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Egypt - Increasing investment in pharmaceutical sector

Monday, 15 February 2010 14:33

Already the Middle East and North Africa (MENA’s) largest pharmaceutical producer, Egypt is looking to further solidify its stronghold by increasing investment in the sector and expanding production capacity. Much of the extra medicine will go to foreign markets, despite a potential health crisis at home as the government introduces a new drug-pricing regime.

Pharmaceutical production surged in 2009, reaching LE3.5bn ($640.2m) at year’s end where the industry had only expected LE1bn ($182.9m). In January 2010, the Ministry of Investment announced plans to build 76 new pharmaceutical plants, bringing the national total to 180, in order to help meet its target of $1bn in exports by 2015.

Only five years ago, the country was exporting $152m in pharmaceuticals annually, according to Osama El Saady, the head of the Export Council for Medical Industries. That figure had increased by 10-20% per annum on average, except for 2009, when it receded 15% due to the global recession. Egypt currently has roughly a 30% share of the pharmaceuticals supply to the MENA market, according to the American Chamber of Commerce in Egypt.

The recent upturn in production can be partially attributed to Egypt’s new streamlined registration procedure for pharmaceuticals, which had been recommended by the World Health Organisation. New products, which once took several years to register, can now be on the market much faster.

Ultimately, the government aims to shorten the process to a year. The sector has also been a big investment draw in recent years, receiving LE666m ($121.8m) since the 2007/08 fiscal year. The government’s latest push for expansion will require an additional LE1.3bn ($237.7m) to build new factories and upgrade existing ones.

Egypt’s export-oriented strategy looks like a profitable gambit: the pharmaceuticals industry of the Middle East is worth $21bn, according to the American Chamber of Commerce in Egypt. Pharmaceutical giants GlaxoSmithKline, Novartis and Pfizer all operate factories in Egypt, sending their products to the MENA markets as well as India and Eastern Europe. In December 2009, Egypt International Pharmaceutical Industries Co (EIPICO), the leading domestic drug producer, announced plans to bring the export share of its drug production from 20% to 35% by 2015. A 30,000-sq-metre drug facility to be launched in mid-2010 will help reach this goal, with most of the new drug production bound for foreign markets.

In the domestic market, pharmaceuticals had long been subject to price controls, until September 2009, when the government introduced a new drug pricing system to be phased in by 2020. Replacing the cost-plus system, by which buyers paid wholesale prices for generics with a slight mark-up, the new regime links prices to a reference group of 36 countries and to the original drug a generic is based on.

As 68% of Egyptian health care spending is out of pocket, the new pricing regime has drawn some protest from patient’s rights groups, such as the Egyptian Initiative for Personal Rights (EIPR), which charge that the government colluded with multinationals to raise prices to unrealistic international levels. For example, according to the EIPR, a tablet of the heart medication Plavix now costs LE12 ($2.19) and its generic LE2 ($0.35). Under the new system, the generic will cost LE7.2 ($1.31).

However, others believe that this measure is essential to freeing up the pharmaceutical market in Egypt, and that companies will focus more on supplying drugs within the country if they have higher returns. Under the previous regime, many suppliers went through a lengthy process of product registration only to find that their medicine would be priced unacceptably low.

“We needed a clear pricing system. A straight line whereby you know and I know and the manufacturer knows upfront what the price is going to be,” Kamal Sabra, the assistant minister of pharmaceutical affairs, told local press. Critics of the regime ask where the money for higher-priced drugs is going is going to come from, when the country’s average per-capita income is just $1800.

Egypt’s pharmaceutical sector has made great strides towards becoming a leading regional exporter, but the same growth has not been mirrored in the domestic market. As pharmaceutical producers are not NGOs and will focus on selling where they can turn more profit, a further restructuring of the price regime may be needed to ensure that Egypt’s population receives the medication it needs.

Global Arab Network

This article is published in partnership with Oxford Business Group

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