Country Report: Egypt

April 1, 2016

Pharmaceutical Executive

Volume 36, Issue 4

Egypt is not just a sun-soaked paradise defined by pyramids and tombs, or-alternatively-a hotbed for political turmoil and revolution. It’s also a vibrant and growing market for pharmaceuticals, experts contend.

THIS SPONSORED SUPPLEMENT WAS PRODUCED BY FOCUS REPORTS.

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Report Publisher: Diana Viola.

Senior Editor: Louis Haynes

Project Director: Alexander Ackerman.

Project Coordinator: Carla Verdera.

Contributors: Jannes Peemöller, Lisa Diericks.

Editorial Support: Patrick Burton.

Graphic Design: Carmen Reyes, Miriam León.

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Many picture Egypt as a sun-drenched paradise defined by pyramids, tombs, and sarcophaguses. Others may associate the country with political turmoil, given the two revolutions of the last five years. Portrayals of Egypt drawing too heavily on either of these themes miss the heart of what this country is today; a growing, energetic, vibrant society, brimming with ambition and permeated with opportunity.

Such opportunity is particularly visible in healthcare and pharmaceuticals; currently Egypt's best performing sector. Janssen's Khaled Mansour asserts that, "Egypt is one of the top three markets in the region.... The market is still between four and five billion USD, but at current growth rates it should reach a significant volume threshold in the next few years and continue to attract more and more investments." October Pharma CEO Ahmed Zaghloul explains, "basic demographic trends and market fundamentals are still very attractive and the population is growing by roughly two people per year," and as such the retail pharmaceutical market is undergoing "predictable double-digit growth in local currency, with reasonable USD growth of 8.3 percent in 2014 and 5.5 percent in 2015, with the potential to be much higher if the wider economic situation were to stabilize."

EGYPT: LAND OF OPPORTUNITY

The potential for stronger growth lies in the fact that Egypt's healthcare sector has only just begun to meet the needs of its 90 million people. Novo Nordisk's GM Mohamed El Dababy describes how Egypt, "only spends USD 35 per capita on healthcare, which is alarmingly low. This is a third of what countries with similar economic conditions to Egypt are spending, for example Lebanon or Iraq." Given the low levels of healthcare spending, Ashraf El Khouly, vice-chairman of the Egyptian Society for Pharmaceutical Research, argues that, "despite the fact that the multinational pharmaceutical industry established its production sites in Egypt in the 1960s, I identify Egypt as a virgin market... any healthcare project, however small, can only contribute to and enhance the current market growth of 15 percent (in local currency)." Or, as Osama Rostom, of the Federation of Egyptian Industries (FEI) Pharma, Cosmetics, and Medical Appliances Chamber explains, "Egypt is one of largest countries in the region, and the pharmaceutical market is on the cusp of a major boom... the important figure to measure the current market growth is the growth of units sold which, at four percent, is still very good - but can be higher!"


Awad Tag Eldin, former Minister & chairman, ACDIMA

ON THE CUSP OF CHANGE

A key factor behind Egypt's low per capita healthcare spending is that "50 percent of our population lives under the poverty line and they cannot afford healthcare services," as Mahmoud Bagneid, CEO of medtech provider BM Egypt, explains. ACDIMA chairman and former Minister of Health, Awad Tag Eldin, asserts that Egypt already has "public medical insurance, but only 52 percent of the population is covered." Generally, those eligible for coverage are formally employed and therefore above the poverty line.


Osama Rostom, deputy head FEI Pharma Chamber & Commerical Director EIPICO

However, change is on the horizon. "We are aware of the underlying challenges ahead of us, but there is a clear intent and determination to put in every means to reach our objective to create a reliable system for a healthy society and promote the well-being of all Egyptians," confidently declares Egypt's president, Abdel Fattah el-Sisi. "Egypt has embarked upon a long process of re-engineering its economic model... and have already started to readjust our fiscal budget to allocate at least 3% of GNP to government spending on health sector, as stated in our constitution," he affirms. Eva Pharma's CEO Riad Armanious declares that, "currently just under 70 percent of medication is paid for out-of-pocket in Egypt and I expect that increased public investment in healthcare will soon help to extend access to medication to a broader segment of Egyptian society, as has occurred in many other countries. In post-revolution-Egypt, any government will seek to provide better care for the Egyptian people and, although this is a complicated goal, there are signs of progress." Tag Eldin echoes Armanious's comments, indicating that while, "this has been a very long story... the Ministry of Health is working harder than ever to make this a reality and it is clear that there is high level support for this goal within the Egyptian government. We are now approaching a point in time where large changes will be possible."

 


Abdel Fattah El-Sisi, President of Egypt

The government's commitment is clear, and there have been several signs that progress is being made. Minister of Health Ahmed Emad El Din Rady states that, "over the last six month I have been in constant discussions with the Ministry of Finance to develop a sustainable financial model for an expanded health insurance system. Today, the law is almost finalized and we will most likely be presenting it to parliament in the near future: the criteria have been set, the various items and articles laid out and written, and all we are waiting on are some financial reports and studies that are now nearly complete." Moreover, the FEI's Rostom explains that "according to the new constitution [of January 2014] the government will double its healthcare spending to three percent of GDP." Progress has already been made as, according to Roche's Ehab Yousef, "the [2015] government budget for healthcare represents almost two percent of Egypt's GDP, and five percent of the government's budget; other countries in the same economic category allocate closer to ten percent of public funds to healthcare. However, looking at [the 2016] budget, the portion being allocated to healthcare is increasing from five to 7.5 percent, signalling the government's intention to support healthcare, and that they are working towards meeting the constitutional goal of three percent of GDP."

 

EVOLVING HEALTHCARE NEEDS

Across the MENA region, "the nature of diseases for which there is the most treatment demand is shifting from communicable diseases to non-communicable and chronic diseases, a shift which multinationals are well prepared for given their global portfolios and current research objectives," according to Janssen's Khaled Mansour. This trend has certainly reached Egypt; Amre Mamdouh, of Egyptian market leader GSK, explains, "as life expectancy in Egypt increases with better disease management and improved access to healthcare, rates of lifestyle driven and chronic diseases are increasing."


Khaled Mansour, market access director for EMEA emerging markets, Janssen

AstraZeneca's country president Khaled Atef Elmounayri notes that, "in Egypt we have around 7 million diabetics, 14 million patients suffering from hypertension and one in 100,000 is a cancer patient, so investing in oncology, hypertension, diabetes and chronic disease is important because the potential is very high. There are a lot of unmet needs." Servier's Gerard Charles concurs, saying that, "cardiovascular disease is the leading cause of death, accounting for nearly 15 percent of deaths in Egypt, with another roughly ten percent caused by cancers. It is estimated that there are around 15 million Egyptians who have diabetes and a similar number are hypertensive. The percentage of these patients with a disease which is controlled ranks between 10 and 15 percent, and awareness is very low in general." Thus, even for the roughly 50 percent of Egyptians who have some access to healthcare, there is significant progress to be made in terms of raising awareness, diagnosing, and treating lifestyle driven diseases.


Amre Mamdouh, vice president and Area general manager, Egypt and North Africa, GSK

Despite this, progress is definitely being made. Novo Nordisk's El Dababy admits that, "awareness regarding diabetes in Egypt is low but it is getting better," and that his company has "recently observed a shift towards a more proactive stance towards diabetes." Additionally, the strength of Egypt's private market means that even higher priced innovative products can be successful; El Dababy illustrates the point, saying "our recent launch of Victoza was very successful... It has been a high impact product in all markets and Egypt is no different despite the cost barrier." Similarly, AstraZeneca's Khaled Atef Elmounayri says that, "over the past few years the Ministry of Health has improved dramatically in terms of access and we have been successful in bringing some of our oncology products to the public sector," and that for oncology products in general "the government supports the importation, grants them a fast track [registration process] and reimburses them, which confirms [oncology] is high on the agenda." Indeed, according to Roche's regional GM Ehab Yousef, "oncology is the therapeutic category with the second largest budget after hepatitis within both the Ministry of Health and the Health Insurance Organization," the largest parstatal healthcare payer. Given economic realities, healthcare providers are "not really able to grant the use of all innovative drugs because of pricing," as Elmounayri explains, but "nonetheless, Egypt is one of the largest markets across the Middle East for oncology."


Ahmed Emad El Din Rady, Minister of Health and Population

This progress in treating non-communicable diseases has been made despite the enduring challenges posed by infectious diseases in Egypt. The market is still driven by these primary healthcare needs with GSK's Augmentin brand of amoxicillin as the leading product in the market. Moreover, Hepatitis C plays a dominant role in the healthcare sector because, as Abbvie GM Amjad Laimoun explains, Egypt is the country with "the highest prevalence of the hepatitis C virus (HCV) in the world with more than 14 percent of the adult population carrying the virus." Novo Nordisk's El Dababy says that in fact, "public discussion of healthcare is dominated by communicable diseases, mainly Hepatitis C, and thus the attention the government and media are able to dedicate to non-communicable diseases like hypertension, diabetes, and other non-communicable diseases is limited... Hepatitis C is a major healthcare issue for the country, and one that negatively impacts the productivity of our people and ultimately the economy, yet the same can be said about diabetes. In fact, at present the number of deaths caused by diabetes and related complications is higher than the number of deaths related to hepatitis."


Mohamed El Dababy, general manger, Novo Nordisk

 

Seeing as "each year between 150,000 and 180,000 individuals are infected," and according to Laimoun, "the majority of these new infections actually occur in hospitals and medical facilities," there are certainly adequate grounds for fighting the disease to be made a national priority. Roche's Ehab Yousef explains that Hepatitis C is the therapeutic category with the largest budget within the Ministry of Health and Health Insurance organization, and as Abbvie's Laimoun makes clear, "the level of the government's commitment is very strong, as fighting HCV is the president's highest healthcare priority; in fact, the president has been involved in several initiatives himself."


 

The primary public treatment initiative is run by the National Committee for the Control of Viral Hepatitis, and, according to Laimoun, "at present 180,000 patients are being treated by the national program each year, with an additional 30,000 treated by the Health Insurance Organization." The Minister of Health, Ahmed Emad El-Din Rady, has made his "goal to reduce the cost of treatment for hepatitis C as much as possible," and improve the accessibility of private treatment. As a result, prices for a bottle of generic Sofosbuvir fell from EGP 2670 (USD 330) to EGP 900 (USD 110) in the retail market, and EGP 520 (USD 65) in public tenders at the start of 2016. Given these two measures, demand for anti-virals such as Sovaldi and generic Sofosbuvir (which became available in Egypt in 2015) have skyrocketed so much so that according to October Pharma Ahmed Zaghloul, "roughly four of the 5.5 percent [retail pharma market] growth [in 2015] was realized within one therapeutic segment; antivirals such as Sofosbuvir which are used to treat Hepatitis C."


Khaled Atef Elmounayri, country president, AstraZeneca

DIFFERENTIATION THROUGH TECHNOLOGY

With traditional generics seeing shrinking margins and mounting competition, it has become increasingly important for Egyptian manufacturers to differentiate themselves through their technical capabilities. ACDIMA's Awad Tag Eldin highlights that generics players are increasingly "facing a much greater challenge from products that utilize new methods of delivery," citing the growing adoption of insulin injection pens by diabetes patients as an example. He argues that for Egyptian pharmaceutical manufacturers to remain both domestically and regionally competitive, they "must increase their level of technical sophistication and begin some upstream operations."


 

Several companies have recently taken steps to increase their technical capabilities via major equipment investments and technology transfers. One such example is Medical Union Pharma (MUP), which acquired an insulin vial manufacturing facility from Lilly. Managing director Ahmed Kelani explains, "acquiring this facility was the best opportunity for us to manufacture high quality human insulin vials... A significant level of technology is being transferred to MUP from Eli Lilly, and [we are] integrating the experience and knowledge of Eli Lilly employees into our operations and business."


From left: Wagdy Mounir, general manager, Marcyrl; Farid Habib, managing director, Marcyrl; Saad Ibrahim, general manager, HSO.

Marcyrl, a domestic manufacturer which entered Egypt's top ten highest grossing pharmaceutical companies in 2015, is also making significant investments to acquire and even develop new technologies. Wagdy Mounir, the GM responsible for manufacturing, explains that the company recently "purchased the machinery to produce bilayer tablets... [which] will be the first bilayer tablet manufacturing line in Egypt." However, much more significantly, Marcyrl is "currently undertaking ... the development of a separate hormone manufacturing facility... that will take Marcyrl to the next level in terms of working with multinational pharmaceutical companies and export activities; there are only a few such facilities in the Middle East... and we will be seeking EMA and FDA approval from the outset with the goal of exporting products from this facility to markets all over the world."


Ahmed Zaghloul, CEO, October Pharma

However, Marcyrl has also successfully developed two incrementally innovative products. Saad Ibrahim, scientific office manager, explains that as of January of 2016, Marcyrl "received the approval for a unique dosage form of bromocriptine... Normally this product comes in tablet form; however, nearly 40 percent of patients experience gastric issues as a side effect. To avoid causing this side effect, we have developed a vaginal suppository containing bromocriptine. We completed a series of phase II and phase III trials to get it approved... This is a unique product, although we are aware than an Indian company has been working on developing a bromocriptine vaginal suppository as well." Having completed phase II and III trials, and received domestic marketing authorization for the product, Marcyrl will soon be launching the product on the Egyptian market.


Ahmed Kelani, managing director, MUP

While there are a few such instances of modest innovation in terms of product differentiation, the Egyptian Ministry of Health has not generally supported such efforts. October Pharma CEO Ahmed Zaghloul reveals that, "the Ministry of Health is ... not particularly supportive of even incremental innovation in Egypt, as officially we cannot register products that don't have an exact reference product registered in one of our 23 officially recognized reference countries; an October Pharma product was recently rejected because we wanted to package 30 tablets in each box, whereas the reference product only contained 15 per box."

 


 

EXTERNAL ECONOMICS

Janssen's Khaled Mansour summarizes the Egyptian pharmaceutical market as an investment destination by saying, "I would approach Egypt as a sizable opportunity and say I am moderately optimistic about the future of the market here, with the moderation stemming from some short-term challenges that we must work through before the full potential can be realized." Indeed, the current economic situation is a major limiting factor. Mansour holds that "although over the last year the political and security situation has stabilized significantly under the new regime... today the main risks exist within the economic and financial sphere, as there is limited hard currency availability and the Egyptian pound's value versus the dollar is unstable." Osama Rostom of EIPICO and the FEI chamber for pharmaceuticals, explains that "the traditional sources of foreign currency have always been the Suez Canal, tourism and Egyptian people working abroad; recent hopes in the Suez Canal of providing the country with foreign currency have proved elusive as revenues have fallen significantly, tourism has not yet recovered from the political unrest of a few years ago, and Egyptian people abroad generally prefer to utilize the black market to get their money into Egypt."


 

October Pharma's Ahmed Zaghloul explains that his "concern is not the current economic situation, but rather the fact that there does not appear to be a clear vision for how Egypt can overcome these challenges... The current government has not shared any clear plans for economic reform with the business community. Moreover, given that the current shortage of hard currency, there is a clear need for Egypt to drive export growth and to attract foreign investment, yet there has been very limited guidance in this regard." Zaghloul goes on to explain that the Egyptian pharmaceutical industry has abundant "excess production capacity and can easily produce pharmaceutical for the export market at competitive prices," yet "there are certain barriers that we would need the government to help address if this is to become a reality."


A. Borhan El-Din Ismail, chairman & executive director of EIPICO

Aside from the very low pharmaceutical pricing in Egypt, which causes significant challenges in export markets due to country of origin reference pricing, the primary hurdle to achieving exports is that at present, Egypt has no EMA or GCC accredited bioequivalence study center, so any "manufacturer seeking to develop a product that can be exported to a regulated market must complete bioequivalence studies outside of Egypt," according to Eva Pharma's Riad Armanious. The situation is further frustrated by the fact that according to October Pharma's Zaghloul, "currently, the Egyptian Ministry of Health does not recognize bioequivalence studies performed outside of Egypt, even when conducted at highly accredited facilities certified by the EMA. Thus, to develop a product for the export market currently we must carry out bioequivalence studies in Egypt as well as abroad."

 


Gerard Charles, general manager, Servier

The hard currency shortage has also caused significant challenges for companies focused purely on the domestic market. Janssen's Mansour explains that "multinationals are unable to repatriate their income, [so] as the pound depreciates companies are effectively losing a portion of the value of the sales they already made. At the same time, pharmaceutical prices are fixed in Egypt, so we're seeing our margins on current sales continue to shrink as well." More worryingly, "the foreign currency shortage has limited manufacturers' ability to purchase raw materials, inducing some shortages of medications in Egypt already," according to Servier's GM Gerard Charles. Yasser Hefny of Hefny Pharma Group, further details that "unfortunately Egypt experiences a shortage of these essential pharmaceutical products: local drug authorities have even decided to add a department dedicated to drug shortage to get a better overview of hospital usage of drugs and what kind of life-saving products are missing." For Hefny, who started in the pharmaceutical industry with "a pharmacy chain specialized in supplying hospitals with life-saving products and supplies for Intensive Care Units (IUC)," such shortages have motivated him "to start importing and registering additional pharmaceutical products which have high demand to be manufactured locally."


Yasser Hefny, CEO, Hefny Pharma Group

The situation has been further complicated by Egypt's fixed pharmaceutical prices, which have placed significant pressure on manufacturers as the cost of imported materials, labour and other costs has risen due to wider economic inflation. EIPICO's Rostom explains that "the Ministry of Health is largely unwilling to increase pharmaceutical prices because of the reaction that it would cause amongst the public and media, even though current pricing levels are unsustainable, causing relative and absolute shortages of many products, and making it unfeasible for manufactures to invest in their own development." Rostom admits that EIPICO was recently "forced to take 12 products of the market that provided Egyptian patients with quality treatment for a fair price," and ironically "now only significantly higher priced alternatives remain."

However, it appears some relief may soon arrive. EIPICO chairman A. Borhan El-Din Ismail says that "over the last six months, the Ministry of Health has indicated that they are open to adjusting some prices. However, there has been no solid commitment yet, or any real progress, but they are speaking to us regarding increasing some prices, and we shall wait and see what transpires." He reflects that back in "the early 1970s the government had begun to depress prices to a great extent," but that since then the government "occasionally ... give[s] some small price increases for a few products and then freeze prices for another ten years." Mansour agrees that some changes seem possible, and says, "the government is realizing this dilemma [given the devaluation of the Egyptian pound], and seems more willing than ever to discuss moving the prices of pharmaceutical products."

Moreover, as Bayer's managing director Hatem Safei explains, "there are some recent and relevant positive economic and political developments to take into consideration. With the opening of the new Suez Canal, a variety of large scale industrial and investment projects, and of course the recent discovery of the largest gas field in the Mediterranean by ENI within Egyptian waters, Egypt will begin to see an influx of hard currency. Considering just these confirmed developments, it is clear that they will positively impact economic output and bring more hard currency into the country." Finally, given the government's declared and demonstrated investment priorities, it is clear that as cash becomes available for investment, a significant portion will be directed toward healthcare.

Until the status quo changes and progress begins to materialize, the Egyptian pharmaceutical market will continue on its present course of roughly four percent volume growth and 15 percent value growth in local currency. Such growth offers many attractive opportunities, and if and when progress is made in the realm of politics and regulatory policies, such opportunities could become absolutely beautiful.

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