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Crisis of Egypt's pharmaceuticals
Published in Al-Ahram Weekly on 04 - 04 - 2016

Ahmed looks for the medicine the doctor has prescribed for his five-year-old son in the area around the doctor's clinic in downtown Cairo, but no pharmacy has it. He goes back to the doctor for an alternative prescription, but he can't fill that one either. He searches around his own neighbourhood in Giza, but has no luck finding either.
His pharmacist neighbour advises him to buy an imported alternative. It costs LE50 compared to LE20 for the local product, but in the end he is forced to buy it to save the life of his son, who has been running a high fever for four days.
Um Sayed, a doorwoman, has failed to find the allergy medicine that keeps her sick son's allergy at bay, though it costs just LE5. She has asked her neighbours to look for it outside their neighbourhood in Boulaq Al-Dakrour, but they have not been able to find it or the alternative drug either. As a result, her son has had to live with his chest allergy, even though it can be easily treated.
Ahmed and Um Sayed are just two people affected by the critical shortage of pharmaceuticals in Egypt, which Nayira, another affected person, describes as “crushing”. Nayira, a civil servant and the mother of two children, told Al-Ahram Weekly that a few years ago she had trouble buying medicine for her children or other family members but had eventually found it. A few months ago, it started to become impossible to find the drugs she needs, however, especially the low-cost ones that deal with common ailments like colds or throat congestion and eye and ear drops.
Pharmaceuticals are disappearing from the Egyptian market, only to return at higher prices. “Shortages of adult medicines are greater, but even so pediatricians and pediatric hospitals are also facing drug shortages,” says Nabil Abdel-Aziz, a professor of pediatric medicine at Cairo University and the former director of the Abul-Reesh Pediatric Hospital in Cairo.
He told the Weekly that the drug shortages were particularly acute for medicines for chronic illnesses, like some baby formulas used by children with genetic diseases such as sickle-cell anemia. Hospitals, too, are facing a shortage of albumin for immune diseases without which some children can be paralysed and blood thinners.
While the latter shortages may not be a catastrophic problem, as there are alternative medicines, these may not have the same effect as the originals. Even when the latter find their way back to the pharmacies, they often do so at a higher price.
In its December bulletin, the Ministry of Health and Population said there were alternatives or generic equivalents for 189 pharmaceuticals currently experiencing shortages, but it advised people to consult a doctor before using the available alternatives. The ministry said that there were also shortages of 43 drug types with no available alternatives on the market.
However, anyone taking a tour of local pharmacies will find Ministry of Health numbers do not represent the true scope of the shortages.
According to Osama Rustum, vice-president of the Pharmaceutical Industry Chamber in Egypt, in an interview with Reuters in February, there were shortages of 180 critical drug types with no available alternatives or generic equivalents on the market, as well as of some 1,600 other branded medications. These numbers, he said, were based on data from a number of pharmacies.
Mohamed Mabrouk, executive president of Pharmed Pharmaceuticals, said that the primary reason for the drug shortages was that the companies had stopped producing pharmaceuticals that are loss-makers. The problem has grown worse as the price of the dollar has spiked even as the government continues its policy of setting drug prices. With increases in the cost of materials, production, and the energy needed to run factories, companies are no longer able to produce low-priced medicines.
Mabrouk told the Weekly that the scarcity of dollars had also affected pharmaceutical companies seeking to open lines of credit. As a result of shortages of hard currency, the banks have stopped extending credit, leaving this to the state-owned banks such as the National Bank of Egypt, Banque Misr, and Banque du Caire, but the drug companies must wait their turn among the crush of other importers. This has resulted in delays in the import of the raw materials that the industry needs to produce medicines.
Egypt is facing a severe dollar crunch that for months has been the principal economic crisis facing the country. It is this crisis that led to the ouster of Central Bank of Egypt (CBE) governor Hisham Ramez, due to pressure from businessmen and importers following decisions he made to set limits on the country's foreign currency reserves. Currently standing at $16 billion, these are enough to cover just three months of imports.
The crash of the Russian plane in Sinai in October struck a heavy blow to tourism in Egypt, a major source of hard currency. In the wake of the crash, former finance minister Hani Qadri announced in Abu Dhabi that the incident would affect growth projections for the current fiscal year ending in June. Projected growth was revised downward from five per cent to four per cent, while the projected budget deficit increased from 8.9 per cent to above 11 per cent.
Hard currency ordeal: For more than a year now, Egypt has been in a downward dollar spiral. Because of it, the state has taken measures that will have a negative impact on already high consumer prices, including inflation and import restrictions.
A few weeks ago, the CBE also took the sudden step of lowering the price of the pound by LE1.12 to the dollar, bringing the official exchange rate to nearly LE9 to $1. But the price of the dollar continued to climb in the black market, now the principal source of hard currency for companies, passing the LE10 mark. This raises production costs to unpredictable levels in all sectors, including the pharmaceutical sector, say producers, including drug producers.
The CBE's exceptional dollar auctions, held to cover the import of basic needs such as pharmaceuticals, have not alleviated pressure on the industry, which Mabrouk believes is a priority that is even more important than the food industry. Nor has the Finance Ministry's recent measures to expedite customs clearances for necessary drugs resolved the crisis.
The CBE held three exceptional currency auctions, each for nearly $200 million, in ten days, concluding with a tender of $1.5 billion. But after the auctions, the CBE required the banks that bought the dollars to again deposit them with the CBE, earning a rate of interest of 1.23 per cent and thus signaling to the currency market that foreign currency levels were insufficient.
“A factory doesn't simply suspend a production line of its own accord,” says Mabrouk. “It must be forced to do so.” Mabrouk says that Egypt's drug-pricing policy must be reconsidered, not only because of the increasing cost of raw materials, but also because of employee wages and other labour needs.
The state sets pharmaceutical prices in the Egyptian market at certain limits, guaranteeing a margin of profit for both the producer and pharmacy in order to maintain the prices of medicine within limits appropriate to the modest purchasing power of the vast majority of the population.
Magdi Alba, a member of the Pharmaceutical Industry Chamber, previously told the Weekly that this system threatened the pharmaceutical industry in Egypt, since prices have not moved in nearly a decade. Alba said the $30 billion industry was divided between state-owned companies (four per cent) and foreign companies (51 per cent), with more than 60 private companies and some 1,000 third-party producers accounting for the rest of the market. Another 80 factories are currently under establishment. The sector also exports products worth $200 million annually.
Pharmaceuticals producers have attempted to resolve the problem in past years in many ways, none of which have been successful, despite a ruling by the High Administrative Court in May 2011 upholding the decision of Hatem Al-Gabali, the health minister in the last government of former president Hosni Mubarak, to liberalise the prices of Egyptian pharmaceuticals by pegging them to global prices.
The High Administrative Court overturned the ruling of the first-instance court that had cancelled the decision following a lawsuit by the Egyptian Initiative for Personal Rights (EIPR), an NGO, challenging the ministerial decree. The EIPR argued that the right to medical treatment was a basic right and that the new pricing regime would arbitrarily infringe the rights of Egyptian citizens to obtain pharmaceuticals at Egyptian, rather than global, market prices. Al-Gabali appealed the first-instance ruling on the grounds that it contravened the public interest.
Nevertheless, the situation continued as if the ruling had not been issued until 2012 when officials made another attempt to appease producers while also maintaining the low prices of pharmaceuticals. The minister of health issued decree 499 which required companies seeking to register their drugs with the Ministry of Health to submit a list with the purchase price of the drug in countries where it is available inclusive of all discounts.
The Central Directorate for Pharmaceutical Affairs would then contact the competent government bodies in 36 nations to compare the price of the drug proposed for sale in Egypt, and it would be sold in Egypt based on the lowest commercial price in these 36 nations. The decree also allowed for a review of medication pricing if the average price of the pound changed by 15 per cent in either direction within one year.
The 36 countries named for comparison purposes include Austria, Bulgaria, Cyprus, Denmark, Finland, France, Germany, Greece, the Netherlands, Hungary, Ireland, Italy, Poland, Norway, Portugal, Sweden, Spain, Switzerland, the UK, Turkey, Saudi Arabia, the UAE, Kuwait, Oman, Iran, Lebanon, Sudan, the Philippines, Morocco, Argentina, Algeria, Canada, and Japan.
The decree set a margin of profit for the distributor and pharmacy selling the drugs listed on the essential drug list, being those that are most important and most in demand in Egypt, giving the distributor a profit of 7.86 per cent of the factory cost and the pharmacy 25 per cent of the distributor cost.
Price increases of pharmaceuticals: Pressure from producers, as well as losses at the state-owned public-sector companies, prompted the drug-pricing committee at the Ministry of Health to raise the prices of 52 drug types produced in Egypt.
Several media outlets reported that the ministry was on the verge of raising the prices of numerous drug types, but a ministry official who requested anonymity told the Weekly that “successive ministries since Al-Gabali's time and even before that have tried to make such a decision, but thus far they have shied away from doing so, even though some producers have begun to raise the price of some products unofficially.”
Commenting on the crisis, Walaa Farouk, director of the health ministry's subsidies directorate, told the press that drugs in short supply “change and due to different reasons. Some companies are cutting production because the drug is a loss-maker at the current price in the light of the increasing price of the dollar.” She said that some companies had ceased production of some medications altogether because of severe losses.
“The companies are asking for pricing changes, and the matter is under consideration. The ministry is working on it, and we have in fact raised the prices of some medications. Sometimes there is a shortage of drugs because the company cannot import the raw materials because it can't come up with the hard currency to do so,” she said.
“It is not true that low-priced drugs are the only ones experiencing shortages in Egypt. There is a shortage of some imported pharmaceuticals as well because the producer sells the drugs in other countries at a price higher than in Egypt and then send us the leftovers, which are not enough to meet local consumption,” Farouk said, adding that most vital drugs, especially blood products and cancer drugs, are imported because they are difficult to manufacture in Egypt.
According to Farouk, some 14,000 pharmaceuticals are registered in Egypt, while only about half of them are in fact available on the market because some companies register drugs and then do not produce them. If they do not produce them within a year of licensing, the license is revoked.
State-owned pharmaceutical companies produce some 1,000 drug types priced at less than LE10. The equivalents of these drugs produced by private companies can be as much as LE50. Naturally, these state-owned companies have faced major problems recently that have affected their products and threatened to derail investment and development plans. All told, the companies lost LE154 million in the last fiscal year. Their number shrunk to just nine after several went bankrupt, and there has been little development in the industry for more than 25 years.
Sabri Al-Tawila, chair of the pharmaceuticals industry committee at the Pharmacy Syndicate, told Reuters that the commercial pharmaceuticals market in Egypt was worth nearly LE36 billion annually. “We import about 30 per cent of this, or LE12 billion, in raw and other materials used in the manufacture of drugs,” he said. “The problem is with the raw materials, given the increase in the price of the dollar and dollar scarcity.”
He said that the syndicate had officially asked the ministry to increase the prices of medications made by the public sector specifically because these drugs were extremely cheap and had been priced in the early 1990s when the exchange rate was LE2 to the dollar. “Before, we would pay for raw materials by depositing letters of guarantee and then importing the raw materials, paying only part of the total, but now the entire amount must be paid in full before the shipment is sent because the problems of the Egyptian economy have had a negative impact on transactions with foreign countries,” Al-Tawila said.
Pharmaceutical companies in Egypt import most of their raw materials from countries such as China, India, Germany, Switzerland, Denmark, and the US.
Osama Rustum, vice-president of the Pharmaceutical Industry Chamber and vice-chairman of a pharmaceuticals company, criticised Egypt's drug-pricing policy. “Pharmaceuticals are the only good in Egypt that is priced by fiat and is not subsidised by the ministry. Prices can't be changed, although costs have increased due to the increasing price of hard currency. So companies have two choices: they can stop producing the medication at a total loss, or they can reduce production. There will be a problem in obtaining medications until prices move,” he said.
Another source at a multinational company who requested anonymity told the Weekly that “the crisis is out of control. There is no longer a profit margin that can keep us in Egypt. This crisis has put an end to the company's expansion, especially since we can't find the foreign currency that can allow us to meet production needs.”
Many producers believe that the current drug-pricing regime does not only threaten the industry, but also national security as well. The availability of pharmaceuticals lies at the core of state sovereignty and aims to prevent foreign nations from controlling the health and lives of Egyptians.
Some say that the industry must prepare for another hike in the prices of the active ingredients in new drugs subject to the terms of the World Trade Organisation's TRIPS Agreement, which provides 20-year patent protection for drugs.
Egypt, a member of the WTO, began implementing TRIPS in January 2005. Thus far, about 90 per cent of medications produced in Egypt are not subject to the agreement as their patent protections have long expired, but the agreement is expected to have negative consequences for new pharmaceutical products, especially drugs that treat serious illness like cancer and immunodeficiency diseases. Companies that want to produce these drugs in Egypt will have to pay enormous sums to the patent holders.
Health insurance: Various parties are working to shift the duty to provide drugs to others, while still seeking a share of the sector's spoils.
Producers are fighting for higher prices, while civil society organisations are often on the opposite front, accusing them of greed and chasing profits even at the expense of essential medicines. The state is squeezed by its weak capacity and inability to make decisions. While it appears to be leaning toward the producers, it fears a confrontation that could have major consequences.
Despite the long, bitter conflict between these parties, their representatives have agreed on a solution to the crisis: a fair health insurance system in which the state would shoulder the responsibility of subsidising the health of the poor and guaranteeing the availability of medicines. “It is not the producer's role to subsidise medicines for the poor,” commented one manufacturer.
Successive governments have worked on a new health insurance law, but none have managed to pass one. The Health Ministry has completed the drafting of another such law (the system it establishes comes with an estimated LE100 billion price tag). The law was scheduled to be put to the House of Representatives at the beginning of this session, Mohamed Moayat, a former financial advisor to the Minister of Health, told the Weekly.
The last health insurance bill, with an implementation cost of LE80 billion, was rejected by civil society organisations because they said it sought to “privatise” the health insurance market, which would increase premiums and co-payments for citizens. The new bill is likely to face the same opposition.
Magdi Alba previously told the Weekly that it would be impossible to apply a law with such a costly budget all at once given the struggling economy, but it could be applied in stages, starting with the poorest people and incrementally expanding the system to cover the whole of society. Currently, the government health insurance system covers 50 per cent of the population, but it is of poor quality, prompting many patients to seek treatment at their own expense.

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