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Pharmaceutical market forecasted to reach $4.7 billion by 2016

Interview - May 25, 2015

As the number one company in the pharmaceutical market, Spimaco has benefitted greatly from the expansion of the industry, enjoying 50% profit growth between 2011 and 2014

MR. FAHAD BIN IBRAHIM AL KHALAF, CEO OF SPIMACO
MR. FAHAD BIN IBRAHIM AL KHALAF | CEO OF SPIMACO

So SPIMACO has operations throughout the Middle East and North Africa region. You export and trade pretty much throughout the region as well as having partners all over the world. When we think about pharmaceuticals, these are really sort of feeding into the healthcare sector, and Saudi Arabia is really considered to be the giant healthcare sector, in terms of growth and potential. What’s your assessment of Saudi Arabia’s sector in pharmaceuticals from an investment perspective?

The Saudi Market is estimated at US$ 7.3 bn in 2014 accounting for more than half of the whole GCC market. the private market in KSA contributing around 3.5 billion US dollars, with around 300 operating companies while the  number of pharmaceutical companies with local industrial operation in KSA are only 12-15 companies of different sizes, covering only 25% of the market demand, so still there are a lot of opportunities for the pharmaceutical industry in the Saudi market.

The fundamental drivers for pharmaceutical are strong in MENA and the region holds significant opportunities for SPIMACO in generics and licensing – in patented drugs.  The average forecasted growth is higher than the developed markets, this is due to growing population, low yet fast growing spend on pharmaceuticals and sizeable occurrence of specific chronic diseases .e.g. prevalence of obesity 3 times higher than global average and KSA among top 10 countries worldwide in diabetes prevalence rate.

SPIMACO as a leading regional pharmaceutical manufacturer in MENA with strong position in Saudi Arabia maintaining its market leadership in KSA for many years. Since the beginning SPIMACO successfully pursued a strategy based on profitable growth across therapeutic areas, products, channels, geography and value chain.  The company has significantly evolved for the last years and owns significant investments such as 100% in ARAC Health Care Company which is taking care of the distribution and logistics of all SPIMACO products and also doing the marketing and sales services for some of SPIMACO products and represent other companies in the Saudi market and having agreements & strategic alliances with number of the multinational companies represented in the Saudi Market.  SPIMACO owns 51% of ENAYAH, a Saudi manufacturer of disposable medical products and the local licensed manufacturer of Kimberly-Clark Healthcare disposable hospital products. 44% of CAD Middle East Pharmaceuticals  Industries, a Saudi Manufacturer of API. 85% of Dammam Pharma Co. which is currently under implementation. SPIMACO has also number of investment outside KSA such as in Algeria, Morocco and other markets.

Extending SPIMACO’s manufacturing & investment capabilities to MENA region.

Many Countries protect their local industry and encourage local production and providing incentives for local produced products when compared to imported products as part of developing their local industry, SPIMACO has pursued a strategy to invest in its own manufacturing facilities or partnership with local in these markets, e.g. SPIMACO owns more than 64% of IPharma which is a Moroccan pharmaceutical company with other shareholders. Also continue to evaluate opportunities in other markets.

The requirement for innovation and research and a huge dream of the Saudi Arabian leadership to diversify and modernize the economy. Research and pharmaceuticals, that’s the highest end sector of an economy that you can have. It’s a knowledge driven industry. What do you think the potential is for an industry like pharmaceuticals to help with this modernization process and to bring people into knowledge-led industry or sectors here?

Well, Education highlighted as number one priority by Saudi Leadership allocating Education budget US$56 Billion Dollars, 25% of total government budget, one of the highest ratios globally. Over 50% of Saudi Population is under 25 –Education is the key to the country’s future with increasing Female Participation in the Workforce. US$5.75 Billion allocated annually to 120,000 Saudi students and their families studying abroad. On May 19th2014, the Saudi government approved a five-year plan worth SAR 80 Billion (US$21.3 Billion). The focus revolves around improving teaching standards and the general quality of the education system, Opening of Technical Colleges and Training Institutes in Affiliation with Strategic International Partners in addition to On the Job Training Program for Saudi Nationals. SPIMACO is also contributing in several educational programs in cooperation with the educational institutes and sponsoring several scientific conferences & specialized seminars as part of SPIMACO values of social responsibility towards community services and its commitment of efficiently serving the societies where it operates. This is very advantageous for developing the required technical calibers, not only for the classical products, but also for the specialized biotech and the oncology products which will be the future pharmaceutical initiatives of SPIMACO. It is difficult and challenging, especially these biotic and oncology products requires huge knowhow, for which we are building strategic alliances with international partners for technology transfer to capture the big opportunity in Saudi market and MENA region.

You said there are 12 to 15 companies in pharmaceuticals in Saudi Arabia. SPIMACO is number one, the market leader. What would you say the main strengths of SPIMACO as a company involved in pharmaceuticals and medical appliances are? Perhaps some of the weaknesses or areas that you’d like to improve in the company.

Actually SPIMACO is the first pharmaceutical manufacturing company in Saudi Arabia, started in 1986. When nobody else was doing this in Saudi Arabia, then very lately, other pharmaceutical manufacturers starting what SPIMACO did in 1986 when we had a lot of challenges to overcome. So SPIMACO started very big and currently we are the only pharmaceutical joint-stock company in Saudi Arabia listed in the stock market. SPIMACO mission is to provide high quality pharmaceutical products of international standards that earn the loyalty of its customers through internal development and strategic alliances to benefit its shareholders, employees, and the society.

SPIMACO has adopted different business models including manufacturing own products, licensed in products, acquisition of brands, co-marketing , therefore, with its own generic products and a strong partnership history SPIMACO succeeded to differentiate itself from other local producers.  A number of international companies rely on local manufacturers, with SPIMACO capturing the lion’s share.

SPIMACO continue to build its production capacities as well as its regulatory capabilities and maintain very  good relations with the authorities as well.

Your key strategy is to focus on quality. We know across the healthcare sector that there’s real challenge with people, recruiting people. Saudization forms a part of that, and from the research we’ve done you invest heavily in Saudization. Could you explain a little more about how you’re able to maintain such high standards of quality with the people challenge and how important it is as a company investing in people so as to maintain this quality standard?

Actually, we have learned a lot from the experience of the multinationals strategic partners from the people development and on job training perspectives. We are continuously sending some of our colleagues from Saudi Arabia to work and get training at these multinational companies through train the trainer programs. Also in multiple periodical occasions we invite a multinational expertise to train our colleagues in production facilities, And also by utilizing the capabilities and experience of our foreign colleagues from multinational background who work in SPIMACO, so the Saudi employees learn a lot in all manufacturing aspects especially in production & quality, Also having multicultural foreign Arabs and non-Arabs colleagues who are having a lot of experience in their countries and the Saudi employees benefit a lot from their professional experience in a mixed multicultural working environment helping to achieve a sufficient competent level of Saudi employment accomplishing the Saudization plan, maintaining the  required quality of work and maintaining the multicultural working environment .

Huge demand in healthcare sector that the current number of hospitals and health care centers can’t cope…

The health insurance obligations for all employees in private sector, the increasing population rate and the congested health care services in the government sector creating increasing demand of health care services in private hospitals and polyclinics while the available beds is not sufficient for the increasing demand. Despite of the existing expansion of the famous health care providers in Saudi Arabia there is still big opportunities of expansion and increasing need for entry of additional health care providers to the market. that why we have noted recently that big international western hospitals are approaching Saudi Partners for investing in health care project in Saudi Arabia in cooperation with big multinational hospitals and companies.

SPIMACO has very good coverage in the Middle East region. You’ve recently sold out of the company in Ireland, but you were basically given access to the European market. Could you tell us a little bit more about that?

This acquisition which was made by SPIMACO in 2012 was a resource based acquisition in which we want to have a quick access to the oncology production know how, SPIMACO emption is to transfer the technology to Saudi Arabia, currently we are in process to complete the feasibility study to set up a new plant for the production of Oncology in KSA. Our investment in EirGen has helped us to gain the required experience as well we have succeeded to sign agreement with EirGen to secure their products for the MENA region as well as the right to technology transfer when our new plant completed. Nevertheless, SPIMACO has also made very good financial retrain from this investment which is about 161%.

SPIMACO is financially strong and looking for opportunities to invest in specialize European companies which are within its future strategy. SPIMACO owns significant investments in unrelated businesses which are in “liquid” securities, which can be considered as a fund for future expansion and allowing for add on acquisitions.

It sounds like you’re very active in investing, and you’re developing other companies. They’re really talking about the stock exchange opening for tertiary investment here. How do you feel about other companies coming to Saudi Arabia and investing in SPIMACO and investing in the sector here?

I think investing in pharmaceutical sector is always very attractive and specifically the pharmaceutical sector in Saudi Arabia is generally very attractive for investors. I believe that opining the market for foreign investor will be for institutional investor whom will do the required evaluation .. I think it’s good for the market because we this will have positive affect on quality of disclosures as well as corporate governance in general. I believe that the pharmaceuticals and the petrochemicals and the banks will be more attractive for foreign investors.

What would you say are the key things that make SPIMACO an attractive investment? Your financial investment has jumped 50% up since 2011.

Financially SPIMACO is very strong, strong position in Saudi Arabia, the industry dynamics outlook are very positive.

SPIMACO has got a very strong international culture as a company. It’s clear, you work with international partners, you work to international standards & you invest internationally. Many international investors, however, aren’t certain about Saudi Arabia. There are a lot of stereotypes and it’s an enigmatic country. What would you say to people that are interested in doing business in Saudi Arabia but are unsure about it and read the negative media.

I think that Saudi Arabia is a very good market, very attractive, and the bank is very much opened, you can transfer money. I think Saudi Arabia and the GCC countries are the same. The GCC countries will be more flexible than any other countries. If you are investor in some other Arab countries, there are a lot of restrictions for transferring money. We don’t have that here in Saudi Arabia. Saudi Arabia government encouraging modernization of industrial cities and this is interest free, they provide a lot of free land with all the utilities. We have this idea of having 50%-60% loans, so there are a lot of things that are encouraging for investors.

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