The Pharmaceuticals, Cosmetics, and Appliances Chamber of the Federation of Egyptian Industries (FEI) has presented a new proposal to the Ministry of Health to solve the crisis of increased production costs, which the pharmaceutical sector has been facing since the decision made by the Central Bank of Egypt (CBE) to float the Egyptian pound in November.
Gamal El-Leithy, a member of the chamber, told Daily News Egypt that the proposal includes increasing the prices of 15% of all medications by 50% of the retail value every six months, starting from next year. The value of the US dollar is expected to remain stable.
Last week the Minister of Health and Population Ahmed Emad El-Din made a proposal to several foreign and local companies to increase the price of 10% of all medications every six months by 50% of the increase in the value of the dollar following the flotation of the Egyptian pound. The minister also pledged he would reduce some of the indirect costs borne by the industry, including gas, water, electricity, custom fees, and the value-added tax.
El-Leithy explained that the chamber’s proposal is considered a modification of the rejected proposal made by the Health Minister which is aimed at helping companies to overcome current financial difficulties.
“Increasing the prices of pharmaceuticals right now will be difficult for the patients, so companies decided to carry out a partial or gradual increase so that the prices of 90% the products will be increased within three years,” El-Leithy said. “The prices of basic medications for chronic illnesses will not be increased.”
The chamber seeks to convince the Health Ministry to reduce the period of time between the first and second movement of prices to only three months, instead of six months, in order to reduce the burdens on companies.
El-Leithy said that the direct costs of pharmaceutical factories have increased by 100% since the pound’s flotation. Indirect costs such as electricity, gas, customs, and taxes on industry inputs have also increased. He explained that the government’s support of the indirect costs would save15% of total production costs for companies, and would help them continue their production if it syncs with the partial movement of pharmaceutical prices.
El-Leithy said that the increase in production costs began before the pound’s flotation. The increase began, he added, when the US dollar reached EGP 18 on the unofficial market in October and official foreign reserves were scarce.
Pharmaceutical companies have been dealing with a pricing crisis for years, especially because the majority of traded products were priced when the dollar was equivalent to EGP 3.40. Since the increase, companies began to suffer from losses; due to the fact that 99% of the industry’s inputs are imported.
El-Leithy added that the large increase in the dollar price has forced pharmaceutical manufacturers to reduce production capacity by 20% in October, 50% in November, and 60% in December.
El-Leithy also demanded the Health Ministry intervene in order to solve the crisis so that companies can continue their production.
El-Leithy described the statements of the Health Minister that pharmaceutical companies’ profits exceed 400% as incorrect and harmful to the public perception of these companies. “Pharmaceuticals are a matter of national security, and speaking about them must be done wisely and objectively,” he added.
El-Leithy said that companies didn’t register the high profit margins announced by the minister of health, and called on the minister to review budgets of companies that are registered with the General Authority for Investment and Free Zones (GAFI).
He added that companies are investment entities that aim to make profits. The price of their goods and services must include a profit margin that helps them continue to offer treatment. “What is happening now is an increase in production costs, causing companies to operate at a loss if they continue production, and the right climate must be fostered in order for companies to continue providing pharmaceutical products.
“The market includes 150 factories, 80 of which are registering profits that range between 5-10%, while 30% of the factories are registering losses, and only 40% achieved profits that range 10-22%, which means that the largest company’s profits does not exceed 22%,” El-Leithy said.
He added that under current circumstances, the profit margins for major pharmaceutical companies in Egypt would drop to 0.5% in 2017, compared to the 22% margins now.
There are roughly 50 factories operated by small- and medium-sized enterprises (SMEs). SMEs will continue to register losses at lower rates, and if solutions aren’t applied, they will be unable to bear the losses.
El-Leithy demanded the Ministry of Health sign the agreement to gradually increase the price of medications as soon as possible in order to maintain an adequate level of production. He added that this is particularly pertinent because most companies have a stock of raw materials that will only last until the end of January.
He said that companies are waiting for the agreement to start buying raw materials as soon as possible to secure the market’s needs. He added that companies will continue to produce until their supplies of raw materials are depleted.
El-Leithy pointed out that there are many alternatives to imported medication in the domestic market.
He stressed the importance of preserving the local pharmaceutical industry, which provides 85% of patients’ needs compared to imported medication, which only provides for the needs of 15% of the people.
The Egyptian market includes 150 medicine factories, 1,400 companies, and 20 foreign companies with investments worth EGP 250bn. The sector’s annual sales are estimated at EGP 31.7bn, excluding tenders.
El-Leithy explained that foreign companies operating in Egypt produce 35-40% of consumed medicines, compared to 60% in local private and public sector companies.
Foreign companies acquire 50% of pharmaceutical sector sales, compared to 45% to private companies and 5% to the business sector’s subsidiaries. According to El-Leithy’s predictions, the share of foreign companies will rise to 75% in the future.
El-Leithy believes that the Egyptian market is still attractive for investment in the pharmaceutical sector provided there is a consistent and flexible pricing system which allows medicine prices to change.
In addition to establishing a supreme authority to be responsible for medicine registration, pricing, and export, implementing a comprehensive social health insurance system provides real social guarantees for poor people. This would allow companies to invest more and would open the doors to modifying the laws that regulate medicine registration.
El-Leithy expects the pharmaceutical domestic market’s sales, including tenders, to register EGP 50bn by the end of 2016.
He said that the sales growth rate ranges between 12-14%, while the growth rate of produced units ranges from 5-6%.
He added that the EGP 50bn in sales value, when comparing to the population, means that the individual spends roughly EGP 500 on medication annually, which is EGP 41 a month.
El-Leithy called for the establishment of a raw-materials factory in Egypt, funded by the armed forces, because it is the only authority that would be able to provide finances in the current economic climate.
He noted that liberating medicine prices is not an option at the moment; however, in the long run it could be applied once Egypt has a comprehensive health insurance system.
El-Leithy said that companies are planning on pulling expired medication from circulation in pharmacies by January. Expired medication, he said, threatens the lives of many patients, and is the responsibility of pharmaceutical companies to collect and dispose of expired medication.