Industry Trend Analysis - Medicine Price Rise To Provide Some Relief For Drugmakers - MAR 2017

BMI View : Egyptian drugmakers will be given a boost as measures to raise the price of a number of essential medicines are imposed by the Ministry of Health. The agreement to include chronic disease treatments within the basket of drugs set for price increases has important implications for the population ' s access to long-term illness medications. Over the long-term, Egypt's medicine supply remains precarious, however, as conflicting interests between local drugmakers, distributors, patients and the Ministry of Health remain firm.

The decision by the Egyptian Ministry of Health (MoH) to raise the price of a number of medicines will provide some relief to domestic drugmakers in the country. In January 2017, the Egyptian Cabinet approved a price increase for 3,000 drugs, which according to Egypt's Minister of Health - Ahmed Emad - will be applied according to the type of medicine. This has since been confirmed by the Pharmaceuticals Division at the Federation of Egyptian Chamber of Commerce (FEDCOC), announcing that locally produced medicines and imported medicines would be subject to price increases of 15% and 20% respectively.

State Intervention Necessary

We have previously highlighted the impact of the devaluation in the Egyptian pound on the country's pharmaceutical industry ( see ' Domestic Drugmakers To Suffer From Currency Free-Float ' , November 22 2016). For the most part, a combination of inflationary pressures and a weaker local currency have made imports of pharmaceutical raw materials more expensive, hindering local manufacturers' profit margins and leading to a shortage of locally produced medicines. In November 2016, Egypt's Medicine Manufacturing Chamber announced that production costs rose by around 70% following the pound's devaluation. As a result, local manufacturers have been forced to halt production of certain generic products, and instead focus on the production of drugs that are more profitable - such as high margin medicines. Highlighting this, Hikma Pharmaceutical Industries lowered its full-year 2016 revenue guidance in November. During the company's latest financial report, Hikma attributed weaker-than-expected full-year results to currency headwinds in Egypt.

Drugmakers Suffer From Currency Free-Float
Egypt - Exchange Rate, EGP/USD
Source: Bloomberg, BMI

Less Restrictive Pricing

The recent move to raise select medicine prices highlights the Egyptian government's efforts to minimise the risk of essential drug shortages. It also represents a compromise between the MoH, regulatory bodies, and local pharmaceutical companies, which have been embroiled in ongoing negotiations over the acceptable level of increase in order to maintain the interests of Egyptian patients. The recent intervention follows on from the MoH's decision in May 2016 to raise the price rise for all Egyptian medicines priced up to EGP30 (USD3.38) by 20%. This included a large proportion of generic medicines, subject to an unfavourable pricing system in the past.

Over the long term, we expect that the government will be hesitant about significantly raising the price of a large number of medicines as their commitment to affordability will remain the top priority. It is worth mentioning that the MoH is looking to automate the management of pharmacies and speed up procedures in regards to the registration of drug licensing and pricing, as well as the drug supply chain project. These moves aim to solve the problem of drug shortages in hospitals and avoid medicine wastage.

Inclusion Of Chronic Disease Treatments

We highlight that the latest state intervention to raise medicine prices will include a small portion for chronic disease treatments. The Egyptian MoH announced that a maximum of 10% (around 300) medicines for chronic diseases will be included in the new pricing regime. According to Magdi Morshed, the head of Egypt's parliamentary Health Committee, many essential medicines used to treat chronic illnesses such as cancer, diabetes, heart disease, hypertension, and liver conditions are among those in short supply.