Sunday, 31 July 2022

Pharma players want revised pricing scheme + more incentives to ramp up investments

Pharma industry has its say on gov’t privatization plans: Last week, representatives from the pharma industry — including from private sector companies, regulators, the Senate and House of Representatives, the Federation of Egyptian Industries, and Federation of Egyptian Chambers of Commerce — gathered for public consultations on the government’s state ownership policy document. The consultations come as part of a series of discussions on the government’s privatization plans that kicked off last month.

The key takeaways: Industry players believe the sector can reel in plenty more investments if certain issues are addressed, the most prominent of which are mandatory pricing, difficulties securing raw materials required to manufacture meds and antibiotics, and providing easier procedures for licensing meds and cutting fees.

Refresher: Every Sunday and Tuesday sees workshops on how privatization plans will affect specific industries. These come as the government wants to double the private sector’s role in the economy over the next three years, and aims to raise USD 40 bn over the next four years by selling stakes in state-owned assets to local and international investors. You can catch our coverage of previous workshops on agriculture, FMCGs, and engineering industries and you can find more details on the schedule of the meetings here.

A quick look at what the local pharma industry looks like: Egypt currently has 170 factories to produce meds, with another 40 currently under construction, according to Gamal El Leithy, head of the Federation of Egyptian Industries’ pharma division. There are also some 500 facilities producing cosmetics, while medical equipment is manufactured across around 300 factories, El Leithy told Enterprise.

So what could help the industry see significant growth?

#1- Revisiting med prices: The most-cited area of concern among industry players we spoke with is the mandatory pricing scheme the government has set for certain meds and pharma products. This need to reassess pricing has become all the more important amid supply chain issues causing manufacturing delays, as well as significant increases in shipping costs, all of which have impacted the cost of production across the sector, head of the Federation of Egyptian Chambers of Commerce’s pharma division Ali Auf tells Enterprise. The industry is also facing increased costs from more expensive inputs, higher energy prices, rising wages, and ins. requirements for its employees, said El Leithy. Together, these factors have widened the delta between pharma players’ costs and their revenues, El Leithy and Auf told us.

Refresher: The Health Ministry has for years imposed a mandatory pricing scheme for meds being sold in Egypt. A ministry decree issued in 2012 enforces a pricing system that sees the Central Administration of Pharma Affairs (CAPA) referring to meds pricing in other countries and set local prices at the lowest end of the range at which it is sold abroad. These prices are set for a five-year period, but can be renewed if official FX rates fluctuate 15% or more within one year, or if a company presents an official request to reprice its products by up to 5% annually.

#2- Making raw materials more accessible — which could require more public sector involvement: A shortage of raw materials was also a common complaint from industry players, particularly amid supply chain issues that are slowing down the movement of goods globally. Some representatives, including Mohy Hafez, member of the Senate’s Health Committee, suggest that the government needs to reform public enterprises to be better equipped to manufacture raw materials and make them available to private sector companies. Mohamed Ghoneim, a board member at the FEI’s pharma division, said much the same, telling Enterprise that the state should ramp up its investments in raw material production, since it requires significant capital and advanced tech that the private sector can’t necessarily keep up with.

Growing government investments, however, would need to be paired with a comprehensive strategy including the private sector to ensure it is not crowded out, Hafez and Ghoneim said.

Private sector is on board, too — especially if there’s a PPP structure in place: Increasing public sector companies’ involvement in the pharma industry would be beneficial for the sector, particularly if this is executed through public-private partnerships (PPP), said EGX-listed Ibnsina Pharma Managing Director Omar Abdel Gawad. If public companies are growing and securing stronger bottom lines, the chances of attracting private sector investments into the industry will be stronger. In turn, this would likely lead to more pharma companies listing on the bourse, particularly as international investors are keen on investing capital in the industry after covid-19, Abdel Gawad suggested.

#3- Cutting fees + taxes: The cost of licensing new products can reach EGP 100k for cosmetics and as much as EGP 1 mn for a new med, Auf told Enterprise. These costs are far too high for many pharma companies, Auf said, calling for these fees to be revisited. Industry players, including Luna Managing Director Ramez George, also want to see more tax and customs incentives being introduced to the sector, saying that these — along with a more flexible pricing structure for meds — would go a long way to bringing in more investments.

#4- Streamlining procedures: A key step many industry players cited to clearing the way for more investments pouring in is making procedures simpler and faster. The government needs to work on expediting the process of licensing new meds, for example, said Pharco Managing Director Shady Mourad.

Work on addressing these issues is already in progress, with continuous meetings between the FEI’s pharma division and the government to fix commonly cited problems the industry faces with licensing, costs, and procedures, while sticking to quality metrics, El Leithy told us. The Egyptian Drug Authority has also been working to give private sector pharma players incentives over the past two years since the outbreak of covid-19, which went a long way toward helping the country as a whole face the crisis, the authority’s PR and international relations general manager Ahmed Mostafa told Enterprise.

Your top industrial development stories for the week:

  • Some projects under industrial partnership between Egypt, Jordan, UAE spotted: Egypt, Jordan, the UAE, and now Bahrain, have identified USD 3.4 bn-worth of joint investment projects in the first phase of a USD 10 bn industrial partnership signed in May.
  • We could be seeing a new green hydrogen plant: Several Egyptian government agencies signed an MoU with Indian renewables company ReNew Power to establish a green hydrogen plant in the Suez Canal Economic Zone (SCZone).
  • Utilizing everything: The Public Enterprise and Social Solidarity Ministers reviewed steps taken to transform a closed textile factory in Fayoum to a ready-made garment factory. (Statement)
  • Masterscaf plans expansion: Master for Scaffolding and Framework (Masterscaf) is allocating c. EGP 200 mn to establish a factory to manufacture metal-casting equipment for smart transport systems , its chairman Mohamed Mansour Wahba was quoted as saying.

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