Sectoral Survey

Pharmaceutical Industry
in Egypt









November 2010




Sectoral survey:
Pharmaceutical Industry

2


I ndex

Page

1. Introduction 3
2. Definition 4
3. Regulatory framework 4

3.1.Regulatory body
3.2.Pricing
3.3.TRIPS

4. Market analysis 7

4.1.Market structure
4.2.Consumption
4.3.Production
4.4.Key players



5. Trade

5.1.Exports
5.2.Imports
5.3.Balance of trade


9
6. SWOT analysis 11
7. Outlook 12
8. Recommendations 13
9. Conclusion 13
Appendix

References









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1- Introduction
Producing medicine is a strategic industry due to its importance on the social level and significant role in
protecting the human health. Billions of dollars are annually invested in research and development around
the world to support this industry aiming to increase human's ability to face different kinds of diseases
which is obviously reflected in the rising life expectancy for people especially in industrial countries
where medicine production is highly concentrated in those countries .This industry has started in Egypt
with Tal'at Harb and the establishment of the first Egyptian pharmaceutical company in 1939 under the
name of "Misr Company for Pharmaceuticals" believing in the strategic importance of a strong national
pharmaceutical industry. It has undergone many changes along the history witnessing a wide variation in
the key players controlling the market, attracting many investments to that growing field that forms about
30% of the pharmaceuticals supply in the MENA market, according to the American Chamber of
Commerce in Egypt. So, this paper is spotting the main features of the pharmaceutical sector including
demand, supply, patterns of trade and regulatory framework that organizes the sector. The paper also
tackles strengths of the sector and particularly after liberalizing the industry, introducing an efficient
registration system for new medicines and other factors that have collectively helped to make a leap in the
performance of this sector. However, it also mentions pessimistic views consider some threats
endangering that sector like the new pricing system the Ministry of Health wants to adopt and the TRIPS
agreement that may negatively affect the pharmaceutical industry in Egypt.








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2- Definition
The pharmaceutical industry develops, produces and markets drugs licensed for use as medication. There
are different categories of medicine like:
* OTC pharmaceuticals and prescription drugs
Over The Counter (OTC) pharmaceuticals can be taken with no need to a prescription in contrast to
prescription drugs.
* Patented and generic medicine
Patented medicine is the original one that is firstly produced and generic medicine is the copy of the
original medicine. Patents form the major percentage of the value of drug demand. On the other hand,
generic medicine represented 60.2% of the value of the pharmaceutical sector in 2008.
* Biologics & biosimilars
Biological medicines are produced using biological processes and biosimilar medicines are copies of
original biological medicines.
3- Regulatory framework
3/1) Regulatory body
The Egyptian Drug Authority (EDA), follows the Ministry of Health, is the regulatory body responsible
for overseeing the pharmaceutical sector. Moreover, there are three sub-organizations follows EDA:
* The Central Administration of Pharmaceutical Affairs (CAPA) that is responsible for administrative
regulations.
* National Organization for Drug Control & Research (NODCAR) to supervise drugs.
* National Organization for Research & Control of Biologics (NORCB) to control biologics meeting the
WHO requirements and international standards.

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3/2) Pricing
Before September 2009, the Pricing Committee in the Ministry of Health was determining the profit
margin ceiling for different types of medicine through the "cost plus system". The profit margin ceiling
was 15% for essential drugs, 25% for non-essential drugs and 40% for over-the-counter drugs. According
to its new vision, the Ministry of Health has declared the decision 373 for the year 2009 that sets up two
new pricing systems for the registration of new medicines in the market, one for branded pharmaceuticals
and the other for generic drugs. The first system determines the price of branded drugs to be 10% lower
than the cheapest retail price of the medicine in 36 countries in which the drug is available; however, this
does not mean that the drug should be registered in all the 36 countries.
Second, the price of generic drugs will be decreased by a fixed percentage of branded drugs price, and
therefore is expected to increase compared to its previous prices that were cheaper by 80% and 90% than
branded drugs as follows:
- The price of generic drugs produced by companies licensed by the Ministry of Health and certified by
international agencies would be decreased by 30%.

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- The price of generic drugs produced by companies licensed by only the Ministry of Health, the license
validity lasts till 2020 which is the due date to get international quality certifications for all plants,
would be decreased by 40%.
- The price of generic drugs produced by companies do not possess plants but using other plants would be
decreased by 60%.
However the court of administrative justice has stopped the implementation of the new decision on 27
th
of
April 2010 enforcing the Ministry of Health to re-implement the cost plus system in pricing, and the
Supreme Administrative Court will discuss the decision on 6
th
of December, 2010.
3/3) TRIPS (Trade-Related aspects of Intellectual Property rights)
The WTO's agreement on Trade-Related aspects of Intellectual Property rights tries to make the balance
between the long term social objective of providing incentives for future inventions and creations and the
short term goal of allowing people to use existing innovations. It's important to say that the agreement
covers a wide range of fields ranging from copyrights and trademarks to integrated circuit designs and
trade secrets. Thus, patents for pharmaceuticals are part of the agreement. In 1994, Egypt has signed the
WTO TRIPS agreement, "A patent only gives an inventor the right to prevent others from using, making
or selling the patented invention. Patent protection has to last at least 20 years from the date the patent
application was filed to protect the producer .However, It says nothing about whether the product is safe
for consumers and whether it can be supplied." On the other hand, exceptions are made to reach the
previously mentioned balance including national emergencies, anti-competitive practices or short supplies
of the patent drugs. The Egyptian government was given till Jan. 2005 to apply the rules for protecting
medical patents; however, Pharma, the American drug association, has claimed that the Egypt law 82 for
the year 2002 could not apply the TRIPS perfectly specifying its deficiency in data and marketing rights
exclusivity.




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4- Market analysis
4/1) Market structure
Pharmaceutical companies operating in Egypt fall into three categories : public sector companies (12
companies are affiliates of Holdipharma previously known as Drug Holding Company D.H.C), private
sector Egyptian companies and multinational companies.
Before1990s, the sector was dominated by state-owned companies but this has changed with the
introduction of privatization program that has made the private sector take the highest share of the
production in the domestic market.
The number of pharmaceutical companies that have been established in the period between 1970 and
2009 is 291 companies including 212 Egyptian companies, 61 companies launched by a partnership
between Egyptians and foreigners and 18 international companies.
4/2) Consumption
Egypt is the largest consumer of pharmaceuticals in the MENA region with an annual increasing
pharmaceutical spending reaching about US $ 2.48bn, by the end of 2009, and experts forecast to
continue rising to reach about US $ 4.24 bn. by 2014 at a compound annual growth rate (CAGR) of
11.4%, although Egypt's pharmaceutical expenditure per capita is still one of the lowest in the region.
Production 4/3)
Annual production is recorded to be LE 15 bn. in 2009 with capital expenditure of LE 6 bn. In 2010, the
market size has reached US $ 4.1 bn. at retail prices or US $ 48 per capita which represents 1.9% of GDP
and 30.6% of health expenditure. Egypt has the largest drug manufacturing base in the MENA region
accounting for around 30% of the regional market. Local production covers around 93% of the market
with 7% made up of highly specialized pharmaceuticals not produced locally. Multinational corporations
account for about 30% of local sales through domestic manufacturing, and about 35% through licensing
agreements, while the remaining ratio represents generic medicines produced by local companies.

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This industry has a good potential for the future with investments keep increasing. The number of
pharmaceutical factories has increased from 90 factories in 2006 to 120 factories in 2010 with other 70
plants that are under construction.
4/4) Key players
- Private sector Egyptian companies producing generic products play a vital role in the domestic market
with Egyptian International Pharmaceutical Industries Company (EPICO) being the leading
manufacturer in the local market capturing about 8% share of the local pharmaceutical market and is
considered as the largest Arab pharmaceutical company. Moreover, EPICO is considered as a top
company in Cairo and Alexandria Stock Exchange, and one of Egypt's 100 largest exporters
accounting for about 20% of Egypt's total drug exports.
- Large multinationals as Glaxo Smith Kline (GSK) is the leading company in the Egyptian market with
9% of the market share. Sanofi-Aventis and Novartis are also among the top multinational
manufacturers in the market. Furthermore, multinationals like Pfizer, Servier, and Bristol- Myers are
active players in the pharmaceutical industry in Egypt.
- Holdipharma, the state owned producer, contributes with 1700 types of medicine, 42.1% of them are
sold in cheap prices, with LE 1.3 bn. as new investments every three years, bearing LE 0.5 bn. annual
losses because of its low prices. The total capital of Holdipharma and its affiliates is about LE 2 bn,
with a cumulative growth rate over the last five years 50%.









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5- Trade
5/1) Exports
Egyptian pharmaceutical exports have made great strides towards becoming a leading regional exporter.
They have witnessed an increase through the years 2003-2007; however, it was hit by the financial crisis
in 2008 decreasing by 31.7% reaching US $ 120.4 million. Retail medicaments formed the highest share
of exports with 85.7%. Semi-finished medicaments came in the second ranking with 9.3% then raw
materials and Antisera & vaccines came as 3.8% and 1.2% respectively. MEA, Middle East and Africa,
and EU were the leading destination for Egyptian exports and Yemen was the highest with 27.4% of total
exports.
Imports 5/2)
Imports have doubled since 2003 and continued to increase reaching US $ 1018.4 million in
2008.Similarly; retail medicaments formed the highest share of imports with 54.2%. Raw materials came
in the second ranking with 22.3%, Antisera & vaccines as 19.4% and Semi-finished medicaments as 4.2%
of total imports (See table 1 in the appendix). In 2008, Switzerland & Liechtenstein
[1]
was the leading
supplier overall, with US$232.8 million, equal to 22.9%of the total imports (See figure 1 in the
appendix).
5/3) Balance of trade
Between 2004 and 2008, the deficit in the balance of trade rose by a CAGR of 21.6%.The deficit has
increased by 17.4% compared to 2007 to reach US $898 m in 2008 with expectations of a continuity of
the deficit in the future.



[1]
Liechtenstein is a small country in Western Europe. Its area is about 61.7 square miles, and it has an estimated population of 35,000.



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Pharmaceutical Balance of Trade, 2004-2008 (US$000s)
2004 2005 2006 2007 2008
Raw materilas -145,612 -156,014 -168,019 -236,872 -222,338
Antisera & vaccines -67,232 -56,589 -66,161 -119,706 -196,079
Semi-finished
medicaments
-7,031 -3,125 -9,261 11,918 -31,294
Retail medicaments -190,179 -241,551 -295,150 -420,547 -448,302
Total -410,054 -457,279 -538,591 -789,043 -898,013

Source : INTRACEN


















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6- SWOT analysis
Weaknesses Strengths
-Limited research and development
expenditure.

- Depending on imported raw materials.

-The absence of strong allies in the local
market similar to successful international
merges between Glaxo Wellcome and
Smithkline or Pfizer and Warner Lambert
with more abilities to fund researches and
invading new markets.

-Fake or expired medicine sold in pharmacies.

-Very low GDP per capita and also the low
per capita consumption.

- Lack of effective patent legislation.

- Difficult access to new markets like
administrative and transportation problem in
some African countries.
- The new efficient registration system for
new medicines.

- The increasing size of the local market due
to increase in the country's population.

- The rising health awareness.
- The improvement in economic
performance and the enhancement in
individual's purchasing power.

- The entrance of multinational companies
to the local market with their massive
financial abilities and their introduction to
new technologies.

- The recent Ministry of Health's decision of
limiting the number of companies that
manufacture pharmaceuticals for other
companies to 32 instead of 120, seeking
more adoption of the international quality
standards in pharmaceutical production in
Egypt.








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Threats Opportunities
- The application of the TRIPS would increase the
medicine prices because of the need to get the
permission from the original inventor to
produce the medicine locally.

- Disputes about the pricing policy especially
after the administrative court decision to stop
the Ministry of Health new decision.

- Wrong ideas about the superiority of patented
and international medicine over generic and
locally produced ones although they undergo
the same evaluating processes.

- The difficult access to imported raw materials
after the advent of China and India as large
consumers for them.
- The government's plans to introduce a basic
health insurance that will extend its benefits
to more Egyptians.

- The growing health and pharmaceutical
expenditure.

- The ability to open new markets in Africa
through bi or multi-lateral agreements like
the COMESA for Egyptian medicine.

7- Outlook
It's expected that the industry will witness an increase in its value through the coming five years to reach
US $ 8 bn. in 2015 with an average CAGR of 14.3%.However, it will keep a consistent percentage of the
GDP ranging from 1.9-2.0 %.This increase is accompanied with the increase in health expenditure to
form 32.3% of the market value in 2015.Moreover, per capita share is anticipated to increase to be 86$ in
the same year.












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Projected Pharmaceutical Market, 2011-2015

2015 2014 2013 2012 2011
8 7 6.2 5.4 4.7 Value US$ billion
2 2 1.9 2 2 % GDP
32.3 31.6 30.8 31 31 % Health expenditure
86 77 69 61 54 Per capita (US$)
Source : ESPICOM.
8- Recommendations
- Decreasing the number of existing companies in order to establish more powerful merges able to fund
more research.
- Reducing taxes and tariffs on factors of production.
- Keeping the state existence in the local market avoiding total privatization of such vital sector not to be
only controlled by private companies.
- Media campaigns for more efficient personal use of drugs.
- The need for a unified health care system.
- Stronger Arab and African co-operation
9- Conclusion
Pharmaceutical industry in Egypt is boosting stimulated by many factors like the increasing size of the
market and the entrance of new investors to the market. The government seeks more liberalization for the
industry with less control over prices and more privatization for the sector. This industry faces many
challenges like the rising competition with international producers and poor healthcare system in Egypt.
However, many specialists have positive expectations that Egypt would become one of the leading
countries in that field.





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Appendix




















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(Table 1)

Pharmaceutical imports by Category in Egypt , 2004-2008 (US$000s)

04/08 CAGR
%
08 / 07
%Change
Total
%
2008 2007 2006 2005 2004
8.7 6.5 - 22.3 226 ,964 242 ,807 184 ,683
171 ,58
0
162 ,40
7
Raw Materials


30.8 63.1 19.4 197 ,501 121 ,094 67,499 60,404 67,565
Antisera &
Vaccines

20.9 36.2 4.2 42,461 31,179 27,429 24,855 19,862
Semi-Finished
Medicaments
21 0.9 54.2 551 ,462 546 ,457 394 ,615
322 ,96
4
257 ,11
3
Retail
Medicaments

19.1 8.2 100 1,018,388 941 ,537 674 ,226
579 ,80
3
506 ,94
7
Total


Source : INTRACEN


(Figure 1)



Source : INTRACEN



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