When it was first initiated back in 2016, in the wake of the launch of Vision 2030, few industry insiders could have anticipated just quite how radical Saudi Arabia’s Health Sector Transformation Program (HSTP) would turn out to be. Since then, several significant milestones have been reached – the retreat of the Ministry of Health to a largely regulatory role, the creation of the Saudi National Institute of Health, and the formation of a Health Holding Company – all with a clear shift towards decentralization.
“Frankly, it’s one of the most striking and ambitious reforms to a healthcare system I have ever encountered during my professional career,” confides Mohamed Fawzy, country president at Pfizer.
“Hitherto, the Saudi market had been a relatively simple landscape with only a handful of key protagonists to contend with, such as the Ministry of Health,” he recalls. “Whereas nowadays we’re faced with a complex constellation of actors, each with their own distinct remits, introducing a certain level of ambiguity, but also unprecedented opportunities for growth, progress and enhanced profitability,” he exclaims.
Abed Sabra, general manager at Roche, very much agrees. “There is an explicit recognition that no single entity can drive systemic change in isolation and, unlike traditional market approaches focused solely upon the Ministry of Health, life science companies are now being strongly encouraged to engage with a wide variety of government entities, especially those supporting localization and industry development.” Moreover, “a new spirit of collective, integrated action has come into being which is proving to be highly effective, with ministries actively working in tandem with private entities to co-create a brand-new, future orientated healthcare landscape,” he adds.
“Formerly, the all-powerful Ministry of Health has been responsible for overseeing practically all aspects of healthcare, from regulation to service provision, meaning that there was literally a single entity managing the investment decisions of more than 500 hospitals,” recalls Mohammed Saleh, health director for EMEA at Microsoft. “Yet now these functions are increasingly distributed across specialized entities, with a Council of Cooperative Health Insurance managing payer oversight, and autonomous, independent agencies regulating domains such as pharmaceuticals, clinical research, and healthcare service delivery.” This is all very positive, he believes, because it professionalizes the governance of these areas and hardwires into the system, “greater accountability, expertise, and flexibility.”
Significant milestones to date have included the retreat of the Ministry of Health to a largely regulatory posture, the creation of an expert-driven Saudi National Institute of Health (Saudi NIH), and the formation of a Health Holding Company, one of the largest organisations of its kind globally, tasked with activating accountable care organizations, managing localized delivery, and leveraging public-private partnerships.
Moreover, at the heart of this sweeping decentralization drive, has been the recent introduction of regional health clusters bringing together universities, hospitals, and clinics into cohesive networks, with a view to streamlining the patient pathway, better integrating primary, secondary and tertiary care, and rendering access to treatment quicker and more efficient.
“Presently, there are five clusters nationwide, and we anticipate that this setup shall more or less follow those models deployed in Europe and the UK, where primary care plays a key role in diagnostics,” surmises Fadi AlSafadi, senior director for the surgical franchise and cluster manager for the Middle East and Africa at Alcon. “Prioritizing early detection in this way should ensure patients are promptly referred to the right specialists for appropriate treatment before issues become more severe thus helping to simultaneously improve health end-outcomes and generate significant cost-savings for the state,” he thinks.
The beauty of all of this from the standpoint of an international originator drug developer or medtech innovator is it unleashes a myriad of fresh possibilities for investment in domains as diverse as genomics, personalized medicine, preventative healthcare, surgical robotics, and virtual clinics – all fields that only a radically reimagined and reconfigured healthcare apparatus of the future could ever properly aspire to fully accommodate.
“For a developer of advanced digital imagining solutions incorporating the latest developments in generative AI, these reforms are most welcome,” attests Elias El Zoughbi, country manager at Terumo Medical Care Solutions. “Naturally, there was a fair bit of upheaval to our in-country business model in the beginning requiring strategic adjustments in navigating new procurement processes and reallocating resources, but the ultimate consequence has been to significantly expand our scope of engagement,” he recounts.
Indeed, Helmut Schuehsler, CEO of TVM Capital Healthcare Partners credits the inception of the HSTP with spawning a completely new investment landscape. “This remarkable reform drive to design an enlightened, authentically holistic, and financially sustainable modern healthcare apparatus triggered opportunities that simply did not exist before by diversifying healthcare providers, rationalizing incentives, expanding insurance coverage and enabling the localization of advanced medical manufacturing and research,” he argues.
“For sure the program also created some uncertainties,” he concedes “but they pale into insignificance when compared against the incredible opportunities generated for investors who can properly identify and act on them.”
Gradual Synchronization
“To begin with plenty of analysts and commentators doubted the Kingdom’s ability to realize its ambitious vision, questioning if they had the requisite wherewithal, sufficient resources, or the right strategies, and policies. What is remarkable is that Saudi Arabia has moved forward methodically and thoughtfully, rather than making sudden, dramatic changes,” recalls Deloitte’s partner and chief medical officer for the Middle East, Vineta Bhalla. “For example, The Kingdom did not immediately overhaul the role of the Ministry of Health. Instead, it articulated a clear end state and then mapped out a series of milestones and gateways to ensure that each step was carefully tested and validated,” she continues.
“Progress is being measured with clear KPIs and timelines, and while the system may not yet have reached total perfection, there is certainly a refreshing emphasis on moving forward: on launching, learning, and iterating. It’s a pragmatic, rational, agile approach that resonates strongly with the business and industry development philosophies of modern, forward-orientated companies like ours,” relates Roche’s Abed Sabra.
Nor did the creation of the Health Holding Company occur overnight. Instead, its mandate and resources were gradually defined and transferred, and precisely the same could be said of the recent establishment of accountable care organizations within clusters. For Saudi Arabia’s policymakers are in fact following a phased roadmap: continuously course correcting and refining their strategy before moving on to the next stage.
Bhalla also notes that a key distinguishing feature underpinning the county’s healthcare metamorphosis is the clear division between day-to-day operations and the Health Sector Transformation Program (HSTP), often referred to as the ‘kitchen.’ “The central idea is that normal functions continue as usual, ensuring business continuity, while the HSTP acts as a dedicated space for experimenting with reforms, testing out and refining new policies, and piloting programs. Once these initiatives prove successful, they are scaled up and integrated into the mainstream system,” she explains. Indeed, such an approach has been applied to technology, infrastructure, and the creation of entities like the health holding company and accountable care organizations, as well as to public health functions through the PHA.
“Looking ahead, the next one to three years should be especially exciting,” predicts Bhalla. For with the core building blocks now already squarely in place, Saudi Arabia is now entering the stage where these elements should start to interact seamlessly. “It’s rather like watching a house being built after a prolonged period of laying the foundations and now you’re beginning to see the final structure take shape,” she enthuses.
Successfully pulling off this high wire balancing act would be quite a feat. “Maintaining the synchronization and aligning the vast cast of stakeholders involved in Saudi Arabia’s envisioned healthcare future is pivotal, yet challenging. With the creation of new entities alongside the transformation of existing ones, establishing cohesive governance and operational models will be absolutely imperative and a prerequisite to ultimate success,” warns Dr Walid Tohme, partner at Strategy & Middle East. Though he concedes that the Saudi administration has so far managed the process with immense skill and “is fast providing an impressive model that many other regions may very well wish to recreate and follow.”
Neo-Industries
Among the most conspicuous outcomes so far of the transformation program has been an enhanced role for the private sector in healthcare as policymakers seek to inject more of a profit and loss mentality and foster healthy competition. Nine healthcare privatisation plans have already been approved and a total of 23 others remain under examination. “This push toward privatization is particularly exciting, as it is setting the stage for public healthcare institutions to compete with private providers on standards and efficiency,” notes Mohamed Fawzy.
Meanwhile, thanks to the new regulatory and financing ecosystem, novel market segments are popping up that were, up until now, wholly underserved. “TVM Capital Healthcare Partners recently introduced COMSTED, a freestanding infusion center, inspired by highly successful models in the United States. This concept was unknown in Saudi Arabia or anywhere else in the Middle East previously,” reveals Helmut Schuehsler. “And reacting to the lack of any kind of dedicated facilities for long-term care, we have also been investing in the introduction of bespoke facilities modelled on the German approach to post-acute care, and rehabilitation,” he continues.
Baraya Extended Care, which is financed from TVM Capital Healthcare Partners’ Afiyah Fund LP, serves as a good illustrative example. “Our research of the Saudi market revealed that despite the Kingdom possessing surfeit of acute care hospital beds, the country lacked rehabilitation capacity, with an estimated gap of 15,000 to 25,000 beds. This deficit was resulting in clear inefficiencies, with long-term patients occupying up to 25% of the total capacity at huge unnecessary cost to the public purse,” remembers the company’s CEO, Jad Halaby.
“Taking advantage of the Kingdom’s brand-new cohesive policy and regulatory environment has enabled us to achieve frankly remarkable progress in a very short space of time: with two hospitals under construction, two outpatient clinics already operational, and a third hospital set to commence construction imminently—all within a mere 16 months of the company’s establishment,” he says. “Under the ‘old Saudi,’ launching a new healthcare business in Kingdom would have taken a minimum of two to three years.
Fresh forms of structural entity are also coming into being. King Faisal Specialist Hospital and Research Centre (KFSHRC), for instance, is transitioning from a government institution to an independent, non-profit organization. “We felt we needed to make strategic decisions quickly and efficiently without bureaucratic constraints, yet at the same time, we did not want to become a private hospital focused on profits,” explains the center’s CEO, Majid Al Fayyadh. A middle way was therefore identified. “We resolved upon a solution whereby we are neither privately owned nor publicly traded: a sort of foundation. Our new structure ensures that all revenue is reinvested into the hospital, funding cutting-edge research, expanding our medical services,” he elaborates, noting that the same model is now serving as a blueprint for other Saudi institutions. “King Khaled Eye Specialist Hospital and King Saud University have already followed our lead, transitioning to a similar governance model,” he remarks.
Rapidly Maturing Investment Ecosystem
The roll out of the HSTP has also coincided with wholesale changes to the Saudi Arabia’s investment landscape. For a start, the transformation has been heavily buttressed by the strategic investments placed by the Kingdom’s sovereign wealth fund. “No one should forget that these reforms are energetically underpinned by the Kingdom’s Public Investment Fund (PIF) which is placing big-ticket investments in pioneering advancements in biotechnology, artificial intelligence, and genomics to address pressing public health challenges in line with Vision 2030, meaning plenty of business for true innovators in the life science space,” muses Marwan Omar, general manager of the GCC Cluster at Ferring, a research-driven Swiss biopharma specialising in women’s and reproductive health.
For example, one of the major turning points for TVM Capital Healthcare Partners’ Saudi activities was the establishment of JADA, the Public Investment Fund’s (PIF) fund-of-funds company. “JADA became a significant investor in our fund during our first closing in 2022 which made us much more attractive to family offices and other institutional investors, as they recognized the alignment of our strategy with Vision 2030,” recalls Helmut Schuehsler. “The people in decision-making roles are suddenly eager to support private investment into the life science space. Not only are the regulators increasingly supportive of entrepreneurship, but government agencies will go out of their way assist investors deemed to be contributing to HSTP objectives,” he notes.
The Saudi IPO market has also been increasingly active in recent years, particularly since the listing of Saudi Aramco which significantly increased global investor attention on Saudi markets. Following its listing, Saudi Arabia’s Tadawul was added to the MSCI Emerging Markets Index, which meant that institutional investors and global funds rebalanced and included Saudi-listed stocks in their portfolios. This structural shift automatically increased liquidity in the market, making Saudi Arabia a more attractive destination for capital. “Investor appetite for healthcare-related IPOs looks to be strong and enduring,” Schuehsler affirms, noting that several hospital operators have successfully gone public.
It is important to remember, however, that, unlike other global exchanges such as the Nasdaq which are open to listing pre-revenue biotech or healthcare companies, the Tadawul operates differently. The main exchange requires companies to have solid financials and significant revenue before going public, with typical IPO valuations ranging from $500 million to $1 billion USD or more.
For smaller companies, Nomu, a parallel market, offers an alternative listing venue with fewer regulatory requirements, but noticeably lower liquidity. “Nonetheless, looking ahead, we now see for the first time IPOs as a compelling path for growth-stage in-kingdom healthcare businesses, providing both a financing mechanism and a longer-term exit strategy for investors like us,” concludes Schuehsler.
Magnificent Endeavour
For Abdallah Hamed, Boehringer Ingelheim’s general manager for Saudi Arabia, the Gulf and East Africa (SAGEA), there could hardly be a more compelling juncture to engage with Saudi Arabia’s healthcare sector. “Ultimately, the HSTP represents a bold and magnificent endeavour to reconsider the way healthcare is structured and delivered with a view to fashioning a system that is not only fit for today, but that can simultaneously meet the evolving societal needs of tomorrow. This alone positions the Kingdom as a trailblazer in healthcare modernization and a strategically vital market for any future-orientated, global life science company,” he argues.
