Who will benefit from new amendments to the drug pricing system, and why was it amended, Sherine Abdel-Razek asks None of the stakeholders was involved in its making, it will increase the price of drugs, encourage smuggling and will strip drug manufacturers of a chunk of their revenues: these are the main concerns raised against a new drug pricing formula that was announced last week. While the minister of health insists that the new system will not affect the price of local drugs, the new scheme, effective immediately, is seen by most observers as harmful to both consumers and pharmaceutical companies. The new formula amends a system introduced in 2009 that changed the way prices are determined from the cost-based formula to one linked to international prices. The 2009 decision was received also with uproar, for fear it would make drug prices dependent on market forces in other countries that have better macroeconomic conditions. Hatem El-Gabali, minister of health at the time, promised to revise the system a year after its implementation, according to its outcomes. "We have been working with the ministry and other related parties for the last six months to introduce amendments that won't harm either drug companies or the consumer. But the minister took us all by surprise by issuing the decree in its final form, including points that we never agreed upon," said Makram Mahana, head of the pharmaceutical manufacturers section in the Egyptian Federation of Industries. "None of the stakeholders knew about the final form of the amendments until they saw it in the newspapers -- even the Doctors' Syndicate, which by law should be represented in the drug pricing committee, was not involved," said Ahmed Abdel-Ghani, pharmaceutical sector analyst at CI Capital. "I contacted many pharmaceutical companies as well as officials in involved ministries to discuss the implications of the changes with them. Each time I got the same reply: no one consulted or informed us about the new system in its end form," added Abdel-Ghani. According to the new decree, new drugs will be priced at the lowest international price minus 10 per cent, versus the previous system of pricing at a discount to a basket of 36 countries. The idea that the Ministry of Health will check the price of the drug in all countries producing it worldwide is not practical, and thus the end result would be depend only on a number of countries that might be different from Egypt on the economic level, according to Soha Abdel-Aty, assistant director of the Egyptian Initiative for Personal Rights (EIPR), one of the NGOs rejecting the amendments. The main problem from Abdel-Aty's point of view, however, is related to the price of generic drugs that are alternatives to brand named drugs after the latter's patent expires. According to the new system, the price of these drugs must remain 35-40 per cent lower than the original medicine's price. "No country worldwide links the price of the generic drug to the original, as normally the discrepancy between the two is huge and can reach 80-90 per cent in some cases," said Abdel-Aty who expects this to substantially push up the price of drugs in the coming period. It does not end there. The decree determines profit margins for distributors at almost eight per cent of the ex-factory price. Moreover, it will increase the profit margin for pharmacists on imported medicine from the current 20 per cent to 25 per cent, while increasing their profit on locally manufactured medicine from the current 10 per cent to 18 per cent over five years. To guarantee that distributors will meet their target profits, the amendments will force pharmaceutical companies to increase sales discounts to them, thereby lowering the profit margins of pharmaceutical companies to the benefit of retail parties, Egyptian International Pharmaceutical Industries Company (EIPICO) CFO Ali Ragheb was quoted as saying in a CI Capital note. Ragheb's fears are shared by many, with several pharmaceutical companies threatening to stop production of medicine, or to shift their activities to only importing medicine. Mahana points out that the decision adds more to the burdens of manufacturing companies that had to increase worker wages after post-revolution demonstrations and deal with the hike in water and electricity prices and the decline in the value of the Egyptian pound relative to the euro and dollar. "The sector now has at least 40 loss-making companies due to those burdens and to make things worse the new system will swallow two per cent of the sector's revenues in the first year. This translates to LE400 million in losses annually," Mahana said. Squeezing the margins of manufacturing companies would encourage more drug smuggling, as has been the case since the introduction of the 2009 amendments, according to Mahana. He insists that the pricing system that was introduced in 2009 harmed the sector. With prices in the local market so low, multinational companies stopped importing certain types of medicines sold in other markets at a higher price while there is demand for these drugs. So pharmacies and distributors started to use illegal ways to acquire the drugs and sell them at extremely high prices. "Such decisions are killing the local pharmaceutical industry," Mahana said. Most observers say that only pharmacies and distributors gain from the decision. Representatives of the Pharmacists' Syndicate convened Monday with a number of executives in drug manufacturing companies that are threatening to stop manufacturing, in order to convince them to accept the new decree. After the meeting a spokesperson of the syndicate criticised the companies' "greedy" attitude and threatened to take steps against them. Two anonymous sources told Al-Ahram Weekly that the step was taken to flirt with the �Pharmacists' Syndicate that is dominated by members of the Muslim Brotherhood, the group in political power now. Several attempts to reach a spokesperson of the Pharmacists' Syndicate for comment failed.
