The Egyptian government has announced that a timeline has been created for the implementation of the country's new international reference pricing system, which will replace the current cost plus system.
IHS Global Insight perspective | |
Significance | In an effort to combat historically low prices which have resulted in poor investment in research and development activities as well as a reliance on imports of active pharmaceutical ingredients and more complex products, the Egyptian government is soon to roll out a new international reference pricing system. |
Implications | Higher prices will probably result in growth for domestic Egyptian pharmaceutical companies, with international companies seeing increased competition from domestic players. |
Outlook | Short-term affects will be negative for many patients who may struggle to afford higher priced drugs. However, increased funds for domestic – and often state–owned – pharma companies will probably boost health coverage in the long term. |
The Egyptian assistant health minister, Ibrahim Mostafa, has announced that a new international reference pricing (IRP) system is imminently due to come into force in the country, according to local media reports. The minister went on to state that pharmaceutical companies have been given deadlines for the implementation and adoption of the new pricing regulations which were announced in July under Ministerial Decree No.499 of 2012 (see document, here, in Arabic). Parties likely to benefit from the measures have protested, calling for a rapid implementation of the new pricing system.
Under the new measures drug prices will be calculated by collecting price data from 36 countries and then applying a discount of 10% to the lowest found prices. The countries to be referenced include: Algeria, Austria, Argentina, Bahrain, Belgium, Canada, Cyprus, Denmark, Saudi Arabia, Finland, France, Germany, Greece, Holland, Hungary, Ireland, Italy, Japan, Jordan, Kuwait, Iran, Norway, Oman, Portugal, Lebanon, Spain, Sweden, Switzerland, United Arab Emirates, the United Kingdom, Turkey, Poland, Sudan, India, the Philippines, and Morocco.
This IRP system replaces the old cost plus system. Under the cost plus system, drug prices were calculated by determining the cost of manufacturing and producing the product and then adding a value to provide a profit element. Despite the calculation to provide a profit element, Egyptian prices remained some of the lowest in the world. Prices have historically been arbitrarily reduced or adjusted dependent on the needs of the country, with little consideration for financial difficulties that domestic companies may be facing as a result of low prices.
The Egyptian government has been keen to suggest that the new measures are not new and are in fact adapted measures that were introduced by the previous administration in 2009. In 2009, the measures proved unpopular with court action by several non-governmental organisations (NGOs) temporarily halting the move. A subsequent appeal by the government led to the successful progression of the measures, only for these to be again halted by political instability.
Outlook and implications
Although the largest pharmaceutical market in the Middle East-North Africa region, existing pricing mechanisms have meant that prices have typically remained some of the lowest in the world, with this resulting in starvation of funding for domestic pharmaceutical companies. The introduction of the new pricing system, and the expected increase in prices, is therefore good news for domestic Egyptian companies seeking funding. This funding will likely be used towards measures such as increasing research and development (R&D) spend, from the Egyptian industry average of less-than 1% of earnings, or internalising active pharmaceutical ingredient (API) manufacturing away from imports. In addition, many of the top Egyptian pharmaceutical companies are state owned, by increasing funding the Egyptian government is therefore able to move away from costly subsidisation of the industry.
The lack of R&D funding has resulted in the Egyptian market being largely reliant on international pharmaceutical companies for more complex products, resulting in higher costs. For the treatment of hepatitis C virus (HCV) – Egypt having the largest prevalence of HCV in the world (some estimates suggest up to 50% prevalence in certain demographics) – only three Egyptian companies have the capabilities to produce interferon alpha, the gold standard in HCV treatment. For Pegylated (a longer-acting and more complex to develop/manufacture version of interferon alpha), domestic production is limited to only one product in one dosage size.
Pharmacists are calling for a rapid implication of the system given that their prices will increase by an estimated 1%. This is especially welcome news for them considering the negative impact of recent political instability on small business owners.
Although national health insurance schemes are beginning to see access to healthcare improve, 62% of healthcare expenditure is believed to be out of pocket. Despite this and alongside high poverty rates, low pharmaceutical prices and only minimal charges for many medical services resulted in even the poor – data from the CIA World Factbook shows 20% of the Egyptian population to be below the poverty line – retaining access to healthcare. In the short term, price increases will impede access to healthcare. However, the likely growth and expansion of Egyptian companies, on the back of increasing R&D capabilities, could diminish the dominance of higher cost international imports and therefore ultimately assist national health services in improving standards and coverage of care in the long term.
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