CAIRO: Ministry of Health decree 373, which quietly came into effect in September, may be the Egyptian government’s sternest test yet of the palatability of economic reform it has been pursuing since the 1980s.
The decree introduces a significant change to the way that medicines are priced, by linking prices of both imported innovator brands and generic products to prices in the international market.
This is a huge step within the politically-sensitive pharmaceutical sector itself – one of few sectors in Egypt where prices are government-controlled. An estimated 68 percent of Egypt’s 80 million population, pay for medicines out of their own pocket and the average per capita annual income is $1,800.
The American Chamber of Commerce estimates that the Middle East pharmaceutical market will surpass $21 billion by 2010. Egypt is the third largest market in the region after Turkey and Saudi Arabia. Private sector sales constitute 92.4 percent of this market.
The decree introduces two new pricing regimes, one for innovator brands, and another for generics.
A pharmaceutical company applying to register an innovator brand must inform the Ministry of Health’s Central Administration for Pharmaceutical Affairs of the price for which the product is sold globally.
A further 10 percent is then subtracted from this figure. It is this 10 percent deduction that is at the core of pharmaceutical companies’ objection to the new decree.
Discussion surrounding the new decree has tended to posit that the debate is between multinationals who back the changes and patient rights’ advocates who oppose them, for allegedly undermines the rights to health and access to medicine.
“Everyone thinks that this decree has been designed for companies, but this is not true at all. The multinationals have never opted for this decree, said Amre Mamdouh, chairman of GlaxoSmithKline in Egypt, the largest producer in the country’s pharmaceutical sector.
Assistant Minister for Pharmaceutical Affairs Kamal Sabra, acknowledged in a telephone interview with Daily News Egypt that multinational pharmaceutical companies “have been writing to the minister [of health] vehemently objecting to the new model.
This objection centers on the 10 percent reduction.
“At the end of the day you need to treat pharmaceutical companies – whether they’re local or multinationals – as an economic establishment. They’re not not-for-profit organizations. Some oxygen is needed, Ahmed El-Hakim, a consultant to pharmaceutical companies, said in criticism of the decree.
“We have to be realistic. We have to go for a price that is in parity with countries that have more or less the same socio-economic conditions as Egypt. But going that aggressively [by subtracting the 10 percent].I think it will be a key obstacle to introducing new products here.
Both El-Hakim and Mamdouh made reference to what they termed the problem of the “vicious circle, where reduced medicine prices in Egypt will lead to neighboring countries demanding similar reductions.
Sabra defends the decision to introduce the 10 percent deduction. “We didn’t come up with the 10 percent out of the blue. Obviously we tried -1 percent, -2 percent, and we came up with 10 percent. The 10 percent was to guarantee us that the new prices would be cheaper than the old model.
What does the decree seek to achieve?
“We needed a clear system. A straight line whereby you know and I know and the manufacturer knows upfront what the price is going to be, Sabra said.
“Companies used to go in and license a product and go through a costly and time-consuming process and in the very end they refuse the price. So you have a product that is licensed and not priced, he explained. “So now we say, OK, now you can actually judge upfront. If that price doesn’t suit you don’t go through the process and waste our time and your time. It doesn’t need committees and sub-committees and all that.
Egypt is the largest consumer of pharmaceuticals in volume terms in the Middle East.
While, as Business Monitor International points out, “the Egyptian market is potentially lucrative for foreign firms due to the size of the population, current low consumer spending on drugs and the access that Egypt’s location gives to markets in the Middle East and Africa, the drug registration process has made multinationals reluctant to register their products in Egypt.
Under the pricing system introduced in 1991, the prices of imported products were based on the production cost of the product itself, plus percentage markups for additional costs.
Pharmaceutical companies complained of a lack of transparency within the process, an absence of clear guidelines that meant that the price obtained for their products was based on bargaining power rather than objective criteria – and which, they allege, allowed for corruption within the process.
On the other side of the bargaining table, Sabra contends that the new pricing system for originator drugs is no different from that which existed under the 1991 decree – with the difference that under decree 373 he is “challenging the inability of the ministry of health to verify data presented by pharmaceutical companies during the registration process.
“What these people [critics of the new system] don’t understand is that when a company brings in a drug [under the 1991 decree] that’s how it’s priced. It’s priced according to what the company gives me, because it’s a brand; I can’t compare it with anything, Sabra said.
“If Pfizer for example brings a new drug to us, the pricing committee gets a certificate from the company saying, ‘this is the price of the raw materials, this is the price of this that or the other’. And I can’t authenticate it because they’re the owner of that drug; I have to take their figures. If they say ‘it cost me ?1,000 to produce this’, I have to accept that.
“Now, I’m challenging that. I want to see where it is licensed, how much it is licensed for. I no longer accept the figures you’re giving me and take it as given. I’ve taken the benefits of all the [pricing] systems across the world and then taking 10 percent off on top of that.
Access to medicine undermined
The Egyptian Initiative for Personal Rights (EIPR) sees things differently.
Last month it launched a case calling for the annulment of the decree on the grounds that the minister of health has exceeded his powers by introducing a fundamental change that undermines the right to health, as guaranteed by the constitution.
EIPR researcher Dina Iskander contends that in linking drug prices in Egypt to prices in the international market “just like any other product the decree will have a “catastrophic effect on access to medicines.
Decree 373 includes a table of 36 “reference countries. Under Article 2 of the decree, after the pharmaceutical company submits its list of the prices for which its product is sold in these countries, the Central Administration for Pharmaceutical Affairs “addresses the relevant governmental authorities in the  countries listed in order to verify the prices submitted.
Countries listed include Sweden, Austria, Finland and Switzerland.
Only two of the countries on the list have a per capita income lower than that of Egypt. While Egypt is ranked at 147 out of the 210 countries in the World Bank’s list of per capita income, the average per capita income of the 36 reference countries is 16 times that of Egypt’s.
This means, EIPR says, that drug prices in Egypt will be based on prices in countries where per capita income is on average 900 percent higher than Egypt’s.
Sabra categorically rejects this point, insisting that prices will decrease under the new system.
“The decree does not limit pricing only to the 36 reference countries. It states that the price is set according to ‘the lowest price for which the product is sold to the public in all the countries in which it is marketed’, and on top of that we take 10 percent off, the assistant minister said.
The question remains however, how many pharmaceutical co
mpanies are prepared to invest millions of dollars in research and development of a new drug and then market it in countries whose average per capita income renders it off limits for the majority of the population.
EIPR warns that there is nothing in the new system to prevent pharmaceutical companies from only putting a new drug on the market in high-income countries before registering it in Egypt – thereby guaranteeing that the product is sold for an exorbitant price in Egyptian terms.
“I still can’t understand the reason for the decree, pharmacist Abdel Aziz Saleh former deputy director of the World Health Organization, said during a Pharmacists’ Syndicate seminar held last month.
“The price drugs are sold for includes various markups. Why do you want the end user price? Why do you want to make Egyptian patients pay a 60 percent or 70 percent markup? Why not use the factory price? he asked.
Saleh told Al-Shorouk daily last month that pricing powers should remain with the Ministry of Health, because “it knows best about economic conditions in Egypt.
Saleh questioned how the prices for which medicines are sold abroad are set, and suggested that the Ministry of Health should exert more effort on making the pricing system less complicated rather than resorting to importing a system from abroad.
During the same seminar EIPR director Hossam Bahgat questioned the logic of “relying entirely on data supplied by pharmaceutical companies – “the same companies which the ministry of health said used to give false information under the previous system – and wondered how information provided by companies will be verified.
Asked about this point, Sabra told Daily News Egypt that the Ministry of Health has “direct communication with equivalent bodies around the world, and that it “trusts that what the pharmaceutical company is giving us is the truth.
“If it isn’t, then obviously that’s forgery and there are legal issues, Sabra added. The decree does not, however, lay down any criminal penalties for companies that provide false information.
EIPR points out, however, that some countries do not have compulsory drug pricing mechanisms; the state does not have a hand in the pricing process, making verifying drug prices extremely difficult.
Read tomorrow’s paper for investigation of generic products pricing in the pharmaceutical industry in Egypt.