developing countries, such as India.

■ The market reliance on imports, particularly at the hi-tech end of the scale.

■ Market entry delays due to requirements for laboratory testing in the country.

■ Pricing system biased in favour of the local industry.

■ Reference pricing to other markets negatively affecting price levels in Saudi Arabia.

■ Inadequate protection for patented pharmaceutical products.

■ Tight government control on prices resulting in the lowest drug prices in the region.

Opportunities ■ Pfizer and Merck Sharp & Dohme have committed to supporting the government's

pharmaceutical expansion plans.

■ 'Vision 2030' - the government's economic diversification strategy. This plan includes

a number of improvements towards healthcare delivery in the Kingdom.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Pharmaceutical SWOT Analysis - Continued

■ Alongside the UAE, Saudi Arabia stands out as one of the most attractive targets in

the Gulf region for the South Korean healthcare industry.

■ The country's accession to the WTO resulting in new rules on investment in local

companies will greatly encourage foreign investment in the sector.

■ Intellectual property improvements, particularly the Trade-Related Aspects of

Intellectual Property Rights agreement will improve the position of patented

medicines in the Saudi market

■ Potential for generic drug market growth, from a low base, boosted by need for cost-

containment and pending patent expirations.

■ OTC drug consumption rising on the back of the partial liberalisation of sales,

advertising support and an increase in the number of pharmacies, which are

promoting greater customer awareness and OTC demand.

■ Considerable scope for local manufacturing sector growth, especially given

government support for diversification within the economy.

■ Involvement in the Gulf Central Committee for Drug Registration and other

harmonisation initiatives acting as a catalyst for market development.

■ Expansion of private insurance policies and healthcare facilities.

Threats ■ Improved intellectual property laws limit local firms' ability to make generic versions of

patented drugs.

■ The government's failure to revise discriminatory drug pricing and reimbursement

policy, with proposed changes to included more lower-income countries in the

referencing basket.

■ Uncertain uptake of the compulsory insurance scheme and ability of firms to fund it.

■ New medical supplier with exclusive rights to supply government health institutions

could force smaller distributors out of business.

■ Difficulties in implementation of ambitious healthcare infrastructure expansion, largely

due to lack of expertise and experience.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Pharmaceutical SWOT Analysis - Continued

■ A unified drug formulary for all government agencies to increase competition.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Industry Forecast

Pharmaceutical Market Forecast

BMI View: Despite the challenging macroeconomic environment, opportunities for multinational

pharmaceutical companies to expand their manufacturing capacities in Saudi Arabia will remain fruitful.

Current growth in the kingdom's drug market is being driven by public- and private-sector investments,

with King Abdullah's Economic City (KAEC) presenting a large-scale innovative partnership between these

two sectors. Indeed, lower public health expenditure has certainly created a tougher operating environment

for multinational drugmakers, slowing pharmaceutical expenditure in the kingdom. However, we expect

growth to pick up over 2017 as oil prices slowly rebound and austerity measures are gradually relaxed.

Latest Updates

Pharmaceutical Market Forecast

(2012-2026)

Pharmaceutical sales, USDbn (LHS) Pharmaceutical sales constant exchange rate, USDbn (LHS) Pharmaceutical sales, % of GDP (RHS)

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

20 22

20 23

20 24

20 25

20 26

0.5

1.5

f = BMI forecast. Source: Local news source, Domestic companies, UN Comtrade, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Structural Trends

On the back of a prolonged era of weak oil prices, lower public health expenditure in Saudi Arabia will

create a more challenging pharmaceutical environment for drugmakers in the Kingdom. Cutbacks in

healthcare budgets, a reduction in tender sales, and slower public consumption will continue to weigh on

pharmaceutical market growth over the immediate term. Despite the aforementioned challenges, Saudi

Arabia will remain a key market for many leading multinational pharmaceutical companies in the Middle

East and Africa region.

We forecast pharmaceutical sales to rise from SAR27.9bn (USD7.4bn) in 2016 to SAR28.2bn (USD7.5bn)

in 2017, representing a 1.0% y-o-y growth in expenditure in local currency and 1.1% in US dollar terms.

We expect growth to be fairly muted in 2017 as the impact of a slow recovery within the oil sector will

continue to impact pharmaceutical spending. We project that the market will expand by a 5-year compound

annual growth rate (CAGR) of 4.5%, making the market worth SAR34.8bn (USD9.3bn) by 2021. This is

markedly slower than the 5-year trailing CAGR of 8.8%, whereby the pharmaceutical market increased

from SAR15.6bn (USD4.2bn) in 2010 to SAR28.2bn (USD7.5bn) by 2015 - reflecting a much stronger oil

sector during this period.

Our outlook for pharmaceutical spending is subdued partly due to the government, which is responsible for

the majority of healthcare financing, devoting fiscal resources to security spending as well as undertaking

austerity measures. Saudi Arabia's state budget for 2017 includes a SAR120bn (USD32.0bn) allocation for

health and social affairs. While this equates to a similar health budget to 2016 - SAR120bn (USD33.3bn), it

represents a notable contraction of around 38% compared to the healthcare budget in 2015 of SAR160bn

(USD42.7bn). While certain healthcare sub-sectors will be affected more than others, we expect the

pharmaceutical sector to absorb some of the cost. Highlighting this, recent company reports from Takeda,

AstraZeneca and Hikma Pharmaceuticals have acknowledged a slowdown in the Saudi Arabian medicine

market as a result of the challenging macroeconomic environment.

Growth To Pick Up

Despite the expected slowdown in growth, Saudi Arabia will remain an attractive pharmaceutical market in

the Middle East and Africa (MEA) region. We expect growth to pick up over the coming years as oil prices

slowly rebound and austerity measures are gradually relaxed. This is especially as Saudi Arabia's National

Transformation Program (NTP), a key part of Vision 2030, reinstates the government's commitment to

improving healthcare provision in the country. Authorities have also confirmed that the Saudi Food and

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Drug Authority (SFDA) is currently in negotiations with a number of international pharmaceutical

companies to create a new draft regulatory system for drug approvals. This is positive as the present

complex regulatory system that seems to favour local companies over multinationals and somewhat restricts

market access has raised concerns.

Our Oil & Gas team expect the global oil market to come into balance by 2017, as compared to H216

previously. We forecast Brent and WTI prices to average USD57.0/bbl and USD55.5/bbl respectively over

2017. We maintain our forecasts of (average) USD68.0/bbl and USD66.6/bbl for Brent and WTI

respectively for 2018. Given that Saudi Arabia's government spending has tended to correlate to global oil

prices over the last decade, we expect that pharmaceutical market growth will be supported by stronger oil

market dynamics from late 2017 onwards.

Table: Pharmaceutical Sales, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Pharmaceutical sales, USDbn 6.582 7.160 7.520 7.443 7.521 7.899 8.313 8.769 9.271

Pharmaceutical sales, USDbn, % y-o-y 18.09 8.78 5.03 -1.02 1.05 5.02 5.24 5.48 5.72

Pharmaceutical sales, SARbn 24.685 26.857 28.209 27.926 28.205 29.621 31.174 32.883 34.765

Pharmaceutical sales, SARbn, % y-o-y 18.09 8.80 5.03 -1.00 1.00 5.02 5.24 5.48 5.72

Pharmaceutical sales constant exchange rate, USDbn 6.579 7.158 7.518 7.443 7.517 7.895 8.309 8.764 9.266

Pharmaceutical sales, USD per capita 217.9 231.8 238.4 231.5 229.7 237.2 245.7 255.2 265.8

Pharmaceutical sales, % of GDP 0.88 0.95 1.15 1.15 1.04 1.01 1.00 0.98 0.98

Pharmaceutical sales, % of health expenditure 20.7 20.2 21.6 21.6 21.1 21.2 21.3 21.4 21.5

f = BMI forecast. Source: Local news source, Domestic companies, UN Comtrade, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Healthcare Market Forecast

BMI View: While Saudi Arabia will retain its status as one of the more attractive pharmaceutical markets

for international firms, lower public health expenditure in the country will certainly create a more

challenging pharmaceutical environment for drugmakers in the kingdom. Underpinning this view, recent

drugmaker reports have noted reduced demand for certain products in Saudi Arabia, lower tender sales

and difficulty launching new products.

Latest Updates

Healthcare Expenditure Forecast

(2012-2026)

Health spending, USDbn (LHS) Health expenditure constant FX rate, USDbn (LHS) Health spending, % of GDP (RHS)

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

20 22

20 23

20 24

20 25

20 26

f = BMI forecast. Source: WHO, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Structural Trends

We uphold our view that healthcare delivery will remain an important area for the Saudi Arabian

government over the long term. While spending cuts will be felt in most sectors, including the healthcare

sector, our outlook for the country's healthcare sector is fairly positive.

We forecast healthcare expenditure in Saudi Arabia at SAR129.1bn (USD34.4bn) in 2016. Healthcare

spending is expected to grow at a five-year compound annual growth rate (CAGR) of 4.6% in local

currency and 4.7% in US dollar terms, similar to the pharmaceutical market (five-year CAGR of 4.5%). In

our view, the government will remain responsible for the bulk of healthcare expenditure, accounting

for over two-thirds of total health expenditure by 2026. We forecast government healthcare spending to

increase from SAR95.7bn (USD25.5bn) in 2016 to SAR162.9bn (USD43.4bn) in 2026, equating to a 10-

year local currency and US dollar CAGR of 4.2%. However, as the public healthcare system becomes

increasingly burdened by growing demand and government healthcare spending comes under pressure,

some of the burden will be shifted to the private sector. We forecast the private healthcare sector to increase

at a faster 10-year CAGR of 5.9%, which will see the market expand from SAR33.4bn (USD8.9bn) in 2016

to SAR63.8bn (USD17.0bn) by 2026.

Healthcare Diversification Strategy - 'Vision 2030'

In 2016, Saudi Deputy Crown Prince Mohammed bin Salman unveiled Saudi Arabia's Vision 2030, a

blueprint for the transformation of the Saudi economy away from its overreliance on oil and the public

sector. As part of this, the government has outlined various plans concerning the healthcare sector -

reinstating its commitment to improving healthcare provision in the Kingdom. Vision 2030's key aims

include efforts to boost life expectancy and medical tourism.

We expect this plan to create opportunities for multinational pharmaceutical companies to roll out disease

awareness programmes and educational training practices. Following the release of the country's National

Transformation Plan, Merck & Co announced its intentions to support the Kingdom's long-term healthcare

ambitions.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Health spending, USDbn 31.774 35.441 34.750 34.414 35.573 37.197 38.992 40.966 43.210

Health spending, USDbn, % y-o-y 12.06 11.54 -1.95 -0.97 3.37 4.57 4.83 5.06 5.48

Health spending, SARbn 119.154 132.902 130.312 129.120 133.398 139.490 146.221 153.622 162.039

Health spending, SARbn, % y-o-y 12.06 11.54 -1.95 -0.91 3.31 4.57 4.83 5.06 5.48

Health expenditure constant FX rate, USDbn 31.757 35.422 34.731 34.414 35.554 37.178 38.972 40.944 43.187

Health spending, USD per capita 1,052.1 1,147.4 1,101.8 1,070.1 1,086.4 1,117.0 1,152.3 1,192.0 1,238.7

Health spending, % of GDP 4.27 4.71 5.33 5.33 4.91 4.77 4.67 4.60 4.56

f = BMI forecast.Source: WHO, BMI

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Govt. health spend, USDbn 23.205 26.412 25.857 25.507 26.379 27.364 28.503 29.818 31.338

Govt. health spend, USDbn, % y-o- y 14.87 13.82 -2.10 -1.35 3.42 3.74 4.16 4.61 5.10

Govt. health spend, SARbn 87.018 99.045 96.962 95.702 98.921 102.617 106.888 111.816 117.519

Govt. health spend, SARbn, % y-o-y 14.87 13.82 -2.10 -1.30 3.36 3.74 4.16 4.61 5.10

Govt. health spend, % total health spend 73.03 74.52 74.41 74.12 74.15 73.57 73.10 72.79 72.52

f = BMI forecast. Source: WHO, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Private health spend, USDbn 8.570 9.029 8.893 8.907 9.194 9.833 10.489 11.148 11.872

Private health spend, USDbn, % y-o-y 5.08 5.36 -1.50 0.15 3.22 6.95 6.67 6.29 6.49

Private health spend, SARbn 32.136 33.858 33.350 33.418 34.477 36.873 39.333 41.806 44.521

Private health spend, SARbn, % y-o-y 5.08 5.36 -1.50 0.20 3.17 6.95 6.67 6.29 6.49

Private health spend, % total health expenditure 26.97 25.48 25.59 25.88 25.85 26.43 26.90 27.21 27.48

f = BMI forecast. Source: WHO, BMI

Prescription Drug Market Forecast

BMI View: A favourable disease profile, expanding access to medical services and healthcare

modernisation will drive the growth of Saudi Arabia's prescription drug sector. The Kingdom has the

largest market for prescription drugs in the Gulf Cooperation Council, something we expect to continue as

the uptake of generic and patented drugs continues on an upward trajectory.

Prescription Drug Market Forecast

(2012-2026)

Prescription drug sales, USDbn (LHS) Prescription drug sales, % of total sales (RHS)

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

20 22

20 23

20 24

20 25

20 26

f = BMI forecast. Source: Local news source, Domestic companies, UN Comtrade, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Structural Trends

Despite the strict price controls and biased regulatory and intellectual property regimes, the Saudi

prescription drugs market is set to experience steady growth in the 2016-2021 period. Key drivers of the

4.4% local currency five-year compound annual growth rate (CAGR) will be favourable demographic and

epidemiological factors, in addition to the government's healthcare infrastructure plans, which will improve

access to secondary and tertiary healthcare.

Demand for prescription drugs will be underpinned by the country's growing and ageing population as well

as its affluence. We forecast prescription drug spending to increase from SAR24.3bn (USD6.5bn) in 2016

to SAR30.1bn (USD8.0bn) in 2021. Over the long term, we forecast prescription expenditure to reach

SAR41.4bn (USD11.0bn) by 2026, equating to a 10-year CAGR of 5.5% and representing 87% of total

medicines spending. Growth is also supported by healthcare provision modernisation and expansion,

including the establishment of more private facilities. Additionally, the demand for long-term and chronic

treatments targeting chronic diseases, which will be supported by the development of telecare industries,

will continue to represent a major draw for foreign companies, despite some intellectual property

deficiencies.

Given the kingdom's reliance on foreign doctors as key prescribers, the uptake of prescription medication is

heavily reliant on their presence in the sector. We believe the number of foreign doctors is likely to fluctuate

due to the unsustainable nature of Western expats' lifestyles in the Middle East, posing a risk to prescription

drug forecasts, although the government is actively promoting the replacement of expatriates with nationals

through 'Saudization'.

Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Prescription drug sales, USDbn 5.710 6.229 6.557 6.475 6.528 6.852 7.207 7.599 8.033

Prescription drug sales, USDbn, % y-o-y 19.59 9.09 5.27 -1.25 0.81 4.96 5.19 5.43 5.71

Prescription drug sales, SARbn 21.415 23.365 24.598 24.296 24.479 25.694 27.028 28.496 30.123

Prescription drug sales, SARbn, % y-o-y 19.59 9.11 5.27 -1.23 0.75 4.96 5.19 5.43 5.71

Prescription drug sales, % of total sales 86.8 87.0 87.2 87.0 86.8 86.7 86.7 86.7 86.6

f = BMI forecast. Source: Local news source, Domestic companies, UN Comtrade ,BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Patented Drug Market Forecast

BMI View: High per capita expenditure on pharmaceuticals, a rising chronic disease burden, and

preference for expensive medicines will support growth of the patented drugs market in Saudi Arabia. As

such, we expect patented drugs will maintain a large share of Saudi Arabia's pharmaceutical market. Saudi

Arabia has the largest market for prescription drugs of the six Gulf Cooperation Council countries.

Patented Drug Market Forecast

(2012-2026)

Patented drug sales, USDbn (LHS) Patented drug sales, % of total sales (RHS)

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

20 22

20 23

20 24

20 25

20 26

f 0

2.5

7.5

f = BMI forecast. Source: Local news source, domestic companies, UN Comtrade, BMI

Structural Trends

Saudi Arabia has a large population and reasonably high per capita spending on medicines. The transition to

an increasingly privatised and comprehensive healthcare system will drive demand for both patented and

generic drugs. In particular, patented drug consumption in Saudi Arabia will be continually supported by the

population's wealth, high demand for sophisticated pharmaceuticals, and the practice of prescribing by

brand name.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Patented drugs accounted for 55.8% of the total drug market in 2016, and for 64.1% of the prescription

market. The country's considerable wealth means patented drugs remain the preferred treatment option,

although as mandatory price cuts are imposed, patents expire and generic-friendly policies are enacted, sales

of generic medicines will outpace those of patented medicines. We expect patented drug spending to post a

five-year compound annual growth rate of 4.2% to SAR19.2bn (USD5.1bn) in 2021, and 5.6% over the

long term, yielding a market size of SAR26.8bn (USD7.1bn) by 2026 - from SAR15.6bn (USD4.2bn) in

2016. Despite patent expirations, pressure from international research-based pharmaceutical companies will

gradually serve to address the balance and improve the position of patented medicines in the Kingdom's

market.

Negative drivers of the patented drug market include the fact that registration requirements (especially in

relation to new drugs, which require what is seen as unnecessary laboratory analysis) in the country

continue to favour domestically produced generic products over innovative drugs made by foreign firms,

which has sparked criticism from Pharmaceutical Research and Manufacturers of America (PhRMA) and its

member companies. Additionally, price controls are strict and plans to include less economically developed

countries in the reference system have also drawn criticism.

Table: Patented Drug Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Patented drug sales, USDbn 3.684 4.020 4.224 4.153 4.120 4.344 4.576 4.832 5.115

Patented drug sales, USDbn, % y-o-y 20.40 9.11 5.08 -1.68 -0.80 5.44 5.34 5.59 5.86

Patented drug sales, SARbn 13.817 15.079 15.846 15.583 15.451 16.292 17.161 18.122 19.183

Patented drug sales, SARbn, % y-o-y 20.40 9.13 5.08 -1.66 -0.85 5.44 5.34 5.59 5.86

Patented drug sales, % of prescription sales 64.5 64.5 64.4 64.1 63.1 63.4 63.5 63.6 63.7

Patented drug sales, % of total sales 56.0 56.1 56.2 55.8 54.8 55.0 55.1 55.1 55.2

f = BMI forecast. Source: Local news source, Domestic companies, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Generic Drug Market Forecast

BMI View: The generic medicine sector has great potential in Saudi Arabia, underpinned by the

government's cost-containment drive, lax data exclusivity laws and improving healthcare access. However,

patented medicines will maintain a dominant share, supported by the Kingdom's relatively high per capita

spending on pharmaceuticals and rising burden of long-term chronic diseases that necessitate innovative

treatments.

Generic Drug Market Forecast

(2012-2026)

Generic drug sales, USDbn (LHS) Generic drug sales, % of total sales (RHS)

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

20 22

20 23

20 24

20 25

20 26

f = BMI forecast. Source: Local news source, Domestic companies, UN Comtrade, BMI

Structural Trends

We expect spending on generic drugs to increase from SAR8.71bn (USD2.3bn) in 2016 to SAR10.94bn

(USD2.9bn) by 2021, representing a five-year compound annual growth rate of 4.7%. The generic drug

market presently accounts for 35.9% of the prescription market, and is expected to increase to 36.3% by

2021 due to sector modernisation and government support for the consumption of cheaper generic products.

By 2026, we expect generic drugs expenditure to reach SAR14.56bn (USD3.88bn). However, a dependency

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

on imported active pharmaceutical ingredients (APIs) is a significant problem that local generic drug firms

have to bear.

The generic drug market is boosted by the lax data exclusivity laws in Saudi Arabia. Presently, data

exclusivity is not provided to innovative products that have not been directly patented in the country,

although recent legislation passed establishes a mechanism for providing effective patent enforcement and

also recognises pharmaceutical patents issued by other Gulf Cooperation Council (GCC) members. Given

that many drugs do not have patents in Saudi Arabia and can therefore be copied, data exclusivity is the

only tool left to protect innovative products.

Despite the dominance of patented drugs in Saudi Arabia, the generic medicines market is expected to

develop strongly across the entire GCC region. The weight of chronic disease, unsustainably high health

spending, government cost containment drives and a raft of patent expiries will support growth in the off-

patented medicines sub-sector.

Over our forecast period, local generic drug producers will be aided by plans for closer regional integration

and a greater emphasis placed on drugs produced within the GCC. Efforts to wean the region off its

overwhelming reliance on imported drugs (primarily in the public sector) should play into the hands of the

local industry, which mostly produces branded generic products.

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

Generic drug sales, USDbn 2.026 2.209 2.333 2.322 2.408 2.507 2.631 2.767 2.917

Generic drug sales, USDbn, % y-o-y 18.14 9.04 5.61 -0.47 3.67 4.14 4.94 5.15 5.46

Generic drug sales, SARbn 7.598 8.286 8.752 8.713 9.028 9.402 9.867 10.374 10.940

Generic drug sales, SARbn, % y-o-y 18.15 9.06 5.62 -0.45 3.62 4.14 4.94 5.15 5.46

Generic drug sales, % of prescription sales 35.5 35.5 35.6 35.9 36.9 36.6 36.5 36.4 36.3

Generic drug sales, % of total sales 30.8 30.9 31.0 31.2 32.0 31.7 31.7 31.6 31.5

f = BMI forecast. Source: Local news source, domestic companies, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

OTC Drug Market Forecast

BMI View: Prescription medicines will make up the majority of Saudi Arabia's pharmaceutical market in

terms of value and volume through increasing uptake of generic and patented drugs. This will somewhat

limit OTC medicines market penetration over the long term. That said, the gradual liberalisation of OTC

retail in the Kingdom will support steady, albeit slow, growth over the coming years.

OTC Medicine Market Forecast

(2012-2026)

OTC medicine sales, USDbn (LHS) OTC medicine sales, % of total sales (RHS)

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

20 22

20 23

20 24

20 25

20 26

0.5

1.5

f = BMI forecast. Source: Local news source, Domestic companies, UN Comtrade, BMI

Structural Trends

We expect the value of the OTC market to increase from SAR3.63bn (USD968mn) in 2016 to SAR4.64bn

(USD1.24bn) by 2021, representing a five-year compound annual growth rate of 5.0%. OTCs will comprise

just over 13.4% of the total drug market by this point, up from 13.0% in 2016. By 2026, OTC sales will

increase to SAR6.32bn (USD1.68bn), in line with cost containment in public healthcare and the expected

gradual liberalisation of OTC retail. However, strict controls imposed on OTCs in Saudi Arabia, limiting

their advertisement and promotion, will mean that OTC sales still represent a relatively small 13.3% of the

total pharmaceutical market.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Saudi Arabian authorities have partly liberalised the OTC retail market over the past few years. According

to the Saudi Gazette, products such as commonly used analgesics (including paracetamol 500mg), lozenges

containing vitamins and hand sanitizers containing isopropyl alcohol or ethanol can now be sold in

supermarkets and larger food stores. The outlets will, however, have to comply with stipulated storage

conditions.

Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data And Forecasts (Saudi Arabia 2013-2021)

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

OTC medicine sales, USDbn 0.872 0.931 0.963 0.968 0.994 1.047 1.106 1.170 1.238

OTC medicine sales, USDbn, % y-o-y 9.11 6.77 3.41 0.53 2.68 5.42 5.56 5.80 5.80

OTC medicine sales, SARbn 3.270 3.491 3.611 3.630 3.726 3.928 4.146 4.387 4.641

OTC medicine sales, SARbn, % y-o-y 9.11 6.78 3.42 0.55 2.63 5.42 5.56 5.80 5.80

Over-the-counter (OTC) medicine sales, % of total sales 13.2 13.0 12.8 13.0 13.2 13.3 13.3 13.3 13.4

f = BMI forecast. Source: Local news source, domestic companies, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Pharmaceutical Trade Forecast

BMI View: Saudi Arabia is reliant on pharmaceutical imports to meet the majority of its medicine

demands. Pharmaceutical imports into Saudi Arabia have recently come under pressure, however, as the

impact of low oil prices, lower public health spending and a challenging macroeconomic environment took

hold. While export growth will be given a boost by government efforts to promote local pharmaceutical

manufacturing, the sector is set to remain dominated by foreign-made medicines over the coming years.

Pharmaceutical Trade Forecast

(2012-2021)

Pharmaceutical exports, USDmn Pharmaceutical imports, USDmn

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

2,500

5,000

7,500

f = BMI forecast. Source: UN Comtrade, National sources, BMI

Structural Trends

We expect Saudi Arabian pharmaceutical imports to increase from SAR19.2bn (USD5.1bn) in 2016 to

SAR23.6bn (USD6.3bn) by 2021, representing a five-year compound annual growth rate (CAGR) of 4.2%

in local currency and US dollar terms. Import distribution is controlled exclusively by Saudi Arabian firms,

led by Banaja Saudi Import Company in the private sector and the government purchasing unit NUPCO.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Exports are likely to continue to represent a minor component of the domestic output, although levels

should increase as the local industry develops and the country's regional trade grows. However, the situation

is not helped by the fact that it is traditionally difficult for Arab drug companies to export to the US and

Europe due to the high cost of regulatory clearance. We forecast pharmaceutical exports to increase from

SAR1.96bn (USD522mn) in 2016 to SAR3.19bn (USD850mn) by 2021, corresponding to a 10.3% CAGR -

faster than that of pharmaceutical imports. In 2015, according to TradeMap, over half of Saudi Arabia's

imported pharmaceuticals originated from the US, Belgium, Switzerland, Germany and France. In terms of

exports, nearly two-thirds by value were exported to Egypt, Jordan, Algeria and the UAE in the same year.

Downside Risks To Forecast

Falling imports pose a downside risk to Saudi Arabia's pharmaceutical market forecast. Medicine imports -

which account for a significant proportion of the Kingdom's overall pharmaceutical market - decreased by

20.9% in US dollar terms in the year to June 2016, to USD20.6bn. Meanwhile, in the three months to July

2016, imports in US dollar terms dropped by 8.4% to USD650mn. Once reported, we expect a similar trend

was experienced during the remainder of 2016 as pharmaceutical imports came under pressure from Saudi

Arabia's lacklustre economy.

On a 12-month moving average basis, pharmaceutical imports into Saudi Arabia rose by just 1.4% in July

2016, compared to 7.5% a year previously. While the Saudi Arabian government has expressed its

intentions of reducing its dependency on importing pharmaceuticals, the domestic industry is highly

concentrated on the production of basic generic drugs. As such, demand for more advanced products will

likely remain elevated and predominantly sourced from abroad. This makes foreign-based drugmaker

activity a significant factor influencing medicine imports. Local drugmakers are unlikely to significantly

develop their manufacturing capabilities under the current downturn in economic activity.

Local Preference

The pharmaceutical market remains heavily biased towards local and regional companies, with government

subsidies and exemptions granted to local producers, including interest-free capital and subsidised utility

costs. Local and Gulf Cooperation Council companies are also given faster product registrations and a 10%

preference is granted to local or GCC-based companies compared to other multinational drugmakers. As

such, the government tends to prefer buying medicines from local pharmaceutical companies if their prices

are not more than 10% higher than those offered by foreign drugmakers.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Additionally, regional harmonisation could potentially cause a switch from importing drugs from

multinationals to a greater reliance on regional companies, especially in areas such as generic drugs. At the

very least, collective bargaining between GCC countries should result in lower prices for many products

imported from outside the region, including active pharmaceutical ingredients, which should help stimulate

local production. Nevertheless, it will take a long time before domestic manufacturing capabilities reach

sustainable levels.

In recent years, government efforts to promote local pharmaceutical manufacturing have helped domestic

producers gain ground and increase their share of the pharmaceutical market respective to foreign players.

Saudi Arabia's target to produce 40% of all drugs domestically in the long term is ambitious, but achievable

with enough investment. The increased commoditisation of generic drugs and competition from India and

China means it is unlikely that these companies will maintain a strong competitive advantage without

preferential treatment or moving into the field of hard-to-manufacture pharmaceuticals.

Table: Pharmaceutical Trade Data And Forecasts (Saudi Arabia 2015-2021)

2015 2016e 2017f 2018f 2019f 2020f 2021f

Pharmaceutical exports, USDmn 455.75 521.56 581.30 642.11 709.33 780.09 850.15

Pharmaceutical exports, USDmn, % y- o-y 17.42 14.44 11.45 10.46 10.47 9.98 8.98

Pharmaceutical imports, USDmn 5,231.14 5,125.47 5,307.48 5,520.96 5,755.19 6,013.01 6,297.02

Pharmaceutical imports, USDmn, % y- o-y 5.03 -2.02 3.55 4.02 4.24 4.48 4.72

Pharmaceutical trade balance, USDmn -4,775.40 -4,603.91 -4,726.19 -4,878.85 -5,045.86 -5,232.92 -5,446.87

f = BMI forecast. Source: UN Comtrade, National sources, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Table: Pharmaceutical Trade Data And Forecasts local currency (Saudi Arabia 2015-2021)

2015 2016e 2017f 2018f 2019f 2020f 2021f

Pharmaceutical exports, SARmn 1,709.61 1,956.89 2,179.86 2,407.92 2,660.00 2,925.35 3,188.07

Pharmaceutical exports, SARmn, % y-o-y 17.43 14.46 11.39 10.46 10.47 9.98 8.98

Pharmaceutical imports, SARmn 19,623.31 19,230.76 19,903.05 20,703.59 21,581.97 22,548.80 23,613.83

Pharmaceutical imports, SARmn, % y-o-y 5.03 -2.00 3.50 4.02 4.24 4.48 4.72

Pharmaceutical trade balance, SARmn -17,913.69 -17,273.87 -17,723.20 -18,295.67 -18,921.97 -19,623.45 -20,425.76

f = BMI forecast. Source: UN Comtrade, National sources, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Industry Risk/Reward Index

Central And Eastern Europe Risk/Reward Index – Q2 2017

BMI View: Central & Eastern Europe is a region with a high variability of market attractiveness for

innovative drugmakers. While some markets represent high growth potential or favourable regulatory

environments, it is vital that companies appreciate the varying levels of both investment risk and reward

that are present in the markets in Central & Eastern Europe. BMI's Innovative Pharmaceuticals Risk/

Reward Index tool, which provides a globally comparative and numerically based assessment of a market's

attractiveness for companies looking to launch a high-value drug, was established to address this.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Central & Eastern Europe: A Diverse Mixture Of Opportunities

Central & Eastern Europe Innovative Pharmaceuticals Risk/Reward Index

Note: Scores out of 100; higher scores = lower risk. Source: BMI' Risk/Reward Index

Main Regional Features & Latest Updates

■ The Central & Eastern Europe average in our Innovative Pharmaceuticals Risk/Reward Index (RRI) slightly outperforms the global average. The region is highly diverse, with a number of mature markets scoring highly for access to, and demand for, innovative medicines, while there are also a number of underdeveloped markets with poor access to healthcare services and significant industry-specific risks.

■ While the region could theoretically be divided into two distinct sub-regions - the mature Central European, EU member states, and the emerging former Soviet states - the same trend will drive demand for innovative pharmaceuticals. In the more developed markets, there is a heavier focus on cost-

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

containment and healthcare spending efficiency which has led to greater generic medicine substitution programmes. In the Eastern countries, states will tackle the rapidly growing demand for medicines by favouring the more affordable low-value generic drugs.

■ With regard to assessing rewards, the RRI identifies industry-specific factors, such as the size of the pharmaceutical market, and country-specific factors, such as the size of the pensionable population, which represent opportunities to potential investors. Greece scores the highest for the Rewards component of the index, boosted by its high usage of patented medicines leading to a high per-capita pharmaceutical expenditure, as well as the size of its pensionable population. Meanwhile, Moldova scores the lowest score in the subsector.

■ With regard to assessing risks, we identify industry-specific dangers, such as a country's pricing regime, and those emanating from the state's political and economic profile which call into question the likelihood of anticipated returns being realised over the assessed time period. Focusing on the Risks component of the index, Ukraine scores the lowest in the subsector. Compared to its peers, Ukraine's score is dragged down by industry characteristics such as a weak patent protection; however, the country's long- and short-term economic and political risks are the worst in the region and amongst the worst globally. Meanwhile, Estonia scores the highest score in the subsector.

Central & Eastern Europe: Regulatory Environments Dominant Factor

Central & Eastern Europe Innovative Pharmaceuticals Risk/Reward Index

Note: Scores out of 100; higher scores = lower risk. Source: BMI's Risk/Reward Index

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Outperformers: High Reward & Low Risk Markets

Central & Eastern European markets are not considered amongst the most attractive globally for companies

looking to launch innovative pharmaceuticals. The Czech Republic, which ranks first in Central & Eastern

Europe, is ranked 22nd globally, whilst the region's second ranked country, Poland is ranked 24th. Scoring in

the Innovative Pharmaceuticals RRI favours larger markets with greater sales potential for multinationals.

Indeed, neither market can compete with the high per-capita expenditure or absolute market size of the top

global markets.

The Czech Republic's large pensionable population will maintain strong demand for innovative medicines.

In addition, government reforms aimed at increasing the access to and quality of healthcare services will

bolster the outlook for patented drugmakers. However, coupled with the expanding access to medicines,

there will be a heightened focus on healthcare spending efficiency resulting in greater pricing pressures.

Both countries score poorly for the Pricing Regime indicator, significantly below the regional and global

average.

■ Amendments to the Law on Pharmaceuticals are under consultation in the Czech Republic. In part, these amendments aim to reduce medicine prices by increasing the reduction imposed on biosimilar and generic medicines relative to their originator. We note that these measures are unlikely to be implemented before 2018 and, while they have been dismissed by the Czech Association of Innovative Pharmaceutical Companies, the savings made by these price reductions may enable larger purchases of innovative medicines.

■ The planned dissolution of Poland's insurance-based healthcare system, funded through the National Health Fund (NFZ), in 2018 and its replacement with a tax-funded system will pose both risks and rewards for innovative drugmakers. While the new system is likely to greatly improve healthcare affordability and therefore accessibility, there will inevitably be pressures placed on the funding over the long term, particularly as tax hikes will be seen as unpopular.

Underperformers: Low Reward & High Risk Markets

Moldova and Uzbekistan sit at the bottom of the Central & Eastern Europe Innovative Pharmaceuticals

Risk/Reward Index. Both are characterised by a combination of high political, economic and industry-

specific risks and low rewards.

■ With the lowest per capita pharmaceutical expenditure in the Central & Eastern Europe region, Uzbekistan is a highly underdeveloped market. In addition, the country is one of the least urbanised markets globally and has a small pensionable population. Although this underdevelopment will result in high medicine sales growth, this will be almost exclusively in the generic medicine segment due to the lack of affordability of innovative medicine.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

■ Of the 108 markets in the Innovative Pharmaceutical Risk/Reward Index, Moldova scores 88th. The country's small and highly ruralised population results in a market size insignificant on a global level. Indeed, for absolute market expenditure, Moldova is ranked 97th globally.

Central & Eastern Europe Innovative Pharmaceuticals Risk/Reward Index

Rewards & Risks Scores

Note: Scores out of 100; higher score = lower risk. Source: BMI's Risk/Reward Index

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Central & Eastern Europe Innovative Pharmaceuticals Rewards

Industry Rewards & Country Rewards Scores

Note: Scores out of 100; higher score = lower risk. Source: BMI's Risk/Reward Index

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Central & Eastern Europe Innovative Pharmaceuticals Risks

Industry Risks & Country Risks Scores

Note: Scores out of 100; higher score = lower risk. Source: BMI's Risk/Reward Index

New Innovative Pharmaceuticals Risk/Reward Index

We have overhauled our Innovative Pharmaceuticals RRI methodology to more accurately capture the

different elements that impact the overall investment attractiveness of a country's pharmaceutical sector for

companies looking to launch a new high-value medicine. We have increased the number and variety of

indicators that make up the final index score and we have re-assessed the weightings of the Reward and

Risk indicators to ensure the most accurate reflection of the Risk/Reward environment is reflected through

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

our matrix. The RRI uses a combination of our proprietary industry forecasts and analyst assessments of the

regulatory climate. As regulations evolve and forecasts change, so does the Index score, providing a highly

dynamic and forward-looking result.

Saudi Arabia Risk/Reward Index

In our Q217 Pharmaceutical Risk/Reward Index (RRI) Saudi Arabia's score of 60.4 out of 100 is in line

with its last quarter score, and maintains its position in second place out of 31 countries analysed in the

whole Middle East and Africa (MEA) region. Regionally, Saudi Arabia ranks relatively well compared to

the other Gulf States - only UAE is positioned higher. Its high composite score is due to its wealth and a

sizeable population, which will support the longer-term development of the pharmaceutical market. To add

to this, the country boasts the largest market size and one of the highest per-capita expenditure on

pharmaceuticals in the region. However, issues relating to patent approvals and the regulatory system

remain a major issue for foreign research-based pharmaceutical players. Moreover, Saudi Arabia's profound

economic upheaval has the potential to cause greater instability in the kingdom; as such the government will

closely monitor the social impact of its reforms.

Rewards

Industry Rewards

This category is a measure of the size of the market and its potential for growth, and is consequently given

the highest weighting in the RRIs. Saudi Arabia maintains its score of 29.6 out of 44 in this component of

the RRI, the highest in the region and surpassing the regional average of 14.0. Saudi Arabia's

pharmaceutical market is the largest of the Arab Middle Eastern States and we expect market growth to be

steady over the forecast period. Growth is supported by the country's expanding population, a rising burden

of non-communicable diseases and the country's healthcare infrastructure boom which will increase

medicine channels. We note that drug prices are heavily controlled and remain among the lowest in the

region. If the government was to relax these, the sector's potential growth would be very high.

Country Rewards

This category considers a country's demographic profile and urban/rural split. Saudi Arabia maintains its

score of 12.8 out of 21 in this component of the RRI, above the regional average of 11.1. The country's

strong population growth is supported by the immigration of low-skilled expatriates from South Asia. The

country also has a favourable urban-rural split which is conducive to greater medicines uptake. However,

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

we note that Saudi Arabia has one of the youngest populations in the region and a relatively low proportion

of pensioners. Since it is ageing populations that tend to demand high-value medicines for chronic illnesses,

Saudi Arabia scores relatively poorly in this area.

Risks

Industry Risks

Saudi Arabia's score of 8.4 out of 21 is consistent from its last quarter score for the Industry Risks

component of the RRI, which considers a country's patent respect, policy continuity and approvals

expediency. The country's score also surpasses the regional average of 7.6. Saudi Arabia has not appeared

on the Pharmaceutical Research and Manufacturers of America (PhRMA)'s Watch List for the last three

years - highlighting the government's commitment to improving the pharmaceutical regulatory system. That

said, issues relating to patent approvals and the regulatory system still exist and Saudi Arabia is a long way

off from reaching western standards in this area. A particular problem in Saudi Arabia is the patent system,

which does not provide adequate protection for innovative drugs, although this creates a favourable

environment for domestic generic drugmakers. Nonetheless, to some extent, this will deter foreign

innovative drugmakers.

Country Risks

Based on data from our Country Risk team, Saudi Arabia performs well in this category scoring 9.6 out of

14. The country's relatively stable political climate in the wake of the MENA political crises, and US-

aligned regime, ensure that it is rated highly in terms of policy continuity and bureaucracy. However, we

note that further regional instabilities will create a hostile geopolitical environment that could be

unattractive to international players. We do not expect Saudi Arabia's upcoming profound economic

upheaval to cause large-scale instability in the kingdom in the short term, as the government will closely

monitor the social impact of its reforms, and can rely on a very efficient security apparatus to suppress

dissent.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Regulatory Review

Multinational pharmaceutical companies will continue to target Saudi Arabia's local pharmaceutical market

despite stringent regulatory laws. The main regulatory authority in the country is the Ministry of Health

(MoH), which requires all pharmaceutical companies to be registered. The registration process takes

between six and 18 months to complete, although approval times have been steadily decreasing over the

years. Registrations must be renewed every five years.

The Saudi Food and Drug Authority (SFDA) regulates locally manufactured products; imported and

exported pharmaceuticals; drug manufacturing; advertising; and withdrawals. It maintains a list of

registered and newly-registered pharmaceutical products, and is responsible for the Saudi National

Formulary and OTC Formulary. Additionally, the SFDA is in charge of consumers' awareness on all

matters related to food, drugs and medical devices.

As an independent body that reports directly to the Premier, the SFDA was created in 2007 to regulate,

oversee and control food, drugs and medical devices as well as their distribution. Products must gain SFDA

approval before entering the market. Applications for approval, supported by the required certificates duly

legalised by a Saudi Arabian consulate in the applicant's country, are examined and the samples are

analysed by the authorities to ensure that they correspond to the specifications. If the regulatory body is

satisfied with the results, a licence is then issued to the applicant.

Local producers or joint ventures are reported to enjoy far shorter product registration times. For imported

products, the process often takes years, while for local items the approval time can take as little as three

months. Once a product is registered, a price must be approved by the SFDA before it can be sold.

Approval for pharmaceuticals new to the market is also undertaken by the SFDA, which follows the US

FDA's Good Manufacturing Practice (GMP) guidelines. Local product analysis must be carried out, even

for drugs with US FDA or the European Medicines Agency (EMA) approval pertaining to the EU market.

The analytical stage takes up approximately 50% of the total approval time (16-24 months), with industry

sources complaining that the introduction of new medicines is delayed by unnecessary laboratory analysis.

Indian drug exporters have been facing problems over Saudi Arabian drug regulations. Exporters claim that

stringent registration requirements are acting as a 'non-tariff' barrier. Guidelines include the stipulation that

drugs launched in Saudi Arabia must have already been marketed in developed countries, such as the US

and the UK. Products also have to be manufactured in the same plant as those destined for the US or UK.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

However, the same drugs emanating from GCC countries are afforded marketing permission with far less

stringent conditions, leading to accusations of favouritism.

Intellectual Property Issues

In order to join the WTO, which it achieved in 2005, Saudi Arabia has had to overhaul its intellectual

property (IP) regime. Progress has been notable in several areas, including an increased number of raids and

seizures of pirated and counterfeit goods, positive legislative amendments to strengthen IPR protection and

increased cooperation with private industry. The country is now Trade-Related Aspects of Intellectual

Property Rights (TRIPS) agreement-compliant. Encouragingly, Saudi Arabia has agreed to implement

TRIPS without any transition period.

Over the course of the past decade, the following regulations have been implemented in the country:

■ Trademarks law (August 2002)

■ Copyright law (August 2003)

■ Law on Patents (July 2004)

■ Border Measures Regulations (July 2004)

■ Rules of Protection of Trade Secrets, including protection for undisclosed

■ Pharmaceutical data (2005)

■ The Royal decree on Exclusive Marketing Rights (2009)

This last law has been particularly important, as it includes a provision for five-year data exclusivity, which

guarantees that the test data submitted to obtain marketing approval will be protected against unfair

commercial use. Furthermore, Saudi Arabia will not authorise a generic form of a pharmaceutical when a

patent application is on file, unless the invention in the application is not patentable. This is a crucial

distinction, as previously Saudi Arabia had granted protection only to products with local patents. Another

key concern has been the fact that previously patents were granted only where 'absolute novelty' was

proved. Accordingly, some products languished for as long as 10 years, waiting for approval.

Although R&D-based firms initially welcomed the new law's retroactive effect, officials then opted to reject

hundreds of patent applications. A lack of links between health regulators and the patent office has meant

that a number of copies were approved while applications for the original drug were being processed.

Nevertheless, full compliance with TRIPS is expected to attract increased foreign investment into the sector

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

and promote licensing manufacturing agreements between multinational proprietary drug producers and

local manufacturers.

IP Deficiencies

Despite the recent improvements to some areas of Saudi Arabia's regulatory regime - notably in intellectual

property - PhRMA recommended that the country be listed on the USTR's Special 301 'Watch List' for

2013, due to poor regulatory data protection, volatile government pricing policies, bias in favour of local

producers (in terms of registration times and preferential pricing) and non-transparent drug tendering

procedures. However, Saudi Arabia was not included on the list for 2014, 2015 and most recently 2016.

This highlights a number of regulatory improvements to the country's intellectual property regime,

including greater data protection and a more transparent tendering process.

Pricing Regime

The SFDA has strict control over the pricing system in Saudi Arabia, which represents a significant

deterrent to market access. Pharmaceutical products can be sold only after their prices have been approved

by the SFDA, which tries to keep prices down as much as possible, as a part of cost controlling measures.

Using a price reference system that considers the price of the drug in its country of origin, as well as other

markets where prices are low (such as Algeria and Egypt), the drug registration department fixes the lowest

possible price for the product. Any later price increases are also controlled or even cut. Furthermore, these

controls are applicable to both the public and private sectors.

Pricing System Reform

The Saudi government is planning to change the reference price system for drug approvals, with the new

scheme potentially including more countries at lower economic development levels and thus with cheaper

prices. Drug prices in Saudi Arabia are already among the lowest prices in the GCC region, with PhRMA

claiming that adding an additional 11 countries to the reference price basket is unnecessary, especially when

the proposed countries do not share a similar level of development of per-capita income to Saudi Arabia.

While the proposed system may not be implemented, due to concerns raised by the foreign pharmaceutical

industry in general, downward pressure on prices - in some shape or form - is likely to remain. In the

meantime, given that the authorities are likely to attempt to encourage local production and the use of

generic drugs, prices of imported products will remain under scrutiny, although this could also lead to

shortages of certain medicines on the market and thus major disadvantages for patients. The public sector

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

already uses a unified purchasing method, with the absence of cheaper medicines possibly forcing public

institutions to opt for more expensive, novel drugs, pushing up overall public sector expenditure, in contrast

to the aims of the proposed changes.

On the other hand, the proposed system could further increase collaboration between local and foreign

companies in the field of local manufacturing, with the trend in this direction already becoming evident.

This would also play into the government's desire to encourage local manufacturing of medicines.

Lack Of Transparency In Pharmaceutical Tendering

The Saudi Arabian government plays a prominent role in the purchase of pharmaceuticals, negotiating with

the leading drug companies to buy large quantities of products and deciding on the supply schedule. The

two principal buyers of pharmaceutical products in Saudi Arabia are the Ministry of Health (MoH) and the

Secretariat General of Health (SGH) for the Gulf Cooperation Council (GCC). Many government tenders in

Saudi Arabia are only open to local medicine suppliers and biased towards drug companies with the

strongest local representation. Saudi Pharmaceutical Industries and Medical Appliances

Corporation (SPIMACO), Tabuk Pharmaceutical Manufacturing, Jamjoom Pharma and Saudi Arabian

Japanese Pharmaceutical (SAJA) are among the leading local market players. Moreover, tenders are often

only announced for a short period of time, making a strong local connection even more vital - something

that multinational drugmakers lacking a direct presence struggle to obtain.

Saudi Arabian health authorities have also expressed concern over the lack of transparency in the selection

process of pharmaceutical products within Saudi Arabian government tenders. We note that a 10%

preference is granted to local or GCC-based companies compared to other multinational drugmakers. As

such, the government tends to prefer buying medicines from local pharmaceutical companies if their prices

are not more than 10% higher than those offered by foreign drugmakers. This is attributable to Saudi

Arabia's pricing legislation also favouring local producers, effectively giving regional producers preferential

treatment in the tendering system for pharmaceutical purchases. We do not expect significant change to this

bias in the near term, especially as integration within the GCC gathers pace despite the clear WTO

provisions against it.

Reimbursement Regime

Registration of a drug by the SFDA, together with pricing, does not guarantee reimbursement. Decisions on

formulary listing and reimbursement are made by Pharmacy and Therapeutics Committees. Factors that

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

influence reimbursement decisions include clinical efficacy and safety data, the availability of alternative

treatments, comparative effectiveness and cost effectiveness.

Reimbursement decisions can differ from one health sector to the other. For example, a drug reimbursed by

the MoH might not be reimbursed by the National Guard Health Affairs (NGHA). Pharmaceuticals that are

listed on government formularies are fully reimbursed. Patients can opt to pay privately for drugs that are

not reimbursed by the government health sectors.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Market Overview

While Saudi Arabia's government should be commended on its efforts to expand access to healthcare

services for its population, we note that the country's drug pricing environment is still a concern for foreign

drugmakers. The restrictive nature of the domestic regulatory system has meant that few multinationals

have considered establishing a manufacturing base in the country, and many opt to import pharmaceutical

products into the Kingdom instead. Although the situation is improving, the Kingdom continues to rely on

pharmaceutical imports.

Saudi Arabia's pharmaceutical market was valued at SAR27.9bn (USD7.4bn) in 2016. Sales of patented

drug consumption are supported by the population's wealth and the preference for branded drugs among

both consumers and prescribers, with patented drug spending accounting for 64.1% of the country's

prescription drug market. Despite being the largest regional pharmaceutical market in overall value, in

annual per capita terms, Saudi Arabia ranks seventh in the Middle East region at USD231, given that its

population is among the largest. As a percentage of GDP, sales of pharmaceuticals account for just over 1%

of national wealth, largely distorted downwards by the oil & gas sector, which represents more than half of

GDP.

The country's healthcare market was worth SAR129.1bn (USD34.4bn) in 2016, with government

expenditure representing the majority of spending at just under three-quarters by value. The government

prioritises social spending, particularly on healthcare, resulting in a larger public healthcare market value.

We expect the private sector will play an increasingly important role in healthcare provision over the long-

term, as highlighted by the Saudi Arabian Ministry of Health regarding the country's economic

diversification plans - dubbed Vision 2030.

Saudi Arabia's epidemiological profile represents that of a developed country, with non-communicable

diseases accounting for 84% of deaths, according to the WHO. Cardiovascular diseases (49%), ischemic

heart disease (24%), and strokes (16%) are the three most prevalent chronic diseases by deaths. According

to BMI's Disease Database, around 819,000 disability-adjusted life years (DALYs) were lost to

communicable diseases in 2015, with a far greater 4.2mn DALYs lost to non-communicable diseases

(NCDs). By 2030, the number of DALYs lost to communicable diseases will decrease slightly to 808,000,

with the number of DALYs lost to non-communicable diseases forecast to increase to 5.1 million DALYs,

highlighting the divergence in the spread of communicable diseases and NCDs. We note that this will place

greater pressure on the country's health services, and there would be a need for increased government

contribution towards healthcare costs.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Saudi Arabia's competitive landscape is dominated by foreign drugmakers as a result of the preference for

branded drugs, many of which can only be sourced abroad, and the limited domestic manufacturing

industry. Leading local players include Saudi Pharmaceutical Industries and Medical Appliances

Corporation (SPIMACO), Tabuk Pharmaceutical Manufacturing, Jamjoom Pharma and Saudi Arabian

Japanese Pharmaceutical (SAJA). The majority of pharmaceuticals are imported from developed countries

including Switzerland, Germany, France, the US and the UK. There is an extensive presence of

multinationals including Novartis, Pfizer, Bayer, Bristol-Myers Squibb, Roche and Eli Lilly; however, only

GlaxoSmithKline and Sanofi manufacture locally. Instead, many multinational companies will opt to

engage in contract manufacturing with Saudi Arabian drugmakers as a means to save costs yet exert an

indirect presence in the market.

Healthcare Sector

All citizens are entitled to receive medicines free of charge in all governmental healthcare facilities, and the

public healthcare system or social health insurance schemes provide medicines free of charge for certain

conditions. Private sector workers are required to receive basic healthcare coverage through private sector

insurance provided by their employers. The demand for healthcare services and medical facilities in Saudi

Arabia is growing. The public sector dominates healthcare provision, with state expenditure representing

approximately three-quarters of total spending.

According to the MoF's 2017 budget document, a large proportion of the healthcare budget will be allocated

towards new health infrastructure. Work is underway to construct 38 new hospitals and primary health

facilities with a total capacity of 9,100 beds, as well as two medical cities accommodating over 2,000 beds.

A total of 23 new hospitals have been built in various regions across the Kingdom during the current

(2016/2017) fiscal year, according to the MoF.

Healthcare Sector Funding

Saudi Arabia's state budget for 2017 includes a SAR120bn (USD32.0bn) allocation for health and social

affairs. This equates to about 13.5% of the overall spending allocation, budgeted at SAR890bn (USD237bn)

- up 8% from 2016. This corresponds to a similar health budget to 2016, surpassing the likes of

infrastructure, transport, municipality services, and the public programmes unit.

However, Saudi Arabia's healthcare sector undoubtedly felt the impact of low oil prices in 2016 as the

actual spending figure reported by the Ministry of Finance came in around 19% lower than the budgeted

amount. Likewise, the 2016 and 2017 budget allocation to healthcare represent a notable contraction of

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

around 38% compared to the healthcare budget in 2015 of SAR160bn (USD42.7bn). As such, the

fluctuation in global oil prices in 2017 remains a key underlying risk to our outlook for healthcare spending

in Saudi Arabia. Indeed, the proposed plans and reforms bode well for the sector's outlook; however, the

Kingdom's vulnerability to external shocks represents significant downside risks.

Highlighting the slowdown in 2016, company reports from AstraZeneca, Takeda and Hikma

Pharmaceuticals acknowledged a slowdown in the Saudi Arabian medicine market as a result of the

challenging macroeconomic environment. Generic drug substitution is likely to be encouraged over the

coming years as a mechanism to control healthcare expenditure.

National Transformation Programme - Healthcare Diversification

We have previously highlighted that multinational drugmakers will benefit from the Saudi government's

economic diversification plans (see 'National Transformation Plans Will Boost Opportunities For

Drugmakers', July 16 2016), and our view is strengthened by the launch of the healthcare budget for 2017

as well as greater transparency regarding the NTP.

'Vision 2030'

Saudi Arabia's NTP makes up a section of Vision 2030, detailing the practical changes needed to implement

the economic reforms. The first phase of the NTP was launched in June 2016 across 24 government bodies,

including the Ministry of Health (MoH) and the Saudi Food and Drug Authority (SFDA).

Table: National Transformation Plan - Key Pharmaceutical And Healthcare Objectives For 2020

Ministry of Health Additional Information

Increase private sector contribution towards total healthcare expenditure by 10%

The MoH is attempting to shift some state-employed Saudis onto a health insurance model similar to the current private health insurance model for those workers employed by the private sector. For drugmakers, this will boost revenue-earning opportunities.

Raise the percentage of Saudi Arabian citizens with a unified digital medical record from 0-70%

The MoH aims to improve the efficiency and effectiveness of the healthcare sector through the use of information technology and digital transformation.

Boost the number of local physicians enrolled in training programmes from 2,200 to 4,000

The MoH plans to enhance training for health professionals for the treatment of chronic diseases in particular. Moreover, the MoH plans to optimise and better utilise the capacity of public hospitals and healthcare centres.

Increase the number of licensed medical facilities from 40 to 100

This makes up part of the MoH's strategic objective to increase life expectancy from 74 to 80 by 2030. As it stands, Saudi Arabia boasts 2.2 hospital beds for every 1,000 people, and over the last three decades average life expectancy has risen from 66 to 74 years. That said, we believe the above target to be slightly

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

National Transformation Plan - Key Pharmaceutical And Healthcare Objectives For 2020 - Continued

ambitious given the rising prevalence of chronic lifestyle diseases such as diabetes, cancer and cardiovascular diseases in the country. We do, however, expect this life expectancy target to be met in the long term, albeit past 2030.

Reduce the incidence of obesity and smoking Merck & Co have announced plans to support the MoH with educational campaigns to educate the public on important disease areas and the importance of prevention. Diseases covered will include those surrounding obesity, diabetes and cardiovascular disease.

Saudi Food And Drug Authority

Increase the percentage of basic medicines available at local pharmacies from 80-90%

The SFDA is committed to ensuring a sufficient supply of essential medicines throughout the Kingdom.

Boost the percentage of medicines admitted under the new track and trace system from 0-100%

The SFDA aims to establish greater control over the pharmaceutical supply chain in order to reduce the frequency of counterfeit medicines and leakage in the distribution process.

Source: National Transformation Plan

Opportunities For Multinational Drugmaker Expansion

■ In January 2017, Pfizer opened its SAR187.5mn (USD50mn) manufacturing facility in the King Abdullah's Economic City (KAEC), reinstating its commitment to the government's NTP and Vision 2030. Prince Saud Bin Khalid Al Faisal, Acting Governor of the Saudi Arabian General Investment Authority (SAGIA), noted that 'this development is the result of our ongoing and effective public/private sector partnership approach, crystallized by Saudi Arabia Vision 2030.'

■ In December 2016, Merck Sharp & Dohme (MSD) entered into a manufacturing investment agreement with Pharma Pharmaceutical Industries (PPI) in Saudi Arabia. Following approval by the Saudi Food & Drug Authority (SDFA), this agreement permits PPI to exclusively manufacture many of MSD's medicines and distribute them in the Kingdom and to other Gulf countries. PPI Executive Director Dr Wahaf Badai Al Dahasee commented, 'this agreement aligns to the Saudi Vision 2030 and the NTP 2020 - to increase pharmaceutical manufacturing in Saudi Arabia, help diversify Saudi Arabia's economy through pharmaceutical exports, and raise the quality of healthcare'.

Political Situation To Be Influential

Several reforms within the NTP have a deadline set in 2020, while others have not yet received a timeframe

for completion. We expect some reforms to take more than five years to be implemented, and even longer to

see first impact. Moreover, our Country Risk team expects the government to closely monitor the impact of

its economic transformation plan on domestic stability, scaling back reforms if it perceives them to trigger

too much instability. The Saudi royal family depends on steady oil revenues to maintain its tight grip on the

population. As a result, the sustained downturn in global oil demand could lead to substantial unrest and,

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

potentially, regime change over the long term. That said, we maintain our view that healthcare reforms will

remain a government priority given the importance of healthcare in maintaining social stability and

potential to make up a key part of the country's economic diversification strategy.

Private Healthcare Sector

Private healthcare provision in the country is becoming increasingly important, as the state looks to move

some healthcare costs onto wealthier individuals. The Saudi Arabian government is already actively

encouraging and expanding private sector health services through measures such as the approval of loans

for the construction of private hospitals and multi-disciplined health facilities. Additionally, the health

ministry is attempting to shift some of the state-employed Saudi's onto a health insurance model similar to

the current private health insurance model for those workers employed by the private sector. The rollout of

mandatory health insurance schemes is becoming increasingly common in the Gulf Cooperation Council

(GCC) region. For drugmakers, this boosts revenue earning opportunities.

Table: Healthcare Resources (Saudi Arabia 2011-2016)

2011 2012 2013 2014 2015 2016e

Hospitals, total 420 435 443 453 464 475

Hospitals, public 290 298 307 314 322 330

Hospitals, private 130 137 136 138 141 145

Hospitals, beds 58,696 61,036 64,777 66,502 68,273 70,091

Hospitals, beds, per '000 population 2.04 2.07 2.14 2.15 2.16 2.18

Source: BMI, Espicom

Table: Healthcare Personnel (Saudi Arabia 2011-2016)

2011 2012 2013 2014 2015 2016e

Physicians, total 59,261 61,516 68,379 73,823 79,720 86,106

Physician, per '000 population 2.06 2.09 2.26 2.39 2.53 2.68

Nurses, total 133,773 139,701 154,568 161,888 169,605 177,743

Nurses, per '000 population 4.65 4.74 5.12 5.24 5.38 5.53

Dentists, total 9,965 10,002 12,096 12,685 13,305 13,956

Dentists, per '000 population 0.35 0.34 0.40 0.41 0.42 0.43

Pharmacists, total 15,317 15,590 21,766 22,036 22,310 22,588

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Healthcare Personnel (Saudi Arabia 2011-2016) - Continued

2011 2012 2013 2014 2015 2016e

Pharmacists, per '000 population 0.53 0.53 0.72 0.71 0.71 0.70

Source: BMI, Espicom

Table: Healthcare Activity (Saudi Arabia 2011-2016)

2011 2012 2013 2014 2015 2016e

Public inpatient admissions, '000 3,027.56 3,093.90 3,137.00 3,143.75 3,150.51 3,157.28

Public inpatient admissions, per '000 population 105.17 104.89 103.87 101.78 99.89 98.18

Hospitals, average length of stay, days 3.9 3.9 3.9 3.9 4.0 4.0

Surgical procedures, '000 1,064.85 1,002.47 1,013.14 1,055.27 1,099.16 1,144.87

Outpatient visits, '000 131,862.14 134,384.70 135,190.00 136,479.27 137,780.91 139,095.02

Outpatient visits, per '000 population 4,580.39 4,556.02 4,476.33 4,418.73 4,368.40 4,325.37

Source: BMI, Espicom

Research & Development

In an encouraging development for Saudi Arabia's R&D sector, researchers have successfully mapped the

Arab genome. It is believed that understanding the genetics of certain populations will support further

investigations into predisposed illnesses. It will also provide strong indicators for predicting the spread of

certain diseases and allow for the development of more specific research into preventive measures. Despite

this, very little R&D is undertaken for new drugs, although some leading international producers claim to

have representative and scientific offices in Saudi Arabia.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Biotechnology

Pharmaceutical biotechnology in Saudi Arabia is mainly represented by the Jeddah BioCity complex, which

operates seven companies: the Arabian Pharmaceutical Products Company (Arabio), Blood Derivatives

International (BDI), Environmental Services Development (ESD), Genway, Jeddah Biopharma, Jeddah

Bioscan and RetHab. Additionally, there is a network of advanced laboratory and research centres, some of

which work with pharmaceutical producers.

While the biotechnology parks in Dubai and Saudi Arabia have attracted some big names in the global

industry, we are concerned they may have become glorified tax havens for manufacturing, repackaging,

sales, marketing and clinical trials, rather than sites of R&D and innovation. However, with a business

environment designed to attract multinational and domestic firms alike, and free zones to promote trade, the

UAE's R&D sector is highly likely to become a Middle Eastern leader, ahead of other regional players, as

exports to Asia and Europe will be significantly easier.

Generally speaking, rulers in the GCC countries have been attempting to diversify their economies away

from the energy sector and towards an innovation-led economic model. A large part of this vision is for the

region to become a hub for healthcare, both in innovation and the provision of care to attract medical

tourism. This has given rise to five biotechnology parks in the region:

■ Dubai Biotechnology and Research Park (DuBiotech), UAE

■ Dubai Technology Park Mohammed bin Rashid (DTP), UAE

■ iTeknoCity (ITC), Bahrain

■ Jeddah BioCity Science Park (JBC), Saudi Arabia

■ Qatar Science & Technology Park (QSTP), Qatar

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Clinical Trials

Clinical Trial Registrations

(2012-2015)

Phase I clinical trials Phase II clinical trials Phase III clinical trials Phase IV clinical trials

2012 2013 2014

N.B. Sourced by date of initial registration. Source: ClinicalTrials.gov, BMI

Legal provisions exist, requiring authorisation for conducting Clinical Trials by the SFDA, and only those

legally registered in the Kingdom are permitted to monitor trials. There are additional laws requiring the

agreement by an ethics committee or institutional review board of the clinical trials to be performed.

Clinical trials are required to be entered into an international/national/regional registry, by law and legal

provisions exist for Good Manufacturing Practices (GMP) compliance of investigational products.

Sponsor Investigators are legally required to comply with Good Clinical Practices (GCP). National GCP

regulations are published by the Government and legal provisions permit the inspection of facilities where

clinical trials are performed.

Despite ample population numbers, the clinical trials industry in Saudi Arabia is still underdeveloped in

global terms. We expect cultural and regulatory environments to remain widely unsupportive of the clinical

trials industry in the short-to-medium term.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Epidemiology

Burden Of Disease Projection

(2005-2030)

Non-communicable diseases, total, DALYs Communicable diseases, total, DALYs

20 05

20 06

20 07

20 08

20 09

20 10

20 11

20 12

20 13

20 14

20 15

20 16

e 20

17 f

20 18

f 20

19 f

20 20

f 20

21 f

20 22

f 20

23 f

20 24

f 20

25 f

20 26

f 20

27 f

20 28

f 20

29 f

20 30

2,500,000

5,000,000

7,500,000

f = forecast. DALYs = disability-adjusted life years. Source: BMI's Disease Database

The burden of both non-communicable diseases (NCDs) and communicable diseases remains high in Saudi

Arabia, and we expect both to persist over the long term. According to BMI's Disease

Database, cardiovascular conditions, mental disorders, diabetes and cancer account for a large and growing

burden of disease. Communicable diseases inflict a lighter burden than NCDs, reflecting the shift in the

epidemiological profile throughout the region. HIV/AIDS is a relatively minor problem in Saudi Arabia and

treatment programmes and patients' rights are considered strong. Other communicable diseases such as

hepatitis and tuberculosis are also relatively contained. Nevertheless, increasing public awareness regarding

the resistance of antibiotics to germs and microbes are noted as major challenges. The health issues

associated with young people are increasingly mirroring those in more developed countries, such as the

prevalence of mental and behavioural disorders.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Non-Communicable Diseases

Non-communicable diseases are a major burden in Saudi Arabia, a situation that is likely to worsen as the

sedentary population ages. Dependence on modern technology, an ultra-conservative social structure and

hot climatic conditions were reported as major causes of the increase in inactivity among the Saudi people.

Saudi Arabia is already listed in the top five most obese countries in the world. Gulf countries Kuwait and

United Arab Emirates (UAE) also feature among the top 10 countries that fell into the high-risk bracket in

the study.

Diabetes

According to the International Diabetes Federation (IDF), the prevalence of diabetes in adults (20-79 years)

stands at 17.6%, and the WHO estimates that 12.3% of deaths in Saudi Arabia are diabetes-related. By

2030, the IDF estimates that the prevalence of diabetes will have increased to 20.0%. In 2015, there were

190,847 cases of diabetes in Saudi Arabia, with the cost per person estimated at USD1,145. According to a

study conducted by the Boston Consulting Group in 2014, Saudi Arabia spends about three times more on

diabetic patients suffering complications from the disease, compared to the actual treatment itself. A total of

336,163 DALYs were lost to the disease in 2015, and we forecast this will increase to 393,232 DALYS lost

in 2030. The cost of treating such patients is becoming prohibitively expensive.

According to the US-Saudi Business Council's report, the cost to the medical sector in terms of managing

the country's diabetes problem - which is the leading cause of stroke, cardiovascular disease, blindness,

kidney failure and limb amputation - is more than USD3bn per annum. The Saudi Arabian government has

stated that it will provide financial assistance of SAR10,000 (USD2,666) to each kidney failure patient.

Asthma is also one of the most common chronic diseases among children in Saudi Arabia. The Saudi

Gazette reported that asthma affects 10-17% of the child population, quoting Abdul-Mu'een Al-Agha, a

paediatric endocrinologist and diabetes consultant at King Abdulaziz University. Similarly, a survey

conducted by the Saudi MoH revealed that 62% of Saudis start smoking between the ages of 10 and 20

years old, 27% between 20 and 30 and 9% before 10 years of age.

Cancer

Cancers account for 11% of deaths in Saudi Arabia and were responsible for the loss of 216, 562 DALYs in

2016. By 2030, the burden of cancer will have increased, resulting in a forecast 283,814 lost DALYs. The

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

most prevalent cancers in males are prostate, lung, colorectal and Non-Hodgkin lymphoma, while breast,

thyroid, colorectal, and Non-Hodgkin lymphoma cancers are the most common in women.

Prudery and a lack of disease awareness in the Middle East both obstruct the early diagnosis of a number of

fatal diseases, such as colon cancer and breast cancer. Each year, around 5,000 Saudis are diagnosed with

having cancer, which is usually discovered at an advanced stage, due to inadequate disease surveillance.

The late identification of such diseases makes their treatment difficult. In particular, breast cancer - the most

common type of cancer in Saudi Arabia - is on the rise, with authorities warning of near-epidemic levels.

Mental Health

Mental and behavioural disorders are causing an increasing burden in Saudi Arabia, contributing to 1.0mn

lost DALYs in 2016. By 2030, this burden is forecast to have risen further to 1.3 million DALYs lost. The

burden of mental diseases remains elevated due to a number of reasons, including the strong social and

cultural stigmas attached to mental disorders in the Middle East. This, combined with a lack of medical aid,

diagnosis and assistance represent a growing problem in Saudi Arabia.

Communicable Diseases

Hepatitis C

Hepatitis C virus (HCV) will continue to be a key area of medical need in Saudi Arabia's pharmaceutical

market. Julphar Bangladesh received ISO certification from the Bangladesh Accreditation Board (BAB),

demonstrating the company's ability to provide medicines that meet and comply with international

standards. In July 2016, the Saudi Food and Drug Authority (SFDA) granted a licence for the first locally

produced medicine for the treatment of HCV. The Saudi Pharmaceutical Industries and Medical Appliances

Corporation (SPIMACO) plans to launch the recently approved hepatitis C treatment Sofira by the end of

2016. This news falls in line with the Kingdom's tenth Saudi Development Plan, which, in collaboration

with the WHO, aims to eliminate HCV in Saudi Arabia by 2030.

Our Disease Database estimates that 1,517 disability-adjusted life years (DALYs) were lost to HCV in

Saudi Arabia in 2016. However, the number of DALYs lost to the condition is forecast to increase, reaching

2,084 DALYs by 2030. In turn, the demand for HCV treatments will increase amongst the general

population, which will provide opportunities for drugmakers to enter the emerging therapeutic space.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

In May 2016, AbbVie launched a national awareness campaign for HCV in Saudi Arabia, in collaboration

with the Kingdom's MoH. Under this initiative, AbbVie plans to open seven new HCV centres around the

country, focusing on raising awareness to health professionals and the general population regarding the

latest available treatments. Partnering with the Saudi Arabian MoH is seen as a cost-effective sustainable

strategy for AbbVie, both raising disease awareness and increasing brand awareness among prescribers and

consumers in the process. In June 2016, Merck & Co announced their support towards reducing the burden

of HCV in Saudi Arabia. Associate Vice President of Merck & Co Saudi Arabia, Patrick Jordan, noted that

the company plans to launch a new innovative HCV medicine in Saudi Arabia by the end of 2016.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Competitive Landscape

Research-Based Industry

Saudi pricing legislation favours local manufacturers, which intensifies competition. Gulf Cooperation

Council (GCC) regulations stipulate that producers in member states are not required to obtain registration

or licences in order to export to Saudi Arabia. This effectively gives regional producers preferential

treatment for entry into the Saudi market, particularly in the tendering system for public pharmaceutical

drug purchases.

Concerns over patent protection have traditionally acted as a substantial barrier for multinationals entering

the market and as such, most are present as joint ventures with foreign firms. This leaves domestic firms at

an advantage to manufacture and distribute drugs within the kingdom. In addition, regulations permit the

supply of drugs only through Saudi intermediary agents, which multinational drugmakers may find difficult

in negotiations. We expect an increase in joint ventures between foreign and Saudi pharmaceutical firms as

a means to enter the healthcare market, especially as Saudi Arabia cuts back on subsidies and price

manipulation, which should stimulate investment.

We highlight that some domestic companies are also handling contract manufacturing opportunities under

license agreements with international players. A significant degree of local activity will continue in the form

of manufacturing under licence for multinationals and proprietary production is still in its infancy. In

December 2016, Merck Sharp & Dohme (MSD) entered into a manufacturing investment agreement with

Pharma Pharmaceutical Industries (PPI) in Saudi Arabia. Following approval by the Saudi Food & Drug

Authority (SDFA), this agreement permits PPI to exclusively manufacture many of MSD's medicines and

distribute them in the Kingdom and to other Gulf countries.

Nevertheless, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement-compliant

intellectual property regime should give the country the regulatory framework to build an internationally

marketable industry. In order to encourage local manufacturing, the government is also providing incentives

to both multinational subsidiaries and domestic companies. These include free property leases, interest-free

loans and government subsidies.

Further growth of the tender-supplied market is forecast in the coming years, fuelled by demographic and

epidemiological trends. However, as the GCC countries develop their domestic manufacturing capabilities,

it is hoped that they can begin to move away from their dependency on imports.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Domestic Industry

The government has prioritised the pharmaceutical industry as an area for investment. Incentives for

establishing new pharmaceutical companies include free property leases, interest-free loans and government

subsidies. Furthermore, imports to the GCC have a 5% import tariff and local manufacturers receive

preferential treatment during pharmaceutical tenders.

Although the local companies currently produce around one-fifth of domestic pharmaceuticals, according to

our estimates, a large proportion of these are not generic drugs, but licensed patented pharmaceuticals from

multinational drugmakers. This means that although many multinationals are not present in the market, they

are still involved indirectly. The licensing of local companies to produce drugs has been favoured in Saudi

Arabia due to its difficult regulatory regime and the cultural differences in its business environment. Once

established in the Kingdom, multinational companies will often jeopardise a core component of the

operations of local players as a number of licensing and contract manufacturing agreements become

redundant. This will be seen as a market entry strategy into the Kingdom's highly bias pharmaceutical

market.

Indeed, Saudi Arabia imports a large amount of semi-finished medicaments, some of which are then re-

labelled, repackaged and exported. This allows domestic drugmakers to continue to make products for the

most lucrative segment of the Saudi Arabian pharmaceutical market (branded drugs). There are currently 10

major pharmaceutical producers in Saudi Arabia, representing investment of more than SAR1bn

(USD266.65mn), according to the Ministry of Commerce and Industry.

Foreign Industry

Multinational pharmaceutical companies will continue to view Saudi Arabia's pharmaceutical market as an

attractive one. However, with its difficult regulatory regime acting as a deterrent, most multinational

drugmakers will look to gain an indirect presence through contract manufacturing agreements and local

distributors. The government continues to favour the domestic pharmaceutical industry, evident through a

variety of protectionism measures. Incentives such as free property leases, interest-free loans and

government subsidies highlight this Furthermore, imports to the GCC have a 5% import tariff and local

manufacturers receive preferential treatment during pharmaceutical tenders.

Extensive multinational presence exists in the Saudi market, although activity is mostly through local agents

and distributors. The complex nature of the domestic regulatory system has meant that few multinationals

have considered establishing a manufacturing base in the country. Nevertheless, the country's young and

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

growing population is a major draw for multinationals, given that the Saudi drug market remains import-

reliant. Furthermore, the kingdom's increasing focus on healthcare and social provision is going to be a

long-term driver of drug sales.

EU countries and the US dominate the market and are major suppliers of pharmaceuticals to Saudi Arabia.

US companies such as Eli Lilly, Pfizer and Bristol-Myers Squibb are active in the market.

GlaxoSmithKline, Sanofi and more recently Pfizer, manufacture locally. Several manufacturers from other

Middle Eastern countries, such as Iran, Jordan and the UAE, are active in the Saudi Arabian market.

One concern for multinationals is the National Unified Procurement Company for Medical Supplies

(NUPCO), which threatens to become the sole supplier of pharmaceuticals and medical devices to the

public sector. Foreign importers and distributors working for these companies could find it difficult if the

NUPCO, with its powerful monopoly role of deciding which medicines are purchased for the government,

starts implementing procedures that would reduce prices.

Several large Indian drugmakers are attempting to penetrate the Saudi drug market, with such moves

encouraged by local authorities on account of the potential savings the use of cheaper generic medicines

produced by Indian companies. However, the drug registration system still acts as a significant barrier to

entry for most Indian firms, as it requires drugs to have been previously marketed in two 'developed'

markets before it can get approval in Saudi Arabia, which virtually allows only the largest Indian players to

operate in the country.

Table: Multinational Market Activity

Company Operations

Novartis Novartis places its products on the Saudi Arabian market through the Saudi Pharmaceutical Distribution Company (Saphad), which is primarily dedicated to the import, promotion, sales and distribution of Novartis products. Local Tamer Group holds half of the Saphad shares. Novartis's CIBA Vision arm (ophthalmic medicines) and Sandoz (generic drugs) also have representation in the country, as does its vaccines business. Novartis' nasal decongestant Otrivin (xylometazoline) has an 88% market share of the nasal decongestants market in Saudi Arabia.

In 2010, the company entered an agreement with Arab Company for Pharmaceutical Products (Arabio) to provide Saudi Arabia and surrounding regions with vaccines for common diseases.

Pfizer In January 2017, Pfizer opened its SAR187.5mn (USD50mn) manufacturing facility in the King Abdullah's Economic City (KAEC), reinstating its commitment to the government's NTP and Vision 2030. Prince Saud Bin Khalid Al Faisal, Acting Governor of the Saudi Arabian General Investment Authority (SAGIA), noted that 'this development is the result of our ongoing and effective public/ private sector partnership approach, crystallized by Saudi Arabia Vision 2030.'In 2014, Pfizer entered into a manufacturing and licensing agreement with Tabuk Pharmaceuticals. The Riyadh- headquartered firm has the rights to manufacture, distribute and commercialise four innovative medicines in Saudi Arabia's pharmaceutical market.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Multinational Market Activity - Continued

Company Operations Pfizer is active in cooperate social responsibility (CSR) initiatives across Saudi Arabia. These include partnering with the Saudi Ministry of Health to launch the first science-based Saudi Neuropathic Pain Guidelines and the first-ever specialised back pain clinic in Makkah. A diabetes awareness campaign was also launched in collaboration with Shifaa medical NGO society. Pfizer also launched the five- year Saudi National Registry for psoriasis in collaboration with the Saudi Society of Dermatology and Dermatologic Surgery (SSDDS) - supported by the Saudi Hypertension Management Society (SHMS) in 2013.

Saudi Pharmaceutical Industries & Medical Appliances Corporation (SPIMACO) signed a technical cooperation agreement with Pfizer in 1994. Under the agreement, SPIMACO manufactures 12 formulations of three different kinds of Pfizer products, namely anti-rheumatics, antibiotics and antidepressants. Similarly, TAMAR has dealt with marketing and promotion of Pfizer's products across the kingdom, as well as regionally.

Roche Roche has a scientific office in Riyadh. Its products are imported and distributed by Banaja Saudi Import Company in the private sector. SPIMACO manufactures a number of Roche's products under licence, including breast cancer drugs Herceptin (trastuzumab) and Mabthera (rituximab).

Sanofi Sanofi launched its production facility in King Abdullah Economic City (KAEC) industrial valley in December 2014. The company is the first multinational pharmaceutical group to open a local plant in the country. The plant will produce around 20mn packs of locally made high-quality medical treatments for the regional community through an adapted life cycle management, stated Sanofi Executive Vice President Global Industrial Affairs Philippe Luscan.

In 2015, Sanofi announced a cooperation agreement with the Saudi Arabian MoH to support healthcare professionals with continuous training for diabetes education.

Merck & Co Merck operates under its fully affiliated subsidiary Merck Sharpe & Dohme Saudi Arabia, established in 1978. It is one of the top 10 local players by sales.

Following the release of the country's National Transformation Programme, Merck Sharp & Dohme (MSD) announced its intentions to support the Kingdom's long-term healthcare ambitions. In December 2016, MSD entered into a manufacturing investment agreement with Pharma Pharmaceutical Industries (PPI) in Saudi Arabia. Following approval by the Saudi Food & Drug Authority (SDFA), this agreement permits PPI to exclusively manufacture many of MSD's medicines and distribute them in the Kingdom and to other Gulf countries. PPI Executive Director Dr Wahaf Badai Al Dahasee commented, 'this agreement aligns to the Saudi Vision 2030 and the NTP 2020 - to increase pharmaceutical manufacturing in Saudi Arabia, help diversify Saudi Arabia's economy through pharmaceutical exports, and raise the quality of healthcare'.

Johnson & Johnson

Janssen, Johnson & Johnson's pharmaceutical unit has a scientific office in Riyadh. Riyadh Pharma and Janssen entered a five-year partnership agreement in Saudi Arabia in 2015. The agreement is aimed at promoting cooperation in the manufacturing and marketing of some pharmaceutical products of Janssen in Riyadh Pharma's factory.

GlaxoSmithKline GlaxoSmithKline has been active in Saudi Arabia for more than 40 years, initially as Glaxo. The company's main local representative is the import firm Banaja, which has a 51% stake in the subsidiary. In 1992, Glaxo was the first multinational to establish production operations in the country, with medicines manufactured by the joint venture. GlaxoSmithKline also distributes its products through local distributors Saudi Import Company (Banaja), Sitco Pharma, Al-Haya Medical and Al-Naghy Brothers.

AstraZeneca The company's scientific office is located in Riyadh. Products are imported.

Takeda In 2014, Japanese drugmaker Takeda opened a new office in Jeddah, which represents its second office in the country following that in Riyadh. The company plans to capitalise on its established portfolio in the GCC region in the next few years by launching innovative medicines in critical treatment areas such as hypertension, diabetes and cancer, according to Giles Platford, Area Head of Middle East, Turkey and Africa.

AbbVie 2014 saw the announcement of AbbVie's partnership with the Arab Company for Pharmaceutical Products (Arabio) to manufacture Humira (adalimumab) as well as other products in Saudi Arabia. Rami Fayes, the general manager of AbbVie in Saudi Arabia said that localising production of some of

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Multinational Market Activity - Continued

Company Operations its key therapies in partnership with leading local pharmaceutical companies is one of the company's priorities. AbbVie intends to manufacturer cancer, kidney and other treatments in Saudi Arabia.

Source: Pharmaceutical companies, BMI

Generic Drugmakers

The generic drug market is boosted by the lax data exclusivity laws in Saudi Arabia. Presently, data

exclusivity is not provided to innovative products that have not been directly patented in the country,

although the legislation passed in early 2013 establishes a mechanism for providing effective patent

enforcement and also recognises pharmaceutical patents issued by other GCC members. Given that many

drugs do not have patents in Saudi Arabia and can therefore be copied, data exclusivity is the only tool left

to protect innovative products.

Local production of generic medicines is hindered by weak domestic sales and a lack of public awareness of

generic drugs. However, local generic drug producers will be aided by plans for closer regional integration

and a greater emphasis placed on drugs produced within the GCC. Efforts to wean the region off its

overwhelming reliance on imported drugs (primarily in the public sector) should play into the hands of the

local industry, which mostly produces branded generic products.

Domestic players are becoming increasingly focused on 'branded generics' manufacturing, ie, off-patent

prescription market. These drugs are deemed to be of a higher quality and as result this improves the overall

perception of generic drugs in the country.

Large Indian drugmakers that produce generic drugs are attempting to penetrate the Saudi drug market, with

such moves encouraged by local authorities on account of the potential savings the use of cheaper generic

medicines produced by Indian companies. However, the drug registration system still acts as a significant

barrier to entry for most Indian firms, as it requires drugs to have been previously marketed in two

'developed' markets before it can get approval in Saudi Arabia, which virtually allows only the largest

Indian players to operate in the country.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Pharmaceutical Distribution

It is illegal for foreign companies to operate in Saudi Arabia without a local sponsor. It is therefore essential

to appoint an agent, especially considering that most government tenders are only open to local suppliers

and heavily biased towards companies with the strongest local representation. All local agents and

distributors must first be registered with the Ministry of Commerce.

The Ministry of Health, responsible for the greater part of new investment, does not deal directly with

overseas companies - although other ministries, such as the Ministry of Defence, prefer to deal directly with

suppliers. Tenders are often only announced for a short period, making a strong local connection even more

vital. Some concern has been expressed that tenders initially exaggerate the value of goods to be purchased,

which are then reduced at a later date. The government, through the Ministry of Health and Secretariat

General of Health (SGH) for the GCC, dominates demand for pharmaceuticals, accounting for around 70%

of health expenditure.

Pharmaceutical Retail Sector

The key piece of legislation in government pharmaceutical distribution is the Saudi Arabian Pharmaceutical

Establishments and Synthetics Regulations. The law stipulates that only Saudi nationals are allowed to own

pharmacies, which must comply with regulations set out by the Ministry of Health. The wholesale and retail

sector is closed to foreign pharmaceutical companies, although foreign companies can build manufacturing

facilities to produce approved products. Most foreign investors enter via joint ventures with Saudi firms,

although the former cannot own 100% of the entities.

Pharmacies represent a major distribution channel for drugs - accounting for a significant proportion of

pharmaceutical sales. The private pharmacy sector tends to favour branded pharmaceuticals, but is marked

by tight price controls. The leading companies operating in the sector are GlaxoSmithKline and SPIMACO.

The public sector, which is more generic drug-led, is dependent on oil revenues, and characterised by

cost containment and late payments for tenders.

Chain stores dominate the sector, with, for example, al-Dawaa Medical Servicesand Saudi Tadawi

Healthcare Company, which is minority-owned by Dubai-based Abraaj Capital. Founded in 1986, Al-Nahdi

Medical Company (NMC) owns and operates over 400 retail pharmacies in Saudi Arabia, claiming to be the

largest retail pharmacy chain in the MENA region. The company is also involved in the sale and

distribution of medicines, cosmetics, baby care products and medical equipment in the MENA region.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Company Profile GlaxoSmithKline

SWOT Analysis

Strengths ■ Strong product portfolio in Saudi Arabia.

■ Well-established presence in the market and region.

■ Local manufacturing presence.

Weaknesses ■ Drug-pricing policy and regulations are generally structured in favour of local

producers.

■ NUPCO has been created as a main drug procurement agent in the public sector.

■ Regional tenders have favoured domestic players.

■ The drug registration period in Saudi Arabia is lengthy, proving a disincentive with

regard to product introductions, especially of novel drugs.

Opportunities ■ Well positioned for a general increase in drug consumption as healthcare-sector

modernisation and expansion continues, with medical care becoming more

accessible.

■ Notable population growth and changing disease profile to include more long-term

and chronic diseases.

■ Strongly placed for expected patented drug sector growth.

■ In a position to benefit from the planned privatisation of the healthcare sector, which

is likely to become more open and regulations more transparent.

■ A growing national and regional OTC market, which should be further promoted by

the partial liberalisation of OTC sales channels.

■ The new intellectual property regime to provide greater brand protection and reduce

generic competition.

Threats ■ Any government failure to revise its overly discriminatory pricing policy.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

SWOT Analysis - Continued

■ Government resistance to bringing domestic procedures and practices further in line

with internationally acceptable standards.

■ NUPCO's efforts to create a unified drug formulary to act as market entry barrier.

Company Overview GlaxoSmithKline Saudi Arabia currently operates GSAL - a modern, state-of-the-art

pharmaceutical factory that currently offers a tablet, topical and liquid department. The

British company has been active in Saudi Arabia for more than 40 years, initially as

Glaxo. The company's main local representative is the import firm Banaja, which has a

51% stake in the subsidiary. In 1992, Glaxo was the first multinational to establish

production operations in the country, with medicines manufactured by the joint venture.

GlaxoSmithKline also distributes its products through local distributors Saudi Import

Company (Banaja), Sitco Pharma, Al-Haya Medical and Al-Naghy Brothers.

Strategy Propped by its long history of local operations, including an involvement in domestic

manufacturing, GlaxoSmithKline is among the largest drugmakers in Saudi

Arabia. GlaxoSmithKline is also a significant player in the OTC sector, and among the

leading drugmaker in the Kingdom despite increased competition from SPIMACO.

Additionally, following its acquisition of Bristol Myers Squibb's portfolio of OTC brands,

Novartis has narrowed GlaxoSmithKline's sales lead.

GlaxoSmithKline claimed to be the leader in the respiratory, antibiotic, central nervous

system, vaccine and anti-diabetic therapeutic areas. The company's leading brands

were Augmentin (amoxicillin clavulanate), Seretide (fluticasone/salmeterol), Avandia

(rosiglitazone) and Seroxat (paroxetine). Augmentin ranked as the number one

pharmaceutical brand in the Saudi private pharmacy sector.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Company Details ■ GlaxoSmithKline,

■ Al Mohamadeya Plaza Building, 5th floor, Madina Rd,

PO Box 55850,

21544 Jeddah,

Saudi Arabia

■ Tel: +966 2 653 6666

■ Website: www.gsk.com

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Sanofi

SWOT Analysis

Strengths ■ One of the leading global pharmaceutical players.

■ Wide-ranging product portfolio, including generic drugs and vaccines.

■ Long history of local operations.

■ One of the few multinational companies with a direct manufacturing presence in the

Kingdom. In fact, Sanofi is the first pharmaceutical company to establish a major

presence in the KAEC.

Weaknesses ■ The government's drug-pricing policy and regulations are generally structured in

favour of local producers.

■ Regional tenders have tended to favour domestic players.

■ The drug-registration period in Saudi Arabia is lengthy, providing a disincentive with

regard to product introductions, especially of novel drugs.

Opportunities ■ Well positioned for a general increase in drug consumption as healthcare-sector

modernisation and expansion continues, with medical care becoming more

accessible.

■ Strongly placed for expected patented drug sector growth, especially given regulatory

improvements.

■ Regional regulatory harmonisation initiatives to improve market access.

Threats ■ Any government failure to revise its overly discriminatory pricing policy.

■ Government resistance to bringing domestic procedures and practices further in line

with internationally acceptable standards.

■ NUPCO's efforts to create a unified drug formulary to act as market entry barrier.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Company Overview French multinational Sanofi is one of the leading pharmaceutical companies in the

world. The local distribution of its products is carried out by three agents: Banaja,

SITCO and Tamer. In Saudi Arabia, Sanofi provides medicines to treat patients with

illnesses in several therapeutic areas, including cardiology, thrombosis, oncology,

metabolic disorders and internal medicine. Sanofi-Aventis has been operating in Saudi

Arabia for over three decades.

Strategy In 2009, the Saudi Arabian General Investment Authority (SAGIA) and Emaar the

Economic City (EEC) struck a deal with Sanofi-Aventis for the French drugmaker to set

up a unit in the KAEC. KAEC is the largest single private sector development in the

region. Sanofi is the first pharmaceutical company to establish a major presence in King

Abdullah Economic City (KAEC).

Strategically, as well as lowering production costs, it is hoped it will help Sanofi's

attempts to increase their brand recognition in Saudi Arabia, where it is predominantly

known by diabetes patients and few others are aware of its product portfolio. The

factory in KAEC primarily focuses on producing antibiotics, diabetes drugs, gastrology

and oncology medications and other products. Presumably these are the areas where

Sanofi Arabia wants to increase brand awareness and it will also focus on educating

industry stakeholders and patients.

Developments 2016

■ In June, Sanofi carried out a training workshop in Jeddah that produced new guidelines on diabetes management during Ramadan. The workshop addressed key challenges associated with diabetes management during the holy month.

2015

■ In December, Sanofi Saudi bunched Enterogermina, a probiotic used to restore the intestinal bacterial balance in case of any intestinal disorder. Diabetes, obesity and inappropriate use of antibiotics may cause intestinal flora disturbance.

■ In November, Sanofi Saudi Arabia supported the second congress on the Scientific Diabetes Society in Dubai.

■ In collaboration with Saudi Pediatric Association (SPA), Sanofi launched its paediatric initiative to promote health for children in May 2015. The company is aiming to widen the scope of its healthcare offering to young Saudi patients with innovative products and services in addition to periodic launches of awareness initiatives dedicated to children, parents, healthcare professionals and public authorities.

■ Sanofi signed a strategic cooperation agreement with Saudi Arabia's Ministry of Health in May 2015 to support continuous training for diabetes education in the primary care sector, medical research for diabetes and Good Clinical Practice (GCP) training programme.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Company Details ■ Sanofi,

■ Jeddah Nojoud Centre, Entrance C,

Tahlia St, PO Box 9874,

21423 Jeddah,

Saudi Arabia

■ Websites: www.sanofi.com

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

SPIMACO

SWOT Analysis

Strengths ■ Regulations generally structured in favour of local producers.

■ Number of active licensing agreements with other leading multinational

pharmaceutical companies.

■ Leading local producer of OTC healthcare, manufacturing under licence for several

large multinationals.

Weaknesses ■ Small local manufacturing sector, with output predominantly comprising basic

medicines.

■ SPIMACO is overly reliant on licensing agreements for high value pharmaceuticals.

■ OTCs can by and large only be sold in pharmacies, restricting patient access to such

products.

■ NUPCO's efforts to create a unified drug formulary to act as market entry barrier.

■ Market reliant on imports, in particular at the hi-tech end of the scale.

■ Despite increase in local sector activity in recent years, local industry development is

still at an early stage.

Opportunities ■ The company's consumer-targeted OTC sales are fully equipped to capitalise on the

growing OTC market both in Saudi Arabia, the Gulf Cooperation Council (GCC) and

the wider Middle East and North Africa region.

■ In a position to benefit from the planned privatisation of the healthcare sector, as well

as the continued modernisation of medical facilities.

■ Able to benefit from increased access to healthcare across Saudi Arabia as the large

numbers of new hospitals in the kingdom approach completion.

■ Partial liberalisation of OTC sales channels, applicable to some vitamin preparations

and commonly used OTCs.

Threats ■ Improvement of regulatory environment to increase competition from multinationals.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

SWOT Analysis - Continued

■ Loss of licensing contracts, if multinational decide to import directly, would be

extremely damaging for sales.

■ NUPCO's efforts to create a unified drug formulary to act as market entry barrier

Company Overview Founded in 1986, Saudi Pharmaceutical Industries and Medical Appliances Corp

(SPIMACO) is one of the country's major pharmaceutical manufacturers. The company

produces medicines and medical appliances for both the domestic market and for

exporting. SPIMACO - which has four key subsidiaries dealing with sales; distribution;

manufacturing of pharmaceuticals and medical devices; and the running of healthcare

centres - is a joint-stock company listed on the Saudi stock market.

SPIMACO manufactures more than 70 brands, including products under licence from

large multinationals such as Eli Lilly, Novartis, Roche, Schering-Plough (now part of

Merck & Co) and GlaxoSmithKline. The company has exclusive manufacturing and

distribution agreements with multinationals, such as Pfizer, Merck & Co and Eli Lilly (the

latter through SITCO Pharma, its dedicated distribution arm).

SPIMACO's main manufacturing facility is located at Qassim Industrial City, where it

produces oral solids, oral liquids, dry powders, injectables, ointments, creams,

suppositories and various other forms. SPIMACO also has its own distribution network,

run by its subsidiary ARAC. Leading product areas include antibiotics, analgesics,

vitamins, anti-rheumatics and cough/cold preparations. SPIMACO is also the leading

producer of OTC health products in the country, challenging GlaxoSmithKline's position

in recent years.

Strategy The company's strategy for growth is to increase its presence in Middle East and North

Africa markets. At the same time, the company has grown in size and stature of late and

has recently announced the establishment of a SAR800mn (USD213.31mn) active

pharmaceutical ingredient (API) facility, which will improve capacity and end its reliance

on imported raw materials. The company is present in the MENA region with products

in UAE, Kuwait, Bahrain, Qatar, Oman, Egypt, Sudan, Lebanon, Algeria, Yemen, Jordan

and Libya.

SPIMACO manufactured and marketed more than 70 brands in 2010, including 55

generic drugs and 19 licensed pharmaceuticals - representing around 6.7% of sales to

the private pharmaceutical market in the country.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Developments 2016

■ SPIMACO plans to launch the recently approved hepatitis C treatment Sofira by the end of 2016. This news falls in line with the Kingdom's tenth Saudi Development Plan, which, in collaboration with the World Health Organization, aims to eliminate HCV in Saudi Arabia by 2030.

■ In May, SPIMACO acquired an advanced integrated system for contamination control from Fedegari. The new project, developed by Fedegari in collaboration with its system integrator ICS (International Consultancy Services), confirms SPIMACO standards of excellence and its continuous commitment in manufacturing extremely safe drugs while applying innovative solutions and the most reliable technology in the market.

■ Integrated Pharma Solutions (IPS), a local pharmaceutical corporation, sold half of its shares in the Egypt-based Meivo International for Pharmaceutical Industries to SPIMACO.

2015

■ In June, the company announced a project to establish production of cancer drugs in its plant in Al-Qassim. The cost is expected to reach up to SAR200mn (USD53.3mn) and will take two years to be fully implemented.

■ SPIMACO signed an agreement with Roche in January 2015 in which the company will undertake the partial manufacturing, selling and distribution of breast cancer drugs Herceptin (trastuzumab) and Mabthera (rituximab) in the country. The products will be launched in the Saudi market in the first half of 2015 and are anticipated to increase the company's annual revenues by SAR200mn (USD53.3mn).

Financial Data 2016

■ SPIMACO reported a net profit of SAR158.2mn (USD42.2mn) in H116; a 53% decline compared to SAR337.0mn (USD89.9mn) reported in H115.

2015

■ SPIMACO reported revenue of SAR1.70bn (USD453mn) for 2015, corresponding to a 15.6% increase from 2014.

■ Gross profit also increased to SAR832mn (USD221mn), a 4.8% increase from the previous year.

Company Details ■ SPIMACO,

■ 11455 Riyadh, Saudi Arabia

■ Tel: +966 1 477 4481

■ Website: www.spimaco.com.sa

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

TABUK Pharmaceutical Manufacturing

SWOT Analysis

Strengths ■ Second-largest domestic drugmaker.

■ Export presence across Middle East and North Africa, the EU, Eastern Europe and the

US.

■ Diversified product range covering prescription drugs and OTC medication.

■ Recently embarked on more aggressive drive in OTCs under the TABUK Healthcare

division.

■ Licensing agreements with a number of foreign players.

Weaknesses ■ Limited R&D capacity.

■ Downward pressure on prices through reference system.

■ Saudi Arabia's drug demand largely met through imports.

Opportunities ■ Has the country's only EU-approved manufacturing plant to aid exports.

■ Manufacturing plant in Algeria.

■ Notable population growth and changing disease profile to include more long-term

and chronic diseases.

■ Partial liberalisation of OTC sales channels, applicable to some vitamin preparations

and commonly used OTCs.

■ Expected increase in demand for OTCs across both the kingdom and the Gulf

Cooperation Council (GCC) region.

■ Cost-containment pressures to increasingly prioritise generic drugs.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

SWOT Analysis - Continued

Threats ■ Competition from foreign players with the opening up of the GCC market.

■ Mandatory price cuts enforced by the Ministry of Health on older products.

■ The strength of other local generic drug manufacturers.

Company Overview TABUK Pharmaceutical, founded in 1994, has been a fully owned subsidiary of the

Astra Industrial Group (AIG) since 1996. The company formulates, registers, produces

and markets generic (mostly branded), prescription (in categories including

cardiovascular, anti-infectives, respiratory, and muscular skeletal system disorders) and

OTC drugs. The company is present in over 20 markets, employs over 1,500 staff, and

its product portfolio comprises over 100 medicines.

TABUK's two manufacturing European Good Manufacturing Practice (GMP)-approved

facilities are both located in Tabuk, in the north of the country, while its marketing and

distribution facilities are operated from Riyadh. TABUK also has a number of licensing

agreements with Japanese, Korean and European innovative drugmakers. It produces

eight innovative products under licence for the Saudi market. TABUK also acts as a

contract manufacturer, offering its partners (including Actavis and Bristol-Myers Squibb)

easy access to the Middle East market through is sales and marketing network

Strategy TABUK is reportedly the second largest local manufacturer in the Saudi Arabian

pharmaceuticals market, behind SPIMACO, and one of the companies in the domestic

retail pharmacy sector.

TABUK was the first Saudi pharmaceutical company authorised to sell its products in

Europe. In the US and Europe, TABUK currently operates through local partners.

TABUK is responsible for developing and supplying finished products, while its local

partners obtain marketing authorisations and distribute the products in their respective

territories. The company operates in all of the GCC member states also has a medicines

supply agreement with the Saudi Ministry of Health.

The company has a strong presence in the MENA and Central Eastern Europe (CEE)

regions. A number of its OTC branded products have been approved in Denmark,

Finland, France, Portugal, Sweden and Turkey. It also aims to develop its operations in

Western Europe, the Commonwealth of Independent States (CIS) and the USA, building

on established in-licensing agreements with Japanese, Korean and European partners.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Company Details ■ TABUK Pharmaceutical Manufacturing Co.,

■ Kind Abdul Aziz Street, PO Box 1437 Riyadh,

11 437,

Saudi Arabia

■ Tel: +966 1 477 4946

■ Website: www.tpmc.com.sa and www.astraindustrial.com.sa/lang/en/ Tabuk_Pharmaceuticals.aspx

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Demographic Forecast

Demographic Outlook

Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only

is the total population of a country a key variable in consumer demand, but an understanding of

the demographic profile is essential to understanding issues ranging from future population trends to

productivity growth and government spending requirements.

The accompanying charts detail the population pyramid for 2015, the change in the structure of

the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show

indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split

and life expectancy.

Population

(1990-2050)

Saudi Arabia - Population, mn

19 90

20 00

20 05

20 10

20 15

20 20

20 25

20 30

20 35

20 40

20 45

20 50

f = BMI forecast. Source: World Bank, UN, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Saudi Arabia Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)

Source: World Bank, UN, BMI

Table: Population Headline Indicators (Saudi Arabia 1990-2025)

1990 2000 2005 2010 2015f 2020f 2025f

Population, total, '000 16,361 21,392 24,745 28,090 31,540 34,366 36,846

Population, % y-o-y na 2.7 2.9 2.5 2.1 1.6 1.3

Population, total, male, '000 9,154 11,781 13,810 15,819 17,835 19,294 20,523

Population, total, female, '000 7,206 9,610 10,934 12,271 13,704 15,071 16,323

Population ratio, male/female 1.27 1.23 1.26 1.29 1.30 1.28 1.26

na = not available; f = BMI forecast. Source: World Bank, UN, BMI

Table: Key Population Ratios (Saudi Arabia 1990-2025)

1990 2000 2005 2010 2015f 2020f 2025f

Active population, total, '000 9,020 12,792 15,762 18,767 21,622 23,807 25,894

Active population, % of total population 55.1 59.8 63.7 66.8 68.6 69.3 70.3

Dependent population, total, '000 7,340 8,599 8,982 9,322 9,917 10,558 10,952

Dependent ratio, % of total working age 81.4 67.2 57.0 49.7 45.9 44.4 42.3

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Key Population Ratios (Saudi Arabia 1990-2025) - Continued

1990 2000 2005 2010 2015f 2020f 2025f

Youth population, total, '000 6,881 7,976 8,282 8,544 9,014 9,290 9,120

Youth population, % of total working age 76.3 62.4 52.5 45.5 41.7 39.0 35.2

Pensionable population, '000 459 623 700 778 902 1,268 1,831

Pensionable population, % of total working age 5.1 4.9 4.4 4.1 4.2 5.3 7.1

f = BMI forecast. Source: World Bank, UN, BMI

Table: Urban/Rural Population & Life Expectancy (Saudi Arabia 1990-2025)

1990 2000 2005 2010 2015f 2020f 2025f

Urban population, '000 12,530.1 17,081.3 20,038.4 23,057.9 26,219.5 28,905.8 31,330.1

Urban population, % of total 76.6 79.8 81.0 82.1 83.1 84.1 85.0

Rural population, '000 3,831.4 4,311.0 4,706.8 5,032.7 5,320.9 5,460.5 5,516.7

Rural population, % of total 23.4 20.2 19.0 17.9 16.9 15.9 15.0

Life expectancy at birth, male, years 67.5 70.9 71.9 72.4 73.2 73.9 74.6

Life expectancy at birth, female, years 71.0 74.2 74.5 75.0 75.9 76.7 77.4

Life expectancy at birth, average, years 69.0 72.4 73.1 73.7 74.4 75.1 75.8

f = BMI forecast. Source: World Bank, UN, BMI

Table: Population By Age Group (Saudi Arabia 1990-2025)

1990 2000 2005 2010 2015f 2020f 2025f

Population, 0-4 yrs, total, '000 2,724 2,804 2,772 2,990 3,161 3,019 2,934

Population, 5-9 yrs, total, '000 2,368 2,719 2,809 2,823 3,100 3,167 3,020

Population, 10-14 yrs, total, '000 1,787 2,453 2,700 2,730 2,753 3,102 3,166

Population, 15-19 yrs, total, '000 1,454 1,907 2,406 2,512 2,531 2,757 3,099

Population, 20-24 yrs, total, '000 1,558 1,843 2,024 2,468 2,398 2,603 2,846

Population, 25-29 yrs, total, '000 1,595 2,147 2,338 2,514 2,745 2,621 2,824

Population, 30-34 yrs, total, '000 1,358 1,949 2,625 2,854 2,905 3,039 2,848

Population, 35-39 yrs, total, '000 1,044 1,596 2,109 2,776 2,993 3,013 3,102

Population, 40-44 yrs, total, '000 674 1,254 1,560 2,022 2,816 2,880 2,888

Population, 45-49 yrs, total, '000 476 907 1,118 1,470 2,056 2,618 2,697

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Population By Age Group (Saudi Arabia 1990-2025) - Continued

1990 2000 2005 2010 2015f 2020f 2025f

Population, 50-54 yrs, total, '000 339 516 788 1,036 1,478 1,894 2,446

Population, 55-59 yrs, total, '000 275 373 451 721 1,016 1,415 1,795

Population, 60-64 yrs, total, '000 243 296 337 390 679 963 1,345

Population, 65-69 yrs, total, '000 202 234 259 288 353 616 878

Population, 70-74 yrs, total, '000 133 181 194 215 242 299 523

Population, 75-79 yrs, total, '000 71 122 133 142 160 184 230

Population, 80-84 yrs, total, '000 36 60 76 83 91 104 123

Population, 85-89 yrs, total, '000 12 19 28 36 40 45 54

Population, 90-94 yrs, total, '000 2 4 6 9 12 14 16

Population, 95-99 yrs, total, '000 0 0 0 1 2 3 3

Population, 100+ yrs, total, '000 0 0 0 0 0 0 0

f = BMI forecast. Source: World Bank, UN, BMI

Table: Population By Age Group % (Saudi Arabia 1990-2025)

1990 2000 2005 2010 2015f 2020f 2025f

Population, 0-4 yrs, % total 16.65 13.11 11.20 10.65 10.02 8.79 7.96

Population, 5-9 yrs, % total 14.48 12.71 11.35 10.05 9.83 9.22 8.20

Population, 10-14 yrs, % total 10.93 11.47 10.91 9.72 8.73 9.03 8.59

Population, 15-19 yrs, % total 8.89 8.92 9.73 8.95 8.03 8.02 8.41

Population, 20-24 yrs, % total 9.52 8.62 8.18 8.79 7.60 7.57 7.73

Population, 25-29 yrs, % total 9.75 10.04 9.45 8.95 8.71 7.63 7.66

Population, 30-34 yrs, % total 8.31 9.11 10.61 10.16 9.21 8.85 7.73

Population, 35-39 yrs, % total 6.38 7.47 8.53 9.88 9.49 8.77 8.42

Population, 40-44 yrs, % total 4.12 5.86 6.31 7.20 8.93 8.38 7.84

Population, 45-49 yrs, % total 2.91 4.24 4.52 5.23 6.52 7.62 7.32

Population, 50-54 yrs, % total 2.08 2.41 3.19 3.69 4.69 5.51 6.64

Population, 55-59 yrs, % total 1.68 1.75 1.83 2.57 3.22 4.12 4.87

Population, 60-64 yrs, % total 1.49 1.38 1.37 1.39 2.16 2.80 3.65

Population, 65-69 yrs, % total 1.24 1.10 1.05 1.03 1.12 1.79 2.38

Population, 70-74 yrs, % total 0.82 0.85 0.79 0.77 0.77 0.87 1.42

Population, 75-79 yrs, % total 0.44 0.57 0.54 0.51 0.51 0.54 0.63

Population, 80-84 yrs, % total 0.22 0.28 0.31 0.30 0.29 0.31 0.34

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Population By Age Group % (Saudi Arabia 1990-2025) - Continued

1990 2000 2005 2010 2015f 2020f 2025f

Population, 85-89 yrs, % total 0.08 0.09 0.11 0.13 0.13 0.13 0.15

Population, 90-94 yrs, % total 0.02 0.02 0.03 0.03 0.04 0.04 0.05

Population, 95-99 yrs, % total 0.00 0.00 0.00 0.00 0.01 0.01 0.01

Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00

f = BMI forecast. Source: World Bank, UN, BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Glossary ■ Pharmaceuticals, medicines, drugs: synonym terms used interchangeably.

■ Pharmaceutical market/sales: the sum of revenues generated by generic, patented, and over-the-counter (OTC) drugs through hospitals, retail pharmacies and other channels. Unless otherwise stated, market value is reported at final consumer price including mark-ups, taxes, etc.

■ Prescription drugs: patented and generic drugs regulated by legislation that requires a physician's prescription before they can be sold to a patient.

■ Patented drug: an innovative medicine granted intellectual property protection by the patent and trademark office. The patent may encompass a wide range of claims, such as active ingredient, formulation, mode of action, etc, giving the patent holder the sole right to sell the drug while the patent is in effect.

■ Generic drug: a bioequivalent medicine that contains the same active ingredient as an originator drug. The originator drug is an innovative medicine that no longer has intellectual property protection due to patent expiry.

■ OTC drug: a medicine that does not require a prescription to be sold to patients. Also known as non- prescription medicines.

■ Counterfeit drugs: unregistered and illegal medicines which have not been subject to regulatory assessments to ensure quality, safety, efficacy and manufacturing standards.

■ Similares: non-bioequivalent alternatives to either an originator patented drug or a generic drug. While similares and the originator/generic drug have a common indication, similares do not always contain the same active ingredient as an originator and invariably have a different pharmacokinetic and pharmacodynamic profile. Prevalent in select South American countries, similares are legal. BMI does not include their sales in total pharmaceutical market values.

■ Health expenditure: the sum of the funds mobilised by government and private systems for the operation of a healthcare system, according to the WHO. It includes the purchase of healthcare services and goods by public entities such as ministries and social security institutions; or by private entities such as non-profit institutions, commercial insurances and households acting as complementary funders to the previously cited institutions or unilaterally disbursing health commodities. The revenue base of these entities varies by country and comprises multiple sources. The inclusion of this in BMI's forecasts necessitates taking into account the essential attributes of country-specific health accounting such as comprehensiveness, consistency, standardisation and timeliness.

■ Government health expenditure: the sum of outlays for health maintenance, restoration or enhancement paid by government entities such as a ministry of health, other ministries, parastatal organisations and social security agencies, including transfer payments to households to offset medical care costs and extra- budgetary funds to finance healthcare provision.

■ Private health expenditure: the sum of outlays for health by private entities such as commercial or mutual health insurance, households, non-profit institutions serving households, resident corporations and quasi-corporations not controlled by governments, according to the WHO.

■ Medical devices: products used for diagnosis or therapy in patients. Whereas pharmaceuticals achieve their principal action by pharmacological, metabolic or immunological means, medical devices act by physical or mechanical means. Medical devices include a wide range of products, including syringes, thermometers, blood-sugar tests, prosthetic limbs, ultrasound scans and X-ray machines.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

■ Burden of Disease Database (BoDD): BMI's disease database incorporates WHO, World Bank, IMF and BMI's own data to create a proprietary dataset. BoDD data are quantified as the sum of disability- adjusted life years lost to a disease in a particular country.

■ Disability-adjusted life years (DALYs): the sum of the years of life lost (YLL) due to premature mortality in a population and the years lost due to disability (YLD) for incident cases of the health condition. The DALY is a health gap measure that extends the concept of potential years of life lost due to premature death (PYLL) to include equivalent years of 'healthy' life lost in states of less than full health (broadly termed 'disability'). One DALY represents the loss of one year of equivalent full health.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Methodology

Pharmaceutical Expenditure Forecast Model

Historic pharmaceutical market data is collected from a range of sources, including:

■ regulatory agencies;

■ pharmaceutical trade associations;

■ company press releases and annual reports;

■ subscription information providers;

■ local news sources;

■ information from market research firms that is in the public domain.

Currently available data varies in confidence levels, so it is calibrated by BMI's Pharmaceuticals &

Healthcare analysts. In the absence of a complete time series of numbers, intermediate years are calculated

from secondary sources. This 'composite' approach is used to ensure the accuracy and consistency of

historic data, which is crucial for reliable forecasts.

To remove the effect of inflation, real pharmaceutical expenditure figures are then calculated by removing

the annual average consumer price index (CPI).

Real per-capita pharmaceutical expenditure numbers are calculated by dividing by population figures.

A linear regression (see Note 1 for explanation) is then performed on five years of real per-capita

pharmaceutical expenditure against real per-capita final consumption (see Note 2). From analysis of the top

130 economies, BMI has established a strong statistical relationship between pharmaceutical expenditure

and final consumption expenditure (r = 0.985).

Healthcare Expenditure Forecast Model

Historic public and private healthcare expenditure data is sourced from the World Health Organization

(WHO)'s Global Health Expenditure Database, which contains the National Health Accounts (see Note 1 for

methodology).

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Data is provided in nominal local currency terms.

To remove the effect of inflation, real healthcare expenditure figures are then calculated by removing the

annual average CPI.

Real per-capita healthcare expenditure numbers are calculated by dividing by population figures.

A linear regression is then performed (see Note 2 for explanation). This is first on five years of real per-

capita public healthcare expenditure against real per-capita government final consumption expenditure (see

Note 3 for definition). This generates a 10-year forecast of future of real per-capita public healthcare

expenditure figures from 'known' projected real per-capita government final consumption expenditure

figures. Another linear regression is simultaneously performed on real per-capita private healthcare

expenditure against real per-capita private final consumption expenditure (see Note 4 for definition).

To generate the nominal public healthcare spending forecast, population and CPI numbers are returned to

both real per-capita public healthcare expenditure figures and real per-capita private healthcare expenditure

figures.

The overall healthcare expenditure forecast is then calculated by combining public and private healthcare

expenditure.

Notes On Methodology

Note 1: National Health Accounts methodology. The global health expenditure database that the WHO has

maintained for the past 10 years provides internationally comparable numbers on national health

expenditures. The WHO updates the data annually, taking, adjusting and estimating the numbers based on

publicly available reports (national health account reports, reports from ministries of finance, central

banks, national statistics offices, public expenditure information and reports from the World Bank, the IMF,

etc). The estimates are sent out to the ministries of health for validation prior to publication, but users are

advised that country data may still differ in terms of definitions, data collection methods, population

coverage and estimation methods used. This database is the source of the health expenditure tables in the

World Health Statistics Report and the WHO Global Health Observatory.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Note 2: Linear regression equation.

y = mx + b

Where y = unknown variable, m = slope of gradient, x = known variable, and b = where the line crosses the

y-axis.

Note 3: Final consumption is the sum of government final consumption expenditure and private final

consumption expenditure. Government final consumption expenditure is the sum of expenditure on final

goods and services by the government. Included in this are public sector salaries, but it does not include

transfer payments such as unemployment benefits or pensions. Private final consumption expenditure is the

sum of all private consumption of goods and services within the economy, including both durable and non-

durable goods. Housing purchases, however, are excluded. Government final consumption expenditure and

private final consumption expenditure are the 'G' and 'C' in this equation:

GDP = C + I + G + (X - M)

Where GDP = gross domestic product, C = private final consumption expenditure, I = gross investment, G

= government final consumption, X = exports, and I = imports.

Risk/Reward Index Methodology

Our Innovative Pharmaceuticals Risk Reward Index (RRI) quantifies and ranks a country's attractiveness in

terms of its pharmaceuticals industry; it balances the Risks and Rewards of launching innovative medicines

in different countries. It should be emphasised that the RRI broadly assess the rewards and the risks that a

company will face when looking to launch an innovative drug in a market. For example, we do not

differentiate between drugs that are a part of different therapeutic groups or whether the drug being

launched is the first to be launched in the market or will be one of the many different drugs of the same

therapeutic class that has been launched in the market.

To form a country's RRI score, we combine industry-specific characteristics with broader economic,

political and operational market characteristics. We weigh these inputs in terms of their importance to

investor decision making in a given industry - in this case that of innovative pharmaceuticals. The result is a

nuanced and accurate reflection of the realities facing investors in terms of the balance between: 1)

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

opportunities and risk; and 2) sector-specific and broader market traits. This enables users of our RRI to

assess a market's attractiveness in both a regional and global context.

The RRI also encompasses a combination of our proprietary forecasts and analyst assessment of the

regulatory climate, as well as globally acceptable benchmark indicators (eg, the World Bank's Doing

Business Scores and Transparency International's Corruption Perceptions Index). As regulations evolve and

forecasts change, so does the RRI score, providing a highly dynamic and forward-looking result.

The Innovative Pharmaceuticals RRI universe comprises 108 countries.

Benefits Of Using BMI's Innovative Pharmaceuticals RRI

■ Global Rankings: One global table, ranking all the countries in BMI's universe for the launch of innovative pharmaceuticals from least (closest to zero) to most attractive (closest to 100).

■ Accessibility: Easily accessible, top down view of global, regional or sub-regional Risk/Reward profiles.

■ Comparability: Identical methodology across 108 countries allows users to build lists of countries they wish to compare, beyond the confines of a global or regional grouping.

■ Scoring: Scores out of 100 with a wide distribution, provide nuanced investment comparisons. The higher the score, the more favourable the country profile.

■ Quantifiable: Quantifies the Risks and Rewards of doing business in the innovative pharmaceuticals sector in different countries around the world and helps identify specific flashpoints in the overall business environment.

■ Comprehensive: Comprehensive set of indicators, assessing industry-specific risks and rewards alongside political, economic and operational risks.

■ Entry Point: A starting point to assess the outlook for the innovative pharmaceuticals sector, from which users can dive into more granular forecasts and analysis to gain a deeper understanding of the market.

■ Balanced: Multi-indicator structure prevents outliers and extremes from distorting final scores and rankings.

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Weightings Of Categories And Indicators

Innovative Pharmaceuticals Risk/Reward Index

Source: BMI

The RRI matrix can be split into two distinct components:

Rewards: This component of the RRI is composed of an evaluation of an Industry's size and growth

potential (Industry Rewards), and also macro industry and/or country characteristics that directly impact

the size of business opportunities in a specific sector (Country Rewards).

Risks: This component of the RRI is composed of an evaluation of micro, industry-specific characteristics,

crucial for an industry to develop to its potential (Industry Risks) and a quantifiable assessment of the

country's political, economic and operational profile (Country Risks).

Assessing Our Weightings

We deliberately afford Rewards a greater weighting (65% of a market's final RRI score) and within this, the

Industry Rewards pillar accounts for a majority 75%. This is to reflect the fact that when it comes to long-

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

term investment potential, industry size and growth potential carry the most weight in indicating

opportunities, with other structural factors weighing in but to a slightly lesser extent. In addition, our focus

and expertise in Emerging and Frontier Markets has dictated this bias towards industry size and growth to

ensure we are able to identify opportunities in countries where regulatory frameworks are not as developed

and industry sizes not as big (in USD terms) as in developed markets, but where we know there is a strong

desire to invest.

Table: Indicators - Rationale And Sources

Indicator Source Rationale

Rewards

Industry Rewards

Market Expenditure, USDbn

BMI Forecast Denotes breadth of pharmaceutical market. Large markets score higher than smaller ones. Scores are based on annual average expenditure over a five-year forecast period.

Spending Per Capita, USD

BMI Forecast Denotes depth of pharmaceutical market. High- value markets score better than low-value ones. Scores are based on annual average expenditure over a five-year forecast period.

Sector Value Growth, % BMI Forecast Denotes sector dynamism. Scores are based on

annual average growth over a five-year forecast period.

Country Rewards

Urban/Rural Split BMI Forecast Urbanisation is used as a proxy for the

development of medical facilities. Predominantly, rural states score lower.

Pensionable Population, % BMI Forecast Shows the proportion of the population over 65.

States with ageing populations tend to have higher per capita expenditure.

Population Growth, %

BMI Forecast Fast-growing states suggest better long-term demand and thus growth for all industries. Scores are based on annual average growth over a five- year forecast period.

Risks

Industry Risks

Patent Respect BMI Subjective Indicator Markets with fair and enforced intellectual

property regulations score higher than those with endemic counterfeiting.

Pricing Regime

BMI Subjective Indicator Markets with a free pricing environment score higher than markets where governments and private-sector payers put downward pressure on pharmaceutical prices as a mechanism to control expenditure.

Protectionism

BMI Subjective Indicator High scores are awarded to markets which have realised the economic and social benefit of pharmaceuticals, in turn modernising the provision of healthcare through reforms and essential drug lists and encouraging local

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

Indicators - Rationale And Sources - Continued

Indicator Source Rationale manufacturing and research and development by foreign firms.

Source: BMI

Saudi Arabia Pharmaceuticals & Healthcare Report Q2 2017

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