Egypt’s Pharmaceutical Sector

Survival and Development Strategy Report

Incorporating Results and Conclusions Of Review Activity

Prepared by: ADE / DOL

Dated: 22 nd December 2004

Contents

Section Page

Part A - Introduction And Executive Summary:

1 Introduction…………………………………………….. 1

2 Executive Summary…………………………………….. 7

Part B - Egypt’s Pharmaceutical Sector Survival And

Development Strategy:

3 Policy Framework……………………………………….. 22

4 Strategic Positioning National Pharmaceutical Sectors... 24

5 Egypt’s Situation………………………………………… 31

6 Development Drivers And International Comparison….. 32

7 Pharmaceutical Sector Development Strategy………….. 35

8 Implementation Mechanisms...……………………………46

9 Economic Benefits Bids……………………………………57

Part C – Results And Conclusions Of Review Activity In

The Global And Domestic Pharmaceutical Sectors:

10 Pharmaceutical Sector Policies……………………………63

11 Specific Features Of The Sector………………………….. 69

12 International Trends………………………………………. 87

13 Government Policies………………………………………. 92

14 Egypt’s Pharmaceutical Sector…………………………… 95

15 Egypt’s Pharmaceutical Companies Review Results……..121

16 International And Regional Markets……………………. 126

17 International And Regional Structural Comparisons…... 131

18 Regional Performance Comparisons……………………. 151

19 Phytopharmaceuticals……………………………………. 162

Part D – Appendices:

Appendix 1 Steering Committee Members

Appendix 2 Preparation of Sector Development Strategies

Appendix 3 Summary WHO Traditional Medicine Strategy

2002- 05

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Abbreviations

API - Active Pharmaceutical Ingredients

BPC - Bulk Pharmaceutical Chemicals

cGMP - current Good Manufacturing Practice

DAPs - Development Activity Packages

DDs - Development Drivers

EDL - Essential Drugs List

FDI - Foreign Direct Investment

GMP - Good Manufacturing Practice

GoE - Government of Egypt

IMC - Industrial Modernisation Centre

MFTI - Ministry of Foreign Trade and Investment

mns - millions

MoF - Ministry of Finance

MoH - Ministry of Health

MoI - Ministry of Investment

PhSDC - Pharmaceutical Sector Development Charter

PhSDI - Pharmaceutical Sector Development Initiative

PhSDS - Pharmaceutical Sector Development Strategy

Phyto - Phytopharmaceuticals

R&D - Research and Development

TRIPS - Trade Related aspects of Intellectual Property rights

$ or USD - United States Dollars

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 Part A

Introduction And Executive Summary

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1 Introduction

Background

ADE was awarded the contract by the Industrial Modernization Centre (IMC) to
undertake a sector study of Egypt’s Pharmaceutical Sector, with DOL (Development
Options Limited), as its local agent for supporting the consultancy team.

There are two main outputs from the study:

• Egypt’s Pharmaceutical Sector Survival And Development Strategy, and;

• The results and conclusions of the global and domestic review activity.

The sector survival and development strategy is presented first as this provides the
strategic framework for realizing the sector’s development potential. The results and
conclusions of the review activity are presented second as they provide the
justification for the content of the strategy and indicate how the development potential
has been identified.

Report Structure

The report is presented in four parts:

• Part A provides an introduction and executive summary for the two main study
outputs.

• Part B presents Egypt’s Pharmaceutical Sector Survival And Development

Strategy.

• Part C presents the detailed results of the review activity and indicates the key
conclusions of this activity.

• Part D presents the Appendices for the whole report.

This report on the development of Egypt’s Pharmaceutical Sector from 2005 has been
presented separately from the study’s results and conclusions to enable the reader to
focus on its future, rather than to dwell on issues associated with the last decade.
Recommendations contained within part B of the report are cross-referenced to the
relevant section in part C to provide its justification and supporting evidence.

Sector Context

This study is one of a number of “vertical” sector strategies that are being prepared in
parallel to feed into the formulation of a National Industrial Policy White Paper for
Egypt. From the start of the study we have been mindful of the need to present
recommendations that stretch from the level of individual pharmaceutical companies,

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through the pharmaceutical sector as a whole, up to macro national economic growth
rate.

The overall theme of the White Paper will be industrial modernization, with Egypt’s
Pharmaceutical Sector being one of the most highly modernized of any of its
industrial sectors. The sector can play a key role in developing an understanding of
how to, (or how not to), achieve industrial modernization within a national framework
of: the level of intervention by government; the sector’s regulatory systems; economic
policies directed at the sector; and the balance between the interests of different
parties involved in determining sector performance.

A key outcome from this sector study is the concept of “relative rates of
modernization”. The pharmaceutical sector demonstrates that the more modernized a
sector is globally, the greater the significance of the smallest of gaps in the level of
modernization within domestic manufacturers. These gaps can exist either between
domestic manufacturers, or between these manufacturers and manufacturers based
elsewhere, and anywhere, in the world. The most disturbing type of gap for national
industrial policymakers is between a whole domestic industrial sector, and complete
sectors in other countries, as this indicates that a whole sector is uncompetitive.

Modernization gaps between countries can be identified through one-off reviews

which provide a “snapshot” of the extent of the gaps, or through continuous reviews
which enable a comparison of the “relative rates of modernization”. The type of
sector review activity behind the preparation of this report, indicate “static”
modernization gap results. Within the global pharmaceutical sector the danger of
“static” review results is that initiatives that are implemented to close the
modernization gap help a domestic sector to move forward, but not at a sufficiently
fast rate to catch-up. In such a sector there is the need to introduce the concept of
accelerated competitiveness improvements to catch-up, followed by continuous
competitiveness improvements to stay-up with the leaders. The need for continuous
review activity to assess whether a competitiveness gap is being closed, and once
closed remains so, is addressed in this reports as a key element of Egypt’s
Pharmaceutical Sector Development Strategy (PhSDS).

Sector Development Strategy And Development Drivers

The impact of the PhSDS will stretch from the trading performance of individual
pharmaceutical companies to the national economic growth rate, with the link through
economic development at the sectoral level. Stakeholders who are more interested in
macro-level economic policy need to understand the way individual pharmaceutical
companies will implement the recommendations, to improve their trading
performance. The management of individual pharmaceutical companies need to
understand the use of economic development activities to stimulate improved sector
performance, that will in turn increase the contribution of the sector to achieve higher
national economic growth rates.

In recognition of the need for such understanding we provide an explanation of the

economic context within which the PhSDS has been prepared, in Appendix 2 to this
report. Unless the reader already understands the links between: company trading

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performance; sectoral development; and the national economic growth rate, it is
recommended to read Appendix 2, as a first step.

The link between improving the trading performance of individual pharmaceutical

companies and increasing the national economic growth rate, is provided by sector
Development Drivers (DDs). The strength of activation of the development drivers
will determine: the trading performance of individual companies within a sector; the
level of performance of a sector as a whole; and its contribution to increasing the
national economic growth rate. Understanding the application of development drivers
is crucial to establishing common objectives between economic policy-makers and the
management of pharmaceutical companies. It is the role of the policy-makers to
provide the national / sector framework and environment, in which each development
driver can operate most effectively, but the achievement of improved performance
results, is the responsibility of the individual companies in Egypt’s Pharmaceutical
Sector.

Latest National Situation

Recent announcements in Egypt have “turned the tables” on private companies, with
the “ball passed to them” to determine where to go next in their development. For
the first time in the life of most Egyptian people, the government has taken unilateral
actions to improve the business environment, relax statutory frameworks, and boost
business confidence, under the slogan “Open For Business”. Under the development
driver approach, described above, the concessions should have been given in return
for commitments to improve company trading performance and to deliver sector-level
performance improvements.

Achieving a strong link between the removal of constraints on development, and

individual companies developing themselves, is crucial to the successful
implementation of the PhSDS. The way we recommend this can be achieved is
described in the report.

Company Review Activity

Reviews of 19 pharmaceutical companies were completed, representing half of the

number of manufacturers operating in Egypt. We are grateful for the time
representatives of these companies have spent with our team members and for their
openness in providing information.

Steering Committee

We take this opportunity to thank the members of the Steering Committee that met on
six occasions to receive presentations on the results of the study and the
recommendations. Their responses have been incorporated in to the final documents.
We appreciate the comments and guidance that have been provided to us.

Structure Of Report

Part A

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Section 2 Executive summary.

Part B

Section 3 Describes the economic policy and regulatory frameworks that are applied
to national pharmaceutical sectors that determine their role in economic development.

Section 4 Indicates how the balance between different economic policies

determines the strategic positioning of any national pharmaceutical sector and the
impact of TRIPS on this positioning.

Section 5 Describes the current situation in Egypt’s Pharmaceutical Sector, both in

terms of sector performance and the economic policy that has been implemented up to
now.

Section 6 Identifies the international development drivers that determine the stages
of development and performance of national pharmaceutical sectors and compares the
level of activation in Egypt to China, India and Jordan.

Section 7 Presents the Pharmaceutical Sector Development Strategy (PhSDS),

including the vision and development activities to be implemented.

Section 8 Describes the implementation mechanism that is recommended to be

applied for the sector to achieve its full development potential.

Section 9 Describes the approach of using economic benefit bids from

pharmaceutical companies to justify allowing flexibility within the sector’s operating
framework. This section indicates how the approach will work and provides an
example of how the bids should be structured.

Part C

Section 10 Describes the policy options that exist relating to national Pharmaceutical
Sectors, including the role they can play alongside national healthcare systems, and in
contributing to national economic growth. This section introduces the concept of
balancing points where governments need to determine their position on a seies of
issues relating to the role and their relationship with the national Pharmaceutical
Sector.

Section 11 This section describes the key elements of any national Pharmaceutical
Sector and introduces terms that are used throughout this report. In total this section
provides the background that is required to understand how the global and domestic
Pharmaceutical Sectors operate and inter-relate. The sector paradox is that although
it is one of the areas that have experienced the strongest effects of globalization; it is
also one of the most heavily regulated sectors internationally.

Section 12 Describes recent international trends within the worldwide

Pharmaceutical Sector, which provide the context within which the future
development of Egypt’s Pharmaceutical Sector needs to be considered.

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Section 13 Introduces the advantages and disadvantages of allowing flexibilities in
the domestic pricing of pharmaceutical products. The section also describes how
national regulatory frameworks can either support, or hinder, the development of
national Pharmaceutical Sectors.

Section 14 Describes the existing situation within Egypt’s Pharmaceutical Sector,

based on the elements introduced in section 11, but excluding the
Phytopharmaceuticals which is described in section 19. This section describes the
structural framework within which the domestic sector operates and its key economic
and business features.

Section 15 Provides the results of the detailed review of pharmaceutical companies

manufacturing in Egypt and indicates their capability to be successful in international
markets.

Section 16 Desrbibes the structure of the international pharmaceutical market and

indicates the main markets and their features.

Section 17 Compares the structural framework of Egypt’s Pharmaceutical Sector

against selected international countries.

Section 18 Compares the performance of Egypt’s Pharmaceutical Sector against

countries in the region.

Section 19 Provides a description of the Phytopharmaceuticals area of activity.

Natural Products And Traditional Medicines

Throughout this report there are references to “natural products with medical
properties”. This has been identified in many countries as a growth area in final
dosage products that can have significant benefits to national economies due to the
high levels of domestic added-value. These international trends were identified
through our global review activity as indicated in part C of this report. Towards the
end of the study we were made aware of a report produced by the World Health
Organization “WHO Traditional Medicine Strategy 2002-2005, see Appendix 3 for a
summary (6 pages out of a 74 page report), which supports our conclusions. We
emphasize that the summary of this report has been included only to provide a
supporting role and is not the source of our proposals. The WHO report uses the
terms “traditional medicines” and “complementary and alternative medicine”, which
have the same meaning as “natural products with medical properties” used in this
report. We use our selected term as it can cover raw materials as well as final dosage
products. The WHO report is significant as it provides recognition from the world’s
leading health organization to the international role of natural products with medical
properties, from the healthcare perspective, whereas our conclusions have been based
on achieving economic development objectives.

Sector Focus

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The relationship between the Pharmaceutical and Healthcare Sectors, and the role of
governments in both, is a theme which is referred to in this report, it is important to
recognize that the focus of the study has been on Egypt’s Pharmaceutical Sector, and
not on its Healthcare System.
Due to the extent of regulation that applies to the worldwide Pharmaceutical Sector,
there has been the need for the sector review activity, to not only describe its
performance as a manufacturing sector, but also the regulatory framework within
which it operates in separate countries. The performance of the sector, within
individual comparator countries is the result of the combination of, the development
of its pharmaceutical companies, and the structure of the regulatory framework
imposed by government. It is, therefore, as important to understand the regulatory
framework within comparator countries, as it is the performance of the
pharmaceutical companies in these countries.

Within the pharmaceutical companies that undertake the manufacturing and

distribution of the sector’s products, there is also the significant role of a small
number of multi-national pharmaceutical companies, that are responsible for a high
proportion of the world’s research and development of new “innovative” products,
and for their manufacture and distribution through their own international networks.
The turnover of these individual companies is larger than many of the developing
countries that are their customers.

Role Of Report

Key roles of this report are to provide international examples on how other countries
have:

• Changed from applying defensive economic policies to their national

pharmaceutical sectors.

• Designed and implemented economic development policies to their

pharmaceutical sectors, without breaching TRIPS regulations.

• Achieved the three balancing points where political decisions are required to
determine the most appropriate point of balance in each country.

This report compares international outcomes on the above, to the situation that
prevails in Egypt, and indicates the benefits that can be realised to Egypt’s
Pharmaceutical Sector from changing current approaches and policies.

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2 Executive Summary

The key conclusions and recommendations are summarized under a series of headings
which are based on the structure of this report.

Part B – Survival And Development Strategy

Policy Setting

• The policy framework is more important for the pharmaceutical sector, than other
sectors, due to the sensitivities and risks associated with supplying medical
products.

• There is as much need to modernize the national regulatory and operating

framework being applied to any national pharmaceutical sector, as to modernize
its manufacturing facilities and manufacturers.

• A lack of modernizing Egypt’s regulatory system has had a negative impact on the
overall sector operating framework and environment for the domestic manufacture
of pharmaceutical products.

• Establishing stronger links between the structure, content, transparency and

implementation of Egypt’s regulatory system, and the modernization and
improved trading performance of its pharmaceutical manufacturers, is the starting-
point for the Pharmaceutical Sector Development Strategy (PhSDS).

• Egypt has implemented a successful defensive economic policy relating to its

Pharmaceutical Sector, for over 20 years, but the policy has not been up-dated to
take into account changing external circumstances.

• The impending full implementation of TRIPS makes the implementation of strong

reliance on defensive economic policies, on their own, redundant. Egypt has
relied on a strong defensive economic policy much longer than other countries.

• Countries with pharmaceutical sectors that have been growing strongly have been
applying a mixture of offensive (export led) and defensive economic policies for a
number of years. Key features of such a dual approach are to determine the point
of balance between the two approaches at a national level, and the allocation of
individual pharmaceutical products to sub-sector product groups with different
offensive and defensive priorities.

• There is an urgent need to reach a national agreement on a new dual economic

policy for Egypt’s Pharmaceutical Sector and for this policy to be aligned with
economic and social policies to be applied to Egypt’s Healthcare Sector.

Consequences

The consequences of applying the above policies to Egypt’s Pharmaceutical Sector

have been:

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• Depending on a strong defensive economic policy has resulted in:

- sector performance having stagnated for at least the last five years, and more
recently having been in decline, with the immediate requirement for a survival
strategy to be implemented ahead of a sector development strategy;

- low contributions from the sector to national economic growth;

- lack of internally generated resources for investment: in up-grading

manufacturing facilities; new product development; opening new export
markets; and developing new brands;

- Manufacturers having wide product ranges, which results in them being

general, rather than specialized products of pharmaceutical products.
Specialization is required for success in export markets;

- domestic manufacturing becoming uncompetitive;

- high proportion of imported pharmaceutical products are off-protection, with

low market availability of more potent under-protection products;

- increasing negative trade balance in pharmaceutical products, due to slow

growth in exports;

- slow growth in exports due to a combination of the current pricing regime and
a lack of spare production capacity;

- One of the contributing factors to the lack of spare manufacturing capacity is

the relatively low returns being generated by the manufacturers that have
access to funds to invest in increasing this capacity.

• Overall lack of preparation for the impending implementation of TRIPS.

• Most countries that signed-up for TRIPS have used the last 10 years to prepare for
its full implementation, through a series of offensive economic policy initiatives,
including:

- exploiting the “grey areas” of TRIPS, in particular in relation to natural

(phytopharmaceutical products) with medical properties;

- applying cost / benefit assessments to determine if new innovative products

should be imported;

- using prescription systems to support selected products that have: been

developed domestically; high levels of domestic added-value; and are
internationally competitive;

- use purchasing schemes to minimize the cost of obtaining material inputs and
final dosage products.

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• Most countries have already reached decisions on the most appropriate points of
balance between the defensive and offensive economic policies for their domestic
situations, whereas Egypt has still to start this process.

International Development Drivers

The following international development drivers have been identified based on global
review activity, which determine the international positioning and performance of
each national pharmaceutical sector:

1. Dual defensive and offensive economic policies agreed and being implemented
simultaneously.

2. National regulatory system aligned to support the implementation of the dual

economic policies.

3. Single representative organizations for the regulatory system and the

pharmaceutical manufacturers and suppliers.

4. Agreed product positioning for the domestic market and selected export products
based on international competitive advantages.

5. Strong commitment to domestic research and development in product areas

selected for medium and longer-term growth in exports.

6. Business development programmes to support indigenous manufacturers to

become international leaders in selected product areas.

7. Domestic manufacturers of pharmaceutical products those are internationally

competitive.

The strength of activation of the international development drivers in Egypt was

compared to China, India and Jordan. Egypt has weak activations across all seven
development drivers, which supports the stagnation and relative decline conclusion
indicated above. Each of the three comparator countries has a weak activation
against at most one of the international development drivers, but the strength of
activation against other development drivers has been sufficient to overcome this
weaknesses.

Stages to Pharmaceutical Sector Development Strategy

Three stages to the implementation of Egypt’s Pharmaceutical Sector Development

Strategy (PhSDS) are recommended:

• Stage 1 – agree point of balance between offensive and defensive economic

policies and up-date the PhSDS contained herein to take into account the changes
and developments associated with dual policies, from January to end April 2005.

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• Stage 2 – turn-around the sector from having been in a period of stagnation, and
more recently decline, to give domestic manufacturers confidence of a new period
of profitable trading and growth, from May to December 2005.

• Stage 3 – based on progress under stage 2, achieve sustainable high rates of sector
growth and its rightful position in Egypt’s economy, from January 2006 onwards.

Sector Vision

The vision of the PhSDS is to combine; growing the domestic market by 10% per
year; with achieving export performance that is equal to Jordan within three years;
and to be the second best regional export performer within five years, ahead of
Turkey which held this position in 2003.

Based on 2003 figures this will require increasing annual exports by $ 148 mn to $
183 mn during 2007 and by a further $ 30 to $ 213 mn by 2009. To avoid sucking-in
increased imports, and to support the growth in exports, domestic production capacity
will increase by 60 - 70% by the end of the five year period.

Elements of PhSDS

• Combined economic objectives for Egypt’s Pharmaceutical and Healthcare

Sectors.

• Strong domestic manufacturing capabilities, with manufacturers accredited to

manufacture to cGMP.

• Input materials entering final product production in Egypt, at international prices.

• Strengthening the application of manufacturing cost competitive advantages.

• Product selection for domestic manufacture by sub-product groups, including

products for export.

• Strong indigenous product capabilities in selected product areas.

• Strong domestic research and development facilities and programmes, targeted at

product areas selected for export.

• Business and market development programmes for indigenous pharmaceutical

manufacturers to improve their international competitiveness.

• Increase production capacities to support export led sector growth.

Development Activity Packages

All of the recommendations contained within the PhSDS have been combined into
five Development Activity Packages (DAPs):

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1. Remove Constraints on Development For example, reduce the level of material
input prices paid by Egypt’s pharmaceutical companies to international levels.

2. Strategic Development Projects, including:

a. new regulatory system;

b. new single pharmaceutical sector regulator;
c. new single domestic manufacturers and suppliers representative agency;
d. identify domestically-sourced natural raw materials which can be processed
into final products, with proven medical properties;
e. new final products with the potential to have strategic international
significance, possibly under a Egyptian Traditional Medicines brand;
f. product research and development grants;
g. Egypt as a centre for researching African diseases;
h. purchasing schemes

3. Assessment of Development Opportunities, including:

a. research and development activities to support indigenous manufacturers;

b. domestic product development services to be contracted by international
pharmaceutical companies;
c. consulting services to support manufacturers to be accredited to cGMP;
d. Introduce and manage a benchmarking system.

4. FDI and International Strategic Alliances This area of development activity

requires decisions on domestic and export market product positioning and
selection, before specific FDI and strategic alliance projects can be identified.

5. Business and Market Development Programmes, four programmes are

recommended:

• Up-grading all manufacturing facilities to operate to cGMP.

• Up-grading overall product capabilities (wider than just manufacturing) of the

indigenous manufacturers to be initially comparable to regional best practice,
and drive towards achieving international best practice.

• Internationalization programme for indigenous manufacturers to become

successful exporters in target markets, with export development strategies
prepared based on intensive market research.

• Research and development programme to assist indigenous manufacturers

with undertaking basic research and product development activities in selected
product areas for export.

Implementation Mechanisms

The identification of appropriate implementation mechanisms for Egypt’s

Pharmaceuticals Sector has distinguished between; reaching agreement on the dual
economic policies, with associated economic benefit targets agreed in exchange for

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government flexibilities; and implementing the PhSDS. There should therefore be
two implementation mechanisms:

• Deal-making Steering Committee to manage annual “deal-making” rounds, with

each resulting in a new agreement on flexibilities to be allowed by GoE in
exchange for economic benefits to be delivered by the pharmaceutical companies.
During 2005 the agreement will cover a 8 month period, thereafter 12 months.
The PhSDS will be developed into a Pharmaceutical Sector Development
Initiative (PhSDI) Report based on the content of the first agreement, with the
report being up-dated based on the content of each new annual deal agreement.

• PhSDS Board to manage the implementation of the Pharmaceutical Sector

Development Strategy, with this becoming the PhSDI Board when the up-dated
version of this report is agreed.

Both the Deal-making Committee and the PhSDI Board should be supported by the
same Executive Team.

The role of the Deal-making Steering Committee during 2005 will be to work with
GoE and the pharmaceutical companies, to agree the first economic benefit “deal”,
indicating the flexibilities and funding to be delivered by GoE, in exchange for
commitment from the pharmaceutical to meet economic benefit targets during the
same year.

The role of the PhSDI Board, in implementing the PhSDS, will be to:

• Support all parties to achieve a more appropriate balance between the offensive
and defensive economic policies.

• Oversee the implementation of the changes and new directions required to achieve
the agreed balance between the two economic policies.

• Manage delivery of the DAPs (see above) as indicated in the PhSDS.

• Enter into Sector Partnership and Performance Agreements with GoE, under
which the government will make available funding to implement the PhSDS in
return for the achievement of targets for improving sector performance.

The starting-point of a move to implementing the PhSDS should be all parties signing
a Pharmaceutical Sector Development Charter (PhSDC), which provides a framework
for the dialogue that needs to be undertaken to reach a first stage sector “deal”. A
copy of the proposed Charter is included in this report. All parties that sign the
PhSDC will become members of the Pharmaceutical Sector Development Initiative
(PhSDI) and will participate in putting together the first stage sector “deal”.

It is recommended that it is preferable to get the first round “deal” agreed for a
relatively short period, say 2005, than to have protracted discussions to achieve a 5
year agreement. Part of the reason for making this recommendation is that applying
the new approach should be viewed as being a learning process, with annual “deal”
rounds during the first three years providing the opportunity to fine tune the approach.

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Implementation Timetable

The proposed first and second stage timetables are:

• Appoint Steering Committee and Executive Team for initial four month period to
start from January 2005.

• GoE economic benefit targets and areas of first year flexibility identified by end
January 2005.

• First round economic benefit bids from pharmaceutical businesses received by end
February 2005.

• Economic benefit agreement, including flexibilities from GoE, by end of March

2005.

• Final draft Sector Performance Agreement and PhSDI Report submitted end of
March 2005 and incorporated into an up-dated PhSDS Report.

• Presentations and refinement of draft report to be completed by end of April 2005.

• 1st stage implementation May to December 2005, based on the implementation

structure agreed through the PhSDI, including: a Board to implement the up-dated
PhSDS; and either the re-appointment of existing Executive Team, changes to the
team, or recruitment of a new team.

• End September 2005, start 2nd round “deal” negotiations and bidding through the
Steering Committee, with 2nd agreement ready to be implemented from end
December 2005.

• Up-date the PhSDS for 2006, and beyond, based on the outcome of the “deal”
negotiations to be completed by end 2005.

Economic Benefits

The areas where economic benefits can be offered in bids by the pharmaceutical
companies are:

• Increased export performance of pharmaceutical products manufactured in Egypt.

• Reductions in imported material inputs, or final products into Egypt.

• Introduction of new products into the domestic market that have enhanced
medical properties, over products that are currently available, and will save costs
within Egypt’s overall healthcare system.

• Manufacturing of new products domestically, either for domestic consumption, or

also for export.

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• Products on Egypt’s Essential Drugs List that are subsidised internally by their
manufacturers to result in prices that are lower in Egypt, than apply
internationally.

• Agreement to purchase specific values of product development services from

Egypt, by mult-nationals based outside Egypt.

• Strengthening Egypt’s research and development facilities.

• New joint ventures, or strategic alliances, with indigenous pharmaceutical

manufacturers to: develop new products; manufacture new products under license;
open new export markets; and contribute to the overall strategic development of
the sector.

• Investment in up-grading existing, or establishing new, manufacturing facilities in

Egypt, or take initiatives that will result in new foreign direct investment being
attracted into Egypt.

• Obtain manufacturing facility accreditation to operate to cGMP that will provide

the basis of starting exports into developed consumer markets.

A structure for bids to be submitted by pharmaceutical companies is provided,

alongwith preliminary economic benefit targets to be used by GoE.

Part B - Results And Conclusions

Overall Approach

The strongest period of growth in Egypt’s pharmaceutical manufacturing capabilities

was in the 1980s and early 1990s. Since this period there has been increasing
stagnation and a decline in international competitiveness. This statement is made
with the background of AstaZeneca’s significant investment in a new manufacturing
facility at 6th of October City, but this positive development should be viewed as a
one-off alongside difficulties in other parts of the sector.

The main reason for the current situation has been an over-emphasis in applying a
defensive economic policy to the sector, which has become increasingly out-of-date.
The key objective of the policy, as applied in Egypt, has been to keep prices of
pharmaceutical products as low as possible, at the same time as maximising the level
of domestic manufacture of products consumed domestically. The policy has been
successful in meeting its objectives with prices being maintained at low levels and
75% of the domestic consumption of dosage products manufactured domestically.
Others have claimed the figure is above 90%, but the 75% level is based on analysis
undertaken for this report.

Impact Of Defensive Economic Policy

There have been a number of negative impacts of applying the defensive economic
policy:

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• Egypt still relies on most of the input materials for producing synthetic dosage
products being imported.

• The value of pharmaceutical exports in 2003 was $ 34.6 mn, which had fallen by
$ 6.6 mn (16%) from 2002. Egypt was in 16 th place of regional (MENA and
Africa) export performance between 2002 and 2003.

• Based on TradeMap statistics Egypt imported pharmaceutical products with a

value of $ 438 mn in 2002. With exports valued at $ 41 mn there was a negative
trade balance during 2002 of $ 397 mn.

• The countries with worse trade balances than Egypt in 2002 were: UAE ($ 467
mn); South Africa ($ 528 mn); Algeria ($ 544 mn); Saudi Arabia ($ 944 mn); and
Turkey ($ 1,391 mn), but Jordan achieved a positive trade balance of $ 34.5 mn
which demonstrates what is possible.

• Using UN statistics Egypt’s trade performance in 1997 was imports of $ 220,

exports of $ 66 mn and a negative trade balance of $ 154 mn. By 2001 the level
of imports had increased to $ 343 mn, the level of exports had fallen to $ 49 mn,
and the trade deficit had widened to $ 294 mn.

• Egypt was in 7 th place for regional export performance in 2003 with sales of $
34.6 mn compared to: Israel $ 927 mn; Turkey $ 211 mn; Jordan $ 183 mn;
Cyprus $ 75 mn; and South Africa $ 63 mn; UAE $ 41 mn. Egypt was in this
same 7th position in 2002, but is in danger of being overtaken by Iran with $ 32
and Kenya with $ 28 mn of export sales during 2003.

• Egypt’s exports of pharmaceutical products increased by only 4.8% from 1998 –

2002, compared to: 537% for Iran; 309% for Saudi Arabia; 134% for Israel; 80%
for Cyprus; 44% for Turkey; 41% for Jordan; and 34% for Morocco. Egypt was
in the top five regional exporters in 1998.

• Using a trade performance indicator of export value expressed as a percentage of

import values, Egypt is in 8th position, behind: Israel; Jordan; Cyprus; UAE;
Morocco; Malta; and South Africa.

In conclusion the defensive economic policy may has not been successful in
controlling imports, it has also acted as a significant constraint on the development of
exports, and it has resulted in a worsening trade balance in pharmaceutical products.

Conclusions On Export Readiness

Based on a detailed analysis of changes in export sales between 2002 and 2003
Egypt’s Pharmaceutical Sector has a high “churn effect” by country export markets.
This comprises two elements; high numbers of export markets being lost and new
markets being opened on an annual basis; and high fluctuations in annual export sales
values in export markets that are retained. The best examples of this situation is that
in 2002 Egypt’s first export market was Saudi Arabia with $ 12.6 mn of sales and its
third market was Sudan with $ 4.0 mn; with both of these countries recording no
export sales in 2003. The only exception to this conclusion are Romania, Morocco

ADE – DOL 18
and Jordan which generated significant growth in export sales values between 2002
and 2003.

The most likely reason for the high churn effect is that most of Egypt’s
pharmaceutical companies are restricting their exporting activity to responding to
international tenders. The export performance of these companies is dependent on
the decisions of tender evaluation panels, rather than being directed by proactive
market development activities. Achieving an increase in Egypt’s export performance
in pharmaceutical products will require a fundamental change in approach to opening-
up and developing the export sales potential of individual country markets.

Sector Orientation

A key outcome of applying the defensive economic policy is that Egypt’s

Pharmaceutical Sector is domestically oriented and has been suffering from poor
trading performance for a number of years. Multi-national companies
manufacturing in Egypt are incurring net losses at an average of 4% of turnover.
Indigenous generics and public enterprise manufacturers are maintaining profit levels,
but only through cutting costs on marketing and sales, and on product development.
Such cost cutting cannot be sustainable in the medium to longer-term without
undermining the future of these companies.

One of the most significant outcomes of the domestic orientation is individual

manufacturers each produce a wide range of products and have not adopted the
international trend towards increasing product specialisation. This effect can be seen
in Egypt’s export performance with export sales in 21 different product areas. All
regional countries that are more successful exporters than Egypt concentrate their
exporting efforts in one, or a limited number, of product areas. The percentage of
total export sales accounted for by one product area in 2002 was: 99% for Cyprus;
95% for Israel; 89% for Jordan; 81% for Malta; 79% for UAE; 76% for Iran; 75% for
Morocco; 59% for South Africa; 53% for Turkey; compared to 51% for Egypt.

Manufacturing Costs

Material inputs represent a higher proportion of manufacturing costs in Egypt, at 80%,

than their international equivalents, where these costs are 60%. The result of this
situation is that the advantage of lower manufacturing expenses, energy costs and
administrative costs in Egypt are lost.

The table overleaf compares the product cost structures of indigenous and
international manufacturers operating in Egypt, with their international equivalents.
Comparing international manufacturers operating in Egypt to such companies
manufacturing outside Egypt, the key points are:

• Cost of sales at 68% of total product costs, compared to 48% outside Egypt.

• Expenditure on marketing and sales 18%, compared to 32% outside Egypt.

ADE – DOL 19
Cost Heading Indigenous International Manufacturers
Manufacturers In Manufacturers In Outside Egypt
Egypt Egypt
Cost of sales 78% 68% 48%
Sales and marketing 5% 18% 32%
R&D 2% 3% 5%
Other costs 6% 6% 1%
Taxes 1% 1% 3%
Profit after interest 8% -4% 11%
Total 100% 100% 100%

• 3% allocated to research and development, compared to 5% outside Egypt.

The comparisons between indigenous manufacturers and their international

competitors are even more striking, with the key points being:

• Cost of sales at 78% of total product costs, compared to 48% outside Egypt.

• Expenditure on marketing and sales 5%, compared to 32% outside Egypt.

• 2% allocated to research and development, compared to 5% outside Egypt.

Not only is Egypt giving away its competitive advantage in low manufacturing costs,
but it has become a high cost location in which to manufacture pharmaceutical
products. The result is a squeezing of margins and lower budgets allocated to
marketing and sales and product development. This not a sustainable position for the
domestic manufacturing sector, but it also provides a partial explanation for the poor
export performance. The above cost comparisons provide evidence as to why
Egypt’s Pharmaceutical Sector is losing its competitive position.

Reductions in import tariffs during 2004 will help the above situation, but it is our
view that the higher input material costs are also due to a number of sector structural
issues, including:

• Purchasing these materials through import agents, or joint venture partners, rather
than purchasing business-to-business.

• The wide range of products being produced results in relatively small orders being
placed.

• Cash flow problems result in purchases being made on an as required basis, rather
than to longer-term contracts.

Manufacturing Capabilities

At the time of undertaking the review activity for this report during 2004, none of the
manufacturers covered by the company review were operating to current Good
Manufacturing Practice (cGMP) and none had obtained manufacturing accreditation
from an internationally recognised inspection body, such as the FDA. This compares

ADE – DOL 20
to India which had 126 approvals, or pending applications, of its manufacturing
facilities with the FDA.

Having such accreditation is now a pre-requisite for selling dosage products into
developed consumer markets in North America and Europe. The consequences of
this situation are reflected in Egypt’s export performance:

• In 2003 Egypt’s five largest exporting markets were: Romania at $ 11.4 mn

(31.9%); Morocco $ 4.6 mn (13.0%); Jordan $ 3.9 mn (10.9%); Kazakstan $ 2.5
mn (6.9%) and Pakistan $ 2.1 mn (5.9%).

• The former Soviet Union region is Egypt’s largest exporting market taking 42.2%
of exports in 2003, followed by: MENA 34.2%; Rest of Africa 8.7%; EU 8.2%;
and others 6.5%. There was no export sales to North America which is by far the
world’s largest pharmaceutical market.

• Egypt’s exports to the EU in 2003, valued at $ 2.9 mn compared to $ 5.6 mn in

2002. In 2003 the break-down of sales into the EU was 84% bulk and 16%
dosage products.

Pricing

Product pricing has been one of the successes of Egypt’s defensive economic policy,
but the success can only be viewed within short-term healthcare objectives. The
consequences of the pricing regime that has applied up to now are:

• Lack of profitability for the international manufacturers to justify investing in the

next stage of development of the sector.

• Lack of incentive to export as importing countries take into account the prevailing
prices in the country of export.

• Reduced levels of new product development which is a serious issue for Egypt’s
indigenous generic product manufacturers.

• Lack of resources to implement international market and sales development

campaigns.

• Medications available in Egypt concentrating on off-protection products, which

may either have more potent up-dated alternatives, or there are new innovative
products that provide better results.

Policy Change

With the imminent implementation of TRIPS there is a reduced role for defensive
economic policies, as with open borders, there are less policy instruments available to
protect domestic manufacturers from external competition. The fundamental issue in
this context is the reduced international competitiveness of the sector. Companies
that manufacture outside Egypt, with lower cost bases and efficiencies from product

ADE – DOL 21
specialisation, are likely to be able to under-cut indigenous manufacturers to gain
domestic market share.

A number of countries covered under the global review activity have already
recognised the need for a change and have given greater emphasis to offensive
economic policies to maximise the export sales of selected products. These countries
now have multi-level strategies for developing their domestic pharmaceutical
manufacturing sectors, around four main areas of activity:

• Applying bulk purchasing schemes to both material inputs for domestic

manufacturers, and for dosage products, to keep prices as low as possible.

• Encouraging the domestic manufacture of products still under-protection through

joint ventures, strategic alliances, manufacturing under license and local
manufacturing by multi-national companies.

• Purchasing domestically manufactured generic products, wherever these are

available at low prices and have the same medical properties as alternative more
expensive products.

• Identifying product areas, often based on domestically sourced natural materials,

where these products offer genuine medical properties which are demonstrated
through clinical trials. As such products can exploit the “grey” areas of TRIPS
they have the potential to become new innovative products at a fraction of the
development costs of new innovative synthetic products. National governments
can use their healthcare systems to encourage the purchase of these products
through having prescription systems that favour such products.

Egypt’s defensive economic policy has run its course and needs to be changed to an
approach that gives greater emphasis to offensive economic policies, that will return
the sector to its previous level of international competitiveness, and beyond. One of
the key elements of the new offensive economic policy should be an accelerated
increase in export sales.

Export Potential

In 2002 the regional market (Cyprus, Malta, North Africa, Middle East and Rest of
Africa) imported $ 8.3 bn worth of pharmaceutical products. There are 17 product
groups where the regional import values exceeded $ 50 mn in 2002. Egypt had
exports of over $ 3 mn in three of these product areas during 2002. It has therefore
been concluded that there is a short-term opportunity to increase export sales into the
regional market without having to wait for an improvement in manufacturing
capabilities. Exports into developed consumer markets will have to wait for
manufacturing facilities to be accredited by international organisations, such as FDA.

The main points to be taken into account in preparing for an export development drive
are:

• Activities to increase exports should be implemented within an overall programme

of initiatives to improve the sector’s international competitiveness and

ADE – DOL 22
 performance. This is important for manufacturers to have confidence that
improvements will be achieved across the sector, and will not be restricted to
exporting activity.

• Current production capacities need to be increased, with the emphasis in the short
to medium-term on increasing the number of shifts and personnel, rather than
requiring investment in additional production facilities.

• Availability of working capital within indigenous manufacturers to finance the

implementation of international market and sales development campaigns. This
may require co-operation between indigenous manufacturers to achieve the
required level of resources to break into new markets. It also needs to be
recognised that many of these manufacturers are relatively new to exporting and
may require to participate in business development programmes to prepare
themselves for increased exporting performance.

Recommended Approach

A key recommendation of this study, based on the results of the review activity, is
that Egypt’s pharmaceutical manufacturers and its national policy-makers, should
move away from polarising the future of the sector on product pricing. This is a
highly emotive issue, which has too many negative connotations, to provide the core
of taking the sector forward to its next stage of development. It is recommend that
there needs to be an open and transparent debate on how increased economic benefits
can be most effectively delivered from Egypt’s Pharmaceutical Sector to the national
economy.

Product pricing should be introduced as an issue within the consideration of accepting

changes to achieve increased economic benefits. Under this approach price
increases could be justified if they result in sufficient additional economic benefits to
offset the negative impact on domestic consumers and the government’s healthcare
budget.

ADE – DOL 23
 Part B

Egypt’s Pharmaceutical Sector Survival And Development Strategy

ADE – DOL 24
3 Policy Framework

Background

The operating framework plays a more important role in the pharmaceuticals sector
than other industrial sectors for the following reasons:

• the need to ensure that medicines do not damage patients, either as new products
being applied to the mass market for the first time, or under the manufacture of
existing products with proven, safe medical properties;

• the need to control government healthcare budgets used to purchase, or subsidise,

the cost of making medicines available to patients;

• the power and reach of the multi-national pharmaceutical companies and the
suspicion that they charge inflated prices to bolster their profits;

• the implementation of international agreements on the protection of intellectual

property rights, and other forms of protection, for companies that have invested
heavily in bringing new products to the market.

The above issues have resulted in the pharmaceutical sector being one of the most
heavily regulated in the world; each country having its own regulatory framework that
has been built-up over the last 50 years, but also international approaches such as
agreements at the EU level, and the global impact of TRIPS.

Sector Modernisation

Within the pharmaceutical sector there is as much need to modernise a country’s

operating framework, as there is its manufacturing companies. The background to
this situation, on a global basis, is described in part B of this report – Results And
Conclusions Of Review Activity In The Global And Domestic Pharmaceuticals
Sectors:

• Section 10 describes the three balance points between different groups of interest
relating to any national pharmaceutical sector.

• Section 11 describes the specific features of the sector as apply to differing extents
in all countries.

• Section 13 covers the advantages and disadvantages of different pricing regimes.

• Section 17 provides descriptions of the regulatory frameworks that exist in

selected comparator countries, by topic indicated in APP4, and compares the
situation in Egypt against these countries.

The overall conclusion of section 17 is that there has been a lack of modernisation of
Egypt’s regulatory framework. As such national frameworks determine the operating
environment in which all domestic pharmaceutical manufacturers trade, they are

ADE – DOL 25
significant determining factors of the state of modernisation of these manufacturers,
and therefore the competitiveness of the sector as a whole (see section 1 for an
explanation of the relative rates of modernisation). The link between the structure,
content, transparency and implementation of Egypt’s national regulatory framework,
and the current state of modernisation and trading performance of domestic
pharmaceutical manufacturers, provided the starting-point for preparing the PhSDS.
If a reader does not understand the link, or does not accept its existence, explanations
are provided in the sections indicated above.

Economic Policy Framework

Although the lack of modernisation of Egypt’s pharmaceuticals operating framework

is a significant issue for domestic manufacturers, it is the overall economic policy
framework which has had the most significant impact. The issue relates more to the
lack of a modern economic policies, rather than recent policies having deliberately
held-back the development of the sector. The lack of modernisation of the old
economic policies has resulted in the operating framework increasingly driving the
economic policy, rather than the other way round, as should be the case. As the
operating framework has itself not been modernised, there has been increasing
confusion of the direction of Egypt’s Pharmaceutical Sector and the lack of a strategic
decision-making.

The starting-point to addressing this situation is to achieve national agreement on an

economic policy towards Egypt’s Pharmaceutical Sector. This needs to be aligned
with economic and social policies towards Egypt’s Healthcare Sector. The operating
framework for Egypt’s Pharmaceutical Sector should be re-structured to support the
achievement of the agreed economic policy for the sector.

ADE – DOL 26
4 Strategic Positioning For National Pharmaceutical Sectors

Economic Policy Framework

The last section described the difference between a national economic policy and a
country’s pharmaceutical operating framework, and indicated that the most important
issue for Egypt’s Pharmaceutical Sector is a lack of modernising the economic policy.
There are two types of economic policy that can be applied in any country:

• Defensive economic policy.

• Offensive economic policy.

To understand the nature of the strategic issues in Egypt, it is necessary to understand

the differences between the two policies.

Defensive Economic Policy

Objectives The objectives of a defensive economic policy, in any country, are:

• Keep prices of pharmaceutical products low in the domestic market.

• Keep costs to government down, relating to: pharmaceutical products purchased

using the national healthcare budget; products subsidised through the healthcare
budget; or to the population at large through their personal purchases.

• Maximise domestic manufacture of pharmaceutical products consumed within the

domestic market.

Part B of this report, which presents the results and conclusions of the global and
domestic review activity, indicated that Egypt has been successful in implementing
the above objectives over the last 20+ years.

Elements The main elements of a defensive economic policy, in any country, are:

• Approvals to import pharmaceutical products and customs procedures which

make it difficult to import products that have been approved.

• Import tariffs and taxes that increase the price of imported products compared to
their normal international prices.

• Product approval system for new pharmaceutical products to be made available in

a domestic market which is slow, lacks transparency, is expensive to those
applying and subject to erratic decisions.

• Use of pricing regimes which apply low prices from the start of a new product
being approved, or do not allow price increases for established products to reflect
cost increases, or both.

ADE – DOL 27
• Having a wide-ranging Essential Drugs List with a high proportion of products
available in the domestic market covered by the additional protection provided by
being on the list.

A key conclusion of the review activity, see part B of this report, is that Egypt has
implemented a number of the above elements to support its defensive economic
objectives.

Offensive Economic Policy

Objectives The objectives of an offensive economic policy, in any country, are:

• Promoting and supporting the international competitiveness of pharmaceutical

manufacturers operating in the domestic market.

• The national pharmaceutical sector as a whole, and individual manufacturers, have

product specialisms that are recognised internationally, rather than manufacturing
a wide range of products to meet the overall requirements of the domestic market.

• Domestic pharmaceutical manufacturers maximise their export sales and

indigenous manufacturers are actively supported to pursue this objective.

Elements The main elements of an offensive economic policy, in any country, are:

• There is clear product positioning, set in a national strategy for the pharmaceutical
sector, which indicates product areas where there is a strategic objective of
developing domestic manufacture and other product areas where it is accepted
there will be a reliance on imports. The products allocated to each category may
be continually changing based on a combination of: improving domestic
manufacturing capabilities; new healthcare priorities; and new products becoming
available internationally.

• The domestic market is used as a incubator for developing and launching new
indigenous products which have been selected based on their potential for
international sales.

• There is a clear commitment from both the government and private manufacturers
to develop domestic R&D capabilities in selected product areas.

• There are business development programmes made available, with government

support, to internationalise domestic indigenous manufacturers. This support
should be directed at the indigenous manufacturers on the basis that the
international manufacturers do not require this type of assistance.

TRIPS

The key elements of TRIPS in relation to the two economic policies are:

• Open markets, with the removal of protectionist barriers to imports.

ADE – DOL 28
• Respect for and adherence to international intellectual property agreements.

As indicated in section 10, the implementation of TRIPS makes reliance on the

implementation of strong defensive economic policies redundant.

Consequences Of Strong Defensive Policy

The consequences of implementing a strong defensive economic policy over a period

of many years are:

• Low profitability and possible trading losses amongst domestic pharmaceutical

manufacturers.

• Lack of investment in up-grading manufacturing facilities and resources to

develop new products, open new markets and develop domestic brands to compete
with international brands.

• The whole pharmaceutical sector being domestically oriented, with the objective
to supply as many as possible of the products consumed domestically, regardless
as to the cost effectiveness and manufacturing efficiencies of pursuing this
approach.

• The whole domestic manufacturing sector becomes uncompetitive, which is of

particular concern with the full implementation of TRIPS from the beginning of
2005.

• Manufacturers operate to product a wide range of products for domestic

consumption, which results in them being general producers.

The overall result are modernisation gaps, with the domestic pharmaceutical sector
falling increasingly behind the sector leaders in international competitiveness.

Reaction To TRIPS

Countries with domestic pharmaceutical manufacturing capabilities have known about

the full implementation of TRIPS for 10 years, and longer. The implementation of
offensive economic policies has been largely as a response to the implications of
TRIPS. The common features of countries that have implemented offensive
economic policies are:

• Exploit the “grey” areas of the TRIPS legislation, where active support can be
given to domestic manufacturers without breaching any of the regulations
contained within the international legislation. This has resulted in greater
emphasis on natural products as the chemical compositions of their ingredients
cannot be patented.

• Moving to a applying a national system of costs and benefits to a: national

healthcare system; government budget; or economy, to determine the priority
products to be supplied by each of the four main product sub-groups:

ADE – DOL 29
 - Domestic manufacturers headquartered outside Egypt;

- Domestic synthetic manufacturers headquartered inside Egypt;

- Domestic phytopharmaceutical manufacturers headquartered inside Egypt;

- Importers of pharmaceutical products into Egypt.

• Apply a national policy of selecting products from the first three product areas
where the domestic pharmaceutical sector is to develop an international reputation
and where R&D resources are to be focused.

• Apply national purchasing schemes for both material inputs and final dosage
products to keep costs down.

Policy Decision

In the TRIPS era the key policy decision to be made by any national government is
where it positions itself between the defensive and offensive economic policies. As
indicated in section 10 there are no rights and wrongs in reaching this decision; each
country has to determine the position that is best for itself based on domestic
circumstances. The key conclusions of international and regional comparisons in
section 17 is that “smart” countries started this process during the last decade and
pursue both defensive and offensive economic policies at the same time. The way
this works can be summarised as follows:

Defensive Economic Policies Are directed at:

• Pharmaceutical products that have to be imported with the objective of making

available these products at as low prices as possible in the domestic market.

• Continuing to maximise the domestic manufacture of pharmaceutical products

that are consumed domestically, but within the product positionings, selections
and prioritisations described above under the elements of the offensive economic
policy. Under this approach it will be better to import products that are required
in small quantities rather than to arranged for domestic manufacturers to have to
manufacture small batches and hold low level stocks.

• Focus the pricing regime on the Essential Drugs List and in particular on the
products that need to be imported.

Offensive Economic Policies Are directed at:

• Products that have been developed indigenously and maximise the use of
domestically sourced raw materials.

• Identifying modernisation gaps and achieve high levels of international

competitiveness in all types of domestic manufacturers.

ADE – DOL 30
• Applying strong exporting campaigns in products where domestic manufacturers
have competitive advantages.

Costs / Benefits Assessments Are applied at three levels to determine, whether:

• A product should be imported as it is either:

- Under-protection and the manufacturer does not want to manufacture it in

Egypt.

- Not within the list of priority products to be manufactured in Egypt.

- Not economic to manufacture in Egypt, for whatever reason.

• Preference should be given to domestic manufacture of the original product either

under direct manufacture or some licensing arrangement if the product is under-
protection.

• Preference should be given to domestic manufacture by indigenous producers,

through either developing a generic synthetic product if the product is off-
protection; or, a natural product with equivalent medical properties, regardless as
to whether the product is under-protection, or not.

Features Of Dual Economic Policies

Key features of countries that pursue defensive and offensive economic policies at the
same time are indicated in the following table:

Features Of Defensive Economic Policy – Features Of Offensive Economic Policy –

Tends To Be Applied In These Situations:
To synthetic products
Domestically manufactured products which
depend on imported input materials
Products that are still under-protection
Concentrate imports on products that are the
most effective in their product areas and their
import has been justified through a cost /
benefit assessment
Use ability to pay (government budget,
private healthcare provider budgets, or
individual consumers) to focus on purchasing
the most effective products in their respective
product ranges
Tends To Be Applied In These Situations:
To natural (phytopharmaceutical) products
Domestically manufactured products which
use domestically sourced raw materials
Product that are off-protection
Concentrate exports on selected products
where the country has genuine and strong
competitive advantages
Use overall domestic purchasing and
prescription system to favour indigenous
products where these are available and have
similar medical properties to other products
that are available

The key decision under the dual approach is to determine which products are
allocated to be covered by the defensive and offensive approaches. It needs to be
recognised that the allocation of products to the two approaches may change based
on: new policies; new under-protection products coming available; or new indigenous
products coming available.

ADE – DOL 31
Cost Benefit System

The system should place the onus on the company that wants to introduce a new
product to prepare a cost benefit assessment which will be submitted to GoE for
review, rather than GoE undertaking its own assessments. There should be two
elements to the cost benefit system depending on who will pay for the product to be
imported:

• The public sector pays either through the healthcare system budget, or through the
military and police budgets.

• Private patients pay.

The approach to determining cost benefit results will depend on the where the new
product is to be directed.

Healthcare System

New products that are directed at the healthcare system budget will require GoE to
publish a range of cost indicators that can be used by pharmaceutical companies in
undertaking their assessments. Such indicators could include:

• Cost per doctor visit.

• Cost per hospital check-up, by type of check-up required.

• Cost per day / night in hospital.

• Cost of different types of operation and post-operation care.

• Cost per day “off-sick” to employer and to economic sector.

• Cost to social insurance system for each person accepted to be long-term sick.
The pharmaceutical company should demonstrate how the use of its product will
generate savings against the above cost indicators that are greater than the cost of
purchase to the healthcare budget. The approach should apply whether the healthcare
budget is to be used to make the purchase outright, or to subsidise part of the cost of
purchase.

Private Patients

With private patients it should be up to the pharmaceutical company to undertake its

own market research to determine ability to pay and willingness of doctors, hospitals
and medical insurance companies to prescribe. The main impact in this area is on the
trade balance. Pharmaceutical companies should indicate how they will achieve
exports out of Egypt of other pharmaceutical products to counter-balance the
projected increase in import values of the new product. For pharmaceutical

ADE – DOL 32
companies that do not have manufacturing facilities in Egypt the approach could be to
enter into a licensing agreement with an existing manufacturer, with the export sales
either undertaken through their own international sales networks, or out-sourced.

Both Approaches

For products that have a healthcare system budget implication and will be sold for
private patients the pharmaceutical company should be able to submit its case under
both headings.

ADE – DOL 33
5 Situation In Egypt

Overall Conclusion

The key conclusion of the Results And Conclusions Report applied to the explanation
provided above is that Egypt has been applying a strong defensive economic policy
for 20+ years and this has not changed during the lead-in period to introducing
TRIPS.

Impact Of Approach

The consequences of applying a strong defensive economic policy have already been
described above.

The outcomes for Egypt from having applied a strong defensive economic policy are:

• Overall poor sector performance, with a key conclusion of the review activity, see
part B of this report, being that there has been stagnation within the sector for at
least 5 years. The Steering Committee meeting held on 23rd November decided
that it would be more appropriate to refer to a Sector Survival Strategy, than a
Sector Development Strategy.

• Low contributions from the sector growth to national economic growth (see
section 14), which is significant as this should be one of Egypt’s most promising
sectors.

• Low export growth compared to regional competitors, see section 18.

• Applying a strong defensive policy has not stopped imports increasing and the
trade balance worsening, see section 18. From a healthcare system perspective
the imports are also almost totally of off-protection products where there could be
more effective under-protection products available.

• The period of stagnation for the last 5+ years needs to be compared to the period
in the 2nd half of the 1980s and 1st half of the 1990s when there was strong growth
in Egypt’s Pharmaceutical Sector.

The results of these outcomes are;

• A lack of preparation for TRIPS.

• Low competitiveness of pharmaceutical domestic manufacturing.

• Lack of ability to increase exports in the short-term due to a combination of the

domestic pricing regime and lack of spare production capacity. In the medium to
longer-term the issues are not having the latest international accreditations for
domestic manufacturing facilities required to enter developed consumer markets
with final dosage products.

ADE – DOL 34
6 Development Drivers And International Comparisons

International Development Drivers

Based on the global review activity described in part B of this report, the following
have been identified as the international development drivers for the pharmaceutical
sector in any country:

• Clearly articulated and accepted dual defensive and offensive economic policies
that provide a basis for long-term planning of investments in pharmaceutical
manufacturing, new products and opening new markets.

• A regulatory framework, including pricing regime, that is aligned to implement

the defensive and offensive economic policies and meet separate national
healthcare objectives.

• Separate single representative organisations for the regulatory system and the
domestic pharmaceutical manufacturers and international suppliers for effective
communications, raising issues and agreeing policies.

• Product positioning agreed and applied, with each product allocated to one of the
four main product sub-groups, including identification of products with
international competitive advantages.

• Strong commitment to domestic R&D in the product areas selected for focused
export campaigns and for the longer-term development of international reputation.

• Business development programmes which support the indigenous manufacturing

companies to become international leaders in their selected areas of product
specialisation. These programmes should cover both closing modernization gaps
to improve the international competitiveness of the indigenous manufacturers and
to provide assistance with generating increased export sales.

International Comparisons

International comparisons of the situations in China, India and Jordan, compared to

Egypt, are provided in section 17. The stronger the activation of a development
driver the greater the support to achieving a high level of sector growth. The weaker
the activation (or the non-existence of an activation) the less the operating framework
of the sector will contribute to its growth, to the extent that the weak activations could
be hindering the achievement of growth.

The stronger the positive activation of a development driver the stronger the shade of
green; the weaker the level of activation the stronger the shade of red.

The results from the table overleaf can be summarised as follows:

• All three comparator countries have significant levels of green, whereas Egypt has
a significant level of red. The extent of the red for Egypt indicates that the

ADE – DOL 35
 current operating framework is hindering development of the sector and holding-
back its performance.

China India Jordan Egypt

1.Clearly articulated and accepted dual Apart from Strong
defensive and offensive economic Not necessarily Strong Israel only defensive
policies that provide a basis for long- clearly offensive country economic
term planning of investments in articulated policy with policy
pharmaceutical manufacturing, new throughout positive
products and opening new markets healthcare trade
system balance
2.A regulatory framework, including Number of First No major
pricing regime and EDL, that are reviews and country in changes for
aligned to implement the defensive changes Middle East many years
and offensive economic policies Since1996 implemented. to
and meet separate national Further implement
healthcare objectives reviews Trips,
required current
review
3.Single representative organisations
for the regulatory system, and the
domestic pharmaceutical
manufacturers and international Still 3 Still 3
suppliers, for effective Since 1998 regulatory Since 1996 regulatory
communications, raising issues and organisations organisations
agreeing policies
4.Product positioning agreed and Developing Strong on this
applied, with each product allocated approach. approach -
to one of the four main product sub- Commitment to integrated in High Does not
groups, including identification of Chinese with percentage exist, except
products with international Traditional healthcare of exports as a
competitive advantages Medicines. purchasing in single defensive
Under-protection and R&D product policy
synthetics through expenditure area
joint ventures
5.Strong commitment to domestic In selected Through
R&D in the product areas selected generics (India joint
for focused export campaigns and In selected has BPC and ventures Does not
for the longer-term development of Traditional API with US exist, except
international reputation Chinese manufacturers), companies in vaccines.
Medicines and in access to
Trditional Bolar
Indian Provision
Medicines
6.Business development programmes Do not exist
which support the indigenous as of now,
manufacturing companies to become Not clear extent to Strong From Central except as
international leaders in their selected which exist support, but Economic functional
areas of product specialisation not clear how Development business
delivered Department up-grading

7. Domestic manufacturers that are Too many small 126 Indian Small number Was
internationally competitive producers, need to manufacturing of previously a
re-structure facilities have companiess, strong
production received, or with activation but
facilities have applied to specialisations now
receive FDA and US joint increasingly
approval ventures uncompetitive

ADE – DOL 36
• Most of the changes that were made in the comparator countries to bring their
operating frameworks in-line with the international development drivers were
started 6 – 8 years ago, with most of these countries involved in second round
reviews to improve the framework. Egypt has still to start the process.

• In the case of India, although it has a negative result against the third development
driver it has sufficient strong positive activations under the other five development
drivers to achieve an overall strong offensive economic policy.

• The only development driver where Egypt scores better than any of the other
comparator countries is in – domestic manufacturers that are internationally
competitive. Here Egypt has a negative result as it is going backwards from a
strong previous activation, but both India and Jordan have strong activations.
China’s weak activation relates to its indigenous manufacturers which will
spearhead its development of Traditional Chinese Medicines and generic products,
rather than in the joint venture manufacturers which supply the domestic market.

ADE – DOL 37
7 Pharmaceutical Sector Development Strategy

Role

The role of the Pharmaceutical Sector Development Strategy (PhSDS) is firstly to

turn-around the performance of the sector from being in a period of stagnation, and
more recently in decline, to give domestic manufacturers confidence that there will be
a new period of profitable trading and growth. Only once this has been achieved can
the second role be pursued, which is to achieve sustained high rates of growth and its
rightful position in Egypt’s economy.

Direction

The starting-point to the PhSDS is to change the direction of the economic policy that
is being applied to Egypt’s Pharmaceutical Sector. There needs to be a much stronger
offensive economic policy to counter-act the existing strong defensive policy.
Section 4 described these two policies in terms of their objectives and elements, and
indicated the consequence, outcomes and results of relying only on a strong defensive
economic policy. Through this report we cannot indicate the right balance between
the defensive and offensive approaches for Egypt, for the following reasons:

• There are no economic benefit targets yet set by GoE, but we propose such targets
in section 9.

• There are no economic benefit bids yet submitted by the pharmaceutical

companies, see section 9, on how this to be progressed.

• There has not been any dialogue with the Healthcare Sector on their objectives,
priorities and targets.

• Ultimately the decision on the point of balance is political, though under the new
government the decision should be reached in partnership with the private
pharmaceutical companies.

• Reaching decisions on the point of balance will be a learning process, with there
being inevitable inherent concerns over the impact of applying a more offensive
economic policy, even if it is restricted to selected product areas. It is likely that
applying an increasingly strong offensive economic policy will happen over a
number of years. This is what has happened in the comparator countries covered
in section 17.

Sector Vision

The vision of the PhSDS is to combine; growing the domestic market by 10% per
year; with achieving export performance that is equal to Turkey within three years;
and to be the second best regional export performer within five years, ahead of Jordan
which currently holds this position.

ADE – DOL 38
Based on 2002 figures this will require to increase annual exports by $ 100 mn to $
141.2 mn during 2007, and by a further $ 80 to $ 221.2 mn by 2009. To avoid
sucking-in increased imports and to support the growth in exports, domestic
production capacity will increase by 60 - 70% by the end of the five year period.

Elements Of PhSDS

We are able, though, to indicate the elements of the PhSDS that need to be
implemented to achieve the change in direction and the pursuit of finding the right
point of balance. The elements are:

• Economic and healthcare objectives combined into a single set of objectives

relating to Egypt’s Pharmaceutical Sector. This does not require a full integration
of all healthcare objectives, only those that relate to the domestic supply of
pharmaceutical products.

• Strong domestic manufacturing capabilities that are accredited to international

manufacturing standards (cGMP).

• Input materials available domestically at normal international prices.

• Identifying and extending manufacturing cost competitive advantages, with this

possibly being differentiated by product sub-group.

• Product selection to indicate priorities and allocation of these products by sub-

product group.

• Indigenous manufacturers that are competitive as a first step compared to regional

best practice and second are driven towards achieving international best practice.

• Introducing a new benchmarking system to provide ongoing measures of

international competitiveness and to indicate the extent to which modernisation
gaps are being closed.

• Indigenous manufacturers that are resourced to have an annual programme of new

product launches which are differentiated from the competitor products and to sell
into export markets.

• Strong domestic R&D facilities and programmes in the selected products to be

developed under: domestic synthetic manufacturers headquartered inside Egypt;
domestic phytopharmaceutical manufacturers headquartered inside Egypt; or as
product development services to be sold internationally.

• Longer-term development of an indigenous biotechnology sub-sector, with

particular focus on the selected product areas for developing indigenous products.

• Identification and research of target export markets, initially in the regional

market and after a suitable period of 3 – 5 years into developed European and
North American consumer markets.

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• Availability of business and market development programmes that are: directed at
indigenous pharmaceutical manufacturers; tailored to meet their specific
requirements; can improve the international competitiveness of the indigenous
businesses; and result in significant improvements in trading performance.

• Increase in production capacities in the short to medium-term through more

intensive use of existing manufacturing facilities, with addition of new facilities in
to be operational in 3 – 5 years.

Current Situations And Future Proposals

Economic And Healthcare Objectives Combined It may take some time to have a
complete set of co-ordinated and combined objectives, as the international
comparisons (see section 17) indicate that countries that started this process in the mid
1990s are still evolving their approach. Based on the urgency that is indicated in
section 5, it is recommended to concentrate in the short-term, only on objectives
where there can be quick agreement. Others that will require more debate to finalise
should be left to after the first round of bids, see sections 8 and 9.

Strong Domestic Manufacturing Capabilities All of Egypt’s pharmaceutical

manufacturers should adopt the objective of achieving the international cGMP
standards, though, each facility will have different timescales. It should be noted that
in China (see section 17) it is the achievement of this objective that is driving the
agenda for mergers and acquisitions within its indigenous manufacturers.

Input Materials At International Prices Section 18 indicates that Egypt’s

pharmaceutical manufacturers are faced with higher material input costs, on a
percentage basis, than their international competitors. Although the reductions in
import tariffs that were announced earlier, and the new treatment of sales tax on
imported machinery that was announced at the end of November, there needs to be a
thorough investigation of this issue to identify if there are any structural issues that are
contributing to the situation.

Manufacturing Cost Competitive Advantages Section 18 indicates that Egypt’s

pharmaceutical manufacturers have cost competitive advantages in manufacturing
expenses and energy, but up to recently these advantages have been over-ridden by
the higher material input costs. The more the material input costs can be reduced, the
more the other cost advantages can start to have a positive effect. If material input
costs can be demonstrated to the same as apply internationally and the manufacturing
expense and utilities cost advantages can be quantified more explicitly this will
provide the basis for implementing an FDI campaign in the pharmaceutical sector.

Product Selection There will be two approaches to product selection. The first
approach relates to pharmaceutical products to be made available within the domestic
market where the selection process will require close liaison with the Ministry of
Health. Outputs from this product selection activity should be: products allocated to
the defensive economic policy; revised EDL; product areas where domestically
developed products are to be given prescription priority; and product areas where
R&D activity is to be concentrated to meet domestic healthcare objectives. The
second approach relates to increasing the sector’s performance with products selected

ADE – DOL 40
based on their export potential. This will apply either to existing products or product
areas to be covered by R&D activities. The remainder of this report concentrates on
developing the second approach.

This requires to be progressed within the context of the implementation mechanism

described in the next section. The results indicated in section 14 provide a starting-
point, with Egypt’s strongest export performing products in 2002 having been:

• In bulk products: penicillins / steptomycins; penicillins; vitamins B1; and

theopylline / aminophylline.

• In dosage products: insulin; hormones (not including antibiotics); and adrenal

cortex hormones.

In undertaking the product selection activity it should be noted that section 17

indicates there were 17 product groups with import values exceeding $ 50 mn into the
region in 2002. As the level of imports in any of these single product areas exceeds
the value of Egypt’s total exports in 2002, there is no shortage of products from which
to select the priority products.

Product selection will develop in a series of phases based on the availability of market
research combined with the development of indigenous R&D and manufacturing
capabilities. The phases are likely to start as follows:

1. Select products to be given priority for increasing regional exports during 2005.

2. Select products that can achieve short-term added-value during 2005.

3. Select product areas for R&D activity 2006 and 2007.

4. Select products for increasing regional exports 2006 and 2007.

Further phases will be added based on developing R&D capabilities and export
experience.

Internationally Competitive It is essential that Egypt’s indigenous manufacturers

develop their overall product capabilities to become internationally competitive,
across all of their areas of activity. Specific areas where there are existing
weaknesses within these businesses are in, managing research and development
programmes to achieve the best results, and entering new export markets based on
international approaches to marketing and selling. The regional market provides the
potential to try-out some of the new techniques involved in international market
development, before applying them in established consumer markets (Europe and
North America). The way the product capabilities should be developed are explained
below in greater detail under the business and market development element.

New Benchmarking System Introduction of a new benchmarking system to all

domestic pharmaceutical manufacturers with the system split into domestic and
international comparisons. The international pharmaceutical manufacturers operating
in Egypt should be approached to provide access to their internal international

ADE – DOL 41
comparisons to become an integral part of the system Proposed elements of the
system are indicated below with the list to provide a starting-point:

Domestic Comparisons:

• Progress through a series of steps to achieve cGMP.

• Development of exporting capabilities against a checklist that is linked in with the

structure of the Business Development Programme, see below.

• Development of R&D capabilities if this is to be progressed on a company-by-

company basis. If the a collaborative approach is to be used, as proposed above,
this element of benchmarking will not be required.

• New export markets being assessed, with stages used to indicate progress. The
stages could include: products selected; completion of market research; priorities
markets agreed; export strategy prepared; budget allocated; visits to market; in-
country sales system established.

• Export sales by target export market.

International Comparisons:

• Capital investment as percentage of turnover.

• Investment in R&D as percentage of turnover.

• Expenditure on marketing and sales as percentage of turnover, split domestic and

export sales.

• Distribution of profits to shareholders and retained for development.

• Material and operating costs that are out of the control of the pharmaceutical
manufacturers, with particular focus on imported BPCs and APIs.

• Operating costs that are controlled by the pharmaceutical manufacturers, such as:
labour; waste levels; packaging; distribution; freight for exports.

• Productivity levels per shift, use of overtime, training delivery.

• Organisation structures, with split of total workforce by function and activities.

• Use of international management techniques.

Indigenous Manufacturers Resourced To Compete The Results And Conclusions

Report indicated that the majority of Egypt’s pharmaceutical manufacturers are
domestically oriented. Those that are generating profits tend to distribute them to
shareholders. There are issues over working capital availability amongst the
indigenous manufacturers and whether most of the indigenous manufacturers,

ADE – DOL 42
excluding a few exceptions, are too small to become truly internationally competitive
and to achieve export-led growth. The key issue are the costs involved in identifying,
developing and launching new added-value products, that avoid having to compete
only on price, and maximising the sales of these products in international markets.

Section 11 indicates it costs international pharmaceutical companies $ 500 – 1,000 mn

to launch a new innovative product. Up to now most indigenous pharmaceutical
products manufactured in Egypt are generic copies, with some added-value products.
The costs of launching such products are minute compared to innovative products
with most of the costs relating to national (Egyptian) product approvals for
manufacture and marketing. A key feature of the PhSDS is to move away from
relying on copied products to have a national programme of launching more
innovative natural products. Most of these will fall under the phytopharmaceutical
product area, but the term natural products is used to include natural raw materials
that can be processed into base products. With an emphasis on identifying new
natural products that have genuine medical properties there will be a requirement for
product trials and the preparation of drug master files to achieve product approvals.
There will also be the need to have this process internationalised to ensure the
approvals will be accepted by the target export countries. The steps required to
launch new products are described in section 11.

As a starting-point the indigenous manufacturers that will participate in new product

development need to agree a range of costs of launching new natural products into
export markets. The cost range will indicate the funding requirement for each new
product launch, with each individual indigenous company determining its ability to
fund such costs on its own. With the objective of having products with medical
properties the costs and to achieve international sales the costs are likely to be higher
than those incurred by the manufacturers so far. Having a better understanding of the
costs will assist indigenous manufacturers to determine how best to proceed before
committing to any new R&D expenditure. The options that can be pursued are:

• Shared costs of R&D activities where a number of manufacturers can benefit from
the results.

• Government funding to support R&D activities.

• Shared marketing and sales activities for common target export markets.

• New equity into manufacturers to fund product development and launch

programmes. The recently announced IMC – Concorde private equity scheme is
a potential source of such funding.

• Splitting R&D activities from mainstream manufacturing to avoid having to give-

away majority shareholdings to obtain funding.

Due to the costs involved it is recommended that consideration should be given to a

number of the existing indigenous manufacturers merging their existing R&D
facilities into a single world class facility, or facilities concentrating on different
product areas. It may be easier for GoE to become directly involved in joint funding

ADE – DOL 43
such facilities if they are to be operated on a collaborative basis, rather than benefiting
a single company.

Strong Domestic R&D Facilities And Programmes The approach to strengthening

Egypt’s domestic R&D activities cannot be determined until:

• The priority areas have been selected for medium and longer-term product
development activities, see above.

• The domestic manufacturers headquartered outside Egypt have indicated the

assistance they could provide in the area of strengthening domestic research
capabilities (see section 9).

• The domestic manufacturers headquartered outside Egypt have indicated the areas
in which they are willing to contract product development services from Egypt’s
R&D centres (also see section 9).

The starting-point to this area of activity should be to review the existing R&D
facilities that relate to Egypt’s Pharmaceutical Sector. This review activity should
cover: the pharmaceutical manufacturers; Universities; hospitals; Ministry of Health;
and private facilities. The review should result in the preparation of a sub-sector
development strategy for strengthening and commercialising R&D activities. A
particular area of review activity should be to obtain cost break-downs by different
types of delivery and to match these costs with capabilities to provide indications of
cost effectiveness to meet emerging new R&D requirements.

There needs to be a debate within the Board (see next section) on the relative priority
that should be given to strengthening the R&D facilities between:

• Existing R&D facilities in one, or more, of the pharmaceutical manufacturers.

• Using University Departments or hospitals with R&D facilities.

• Out-sourcing to private facilities, either already exist, or to be established.

• Totally new facilities to be set-up built as dedicated centres of excellence.

Within the context of the above section 12 indicates that internationally the trend is to
out-source R&D activities.

Indigenous Biotechnology Sub-sector Section 12 indicates biotechnology has

become the leading-edge pharmaceutical activity. Although only a handful of
countries have genuine innovative pharmaceutical sectors, many more countries have
developed biotechnology capabilities. The PhSDS should include the long-term (5 –
10 years) development of an indigenous biotechnology sector. This time horizon is
proposed as having domestic successful biotechnology sector is dependent on:

• Strong R&D activities with commercial leadership coming from the researchers.

• An established venture capital sector to fund the R&D activities.

ADE – DOL 44
It is expected that it will take at least 5 years for these two requirements to be met.
Nevertheless planning for such a sub-sector can start from now to identify a portfolio
of innovative R&D activities that could be undertaken if “biotech” companies become
established in Egypt. The collaborative R&D facilities described earlier could be
viewed as a first step in meeting the first of the above criteria.

Target Export Markets Sections 16 and 18 provide a starting-point of regional

market information to undertake targeted follow-up in-country market research.
Before starting this activity there needs to be progress with the product selection
element (see above), with at least two or three initial production specialisations
identified for in-depth assessment. The key outcomes of the review activity, in part
B of this report are:

• Egypt’s largest export markets for bulk products in 2002 were: Sudan; Saudi
Arabia; France; Hong Kong; and Turkey.

• Egypt’s largest export markets for dosage products in 2002 were: Saudi Arabia;
Romania; Jordan; and Oman.

An international market research capability needs to be established to support the

vision and export objectives of the PhSDS. This will undertake ongoing regional
market research on behalf of the sector as a whole to:

• Develop and up-date the PhSDS based on the identification of new market
opportunities.

• Support the economic benefit bidding process by providing examples from other
countries on how their pharmaceutical sectors are developing.

• Assist the selection of the priority products during each phase of this activity (see
above).

• Support the targeting of R&D activity to ensure new product development

activities are directed at final products with high export potential.

• Provide a market information resource for delivering the market development

programmes into individual pharmaceutical manufacturers, see next point.

Business And Market Development Programmes These are currently not available
as integrated delivery into individual businesses under an overall business
development strategy. The recommended programmes for the indigenous
manufacturers are:

• Up-grading manufacturing capabilities to be at the level that can achieve

international cGMP inspection standards.

• Up-grading overall product capabilities to be initially at least comparable to

regional best practice and drive them towards international best practice. These
product capabilities should be much wider than manufacturing and should cover
areas such as: R&D; new product development; marketing and selling in export

ADE – DOL 45
 markets; product branding; and the areas of weakness identified in section 15.
The programme should be linked closely with the operation of the benchmarking
system, with a key objective of the programme to assist with closing the
competitiveness gaps.could be developed with assistance from the domestic
manufacturers headquartered outside Egypt, with possibly even a new
benchmarking system being established.

• Internationlisation programme with the key elements of the programme being:

product specialisation; identifying areas of manufacturing competitive advantages;
forming successful international strategic alliances and joint ventures; using
mergers and acquisitions to expand the resource base; planning and implementing
market research; preparing export market entry strategies.

• R&D programme to identify and implement common areas of research and

product development that will assist a number of indigenous businesses.

Development Activity Packages

It is recommended that the above elements of the PhSDS, and other activities
identified through the study, but not referred to above should be implemented through
five Development Activity Packages (DAPs). The five DAPs and the activities to be
progressed under each are:

1. Remove Constraints On Development The main activity here will be to

undertake a thorough assessment of the reasons for the relatively high material
input prices in Egypt. Once the results are available, GoE should be requested to
remove the constraints that fall under its area of responsibility.

2. Strategic Development Projects The following strategic development projects

have been identified:

• New regulatory framework for Egypt, including: product approvals;

undertaking R&D stages as described in APP4; moving approval system from
final products to manufacturing facilities; pricing regime, including basis of
agreeing price increases; Essential Drugs List; use of GoE’s direct purchasing
budget.

• New single pharmaceutical sector regulator.

• New single domestic manufacturers and suppliers representative agency.

• Identifying natural raw materials which have on their own, or when mixed
with other input materials, medical properties that can be used as the basis of
identifying new products. It is recommended that this activity should be
undertaken on a joint private – public sector basis as there will be considerable
benefits back to Egypt’s economy if new raw materials are identified. There
is therefore a justification for GoE part funding this activity at the raw material
stage.

ADE – DOL 46
 • Identifying new products areas that have strategic international significance
where Egypt could develop an international reputation. This could involve
developing an international Egyptian Traditional Medicines brand. This area
of activity could benefit from having access to venture capital, or other forms
of capital, that are able to apply the require timeframe for profits to be
generated.

• Making available product development grants, on a competitive basis, for

smaller business development projects which are not sufficiently large to go
down the external capital route.

• Developing Egypt into a centre for research into African diseases that are not
of interest to the multi-national companies due to lack of product selling
potential. Two areas that may be worth exploring further here are to ask the
multi-national companies to provide access to the results of research they have
discarded and to approach international and bi-lateral aid agencies on
providing funding for specific areas of research.

• Introduction of purchasing schemes either for material inputs that are imported
or final dosage products. The scheme could also cover products
manufactured domestically to provide certainty of orders in specific product
areas.

3. Assessment Of Development Opportunities

• R&D opportunities for indigenous companies passing through the business

development programmes on an out-sourcing basis.

• Domestic consultancy firms developing a capability to assist domestic

manufacturers to achieve international cGMP accreditation.

• Designing and implementing the proposed domestic benchmarking system to

be developed locally under the leadership of the manufacturers with
headquarters outside Egypt.

4. FDI and International Strategic Alliances Although no specific FDI, or

international strategic alliance, opportunities are identified in this PhSDS, they
should start to become evident based on the following four activities:

• Agreement on the selected products to be pushed into export markets.

• Outcome of the benchmarking system on the two areas of costs proposed

above.

• Identification of capacity gaps that need to be filled to meet domestic market

requirements or to support export sales.

• Identification of the products on the Essential Products List and those new
products that could be manufactured domestically.

ADE – DOL 47
 FDI in R&D activities, see above under strategic development projects.

5. Business And Market Development Programmes This relates to the design and
delivery of these programmes as described above. The recommended starting-
point is to develop and finalise the benchmarking system described above and to
apply this to all of the pharmaceutical manufacturers during January to March
2005. The results of this exercise will indicate the modernisation and
competitiveness gaps in each company. Once these have been identified it will
be possible to be more specific on the required content of the Business and Market
Development Programmes.

Although some specific areas of business development activity are identified

above it is proposed that the first step should be to identify total requirements as
this will indicate the full range of activities to be delivered by company. This
approach will allow for an integrated programme of delivery in each company to
up-grade all factors that determine international competitiveness.

Stages

As of now there should be three stages to the PhSDS:

• Stage 1 – agree initial point of balance between offensive and defensive economic
policies to be applied during 2005 and prepare PhSDI Report to take into account
the changes and developments associated with the dual policies. This stage will
involve further preparatory activity and will last four months from January to end
April 2005.

• Stage 2 – turn-around the sector from having been in a period of stagnation, and
more recently decline, to give domestic manufacturers confidence of a new period
of profitable trading and growth. This stage to a significant extent involves the
pharmaceutical companies gaining confidence that the sector’s prospects are
improving and is about to enter a new period of sustained growth. This stage will
last eight months from May to December 2005.

• Stage 3 – based on progress under stage 2, achieve sustainable high rates of sector
growth and its rightful position in Egypt’s economy. To be delivered from
January 2006 onwards, with further stages identified at the start of implementing
this stage.

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8 Implementation Mechanisms

Two Mechanisms

Two implementation mechanisms are proposed. The first will provide the structure to
manage the process of agreeing government flexibilities in exchange for economic
benefits to be delivered by the pharmaceutical companies; the “deal-making
mechanism”. The second mechanism will implement the PhSDS, in particular it will
co-ordinate and manage the delivery of the DAPs to achieve the improvements in the
trading performance of individual pharmaceutical companies, that will generate
overall improved sector performance. The first is referred to as the “Deal-making
Steering Committee”; the second as the “PhSDS Board”, with both to operate under
an overall Pharmaceutical Sector Development Initiative (PhSDI).

Executive Team

Both the Committee and the Board are proposed to have an Executive Team, with it
being the same team to support the operation of both mechanisms. It should also be
noted that the Deal-making Steering Committee will operate for the time required to
secure agreement on each deal, which should normally be repeated on an annual
basis. As it is expected that it will take three months to negotiate each deal, this
Committee will only meet for three months out of every year. During these three
months it will require intensive support from the Executive Team. The PhSDS Board
will meet continually during every year and will require continuous support from the
Executive Team.

Start-up

As already indicated it is expected that each round of deal negotiations will require
three months to be completed. Assuming this starts in January 2005 the first
economic benefit deal should be signed by early April 2005, with this period referred
to as interim implementation. At this time the balance between the offensive and
defensive economic policies will be known, as well as the flexibilities from
government and the economic benefits to be delivered by the pharmaceutical
companies. The outcome of the negotiations will have implications for the content of
this Sector Development Strategy and it should be recognised that this report should
be up-dated at the time of the deal being agreed. When this happens it should become
the Pharmaceutical Sector Development Initiative Report as it will cover both the
content of this PhSDS and the outcome of the first economic benefit deal.

Sector Development Charter

As a first step in implementation all parties should sign a Pharmaceutical Sector

Development Charter (PhSDC). The PhSDC will be used to structure the dialogue
and negotiations that need to be held during the interim period leading into full
implementation. The existence of the Charter will indicate that all parties will act in
good faith to reach an agreement that is fair to all sides. It will also provide
confidence to GoE to proceed with the establishment of the PhSDS Board without
having the first economic benefit deal agreed. A copy of the proposed PhSDC is
provided overleaf.

ADE – DOL 49
 Egypt’s Pharmaceutical Sector Development Charter:

We the under-named accept the following principles for developing Egypt’s Pharmaceutical Sector:

• The domestic manufacture of pharmaceutical products should be profitable for all players that
have invested, and continue to invest, in the sector’s manufacturing capabilities.

• The Government Of Egypt will use its; regulatory framework, purchasing budgets, pricing
regime and healthcare system to support the development of its domestic pharmaceutical sector,
without breaking any of its international obligations specified in trade and intellectual property
agreements it has signed.

• The manufacturers of pharmaceutical products in Egypt and the importers of these products are
expected to deliver economic benefits to Egypt’s national economy, with examples of the
required benefits attached to this Charter.

• As of the date of signing this Charter, all parts of the Government of Egypt, accept the urgent
need to improve the operating and trading environment of the sector, and commit themselves to a
three month period of finalising a new “offensive” economic policy that will support the
achievement of the sector’s development potential.

• All parties (public and private sector) signing this Charter agree to the establishment of a new
Executive Team that will be established by and report into the Ministry Of Foreign Trade And
Industry. This team will have the responsibility of preparing and presenting the content of
Egypt’s Pharmaceutical Sector Development Initiative (PhSDI), which will encompass the new
“offensive” economic development policy.

• All parties signing this Charter agree to provide information requested by the Executive Team,
on the basis that this will be reviewed and retained on a strictly confidential basis.

• All parties signing this Charter, and only such parties, have the right to receive progress reports
at the end of the first and second months and a final report at the end of the third month on the
PhSDI. Private pharmaceutical companies operating in Egypt will have the additional rights of
nominating and voting for private representatives to participate in a PhSDI Steering Committee,
under the categories: manufacturers with headquarters outside Egypt; manufacturers with
headquarters inside Egypt which produce mainly synthetic products; manufacturers with
headquarters inside Egypt which produce mainly phytopharmaceutical products; suppliers of
pharmaceutical products into Egypt with no manufacturing facilities in Egypt.

• The PhSDI will meet at the end of each month to consider and respond to the progress reports,
and final report. Following an acceptance of the final report a presentation will be given to all
of the signatories to this Charter.

• The Executive Team will operate only until the PhSDI has been finalised, with the final report
indicating the type of mechanism that should be continued. The Government of Egypt will meet
all of the costs of operating the Executive Team during this initial phase, but following the
adoption of the PhSDI the agreed mechanism must be funded jointly by the private and public
sectors.

• Each pharmaceutical company operating in Egypt will submit its “economic benefits bid” to the
Executive Team, by the end of the second month. These can be submitted individually, but the
preferred approach will be joint submissions. The Executive Team will work both for MFTI in
setting economic benefit targets and determining the costs / benefits to the public sector, and will
assist pharmaceutical companies in preparing their bids.

The above Charter may be changed based on the content of the PhSDI report.

ADE – DOL 50
Charter Principles

The key principles behind the preparation of the Charter are:

• Resolving the current problems within the sector should be undertaken in a

transparent manner and under a partnership between the public and private
sectors.

• Ultimately the respective Ministries (MFTI, MoF, MoI and MoH) will decide the
extent of flexibilities that are to be agreed and the timescale for their
implementation, but the private sector should have the opportunity to formally
request high levels of flexibility on the basis that there will be high levels of
economic benefit delivered to the national economy.

• The private sector should be told the reasons why the level of flexibilities are
restricted below the levels requested by the private pharmaceutical companies.

• The process should recognise that GoE has made the first move through applying
reduced import tariffs, lower tax rates and changes to taxation rules that will
improve the situation that applied under the over-zealous defensive economic
policy. There should be an expectation from GoE that these changes will be
taken into account in the economic benefit bids to be received from the
pharmaceutical companies.

• MoI should represent the interests of the pharmaceutical public enterprises

throughout the period of dialogue and negotiation.

• It needs to be recognised by all parties that there will be a learning process

involved in implementing the proposed new approach described in this report. It
is unlikely that all elements of the a new operating environment will be delivered
during the first stage of its implementation. The reasons for making this
statement are:

- Major changes in the operating framework may have to wait for an overhaul
of the statutory regulatory framework, which will have its own timetable.

- It may take a number of “deal-making rounds” for MFTI to fully understand:

the cost / benefit relationships relating to the Pharmaceutical Sector; their
relationships to the Healthcare Sector; and their relationship to delivering
greater flexibility.

- It may require a number of “deal-making rounds” for the pharmaceutical

companies to operate effectively under the approach of submitting economic
benefit bids.

• A tight timescale should be set for agreeing the first PhSDI, and completing the
first sector flexibility – economic benefit deal. Based on current trading
performance within the sector, it is recommended that it is more important to
achieve a first round agreement that achieves a switch from sector survival to
sector development, than to achieve a PhSDI that will apply for the next 5 years.

ADE – DOL 51
 It has already been indicated that there will be a learning process associated with
implementing the new approach and therefore during 2005 there are proposed to
be two deal-making rounds; January to Early April for 2005; and October to the
end of December for 2006. Thereafter the deal-making rounds should annual.

The starting-point is to obtain signatures to the PhSDCs. Each party signing will
automatically become a member of the PhSDI, which entitles the member to:

• Receive copies of progress reports and the final report on the PhSDI.

• Attend the presentation on the content of the draft PhSDI final report.

• Nominate a candidate to be a sub-group representative and vote for the

representative from the sub-group to which their company is allocated.

• Make representations to the sub-group representative, and to the representative of

other sub-groups where the company has interests.

Deal-making Steering Committee

Role

The degree of urgency of turning Egypt’s Pharmaceutical Sector from its current
emphasis on survival, to pursuing its full development potential, is behind the
conclusion that the Steering Committee needs to start operating as quickly as possible.
The role of the committee will be to work with GoE to determine the balance between
the defensive and offensive economic benefit policies, and manage the process of
agreeing the flexibilities and the economic benefits within the timescale indicated
above.

Executive Team

In supporting the Steering Committee the Executive Team should be positioned to

operate between:

• The economic development policymakers (MFTI).

• The financial policymakers and managers of government expenditure (Ministry of

Finance – MoF).

• The policymakers and practitioners for investing in Egypt (Ministry of Investment

– MoI).

• The healthcare system policymakers and managers (Ministry of Health - MoH).

• The pharmaceutical manufacturers operating in Egypt.

• The pharmaceutical suppliers into Egypt (importers).

ADE – DOL 52
 The Deal-making Steering Committee will have the following structure:

Signatories to Pharmaceutical Sector

GoE Development Charter (PhSDC)

Members of Pharmaceutical Sector Final report

MFTI Development Initiative (PhSDI) Forum presentation

Deal-making Steering Committee of PhSDI

Representatives of: Representatives from each private sector sub-groups:

• MFTI • Manufacturers headquartered outside Egypt
• MoF • Synthetic manufacturers headquartered inside Egypt
• MoI • Phyto manufacturers headquartered inside Egypt
• Importers of pharmaceutical products into Egypt
• MoH

Executive 2 monthly progress reports

Team Final report

Support to Ministries: Support to pharmaceutical companies - economic benefit bid

• Sector economic preparations
development targets
• Specification of flexibilities Manufacturers Synthetic Phyto Importers of
• Changes required headquartered manufacturers manufacturers pharmaceutical
• Implementation timescales outside Egypt headquartered headquartered products into
inside Egypt inside Egypt Egypt
• Economic benefit bid review

The Deal-making Steering Committee will comprise one senior representative from
each of the four Ministries indicated above, and one representative from each of the
four pharmaceutical sector sub-groups. It will meet at the end of the first and second
months to assess progress reports and at the end of the third month to assess the draft
final report.

The Executive Team should include one full-time secondee from each of the four
Ministries during the time the Steering Committee is operating.

The representatives of the four sub-groups on the Steering Committee will have to be
prepared to dedicate significant time to the assignment as they will have to represent
their sub-group views during each of the meetings with government representatives.
If no representative are forthcoming from any sub-group, MFTI should have the
ability to appoint a representative on behalf of the group of pharmaceutical
companies.

ADE – DOL 53
The private pharmaceutical companies have been split into four sub-groups, for two
reasons:

• Avoid delays in agreeing which of the existing representative organisations will

act in an overall lead role.

• Recognise that the way economic benefits can be delivered is different in each
sub-group and their key issues with the current operating framework may be
different.

Co-operation between the sub-groups should be encouraged by the Executive Team

and mergers between sub-groups should be allowed if they are found to have common
interests.

PhSDS Board

Role

Until a new PhSDI Report is agreed, with a target timescale of April 2005, the Board
should implement this PhSDS Report. During the interim period it will be referred to
as the PhSDS Board, but as from having agreement on the PhSDI Report it will be
referred to as the PhSDI Board. The Board should be allowed to express its views to
the Deal-making Steering Committee as it will be responsible for achieving the
economic benefits that are agreed through the sector deal. The Board must also have
confidence that GoE will implement the flexibilities that are agreed within the sector
deal. It must therefore have an overseeing role to ensure the changes to economic
policy affecting the pharmaceutical sector and the changes to the sector’s operating
framework are implemented.

Regulatory Framework And Sector Representation

The PhSDI should not have the responsibility of sorting-out the regulatory
framework, or driving forward changes to this framework. Nor should it be seen as
the new representative organisation for Egypt’s pharmaceutical manufacturers and
suppliers. Achieving an improved regulatory framework and single representative
organisations are included as strategic projects under the second DAP in the previous
section. The role of the PhSDS Board should be limited to recommending how to
achieve these strategic objectives. Progressing these strategic objectives will be a
huge task which could swamp the PhSDS Board and hinder its ability to progress the
other elements of the PhSDS. It is therefore proposed that its involvement in these
areas of activity should be restricted to determining how to proceed, with the tasks
undertaken through other mechanisms that can dedicate themselves to preparing
detailed recommendations.

Proposed Overall Structure

The proposed structure for implementing the PhSDS, to become the PhSDI, is
provided overleaf. The structure has been prepared on the basis that the PhSDI
Report is agreed and therefore it is the PhSDI, rather than the PhSDS, that is being
implemented.

ADE – DOL 54
 Pharmaceutical Pharmaceutical Sector
Sector Partnership Development Initiative
Agreement (PhSDI)

Contributions To
Increased National
Improvements In Monitoring Of
Economic Growth Sector Performance Sector
Flexibilities In Economic Benefits Performance
Sector Operating
Framework
Pharmaceutical Sector
Continued
Development Activities
Research,
Mechanism (PhSDAM)
Review and
Up-dating
Overall
Monitoring
Action Plan
Communications

Remove Sector Assessment of FDI And Business And Market

Development Development Development International Development
Constraints Projects Opportunities Strategic Alliances Programmes

Action
Plans

The PhSDI will provide the strategic framework for delivering the development
activities, with the Pharmaceutical Sector Development Activities Mechanism
(PhSDAM) being an output of the PhSDI. The above structure may therefore change
during the period of interim implementation.

It is the implementation of the development activities that will generate the

improvements in sector performance that in turn will stimulate contributions to
increased national economic growth. The content of each of the DAPs will determine
the rate of improvement in sector performance during the implementation of each
sector deal twelve month period. The achievement of improved sector performance
will be based on the economic benefits that are agreed as part of the sector deal, but
the delivery of these benefits will depend on GoE delivering on its agreed flexibilities
in economic policy and the sector’s operating framework. The outcome of the deal-
making process will be formalised in a Pharmaceutical Sector Partnership Agreement
between the private pharmaceutical companies and GoE, which will be incorporated
into the PhSDI.

ADE – DOL 55
 The PhSDAM will operate between the implementation of the PhSDI, including the
sector Partnership Agreement and the delivery of the DAPs. An overall Action Plan
will be required to structure the management of this link, with separate Action Plans
prepared for each of the DAPs. The core PhSDAM functions will include:

• Communicating the content of PhSDI and progressing its implementation.

• Implementation of the overall Action Plan and the DAP Actions Plans.

• Undertaking continued research domestically and globally to review the sector

and determine if any up-dates to the PhSDI are required. This will include
determining if there needs to be any changes to the overall Action Plan.

• Monitor the implementation of the Sector Partnership Agreement.

• Monitor the delivery of economic benefits by the pharmaceutical companies and

the achievement sector performance improvements.
.
PhSDAM Management Structure

The proposed PhSDAM management structure is:

Funding To
Pharmaceutical Implement PhSDSI
Government Sector and PhSDAM
Of Egypt Reports to Board
Performance
Recommend
Agreement
PhSDI Changes / Up-
Board dates to PhSDI
Latest PhSDI
Detailed Content
PhSDAM Executive Team Continued
Research,
Overall Current PhSDI • CEO Review and
Action Plan • Programme Manager(s) Up-dating
Changed / Up-dated • Marketing Expert
PhSDI Action Plan • Sector Specialists Monitoring
• Researchers / Analysts
• Administration Communications

Remove Strategic Assessment FDI And Internat. Business And Marketing

Development Development Development Strategic Alliance Development
Constraints Projects Opportunities Activity Programmes
Sub-committee Sub-committee Sub-committee Sub-committee Sub-committee

Relevant Part Of Specific consultancy exercises by Ministry Of Contracted Delivery Of

GOE specialists to TORs prepared by PSDAM Investment Programmes To
Executive Packaging Businesses

ADE – DOL 56
• Board Of PhSDI to oversee the implementation, review and up-dating of the
PhSDI. This Board should have full responsibility for delivering the content of
the PhSDI and determining if it should be changed, or up-dated. The Board
should comprise a majority of representatives from the private pharmaceutical
companies. The public sector representatives should include: Ministry Of
Foreign Trade And Industry; Ministry of Health; Ministry of International Co-
operation; and Ministry Of Investment. The Chairperson should be selected from
the private pharmaceutical company representatives.

• Pharmaceutical Sector Performance Agreement This will be an agreement

between the Board of PhSDI and GoE on the target annual improvements in sector
performance that will delivered to provide contributions to increase the national
economic growth rate. The commitments to sector improvements will be made in
exchange for GOE funding to implement the PhSDI and the PhSDAM, through
the Board of PhSDI.

• PhSDAM Executive Team The team should comprise the following:

- CEO to report to the Board, attend all Board meetings and to be responsible
for all reports submitted to the Board and implementing its decisions.

- Programme Manager(s) to implement the Business Development Programmes

and the Market Development Programme described in the last section.

- Marketing, a marketing specialist will be required to manage the Market

Development Programme; ongoing market research of the domestic market;
specific research to support FDI initiatives; and to assess new development
opportunities that are identified. This marketing position should also be
responsible for implementing the communications area of activity to describe
the content of PhSDI. International promotion of Egypt’s Pharmaceutical
Sector may be introduced, depending on how individual pharmaceutical
companies are willing to co-operate to open-up new export markets.

- Sector Specialists which will be required to: support the FDI activity;
progress the strategic development projects; undertake the assessments of the
development opportunities; and monitor the implementation of the Sector
Partnership Agreement. The above diagram indicates there being Sector
Specialists within the executive team and acting as consultants for the sub-
committees. The balance between having Sector Specialists within the
Executive Team and using short-term consultants should be determined
between the PhSDI Board and the PhSDAM CEO.

- Researchers and Analysts will be required within the Executive Team to

monitoring the impact of implementing the PhSDI on sector performance.
They will also be required to support the various sub-committees to follow-up
specific points raised during meetings.

- Administration will provide support to the PhSDI Board and each of the sub-
committees.

ADE – DOL 57
• Sub-committees Each of the DAPs should have its own sub-committee that will
be responsible for overseeing the implementation of the activities, see last section.
Each sub-committee will comprise representatives of pharmaceutical companies,
representatives from relevant government ministries and agencies. Each of the
sub-committees should be allocated one of the members of the Executive Team.

Action Plans

There will be two types of Action Plans:

• for the PhSDI as a whole;

• delivering each development activity package.

These Action Plans should be included in the PhSDI Report, with each to be approved
by the PhSDI Board.

Recruiting Executive Team

The members of the Executive Team should be selected based on their

professionalism, experience of economic and business development, and
understanding of Egypt’s Pharmaceutical Sector. All team members should be
recruited from the private sector.

Next Steps

The next steps to make the above implementation mechanism operational are:

1. MFTI to set-up a sector conference early in January 2005 to present the content of
this report and to obtain signatures to the Pharmaceutical Sector Development
Charter.

2. MFTI to select the members of the PhSDS Board. We recommend there should
be some overlap with the Steering Committee for this study.

3. MFTI to set-up the Deal-making Steering Committee, with Executive Team

support.

4. PhSDS Board should be given support from Interim Executive Team to develop
the content of this PhSDS and the results of the deal-making process into a new
PhSDI Report.

5. PhSDS Board agrees membership of the sub-committees.

Implementation Timetable

The proposed first and second stage timetables are:

• Appoint Steering Committee and Executive Team for initial four month period to
start from January 2005.

ADE – DOL 58
• GoE economic benefit targets and areas of first year flexibility identified by end
January 2005.

• First round economic benefit bids from pharmaceutical businesses received by end
February 2005.

• Economic benefit agreement, including flexibilities from GoE, by end of March

2005.

• Final draft Sector Performance Agreement and PhSDI Report submitted end of
March 2005 and incorporated into an up-dated PhSDS Report.

• Presentations and refinement of draft report to be completed by end of April 2005.

• 1st stage implementation May to December 2005, based on the implementation

structure agreed through the PhSDI, including: a Board to implement the up-dated
PhSDS; and either the re-appointment of existing Executive Team, changes to the
team, or recruitment of a new team.

• End September 2005, start 2nd round “deal” negotiations and bidding through the
Steering Committee, with 2nd agreement ready to be implemented from end
December 2005.

• Up-date the PhSDS for 2006, and beyond, based on the outcome of the “deal”
negotiations to be completed by end 2005.

ADE – DOL 59
9 Economic Benefits Bids

Framework

One of the main outputs of the PhSDS, as of now, is to recommend the topics under
which the main economic benefit bids will be submitted by the pharmaceutical
companies. Such bids will be submitted and negotiated with GoE during each deal-
making round. The recommended topics are:

• Increased export performance of pharmaceutical products manufactured in Egypt,

with the measure being the value of increased exports, possibly by target market
and by selected product.

• Reductions in imports of either input materials or final dosage products. This

should again be the value of reduced imports. The values under this topic should
be linked directly to the content of the economic benefits that are agreed to be
delivered.

• New products introduced to the domestic market, with enhanced medical

properties, which provide an overall cost saving to GoE, or to the Egyptian
economy. The measure should be the number of new products. The introduction
of such products are likely to be covered by cost benefit assessments, see section
4, with the content of the agreed benefits requiring to be monitored separately to
ensure they are delivered.

• Domestic manufacture of new products, not previously manufactured in Egypt,

either for domestic consumption, and / or for export. The measure is proposed to
be the value of these products.

• Products on the national Essential Drugs List to be available in Egypt at prices

that are subsidised internally by the provider compared to the price that normally
applies internationally. The measure should be the value of the subsidy between
the price to be applied in Egypt and the current prices in a group of countries to be
agreed through the Deal-making Steering Committee.

• Commitments to contract specified values of product development services from

Egypt’s research organisations, with the measure being the annual value of these
contracts.

• Contributions to strengthening Egypt’s research and development organisations.

Again the measure should be value, but this may require a subjective approach to
be applied if the contributions are in kind.

• Establishing joint ventures or strategic alliances with Egypt’s indigenous

pharmaceutical manufacturing companies that assist them to: develop new
products; open new markets; obtain new accreditations; develop new management
capabilities; and possibly to invest in new merged companies to ensure they are
properly resourced to achieve their full development potential. The proposed
measure is the number of agreements being implemented.

ADE – DOL 60
• Obtaining internationally accepted accreditations for manufacturing facilities
based in Egypt, with the measure being the number of accreditations achieved
during any 12 month period.

• The following table provides an example of the type of bid document that could
be submitted by the pharmaceutical companies.

Bid Topic Amount Of Required Link Between

Economic Flexibilities Flexibilities and
Benefit Bid Economic
Benefit Bid
Unit Amount
1. Increased export performance of
pharmaceutical products
manufactured in Egypt
2. Reductions in imports of either
input materials or final dosage
products
3. New products introduced to the
domestic market, with enhanced
medical properties, which provide
an overall cost saving to GOE, or
to the Egyptian economy
4. Domestic manufacture of new
products, not previously
manufactured in Egypt, either for
domestic consumption, and / or
for export
5. Products on the national EDL to
be available in Egypt at prices that
are subsidised internally by the
provider compared to the price
that normally applies
internationally
6. Commitments to contract
specified values of product
development services from
Egypt’s research organisations
7. Contributions to strengthening
Egypt’s research and development
organizations
8. Establishing joint ventures or
strategic alliances with Egypt’s
indigenous pharmaceutical
manufacturing companies
9. Obtaining internationally accepted
accreditations for manufacturing
facilities based in Egypt

ADE – DOL 61
Although the structure and level of detail within the table may change it has the
following key features:

• Agreed economic development topics at the first Deal-making Steering

Committee meeting, with target levels of benefit indicated by MFTI.

• Each economic development topic will have an agreed unit of measure (see
above) and will indicate how the bids are to be stated. The definition of
economic benefit under each topic should be developed by the Executive Team,
with the team also working with individual pharmaceutical companies to ensure
consistency of approach.

• The bidder will indicate the level of economic benefit being offered against each
of the topics covered by the bid. In this context it may be appropriate to request
proposals from the pharmaceutical companies on products to be included on the
EDL if there is no agreement with the Ministry of Health on the products to be
included.

• The bidder will also state the required flexibilities that are to be delivered from the
government side for the bids to be binding.

• The document will also indicate the links that exist between the flexibilities and
the economic benefit bids, with bidders indicating if only a proportion of the
flexibilities are agreed the corresponding level of economic benefit they will be
due to deliver.

Reaching Agreement

The structure described in the previous section, and the emphasis of the Executive
Team in supporting all parties and establishing close liaison between the private
company representatives and the Ministry representatives, should provide a
framework whereby the content of the first round deal, can be agreed informally in
advance of submitting the bids.

Up-to-date Information

One of the most significant areas of review results in the Results And Conclusions
Report is trade information. The most recent information that was available during
the review was for 2002, with the figures being nearly two years out-of-date. One of
the first tasks of the Executive Committee should be to request each pharmaceutical
company that has signed the Charter to provide import and export information for the
whole of 2003 and 2004.

Economic Benefit Targets

It will be the responsibility of GoE to present its economic development targets to the
Deal-making Steering Committee, through MFTI. Attached is a table that can be
used a starting-point for setting targets, with preliminary proposals on the targets that
could be applied.

ADE – DOL 62
Sector Agreements

With Egypt’s Pharmaceutical Sector there will be three agreements, which should all
cover the same timescales:

• Deal Agreement which will indicate the benefits to be delivered by the

pharmaceutical companies in exchange for flexibilities to be implemented by
GoE.

• Sector Partnership Agreement, which will incorporate the Deal Agreement, but
will have two additional elements:

- annual targets for improving sector performance;

- budget for GoE funding to support implementing the development activities,

in particular, the business and market development programmes for the
indigenous manufacturers.

• Sector Performance Agreement between GoE and PhSDI Board which relates the
provision of funding to implement the PhSDI and operate the PhSDAM to the
achievement of sector performance targets.

ADE – DOL 63
 Unit 9 Months 2006 2007 2008 2009
2005
1.Increased export
performance of $ mns +25 +33 +42 +40 +40
pharmaceutical products full year
manufactured in Egypt 2005
2.Reductions in imports of No target
either input materials or as of now
final dosage products
3.New products introduced
to the domestic market,
with enhanced medical No. of
properties, which provide new - 1 2 3 3
products
an overall cost saving to
GoE, or to the Egyptian
economy
4.Domestic manufacture of
new products, not New
previously manufactured products
in Egypt, either for value of - 25 75 125 200
sales in
domestic consumption,
EGP mns
and / or for export
5.Products on the national
EDL to be available in
Egypt at prices that are EGP mns Being
subsidised internally by value of negotiated 50 65 80 100
subsidy
the provider compared to
the price that normally
applies internationally
6.Commitments to contract $ mns
specified values of Annual
product development value of 5 10 15 30 50
services from Egypt’s contracts
research organisations
7.Contributions to
strengthening Egypt’s $ mns - 2 4 5 5
research and development value
organizations
8.Establishing joint ventures
or strategic alliances with No. of
Egypt’s indigenous new jvs / - - 2 3 3
pharmaceutical alliances
manufacturing companies
9.Obtaining internationally
accepted accreditations for No. new - 2 6 10 10
manufacturing facilities approvals
based in Egypt

ADE – DOL 64
 Part C

Results And Conclusions Of Review Activity In The Global And

Domestic Pharmaceutical Sectors

ADE – DOL 65
10 Pharmaceutical Sector Policies

Introduction

This section provides a strategic framework for assessing the significance of the
results and conclusions presented in sections 11 to 19. Although many of the results
of the review activity are noteworthy in their own right, the real purpose is to inform a
national debate that needs to be instigated to find the right way forward for Egypt.

National Perspective

From a national economic perspective there are clear advantages in having

pharmaceutical manufacturers based in Egypt, that are first into international markets
with new products, which are either: legitimate copies of existing products; add new
properties to existing products; are similar to existing products, but are based on new
raw materials, such as plant extracts; or are genuinely new products. A key issue is
how to achieve this objective, without breaching international protection of existing
products, and their associated intellectual property rights. If a national
pharmaceutical sector is not set-up to develop new innovative products (which is the
case in most countries), indigenous Pharmaceutical Manufacturers will have to rely on
either; copying existing products when they are off-protection; manufacturing existing
products under license; or manufacturing on an out-sourcing basis.

This represents the first balancing point for national governments, and policy makers,
between supporting the interests of indigenous pharmaceutical manufacturers, while
at the same time abiding by international agreements on protecting the intellectual
property rights of the multi-national “innovator” pharmaceutical companies.

Until the tightening of international regulations, through WTO initiatives, individual

countries could use the lack of domestic intellectual property legislation as a form of
protection for the development of their indigenous pharmaceutical manufacturers. As
from the start of 2005, and the full implementation of TRIPS, such approaches will no
longer be possible. In the process of some countries tightening-up their intellectual
property rights legislation they succeeded in having products that will breach
international agreements, from 1st January 2005, protected by their new domestic
legislation. Under the full implementation of TRIPS such “loopholes” will not longer
be available and programmes to support indigenous pharmaceutical manufacturing
capabilities will have to be highly innovative in supporting the introduction of new
products. Based on the review activity undertaken though this study it appears that
the most productive areas for such programmes will be to exploit the “grey areas” of
the international agreements. Examples of such initiatives that are already being
undertaken in China and India are described in this part B of the overall report.

National governments will still have freedom, under TRIPS, to determine the
structure and content of their domestic regulatory frameworks, in particular in relation
to product approvals, and in setting prices for their domestic markets. The main
issue, as from now, is how these powers should be used in relation to a domestic
pharmaceutical manufacturing sector. This point is explored further under the dual
roles of the sector that are explained next.

ADE – DOL 66
Dual Roles

A key feature of any national pharmaceutical sector is its close relationship with the
nation’s healthcare system. One of the key benefits of the sector to a nation is to
provide a wide range of medicines, at low prices, that are required to treat conditions
and diseases that are prevalent within an individual country. Most countries
interpreted realising this benefit as a requirement for the domestic manufacture of, as
many as possible, of the products to meet domestic healthcare requirements.
Original national approaches of maximising the domestic manufacture of
pharmaceutical products for domestic markets, were a defensive economic policy, to
avoid damaging national balance of payments. It is under such an approach that
Egypt’s Pharmaceutical Sector manufacturing capability was established from the
1940s.

Internationally, it has been realised that domestic pharmaceutical manufacturing

sectors have a second potential national economic development role, through
exporting their products into international pharmaceutical markets. This represents
the application of an offensive economic policy to national pharmaceutical sectors.
Many countries now approach the development of their national pharmaceutical
manufacturing sectors to meet the dual objectives of:

• Supplying cheap pharmaceutical products into the domestic healthcare system.

• Developing its potential to sell pharmaceutical products into international markets,

thereby, increasing exports and creating new jobs.

For countries that pursue the dual roles of their pharmaceutical manufacturing sectors
there is a dilemma between; achieving low prices in the domestic market through the
application of the defensive economic policy; and applying an offensive economic
policy in international markets, which requires a more flexible approach to domestic
pricing. Product prices usually become the focal point in achieving a balance
between the defensive and offensive economic policy agendas. This can be an
emotive issue as the resulting policy affects those who pay for the products
(governments or individuals) in the domestic market, but also determines the returns
to the product manufacturers to invest in: developing new products; opening new
export markets; and establishing new production facilities.

This represents a second balancing point between using the remaining national
powers (national regulatory framework and pricing policy) within the context of a
defensive, or offensive economic policy.

Impact Of Defensive Economic Policy

It needs to be recognised that the multi-national pharmaceutical companies can

counter-act over enthusiastic national defensive economic policies by restricting their
involvement in supplying domestic markets. They have two main approaches to
respond to the strong defensive economic policies:

• Determining the level of manufacturing activity that is undertaken within a

national economy. Such companies can decide to open new facilities to increase

ADE – DOL 67
 the level of in-country manufacturing activity, or can equally decide to close
facilities and rely more on importing their products to be sold domestically.

• Determining the products, from their international product ranges, that are sold in
a country, either domestically manufactured, or imported. In this area the multi-
nationals have a particularly strong position in deciding which of their
“innovative” products (still under-protection) are to be made available.

This represents the third balancing point between the healthcare interests of national
populations and the interests of the multi-national pharmaceutical companies to
determine the range of products that will be made available in domestic markets.

Healthcare Costs And Benefits

Decisions on a government’s position on each of the three above balancing points

also have significant implications for national healthcare system costs and benefits.
This can be demonstrated through an example of applying a strong defensive
economic policy which results in the multi-national pharmaceutical companies
applying a restrictive approach to the availability of their products in a domestic
market. The country that applies such a strong defensive economic policy may be
restricted to using products that are manufactured domestically as generics, or are off-
protection, and are therefore relatively old products. Applying such a policy can
result in the medicines that are available being considerably less effective, than their
up-to-date equivalents. The outcome can be that, savings made through applying the
defensive economic policy on pharmaceutical products, are out-weighed by higher
costs within the healthcare system as patients take longer to recover.

Balancing Results

Preparing a Pharmaceutical Sector Development Strategy, that will deliver improved

performance for Egypt’s Pharmaceutical Sector, requires an understanding of the
three balancing points, that have been described above. It is only through a process
of dialogue and negotiation between national governments politicians and policy-
makers, and pharmaceutical companies, that the most appropriate points of balance
can be achieved for each country. There are no “rights and wrongs” in reaching such
decisions and the points of balance may be continually changing through new
priorities being set.

If all that is applied in these negotiations is the defensive economic policy, the best
result that can be expected is a high proportion of the domestically consumed
pharmaceutical products being manufactured domestically, with these products being
cheap, but not necessarily up-to-date. The danger of pushing the defensive economic
policy too hard is that international pharmaceutical manufacturers stop manufacturing
and switch to supplying the market with imported products. For indigenous
pharmaceutical manufacturers the danger is that their competitiveness is reduced; they
lose domestic market share to competitors; and their long-term future is compromised
through having insufficient resources to undertake product and market development
activities.

ADE – DOL 68
Changing Situation

The implementation of TRIPS, and the associated removal of import tariffs and other
market protection schemes, is resulting in the defensive approach no longer being an
economic policy option. The reason for making this statement is that the objective of
this policy is to maximise the percentage of domestic consumption that is
manufactured domestically. The result is pharmaceutical manufacturers that produce
a wide range of products, but do not specialise. Inefficiencies in domestic
manufacturing can be hidden as long as imports can be restricted. The
implementation of TRIPS will expose these inefficiencies as all pharmaceutical
products can be imported without any restrictions. This will provide advantages to
pharmaceutical manufacturers with the lowest product costs. Internationally this has
already resulted in increasing product specialisation. It needs to be recognised that
this represents an opposite direction to having pharamaceutical manufacturers with
broad product portfolios under a defensive economic policy.

Conclusion

A key conclusion of this study is that internationally greater emphasis is being given
to applying offensive economic policies, in recognition of the lowered effectiveness
of the defensive approach. As will be seen in section 17 some leading countries have
become deft at applying defensive and offensive economic policies at the same time.
The key feature of this approach is to distinguish between pharmaceutical products
that will be manufactured domestically only for domestic consumption, and products
which will be the focus of applying the offensive economic policy. These combined
policies will inevitably result in a more complex approach to determining the future of
Egypt’s Pharmaceutical Sector than has been the case up to now. A new operating
framework is required within which decisions can be reached on the balance between
defensive and offensive economic policies, by product area.

Within this proposed debate it is essential that those who have previously promoted
and implemented the defensive economic policy understand why Egypt’s
pharmaceutical manufacturing sector as a whole needs to become more internationally
competitive, even to meet defensive economic policies. This is a new over-arching
requirement that needs to be injected into the debate and relates specifically to the
application of TRIPS.

Role Of Report

It needs to be recognised that the balancing points presented in this section have only
become evident at the end of undertaking the sector study. It is a fundamental
conclusion that the key output of the exercise should be a strategic framework for
reaching decisions on the points of balance, described above, with the proposed
framework presented in sections 7 to 9, under part B of this report. It should not be a
role of this report to indicate what the points of balance should be, as this can only be
determined based on an informed debate between the: pharmaceutical manufacturers
and suppliers; the Ministry of Health; and the Ministry of Foreign Trade and Industry,
and other interested parties. One of the main roles of part C of this report is to inform
the debate by indicating:

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• The recent and current approach to the sector in relation to the points of balance
described above.

• The potential for improving the performance of the sector through applying a
strong offensive economic policy.

• The directions that could be pursued through applying a stronger offensive

economic policy.

• The negative outcomes of continuing to apply the current approach to the sector.

Recommendation

A key recommendation of this study, based on the results of the review activity, is
that Egypt’s pharmaceutical manufacturers and its national policy-makers, should
move away from polarising the issue of the future of the sector on product pricing.
As indicated earlier in this section this is a highly emotive issue which has too many
negative connotations to provide the basis of a Sector Development Strategy. We
strongly recommend that the points of balance indicated above should be determined
through an open and transparent debate on how increased economic benefits can be
most effectively delivered to the national economy.

Product pricing should be introduced as an issue within the consideration of accepting

changes to achieve increased economic benefits. Under this approach price
increases could be justified if they result in sufficient additional economic benefits to
offset the negative impact on domestic consumers and the government’s healthcare
budget.

We further recommend the areas in which economic benefits should be assessed and
debated as:

• Increased export performance of pharmaceutical products manufactured in Egypt.

• Reduction in imports of either input materials, or finished products into Egypt.

• Introduction of new products into the domestic market that have enhanced
medical properties over products that are currently available and will save costs
within Egypt’s overall healthcare system.

• Manufacturing of new products domestically, either for domestic consumption, or

also for export.

• Supply of essential products for Egypt’s healthcare system that are subsidised
internally to result in prices that are lower in Egypt, than apply internationally.

• Contracting of product development activities from Egyptian suppliers.

• Strengthening of research and development activities within Egypt.

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• Joint ventures, or strategic alliances, with indigenous pharmaceutical
manufacturers to: develop new products; manufacture new products under license;
open new export markets; contribute to the overall strategic development of the
sector.

• Invest in up-grading existing or establishing new manufacturing facilities in

Egypt, or taking initiatives that will result in new investment being attracted into
Egypt.

• Obtaining internationally recognised manufacturing approvals that will provide

the basis of starting exports into developed consumer markets.

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11 Specific Features Of Sector

The key specific features of the Pharmaceutical Sector are described in this section as
background to presenting the results of the global, regional and domestic reviews in
later sections. This section is split into three Sub-sections, with Sub-section I
describing specific features relating to the: range of product types; types of
manufacturing companies; categorisation by type of country; international standards
of production and quality assurance and control. Sub-section II describes the
statutory framework and policies in which pharmaceutical products are sold and
manufactured around the world. In Sub-section III, we draw together the key points
from Parts A and B that have implications for the performance of a national
pharmaceutical sector.

The emphasis, throughout part B of this report, is on presenting results and

conclusions relating to Sub-section I, as the fundamental reason for undertaking the
review activity has been to present a Pharmaceutical Sector Development Strategy
(PhSDS), see section 7, to improve pharmaceutical product manufacturing capabilities
and the performance of the sector.

Sub-section II activites, are only described to the extent required for the reader to
understand all elements of the PhSDS. In this context, it needs to be recognised that
this is has not been a study to develop Egypt’s healthcare system and therefore the
description of the relationships between the Pharmaceutical and Healthcare Sectors
are kept to a minimum. Having made this point, we recognise that implementing the
PhSDS will require achieving a better balance between healthcare and sector
development issues, as indicated in the last section. The healthcare policymakers
need to have a better understanding of the national benefits from developing the
sector’s full manufacturing development potential, and the industrial development
policymakers require an understanding of the benefits that need to be delivered to
Egypt’s citizens, through improved healthcare. It is our view that it is not the role of
this study to present the understanding of the healthcare system that is required by the
industrial development policymakers. This will require further work to identify the
appropriate points of balance as described in the previous section.

Sub-section I

Pharmaceutical Product Groups

The review results are split between synthetic and phytopharmaceutical (“phyto”)
products, with following four groups relating to synthetic products. Phyto products
viewed as a separate product area on its own and are covered in section 19.

• “Innovative” products, which have been developed as a new chemical entity and
achieve protection from being copied, as described under Sub-section II. Due to
the regulatory framework and practices that apply in Egypt, few of these products
are available in the domestic market in significant volumes, and as a product
group are not considered in detail in this report. In this context it is important to
note that some PIMCs may introduce products into Egypt’s market before, or on,
protection expiry to discourage copying. Such products lose their “innovative”
status and are referred to as branded products, see below.

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• “Generic” products are copies of innovative products that are out of protection,
with the different types and durations of protection described under Sub-section II.
The aim of generic manufacturers is to be first into the market with a copied
product, as soon as possible after protection expiry. Generic products have much
lower prices, and profit margins, than innovative products, and there is a greater
emphasis on out-souring manufacturing, with some companies only operating
marketing and sales activities. PIMCs will often introduce price equalisation
schemes after protection expiry to ensure the prices of their original innovative
products are competitive with the new generic products.

The manufacturers of generic products need to obtain sets of approvals for each
new product they introduce. Exact approval requirements will be determined by
the regulatory framework of the country where the product has been developed
and is to be manufactured, and the countries into which the product will be sold.
The extent to which preparation to obtain such approvals can be started before the
date of protection expiry differs between countries, with the greatest flexibilities
available in USA, under the “Bolar Provision”, see below. Generics
manufacturers located outside USA, can benefit from this provision if they have a
formal link with a USA based pharmaceutical company. This situation can result
in European generics manufacturers using companies that have access to the Bolar
Provision to undertake product development activities on their behalf. This
approach has developed to the stage where some such companies undertake
speculative product development activity with the intention of selling the product
to a generics manufacturer.

Some international pharmaceutical companies, for example Novartis, manufacture

and sell both innovative manufacture and generic products.

• “Added-Value Generic”, where the products are mainly based on copied

molecules, but they have been changed to give the original product added
properties. Depending on the extent of the added properties and the regulatory
requirements in which these products are to be sold, there may need to be trials of
such products before they can be approved.

• Branded Products With international pharmaceutical companies experiencing

increasing proportions of their product portfolios being off-protection, significant
efforts are applied to build-up brand loyalty to a product before it reaches this
status. This is usually based on an approach of developing the generic product
label into a market oriented brand name, where the market development activity is
undertaken during the period of protection. If this approach is successful it
makes it more difficult for generic product manufacturers to develop competing
brands. Under these circumstances the generic manufacturer will compete more
on price under the overall generic label.

Synthetic Pharmaceutical Company Categories

There are five categories of synthetic pharmaceutical companies:

• Pharmaceutical Innovator and Manufacturing Companies (PIMCs), which

incorporate research and development activities to launch new dosage products

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 into the global market under international patent protection. The global
distribution of such products depends to a significant extent on the pricing regime
that applies in each country and the extent to which manufacturers can achieve
their target profit margins to recover product development costs.

• Pharmaceutical Manufacturing Companies (PMCs), which do not attempt to

launch new “innovative” synthetic products and concentrate on manufacturing
products that are off-protection. The products can either be the original
innovative product, or a generic copy, or version.

• Pharmaceutical Innovator Companies (PICs) that concentrate on introducing new

products to the PIMCs, with the most significant area of this activity referred to as
biotechnology.

• Pharmaceutical Sales Companies (PSCs), which undertake sales on behalf of the

PIMCs and the PMCs on an out-sourcing basis.

• Pharmaceutical Development Support Companies (PDSCs) that undertake

elements of the research and development process for new products on an out-
sourcing basis on behalf of the PIMCs.

Companies in each of the above categories are operating on an increasingly global

scale, which is also resulting in increasing specialisation within each category. The
growth of the PIC, PSC and PDSC sub-sectors have been as a result of the PIMCs
out-sourcing activities to control costs.

PIMC Countries

The PIMCs are concentrated in five countries: Germany; Japan; Switzerland; UK; and
USA; with each categorised a PIMC Country. The USA alone has 69% of PIMC
headquarters, with these companies representing 82% of global pharmaceutical sales.
India is starting to emerge as a potential new PIMC country, with two of its leading
pharmaceutical companies having achieved this status. China could possibly follow
India’s lead, though, there has been a recent emphasis on joint ventures between
Domestic PMCs and PIMCs, which if successful, will preclude the former from
achieving the required status in synthetic products.

Each of the PIMCs have manufacturing facilities in a range of countries to supply

internal markets, and to feed into their internal regional and international supply
chains. In some cases the PIMCs may out-source product manufacturing for internal
markets, as is the case in Egypt. In-country manufacturing facilities only achieve
PIMC status if they include mainstream research and development activities. As
these only exist in the PIMC Countries, all of the other manufacturing facilities are
covered by the PMC category.

PMC Countries

In any country, outside the five indicated above, the manufacturing of

pharmaceuticals is undertaken by PMCs, which fall into three sub-categories:

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• International PMCs, where the manufacturing facilities are part of international
network, operating within a single corporate entity.

• Regional PMCs, where the manufacturing facilities are part of regional network,
which in the case of Egypt covers the Middle East.

• Domestic PMCs, where the manufacturing facilities are indigenously owned,

which for this study means headquartered in Egypt.

As a PMC country, Egypt has the same status as the majority of countries, with the
common factor being a domestic pharmaceutical sector that is made-up of
International, Regional and Domestic PMCs, without any PIMCs.

PIMC countries also have significant PMC sectors, which develop based on their
ability to “feed-off” the research and development activities of the PIMCs and to have
first-hand knowledge of the products that are coming off-protection.

Stages Of Production

The manufacturing of all pharmaceutical products are in three stages:

• Primary, involving the production of basic Bulk Pharmaceutical Chemicals

(BPCs), and Active Pharmaceutical Ingredients (APIs), also including
Intermediates as late stage material inputs for the manufacture of APIs.
Manufacturing processes represent a series of chemical engineering unit
operations, requiring equipment for: batch reaction; solid / liquid separation;
milling and drying equipment; vacuum plants; nitrogen distribution; refrigeration
systems; gas scrubber systems; solvent recovery; water and effluent treatment.

BPCs are derived from two main sources:

- synthetics, based on petro-chemical derived chemical building blocks to

produce complex organic chemicals, using techniques such as chemical
synthesis, fermentation, enzymatic reactions and recombinant DNA
technology;

- extraction of plant materials.

APIs are usually manufactured synthetically, or apply extensive purification of

plant extracts and include excipients and additives used in final product
formulations.

Primary manufacturing costs are increasing for the PIMCs due to a combination
of: increasing public and worker health and safety standards; increasing
environmental and product quality standards; tighter regulations on manufacturing
practices; and increasing labour costs. In addition, there is a trend within the
sector to manufacture higher potency products, such as cytotoxics, which require
more expensive production facilities, with higher operating costs.

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 It needs to be recognised that the shift of primary production away from Europe
and USA, to countries such as China, India, Korea and Taiwan required an
introductory period of fifteen years to build-up international confidence in product
quality.

• Secondary, involves converting the BPCs and APIs into one of six dosage forms:
tablets and capsules; topicals / creams, ointments and powders; parenterals /
injectables; inhalers; suppositories; and syrups. Manufacturing processes include
milling, drying and / or granulation to achieve the required solid particle size and
blending together with the selected APIs, excipients and additives to achieve the
final formulation. Secondary manufacturing typically requires relatively simple
manufacturing processes, but these have to be undertaken in purpose built
factories with controlled environments, often requiring sterile or aseptic
conditions.

In some cases sterile products can be achieved through heat treatment when the
product is in its final packaging. If this is not possible aseptic processing areas
must be constructed where highly demanding design requirements must be met to
achieve having a sterile environment. Critical process steps are those where the
sterilised product and its container, or packaging, is exposed to the atmosphere or
a surface. Manufacturers must consider product characteristics, equipment
selection and facility design in order to meet product specifications, within the
context of the identified critical process steps.

• Tertiary, involves packing the products into their final form, storage and
distribution the point of sale, or point of application.

Only the PIMCs have fully integrated production systems covering each of the three
stages, and therefore have the advantages of: economies of scale at the primary level;
significant flexibilities at the second stage due to the range of production facilities in
different countries; and vast and effective international distribution, marketing and
sales networks to maximise market exposure of their product ranges.

Phytopharmaceuticals

Phytopharmaceuticals is a sub-group, in its own right, with the products being plant-
derived. There are three main categories of dosage products:

• Western herbal medicines.

• Traditional Chinese medicines.

• Traditional Indian medicines.

Phytopharmaceutical products can either enter synthetic products as primary stage

input materials, see above, or can be processed into final product formulations. For
countries without large-scale BPC and API manufacturing facilities, one way to
mimimise pharmaceutical imports is to concentrate generics production on areas that
can maximise the use of domestically produced phytopharmaceutical primary inputs.
This approach is being taken a stage further in China where a dual strategy is being

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applied of developing synthetic product manufacturing through joint ventures with
PIMCs, but at the same time promoting the use of Chinese traditional medicines
wherever possible as an alternative to synthetic products. Such an approach provides
a highly supportive environment for the development of new phytopharmaceutical
products which have genuine medical claims, where these products achieve maximum
added-value to the Chinese economy.

According to the UK’s Middlesex University, tropical forests have produced only 47
major pharmaceutical products, but with an estimated 125,000 flowering species of
pharmacological relevance there is the potential to find another 300 major products.

International Standards

There has been increasing international harmonisation of standards for developing,

manufacturing and selling pharmaceutical products, that have been agreed through a
series of International Conferences on Harmonisation (ICH), including:

• cGMP - current good manufacturing practice, is the highest standard of

manufacturing pharmaceutical products, which is continually being
up-dated;

• GCP - good clinical practice;

• GDP - good distribution practice;

• GMP - good manufacturing practice, a lower level from cGMP;

• GMSP - good marketing and sales practices, as laid-out in the International

Federation of Pharmaceutical Manufacturers Associations (IFPMA)
Code of Pharmaceutical Marketing Practices.

An example of a harmonised standard is the ICH document Q7A, that is widely

accepted as the international standard for GMP as applied to APIs. Each standard
sets-out the acceptable way of undertaking the various activities and the required
supporting documentation and audit trail. Documentation that does not comply with
the specified requirements will be rejected. Under the international system that has
been applied having the right documentary evidence, and the way it is presented, is as
important as applying the required practices.

GMP

The basic requirements of GMP are:

• all manufacturing processes and instructions are clearly and comprehensively

defined, systematically reviewed, and shown to be capable of consistent
manufacture to the required quality;

• critical steps of the manufacturing process and significant changes to the process
are validated;

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• facilities are correctly designed, staffed with appropriately qualified and trained
personnel, and the correct materials are used;

• records are taken and retained, for the history of each batch of products
manufactured and distributed, which demonstrate that all steps required by the
defined procedures were applied, and the quantity and quality of the batch is as
expected;

• there is a system of product recall and complaints.

Quality Assurance And Control

cGMP and GMP require demonstrable systems of quality assurance throughout the
development, manufacture and control of pharmaceutical products. The issuance of
manufacturing licenses has been covered in the last sub-section. Obtaining such
licenses requires that the manufacturer must operate to ensure pharmaceutical
products are fit for their intended use and do not put patients at risk due to inadequate
safety, quality of efficacy. Complying with the quality objective requires that there
must be a comprehensively designed and correctly implemented system of quality
assurance and control. An example of a quality assurance system that has
international acceptance is the ISO 9000 series.

Quality control involves sampling, meeting specifications and product testing,

including organisation of these steps and their documentation, to ensure that no
products are released to be distributed until their quality is determined to be
satisfactory. The main requirements for quality control are:

• facilities, personnel and procedures are in place for sampling, inspecting and
testing raw materials, intermediaries, packaging materials and finished products;
and records are available that demonstrate the set procedures have been applied;

• monitoring of environmental and process conditions in accordance with GMP

requirements;

• finished products containing active ingredients comply with the qualitative and
quantitative composition of the marketing authorization / license.

Manufacturing in sterile conditions involves meeting higher GMP quality standards.

Sub-section II

Regulatory Frameworks

Each country in the world has a regulatory framework which comprises varying mixes
of the following approvals through issuing licenses.

• Approval system for introducing products into the country for the first time, where
it is the product that is being approved. Elements of the approval system include:
stability of the finished product to determine shelf-life; bioavailability data to

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 ensure the product is released effectively from its dosage form, for example
tablets; and bioequivalence to show the manufacturing results in a mass product
with the same properties as the original product. There has been a trend towards
countries adopting the approval systems and results of other countries, or having
market-wide approvals. Most of the succession countries into the EU adopted
existing EU-wide approval systems and results. The UK based European
Medicines Evaluation Agency (EMEA) provides EU-wide approvals, but most
original EU members also maintain their own in-country product approval
systems.

• Flexibilities to expedite approvals for new products where there is a high unmet
need, with the burden of proof being relaxed. Flexibilities can also apply to
“orphan” products where the products are targeted at small patient groups.
Approval of manufacturing facilities, where it is the facility that is being approved
as being capable of producing a list of specific products. Manufacturing
approvals apply equally to each of the three stages in the production process
described above.

• Approval to market a new product, with a particular emphasis on labeling and

medical claims that are allowed to be stated on packaging. The approvals apply
equally to prescribed and over-the-counter sales, (see below). It should be noted
that from a market perspective, a new product relates to a product being
introduced to a market for a first time, regardless as to whether it is an
“innovative”, or a copied product. Marketing approvals are often provided for a
fixed period of years (usually five), with up-dates required to extend market life.
They encompass the need for manufacturing approvals for the complete supply
chains into the final formulated product. Simplified approval procedures may be
available for new applications of a product that already has a marketing approval,
such as a new patient group.

• Simplified application procedures may also be available for products where there
is an element of copying an existing product, or is a direct copy. The flexibilities
allow for an applicant to use information from the Data Master File (DMF) that
will have been submitted to achieve the approval by the originator of the
“innovative” product. Such file cross-referencing does not diminish the
requirements for other elements of the approval process, described above, such as
product stability, bioavailability and bioequivalence.

The ability to cross reference to existing DMFs is a threat to the originator of

these files, which resulted in a new area of product protection, referred to
“administrative” protection being introduced, see below.

• Approval of the quality of products on an ongoing basis, with the emphasis being
on the quality of the product and not the quality of the manufacturing facilities.

• Approval of the test procedures to be applied to the development of a new

product, before any trials can be started.

• Approved launch price of a new product and thereafter the control of its price.

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There has been increasing reliance on internationally accepted standards, see above,
which have been set by the international Pharmaceutical Sector, with a key theme of
these standards being a greater commitment from PIMCs and PMCs for self-
regulation against these standards. Many regulatory authorities, in particular in
developed countries, now undertake inspections against these standards. Where
repeat inspections are required, to monitor ongoing compliance, there is the potential
for failures to result in revocation of licenses. Two of the world’s leading regulatory
agencies, Food And Drugs Administration (FDA - USA) and The Medicines and
Healthcare Products Regulatory Agency (MHRA -UK) will undertake inspections on
behalf of PIMCs and PMCs, wherever they are based. Licenses issued by these
agencies have universal acceptance of compliance to the international standard being
inspected.

Essential Drugs Lists

EDLs were developed as an approach by the World Health Organisation (WHO) in

1977 and protects the prices of a selected list of pharmaceutical products which are of
importance to individual countries. The definition that used was “…those [products]
that satisfy the priority healthcare needs of the population.” The key principles of
approach are:

• the government selects the diseases and health conditions that have the highest
level of incidence for its population and where effective products already exist;

• the government indicates the prices determines are appropriate to be paid for each
product, either directly from the health budget, subsidised by the health budget, or
with the full cost paid by the patient;

• negotiations are held between the government and representatives of the sector to
agree the list, the price of each product, the period during which the prices will
apply and the conditions under which price increases will be accepted;

• a further key element of the negotiations will be the prices that are to be allowed
on the products that are not on the EDL, and the products where the
pharmaceutical companies will be allowed to set their own prices;

• the EDL needs to be kept under review for two reasons:

- the balance that is achieved between the objective of keeping the prices of
selected products low and the commercial interests of the pharmaceutical
companies;

- whether there should be changes in the composition of the EDL, as either new
healthcare priorities are set, or new products become available.

WHO maintains a Model Essential Drugs List, which can be used by countries as a
starting-point for setting their own priorities. Examples of how EDLs are applied in
different countries are provided in section 17.

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Finalising the content of an EDLs is a key element in negotiations between a national
government and pharmaceutical suppliers in agreeing the products, where strong
controls are imposed, and other products, where there is more freedom to the
suppliers to set their own prices. This represents a trade-off for the suppliers under
which they often agree to provide the EDL products at a discount, possibly
representing a loss on these products, in exchange for higher prices, and therefore
profitability, from the products not on the EDL. Internationally there has been a
trend to reduce the number of products on national EDLs and to concentrate on a
small number of products that are truly essential.

Mutual Recognition

Under mutual recognition, one country accepts the approvals of another country, to
apply within its national context, for the marketing of a new product. This approach
was developed in Europe where there continues to be bi-lateral regulatory bodies
within the overall EU framework. Most of the new accession countries to the EU
have applied mutual recognition agreements.

Healthcare Systems

Regulatory frameworks have been developed to address the role of the

Pharmaceutical Sector in a nation’s healthcare of its citizens. As healthcare delivery
is viewed as a statutory responsibility in most countries, there is a duty on
government’s to protect the rights of their citizens, through protecting them: from
poor or dangerous products; on the availability of products; and their affordability.

There are a range of approaches for governments to be involved in achieving a

balance between product availability and affordability, with one extreme being that all
medicines are free under a national system; through to a system where most products
are paid for by the consumer / patient. There is a worldwide trend for national
governments to place the burden of paying for pharmaceutical products onto
individuals.

In many countries there has been growing significance of private healthcare and
medical insurance. Where this applies the insurers play an important role in
determining the success of a product, by deciding if it is on their list of eligible
products.

Pharmaceutical Price Controls

The purchase of pharmaceutical products can represent a high proportion of national

healthcare budgets, depending on the role of governments in funding pharmaceutical
product availability. The introduction of national price controls originally met
government objectives to minimise costs to national healthcare budgets. With the
international trend to place the burden of pharmaceutical purchases more on to the
individual, the use of price controls has switched from protecting government budgets
to prices paid by its citizens. Options for controlling pharmaceutical product prices
and / or costs to government, which are in addition to the EDLs described above,
include:

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• ceiling pricing;

• maximum annual budgets for reimbursement schemes;

• profit or expense limits by type of product;

• fixed distribution and point-of-sale margins.

Pricing decisions are made through regulatory frameworks, following the receipt of
product approval. Such decisions require the applicant to provide evidence to
support its proposed price. Negotiations may last many months in each country
where the product is to be sold, before agreement is reached. There is the start of an
international trend to take wider healthcare costs and benefits into consideration when
agreeing prices, as described in the next section for the UK.

Internationally, price controls apply more to “innovative” products, than to generics

as with the latter experience indicates that allowing free pricing on products where
there is active competition produces low prices. This approach applies where
countries which have strong supplies of “innovative” products; whereas countries
which have a high reliance on generic products are more likely to place price controls
on these products.

In most countries there are few price controls on pharmaceutical products sold over-
the-counter in pharmacies or hospitals.

Product Development

The phases of new product development are indicated in the following diagram:

Natural products Serendipity Receptors Enzymes

and derivatives

Penicillins Pshycotropics NSAIDS H2 antagonists Lipid lowerers

Sulpanamides Beta blockers ACE inhibitors
Aspirin

1900 1950 1965 1980 1995

During the remainder of the current decade it is expected that the emphasis will be on
bringing new biotech products to the market, with the emphasis from 2010 to 2025
being chronic degenerative diseases associated with aging, inflammation and cancer.

The stages to bringing a new “innovative” product to the market are:

1. Product idea identification, discovery and screening, when chemical libraries are
assessed against disease target models, with this increasingly being assisted by
genomics.

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2. Pre-clinical stage, when there is a focus on laboratory testing and work with
animal models of diseases, with increasing use of automated processes and
sophisticated robotics to maximize screening throughput.

3. Clinical trials, when a series of small studies in 20 – 80 healthy volunteers under

very tight controlled conditions.

4. Patient trials only begin after a regulatory authority has reviewed the stage 3
results and determines that the product is safe for trial in patients, usually several
hundred.

5. During the fifth stage the product is studied in a larger group of patients, with
more advanced rating scales and clinical measures, when typically several
thousand patients will be involved. This stage will usually also involve
toxicology work to confirm the long-term safety of the product.

6. At the end of the clinical trials a Drug Master File is prepared for submission to
the regulatory authority(ies), and if approved the product is licensed.

7. Applications will be submitted for marketing approval on a country-by-country

basis where the product is to be sold, and where such approvals are required.

8. Post-marketing studies may be undertaken to: expand the range of applications of

the product; establish effectiveness in patient sub-groups (for example patients
over a specific age); and obtain more safety results.

Recent developments in “innovative” products have included delivery mechanisms

built into the product formulation to provide properties such as: prolonged release into
the body over a 24 hours; the product is released in a target region of the intestinal
tract; or to target the product to specific body organs.

Product Protection

Patents In the Pharmaceutical Sector patents apply to product substances and are
provided for period of 20 years. Due to the number of years required to take new
products through the stages of product development, described above, a significant
proportion of this period may have been used by the time of the new product launch.
In recognition of this situation the EU introduced an extension of patent life, through
the Supplementary Patent Protection Certificates (SPPCs), providing an additional
five years of protection. In USA “orphan” products, see above, have an additional 7
years of protection when patent protection expires.

Trademarks Are less effective than patents, but are important if a PIMC has invested
in developing a brand around the product, see below.

Administrative In the EU, administrative protection is provided through EC/87/21,

which provides 10 years protection to the originator of the regulatory file, to stop
other companies referring to the file in submitting applications for copied, or added
properties products. In some EU countries the 10 years is reduced to 6 years. In
USA the period of administration protection is 5 years.

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Bolar Provision This provision allows for US companies to undertake development
work on a copy product before the 20 year patent period has expired. Two key
conditions of the provision are:

• the owner of the patent must be notified by the copying company that it has
started its activities;

• the first company to issue such notification receives a six month exclusive period
of sales before any other copies are allowed into the market.

Most countries do not have this provision and any copying of a product, other than for
genuine research purposes, is illegal.

Procurement

Key features of successful pharmaceutical product procurement schemes are:

• Transparency of procurement procedures, using explicit criteria for awarding

contracts. Recognition that there are different procurement functions: selection;
quantification; product specification; pre-selection of suppliers (based on product
quality, service reliability, delivery time and financial viability); and adjudication
of tenders, which require different expertise, are each separate areas of
responsibility, but require to be co-ordinated.

• Planned procurement based on actual and projected need, with regular checks of
performance. The procurement plan needs to be supported by finance
availability.

• Competitive purchasing, such as tendering, based on transparent procedures (see

above), except in emergencies and for small quantities.

• Focus on the products that are either of the greatest significance in quantity, or
due to their importance, but are expensive.

• Purchase in as large quantities as possible (bulk purchasing) and over periods of

one, or more years.

• Ensuring timely delivery to avoid carrying large inventories, but also to avoid
product shortages.

• Achieving lowest possible costs taking into account: actual purchase price; costs
associated with rejected products; minimum purchase / delivery quantities and
associated inventory costs; costs of operating the procurement system.

• Restricting public procurement to the country’s essential public health drugs.

Sub-section III

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New PIMC Products

It costs the PIMCs $ 500 – 1,000 mn to introduce a new product to the international
market, with a lead-in time of 11 – 15 years. On average out of 10,000 potential
screenings for new products, only 1, or 2, (0.01 – 0.02%) will reach the market as
final products. According to Price Waterhouse Coopers only 30% of new launched
products achieve sufficient sales to recover their research and development costs, with
average sales of all launched new products averaging only $ 235 mn. With
increasing costs of bringing new products to market the classification of a
“blockbuster” product has increased from $ 1 bn, to $ 2 bn in sales. In 2003 21
products achieved sales in excess of $ 2 bn, during this year.

PIMCs need to recoup their research and development costs during the period of
patent and administrative protection as once this ends there is a high likelihood of
generic products being available and prices falling substantially. The price that is
agreed in each country for product launches will determine the rate at which the new
product recoups its research and development costs.

Product Marketing And Sales

There are two main approaches to marketing and selling pharmaceutical products:

• Prescribed products, where the product will be specified in a prescription issued

by a healthcare professional, in either a hospital, a surgery, or where allowed by a
pharmacist. The objective for the pharmaceutical supplier is to have its products
accepted by the appropriate national authority, usually part of, or associated with,
a Ministry Of Health, to be eligible to be prescribed in target countries. In most
countries this will require a separate regulatory approval for the product as a first
step. Depending on the role of the Essential Drugs List (see above) suppliers may
either want to have their products included, as it should guarantee mass sales, or
may want their products not to be included, if the prices are low, and there is no
alternative to having higher profits on other products.

Different countries apply different approaches to the way patients obtain access to
the products, with the main approaches being:

- products issued to patients while in hospital, prescribed by the medical

professionals in attendance, that are either paid for by the national healthcare
system, or added to the cost of the patient’s invoice for delivering the hospital
treatment. Under the second approach the patient will either pay the cost
from his / her own resources, or if the person has healthcare insurance, the
insurance company will pay;

- products prescribed to a patient to be obtained through a pharmacy, where the

point-of-sale may be associated with a hospital or close to a medical
professional’s place of practice. Under this situation the amount to be paid by
the patient will be determined by the national healthcare system, with options
including: cost met in full by the system; cost subsidised by the system; cost
met in full by the patient, but with the price set by government; the full cost
paid by the patient with the supplier having freedom to set its own price.

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 Governments are becoming increasingly sophisticated in the way their
prescription systems work, see section 17, where international comparisons are
provided. Through the healthcare system it is possible to influence the products
that are prescribed by the medical professionals to favour specified product
groups, with examples of selection criteria being: cheapness of the products to the
government budget; effectiveness of the products to minimise time in hospitals;
manufactured domestically to benefit the local pharmaceutical sector;
manufactured domestically using domestically sourced and produced primary
materials; generic products manufactured domestically. It is through such
approaches that preferences can be given to supporting Domestic PMCs without
breaching TRIPS regulations.

• Over-the-counter (OTC) products are those that are allowed to be sold through
pharmacies, supermarkets and other retail outlets, with varying levels of control
by the in situ pharmacist. The products are divided into those that are available
to be sold without any medical condition documentary evidence, and those where
such evidence is required. The OTC market is important for governments in both
controlling their pharmaceutical budgets and healthcare costs, as the greater the
incidence of self-diagnosis, or diagnosis with a pharmacist, the more the
population can be encouraged to pay for the products directly.

Under each approach the pharmaceutical suppliers will attempt to influence views of
the medical professionals and the pharmacists to propose their products, through a
combination of extolling the merits of their products and providing promotions and
incentives. Such marketing initiatives must be within the terms and conditions of the
Code of Pharmaceutical Practices, set by the International Federation of
Pharmaceuticals Manufacturers Associations, and the stipulations set within national
marketing approvals..

PIMC Trading Performance

For the PIMCs crucial determinants of trading performance are:

• The pipeline of new products being progressed through the various stages of
testing, finalising and launching new products.

• Identifying the correct products from the pipeline that have “blockbuster” market
potential.

• Once the new product can be defined the effectiveness of the patent in covering its
inherent properties in a sufficiently broad sphere to avoid similar competitor
products getting around the patent.

• Having got the initial prioritisation correct in relation to market potential for the
time of launch which may be many years after the prioritisation has been made.

• The effectiveness of the testing procedures to ensure the product does not have
side effects that could either result in being refused regulatory approval, or ruin
market acceptance following product launch.

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• In addition to the research and development costs there will be substantial
marketing costs for the product launch as the PIMC will have the objective of
maximising sales from the date of launch. The marketing will target the medical
profession, private insurers and government departments if the product is to be
prescribed. If the product is to be made available over-the-counter the marketing
will target the owners and employees in pharmacies and direct to customer.

• The issues of having to recoup research and development costs applies equally to
the generics and added-value generics manufacturers as to the PIMCs as even if a
product is being copied there are substantial costs involved in having the product
and its marketing plan approved by the statutory authorities. This issue applies
more to the added-value generics as they will be involved in more research to
identify how the molecules are to be changed to provide the additional properties.

PMC Trading Performance

Whereas with the PIMCs, the crucial issue is which company obtains the first patent,
with the PMCs the crucial issue is which company is first to market with the copy, or
altered, product that has come out off-protection. A PMC may have allocated
considerable resources to getting its copy, or altered, product ready for product launch
to find a competitor launches first, or launches soon after at a lower price.

Pricing Imports

Due to the significant involvement of governments in setting product prices, see

above, and the level of subsidy often within the final price, price regulators usually
assess the prices of products to be imported from the country of manufacture. This is
based on the principle that a importing country should pay a similar price to that
which prevails in the country of export. Keeping prices down in a manufacturing
country will help its citizens, by keeping healthcare costs down, but the downside of
such a policy is that manufacturers will be wary about exporting their products.

This result of different national policies on pricing has been multi-level pricing
between countries. This has resulted in the growth of “parallel trade”, where
cheaper products from one country are imported into higher priced market for the
same product. In the UK the funding system of pharmacies is based on an
assumption that pharmacists will take the opportunity to purchase cheaper imported
products.

Product Availability

Although national governments have the power to determine the prices that will apply
in their individual countries, it is the PIMCs and PMCs that determine which products
from their overall product ranges are to be sold in each country. Countries with low
prices are less likely to be supplied with under-protection products as the
manufacturer will not be able to achieve the prices required to recoup the research and
development costs, and also there will be concern that cheap products will find their
way into higher priced markets. The higher prices that apply in a country the more
likely that it will be supplied with the complete product ranges of the PIMCs and the
PMCs that are selling into the country.

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Manufacturing For Export

Any producer of pharmaceuticals planning to export its products into the leading
pharmaceutical markets must first have its manufacturing facilities inspected and
approved by the national regulatory body, or by a third party, such as the FDA and the
MHRA, see above. Failure to obtain approval will result in the manufacturing facility
not being able to manufacture products for these markets. It needs to be appreciated
that the manufacturing approval must cover all of the manufacturing facilities
involved in the supply chain to the final product, covering all three stages of the
production process, see earlier this section.

TRIPS

From 1 st January 2005, TRIPS will be fully activated which will result in all country
signatories to GATT, including Egypt, having to abide by international rules relating
to intellectual property rights (IPR). Breaches of the rules will no longer have to be
raised as legal cases by the party that has been infringed, against the infringing party,
but can be raised as specific national cases through the WTO for international
arbitration. This injects international standards of IPR on all participating countries,
regardless as to them having passed national intellectual property legislation. The
key elements of international intellectual property rights that are covered by TRIPs,
include:

• the 20 year patent protection rule;

• EU’s 5 year patent extensions, though its SDDCs;

• EU’s 10 year administrative protection;

• US 7 year administrative protection;

• US Bolar Provision.

PMCs that have operated up to now on the principles of reverse engineering,

protected by weak national legislation on intellectual property rights, will have to
undertake their product launch activities more carefully from next year.

Regulation Of Phytopharmaceutical Products

Internationally, the extent to which phytopharmaceutical products are covered by

regulatory frameworks, has depended up to now on the claims of medical efficacy
from taking the products. In USA products that expressly, or implicitly, claim to
diagnose, treat, prevent, or cure a disease are regarded as drugs and have to meet the
safety and effectiveness standards met by mainstream pharmaceutical products.
These requirements can be avoided, however, through careful product labeling that
indicates the product is not intended to diagnose, treat, cure or prevent any disease
and is therefore not subject to FDA approval requirements.

Within Europe phytopharmaceutical products are associated with self-diagnosis, or

alternative medicine assessments, and are readily available through retail outlets.

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China and India are taking the lead in applying an opposite approach, by actively
identifying the medical properties of their traditional medicines. They are using their
regulatory frameworks and TRIPS in novel ways to apply to their traditional medicine
areas of activity. In China TCMs are controlled in a similar way to mainstream
pharmaceutical products through its regulatory framework, see section 17. India is
actively supporting research into the use of its traditional medicines and is promoting
the prescription of these products. India is also examining the possibility of
achieving patent protection for plant species.

TRIPS does not allow IPR to be applied to traditional methods of treatment and there
has been a view that this lack of product protection will restrict research and
development into identifying new phytopharmaceutical products. This could explain
the different approaches in China and India.

Strategic Context

Although the above may appear complicated, it is essential to have an understanding

of the structure of the Pharmaceutical Sector to appreciate the context of the strategic
development recommendations for the sector in Egypt.

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12 International Trends

The following international trends apply to the structure of the worldwide

Pharmaceutical Sector, as described in the previous section.

PIMC Consolidation

Increasing consolidation amongst the PIMCs to reduce operating costs, with the
recent takeover of Pharmacia by Pfizer in 2003, and Sanofi-Synthélabo’s take-over of
Aventis in 2004, providing examples.

Primary Manufacturing

Development of manufacturing capacities of BPCs and APIs in China, India Korea

and Taiwan. In some cases this has been based on the relocation of existing
production capacity; in other cases through joint venture projects; with the third
approach having been new indigenous facilities as competitors to the established
positions of such producers in Israel, Italy, Spain and USA. This primary stage of
production, including raw material purchasing, represents 40% of the value chain to
ex-factory prices.

Single Regulatory Bodies

Within leading consumer markets (Europe, North America and Japan) there has been
a move towards having a single regulatory body that deals with all types of approvals
including: product testing procedures and tests; product approvals market
development plan approvals; and manufacturing facility approvals. Examples of
such bodies are:

• FDA, of USA, which requires all documentation to be submitted to undertake an

assessment of a new product.

• EU’s EMEA, which covers the whole of Europe, based in the UK. The sphere of
influence of this organisation is growing as most of the member states (pre-
accession) maintain their bi-lateral regulatory bodies.

• MHRA in the UK, which has self-imposed timetables for the review of
documentation from its receipt to issuing its decision.

• State Drug Administration in China, started in 1998, with a new set of procedures
and standards available within two years of start-up.

• The Jordanian Food and Drug Administration of the Drug Directorate of the
Ministry of Health, which although a single body, does not have the same degree
of autonomy as the above. Under a New Drug Policy there are plans to change
the current approach.

The above are explained in greater detail in section APP10

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Out Of Protection Products

With increasing numbers of products coming-out of protection there is increasing

potential for the generics and added-value generics sub-sectors to copy, or add to the
properties, of the original products. Over the next 5 years products with current sales
of $ 55 bn will come out of protection, representing 13% of the total market. The
extent to which the generics, and added-value generics, can realise these opportunities
depend on:

• the periods allowed for patent and administration protection are extended;

• other countries adopt the US “Bolar provision” which allows PMCs to start to
prepare for copied and added properties products before the completion of the
patent and administration protection periods;

• the attitudes of regulatory frameworks and international legal systems to PMCs

being allowed to use the existing product approval documentation of the PIMCs in
speeding-up the application timescales for gaining approval for their copied, or
added properties products;

• the time periods taken by regulatory frameworks to approve products being

introduced by the PMCs;

• the actions of the PIMCs in setting prices on completing the periods of protection,
and the extent to which the market as a whole reduces prices of these products to a
level where they can still be manufactured profitably;

• the actions of the PIMCs in building-up brand image and loyalty during the period
of protection that continues after the period ends. With prescribed products this
is achieved through attempting to have the PIMC’s product brand name accepted
as the generic name for all products with the same / similar properties.

New Product Pricing

The National Institute of Clinical Excellence (NICE), in the UK, has pioneered the
introduction of a macro-level approach of cost-benefit analysis to pricing. This
provides the PIMCs with the opportunity to demonstrate that a new product will have
an overall net reduction in healthcare costs by improving disease outcomes.

Domestic And Export Pricing

Countries importing pharmaceutical products “shop around” to find countries with

low international prices. The importing country expects to be able to purchase the
products at the prevailing price in the exporting country. If these prices are
artificially low the importing country may be interested to buy, but the pharmaceutical
manufacturers will not be prepared to supply. It is through this link that domestic
pricing policies support, or undermine export performance.

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New Product Pipelines

Although there is a constant as number of products under research and development

in the new products pipelines of the PIMCs, there are lower numbers of new products
reaching the international market. In 2002 only 36 New Chemical Entities (NCEs)
were introduced, which is 30% down of the last peak in 1997. The reasons for this
are:

• many of the main therapeutic conditions have already been covered by effective
products (penicillins, sulphanamides, aspirin, psychotropics, NSAIDS, H2
antagonists, ACE inhibitors), with continuing research and development activity
in these areas focused on increasing the potency of the products;

• over the next 20 years the areas of: chronic degenerative diseases, associated with
ageing; inflammations; and cancer which will provide the main new product
opportunities, based on the application of cell pharmacology and molecular
biology, providing new cardiovascular and antiviral medicines;

• there are signs of increasing reticence amongst the regulatory frameworks to

approve new products, with the recent failure of AstraZeneca’s anti-blood clotting
compound, Exanta, by the FDA, being an example;

• as research and development enters more complex areas the risks associated with
new products may be greater, as indicated by the withdrawal of Merck’s best
selling painkiller, Vioxx.

Biotechnology

The last 15 years has seen the emergence of the biotechnology sector offering
research and development activities outside the PIMCs. This is different from out-
sourcing of such activities by the PIMCs as under this approach the PICM has
identified the initial product opportunity and specifies the work to be out-sourced.
The biotechnology companies undertake original research with the results being sold
to the PIMCs either licensing intellectual property rights, or in some cases by the
PIMC purchasing a majority stake in the company. Biotechnology companies are
concentrated in the same countries as the PIMCs, see last section.

Period Of Change

The combination of the last two headings could result in there being a period of
change within the global Pharmaceutical Sector, with the possibility of a shift of
balance between the PIMCs and the PMCs. If there is to be a lower number of new
product launches it can be expected that the PIMCs will re-assess there market
positioning and commitments to funding long-term research and development. To
meet the objective of maintaining and increasing market share the PIMCs may
explore an expansion of involvement in other parts of the overall sector, where they
do not have a significant presence.

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Manufacturing Costs

Generic Products A typical break-down of total manufacturing costs of International

PMCs are:

• input materials 60%;

• manufacturing expenses 20%;

• servicing working and fixed capital 12%;

• administration costs 8%;

• energy costs 5%.

A typical break-down of total product costs for International PMCs are:

• cost of sales 47%;

• sales, marketing and administration 32%;

• research and development 6%;

• taxes and other costs 4%;

• profit after taxes 11%.

The most important determinants of the cost of manufacturing competitiveness of

International and PMCs are therefore: input material costs and manufacturing
expenses, representing together 80% of manufacturing costs. As input materials are
international commodities manufacturers should be able to obtain these products at
the same price regardless of their location. This explains why there has been less
pressure for the relocation of International PMCs manufacturing facilities
(concentrating only on secondary production activities) to lower cost manufacturing
countries, than has been the case with primary product manufacturing. Within the
area of input materials, the main issues are potential competitive disadvantages, rather
than gaining competitive advantages, with these including: inefficient purchasing
practices (for example purchased through an agent, rather than direct business-to-
business; scale of order placed for input materials; payment terms and conditions;
currency stability; costs imposed by national governments on the imported materials.

International PMCs allocate 32% of total costs to sales, marketing and administration,
with a further 6% to research and development.

Added-Value Generic Products PMCs concentrating on added-value generic

products have a similar break-down of total costs, but with a lower percentage
allocated to cost of sales, with the difference allocated to research and development.

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Phytopharmaceutical Products

The following break-down of total product costs represents an average across 6

leading international phytopharmaceutical product manufacturers which report their
annual financial results:

• cost of sales 47%;

• sales, marketing and administration 44%;

• research and development 5%;

• taxes and other costs 1%;

• profit after taxes 3%.

Product Development Services

Faced with escalating costs of developing new products up to the point of market
launch the PIMCs sought ways of controlling these costs, with the most common
approach to out-source product development activities. According to Kalorama
Information the value of such out-sourcing in 2003 was $ 28 bn, with the market
having grown 14% from the previous year. Out-sourcing now accounts for 35% of
annual research and development expenditure by the PIMCs and has supported the
international growth of Clinical Research Organisations (CROs).

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13 Government Policies

Background

Every government has to set its own policies towards its Pharmaceuticals Sector,
within the context of its national healthcare system and its obligations to its citizens.
Developing countries, with no, or small, domestic Pharmaceutical Sectors can
concentrate on meeting their healthcare system objectives, but countries that have
domestic Pharmaceutical Sectors need to decide the appropriate balance between the
needs of this sector and the needs of its citizens to receive appropriate healthcare.

In setting the balance it needs to be recognised that in most developing countries there
is a greater onus on households to meet overall healthcare costs than in developed
countries. Average national expenditure on healthcare ranges between 4.3% of GDP
in “low human development countries” to 7.2% in “high human development
countries”. The highest level is 13% of GDP in USA, with an example of a low level
being Nigeria, with 1.7%. In the “low human development countries” the average
contribution of the public sector to overall healthcare costs is 45%, compared to 70%
in the “high human development countries.”

Product Pricing

Ultimately, all pricing decisions are made for political reasons, but in the context of
this report on the Pharmaceutical Sector there needs to be a full understanding of the
advantages and disadvantages of different policies:

Policy: Allowing Higher Prices

Advantages: Disadvantages:
1. PIMCs, and International and Regional 1. Higher prices for most pharmaceutical
PMCs will offer a wide range of products, with higher costs to be met by
products, including latest products that either the public sector, private insurance,
are under international protection. or households.
2. PIMCs can be attracted to establish 2. Some products may become too highly
International PMC facilities within the priced to be afforded by those who need
Country. them.
3. Regional PMCs can be attracted to use the 3. Government is criticised for allowing the
country as a manufacturing hub to supply profits of the pharmaceutical companies to
its regional market sales network. increase at the expense of its citizens.
4. Domestic PMCs can generate the returns
that are required to investment in
extending their product portfolios and in
implementing marketing campaigns to
increase market share.
5. Country benefits from strong and PMC
sector, with increasing exports and jobs.
6. The country is recognised as a leader in
manufacturing pharmaceutical products
and enhances its potential as a FDI
location and as an out-sourcing hub for
products and services.
Benefits Of Policy: To the economy as a whole, and therefore the overall population,
through increased exports, investment, jobs; and higher household incomes.

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Policy: Maintaining, Or Introducing A Policy Of Lower Prices
Advantages: Disadvantages:
1. Reduced costs to the public sector on 1. The product portfolio available
products that are either made available domestically is restricted to out of
free-of-charge, or where the price is protection products, where there are better
subsidised on a percentage basis. products available in markets with policies
accepting higher prices.
2. Reduced prices to households for products 2. Patients have to accept receiving products
where they either pay a percentage of the with lower effectiveness than is available
cost, or the full cost. elsewhere, or patients use various means to
import the higher priced products at
premium prices.
3. Popular politically, if the policy is 3. The PIMCs restrict product availability to
sustainable. out of protection products and may even
make these available on a selective basis.
4. A healthier population, but this is relative 4. International and Regional PMCs make
to how health could be improved through available their products on a selective
having a wider range of products available. basis, which reduces price competition
within the domestic market.
5. International and Regional PMCs view the
country as having low investment
attractiveness, either for existing
manufacturing facilities, or for new
investments.
6. Domestic PMCs make low returns with a
lack of funds to investment in expanding
their product ranges, market development
within the domestic market, and export
sales development.
7. International and Regional PMCs either
gradually run-down their existing
manufacturing facilities and import
increasing proportions of their sales from
their manufacturing facilities in other
countries, or they close the facilities.
Benefits Of Policy: There are benefits of this policy to the government’s annual budget and
to its citizens, but this is only for as long as the policy is accepted by the pharmaceutical
companies, as they have the option of deciding not to offer any of their products for sale in
the country.

Regulatory Framework

The second main area where government policy has an impact on the Pharmaceutical
Sector is the regulatory framework, which determines the time, cost, efficiency and
transparency of having a product accepted for the first time into the market. The
longer the period, the more expensive the applications, the lower the efficiency of the
process, and the more uncertain the outcome; the less likely PIMCs, and International
and Regional PMCs will be to introduce their products to the country. If the country
does not have its own pharmaceutical manufacturing sector the downside of this will
be products either being introduced to the country later than elsewhere, or not at all.

If the country has a pharmaceutical manufacturing sector the impact is likely to be

more significant for the following reasons:

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• A key determinant of the success of Domestic PMCs is expanding their range of
products, and being first to market with new copies, or new added property
products. If the regulatory framework delivers quick decisions, is cost effective,
operates efficiently and has a high level of transparency it will assist the Domestic
PMCs to be more competitive in their domestic market and to develop into export
markets.

• If a country has a reputation for having a streamlined regulatory framework it can

attract International and Regional PMC interest as a place to gain approval for
new copied and added property products. Not only will this enhance the
opportunity for the country to be the manufacturing location of the product, but
also the process of submitting the application to the regulatory framework will
support the development of the service sector.

Conclusion

Through its policy on pricing and its regulatory framework any government has
within its control two key parameters for the success of its Pharmaceutical
Manufacturing Sector. If the policy is over-restrictive on product pricing and the
framework is cumbersome, inefficient and lacks transparency this will be to the
detriment of the pharmaceutical manufacturing sector. Governments need to realise
that by having an imbalance between the healthcare interests of its citizens and the
commercial interests of its pharmaceutical manufacturers that they have the potential
to stifle the growth, directly affect the competitiveness and ultimately to close-down
its Pharmaceutical Manufacturing Sector. It is up to each government to determine
where the appropriate point of balance is between: costs of providing pharmaceutical
products to its population; the commercial interests and growth prospects of its
pharmaceutical manufacturers; and the quality of its healthcare system. The last
point is important as an over-restrictive pricing policy will not only damage the
trading performance of its pharmaceutical manufacturers, but it will also restrict the
range of pharmaceutical products that are available within the country.

Essential Drugs List

Many countries address the issues described above by applying an Essential Drugs
List (EDL), see section 11.

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14 Egypt’s Pharmaceutical Sector

Regulatory Framework

There are three regulatory bodies:

• Drug Policy And Planning Centre (DPPC), which is responsible for: approving for
clinical trials to start; reviewing the registration application file; making price
recommendations; and approving products to be imported.

• Central Administration of Pharmaceutical Affairs (CAPA), which is responsible

for: approving marketing of a product in Egypt; licensing factories; application of
GMP standards; testing raw materials; and pharmacy licenses.

• National Organisation for Drug Control and Research (NODCAR), which is

responsible for for ensuring the quality of pharmaceutical products made available
in Egypt. The approvals relate to the quality of each production batch produced in
Egypt, regardless as to whether it is to be sold domestically, or exported.

The above represents a complicated structure which lacks ultimate responsibility,

does not have clear procedures, lacks transparency in its decisions and provides no
commitments on timescales for decision-making. There is also a significant
difference between accepted international norm, of inspecting manufacturing facilities
and having the right to manufacture specified products based on a certificate being
issued, and the system in Egypt which focuses on product quality uses assessments of
each batch produced.

Product Approvals

Products Developed Outside Egypt The starting-point is to submit a package of

administrative documents to DPPC, including a certificate of “Free Sale” from the
country of origin indicating the product ahs been sold in that country for at least two
years. Within DPPC, the file is reviewed by the Subsidiary Registration Committee
(SRC), with the file then being passed to the Pharmacology, Scientific and Data Sheet
Committees for comment, before returning the file to the SRC. At this stage
additional therapy-specific committees may be involved, as required. DPPC sends
letters with primary approval to NODCAR and to CAPA to start finalising the
registration process.

The applicant submits a further full dossier to CAPA which is responsible for
registration procedures and inspection of manufacturing facilities if the product is to
be produced in Egypt.

The applicant also sends a third full dossier to NODCAR, before product tests can
begin, following which a product quality result will be prepared.

DPPC will include the product in its drug planning procedures and will issue approval
for importing the product into Egypt. The applicant must submit a product pricing
file to DPPC, which is also responsible for recommending the product price, see
below.

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The results of these three steps will be made available to the High Technical
Committee, which is responsible for issuing the marketing permit, and issuing a
product approval letter to NODCAR.

The final step is the approval to market the product issued by CAPA, but this is not
undertaken until the price has been set. The market approval is signed by the
Minister Of Health and is for a period of 10 years.

Completing the above steps can take 1 – 3 years, with there being no commitments to
responses being received by applicants within set time periods.

Products Sourced From Within Egypt The same procedures are applied for generic
products introduced by PMCs with manufacturing facilities in Egypt and for added-
value generics which are developed PMCs based in Egypt.

Fast Track Procedures The regulatory framework includes a fast-track approval

system for products that are of great importance to patient health, reducing the time
required to between 3 – 6 months.

Abridged Approvals The framework for handling abridged approvals does not meet
international standards on bioavailability and bioequivalence studies.

Essential Drugs List

Egypt has been operating an EDL since 1984. It currently includes over 300 products,
out of 500 mainstream products currently being made available. The list covers too
many products to provide the balance described in section 10 and it needs to be
overhauled to reduce the number to the key priorities and to encourage the
pharmaceutical companies to make new products available to be included.

Product Availability

95% of the medications in the domestic market are off-patent which is encouraging
for making a new EDL system more effective.

Pricing

Prices are set at the time a product goes through the approval process as described
above, with the price set by a separate Pricing Committee. A cost-plus approach is
used, with a 15% profit margin allowed on products on the EDL and 25% for products
not included in the list. It appears, though, that final prices are set more through a
process of negotiation than through the rigorous implementation of the cost-plus
methodology. This approach applies equally to generic products as to imported
innovative products. The agreed final price should be reviewed every two years to
agree any increases.

The issue of the pricing of products in Egypt relates more to the lack of flexibility to increase
prices after the original price has been set, rather than to setting the first agreed price. When
PMCs request price increases, such requests have been refused.

ADE – DOL 99
Domestic Market

The following assessment of the domestic market excludes phytopharmaceutical

products which are covered separately below. In 2003 the domestic market for
synthetic products, based on IMS data (excluding hospital sales) was worth EGP 5.7
bn, having increased as follows from 1998 in current prices:

1998 1999 2000 2001 2002 2003

Value Value % Value % Value % Value % Value %
Chn Chn Chn Chn Chn
3.6 4.0 11 4.2 5 4.5 7 5.0 11 5.7 14

The level of imported final formulation products was 25% of domestic consumption
in 1998. In 2002 imports of dosage products represented 20.7% of the domestic
market, with a value of EGP 1.182 mn. With imports accounting for under a fifth of
the market, and with the impact of devaluation impacting on the price of non-
regulated products, the increase in market value will be lower than indicated in the
above table. Whereas in EGP current prices the market increased by 58% over the
six year period (average of 9.7% a year), we estimate real growth to have been about
30%, with an annual average increase of 5%.

Import Regulations

The role of DPPC in issuing approvals to import products into Egypt will have to be
removed following the implementation of TRIPS.

Importers must have an import license which is renewable on an annual basis and
must be supported by an annual import plan. The license allows for the importation
of specific quantities of products at a specific price, with additional quantities agreed
if the product is in short supply.

Import Tariffs

Before the recent reductions in import tariffs, the level of import duties on
pharmaceutical products were already low at 5%.

Defensive Policy

Keeping imports of dosage products below 25% of the value of the domestic market
indicates that a successful defensive economic policy has been applied, see section 10,
up to now. All of these imports are through separate Scientific Offices with import
licenses, which are either established as independent locally-owned busineses, or as
joint venture businesses with PIMCs. There are 350 scientific offices, with the
largest, Schering Plough, having 7% market share, with a value of EGP 83 mn.

Domestic Manufactured Products

Domestic manufactured synthetic products sold in the domestic market have a value
of EGP 4.5 bn, with the break-down being 52% Domestic PMCs (value of EGP 2.35
bn) and 48% International PMCs (value of EGP 2.17 bn). The Domestic PMC sales

ADE – DOL 100

are split 76% privately-owned companies (value of EGP 1.79 bn), and 24% public
enterprises (value of EGP 0.56 bn).

There are 8 International PIMCs operating in Egypt, but Otsuka (Japanese) has the
majority of its through hospitals and these are not covered by the IMS data. The
analysis is therefore restricted to 7 PIMCs. Glaxosmithkline is the market leader of
this market segment, with 24% market share (value of EGP 0.52 bn). The other
players are: Novartis 20% - EGP 0.43 bn; Aventis 16% - EGP 0.35 bn; Bristol Myers
Squibb 15% - EGP 0.32 bn; Pfizer 13% - EGP 0.28 bn; Servier 9% - EGP 0.2 bn; and
Nestlé 3% - EGP 0.06 bn. The average sales of the 7 PIMCs is EGP 0.31 bn.

There are 19 Domestic PMCs that are privately-owned, with the market leader of this
market segment being Pharco / Amriya having 28% market share (value of EGP 0.5
bn). The other leading market players are: EIPICO with 18% market share (value of
EGP 0.32 bn); Amoun Pharma 15% - EGP 0.27 bn; Medical Union Pharma 8% - EGP
0.14 bn; SEDICO 6% - EGP 0.11 bn. All of the other Domestic PMCs have 3%, or
less market share, with sales of EGP 50 mn, or less, which is under $ 10 mn.

There are two Holding Companies that own the public enterprise pharmaceutical
manufacturers: Holding Company for Pharmaceuticals, Chemicals and Medical
Appliances, which is part of the Ministry Of Investment; and VACSERA, which is
the Holding Company for Biological Products and Vaccines, which is affiliated to the
Ministry of Health. The break-down of the public enterprise market segment are:
CID 19% (value of EGP 111 mn); Kahira 17% - EGP 95 mn; Misr 16% - EGP 90 mn;
Nile 14% - EGP 78 mn; Alexandria 11% - EGP 62 mn; ADCO 10% - EGP 56 mn;
Memphis 7% - EGP 39 mn; and Nasr 6% - EGP 34 mn. The average sales of these
public enterprises is EGP 70.6 mn, which is just over $ 10 mn. The public
enterprises are covered in greater detail later in this section.

In conclusion, the top 10 International and Domestic PMCs account for just over 50%
of total domestic sales. The overall market leader is Glaxosmithkline with 9.1% of
the total market, followed closely by Pharco / Amriya with 8.8%. In the next
category, three International PMCs have higher overall market shares (Novartis 7.5%,
Aventis 6.1% and Bristol Myers Squibb 5.6%) than the three highest Domestic PMCs
(EIPICO 5.6%, Amoun Pharma 4.7% and Medical Union 2.5%).

The largest public enterprise manufacturer is ranked 12th in domestic sales behind the
International PMCs and the Domestic privately-owned PMCs.

A key conclusion is that of the 34 pharmaceutical manufacturers 14 (41%) have

annual sales of $ 10 mn, or under, which is too small to be a long-term sustainable
player following the implementation of TRIPS. To put this level of turnover into
perspective, and applied to the international break-down of total costs, see section 18,
this size of company will have an annual sales and marketing budget of $ 3.4 mn and
research and development budget of $ 0.6 mn. The former is low to be able to break
into international markets and build-up market share across a number of countries.
The latter is low to fund a pipeline of new products, including the cost of meeting
regulatory requirements, and paying for licenses.

ADE – DOL 101

New Products

New product launches account for only 3 – 4% of the market, which indicates a low
level of innovation within the sector as a whole. The break-down of sales
represented by new product launches in 2003, by main product provider, was:

• Domestic private PMC 42.9%;

• Scientific offices (imports) 35.7%;

• International PMC 19.0%;

• Domestic public PMC 2.4%.

It is encouraging that the Domestic private PMCs account for the highest proportion
of sales of new product launches, but it is discouraging that the second best
performance is taken by Scientific Offices, representing imported products.
International PMCs have a low proportion of the new product sales, which reflects
their concerns over the pricing of products, see above. The above indicates a very
low level of new products sales activity from the Domestic public PMCs.

Market By Product

P0 PARASITOLOGY
1%
SYSTEMIC HORMONES
2%
VARIOUS
2%
BLOOD + B.FORMING ORGANS
2% ALIMENTARY T.& METABOLISM
24%
SENSORY ORGANS
3%

DERMATOLOGICALS
5%

G.U.SYSTEM & SEX HORMONES

5%

CENTRAL NERVOUS SYSTEM

8% SYSTEMIC ANTI-INFECTIVES
18%

RESPIRATORY SYSTEM
9%
CARDIOVASCULAR SYSTEM
MUSCULO-SKELETAL SYSTEM 11%
10%

Source: IMS 2003

The most significant product areas are: alimentary and metabolism; systemic anti-
infectives; cardiovascular system; musculo-skeletal system; respiratory system; and
central nervous system.

Product By Manufacturer

The market share, by product, through each type of supplier is indicated in the
following tables.

ADE – DOL 102

Alimentary and Metabolism Market Share
Domestic Scientific International Domestic Public Total
Private PMC Offices (Imports) PMC PMC
46.5% 23.4 19.8 10.2 100.0

Systemic Anti-infectives Market Share

International Domestic Private Domestic Scientific Total
PMC PMC Public PMC Offices (Imports)
54.5% 31.5% 7.0% 7.0% 100.0

Cardiovascular System Market Share

International Scientific Domestic Domestic Public Total
PMC Offices (Imports) Private PMC PMC
45.7% 38.4% 13.8% 2.1% 100.0

Musculo-skeletal System Market Share

International Domestic Private Scientific Domestic Total
PMC PMC Offices (Imports) Public PMC
39.1% 38.7% 17.1% 5.0% 100.0

Respiratory System Market Share

International Domestic Domestic Scientific Total
PMC Private PMC Public PMC Offices (Imports)
33.2% 30.7% 20.2% 15.8% 100.0

Central Nervous System Market Share

International Scientific Domestic Domestic Public Total
PMC Offices (Imports) Private PMC PMC
46.0% 22.4% 17.0% 14.6% 100.0

G.U. System And Sex Hormones Market Share

Scientific International Domestic Domestic Public Total
Offices (Imports) PMC Private PMC PMC
40.2% 24.6% 20.4% 14.8% 100.0

Other Products Market Share

International Domestic Scientific Domestic Total
PMC Private PMC Offices (Imports) Public PMC
40.5% 25.6% 23.4% 10.4% 100.0

The key conclusions are:

• International PMCs are in the lead market positions in 6 out of the 8 product areas.

• Domestic private PMCs are the market leader in only one product area, alimentary
and metabolism products. In four of the other product areas they are in second
position.

ADE – DOL 103

• Scientific Offices (imports) are in the lead market position in one product area,
G.U. system and sex hormones. In three of the other product areas they are in
second position.

• Domestic public PMCs are in last position in 6 out of the 8 product areas. In the
other two product areas they are in third position.

The above results can be summarised as: the International PMCs are the market
leaders; the Domestic private PMCs and the Scientific Offices are the market
followers; and the Domestic public PMCs are the market strugglers.

Export Regulations

GOE requires that any pharmaceutical product must be registered in Egypt prior to
being exported. As indicated above NODCAR must apply a quality test on each
batch of products.

Trade Balance

Two trade data sources have been used; UN statistics as they allow for historic trends
to be identified from 1997 to 2001; and TradeMap statistics as they allow for a
detailed assessment of the results for 2002.

UN Statistics Egypt’s trade balance in pharmaceutical products has been getting

worse, increasing from a deficit of $ 154 mn in 1997 to $ 294 mn in 2001. Over this
period imports increased from $ 220 to $ 343 mn, with exports falling from $ 66 to $
49 mn. One of the reasons for the fall in exports is that importing countries expect to
be able to purchase at the prevailing prices in the country of export, as explained in
section APP4. Egypt’s pharmaceutical manufacturers are not interested in exporting
their products at the prices that currently apply in Egypt.

TradeMap Statistics The following tables indicate that in 2002 the trade balance was
negative to the extent of $ 397 mn, based on imports of $ 438 mn and exports of $ 41
mn.

Combining Results the trend over the period 1997 to 2002 has been increasing
imports, decreasing exports and a worsening trade balance.

Detailed Trade Assessment

The following detailed assessment of Egypt’s trade in pharmaceutical products uses

the TradeMap 2002 results.

Imports

The table overleaf indicates the pharmaceutical products that are imported into Egypt
in bulk and as dosage products. The bulk items are taken to be the main input
materials for the International and Domestic PMCs.

ADE – DOL 104

 Imported Pharmaceutical Products – 2002 In USD mns
Product Rank 1st 2nd 3rd 4th 5th
Bulk Pharmaceuticals:
1 Vaccines, human use 33.024 19th Belgium France India Italy Nether.
2 Antibiotics nes 29.047 25th Italy France Belgium China Spain
3 Medicaments nes 13.149 41st Germany Switz. UK Italy China
4 Vitamin concentrates 11.436 12th USA France Denmark Spain Switz.
5 Penicillins 11.606 28th Italy Belgium Spain UK India
6 Insulin 6.221 6th China USA Poland
7 Antibiotics nes, formulated 5.907 17th USA Australia Jordan France Indonesia
8 Halogenated derivaties 5.175 19th Switz. USA Spain Germany
9 Vegetable alkaloids 4.592 17th Germany France India Switz UK
10 Streptomycins 3.775 4th China
11 Hormones nes 3.712 29th Germany Belgium Spain Italy France
12 Rye ergot alkaloids 3.336 13th Switz Czech Italy Belgium Slovenia
13 Glycosides 2.597 17th France Germany China Spain UK
14 (Cannot read print-out) 2.391 35th
15 Vitamins nes 2.030 47th Germany Nether. France USA Denmark
16 Tetracyclines 1.872 30th Belgium China Hong Kong Germany
17 Vitamins B1 1.545 22nd Germany Nether. Switz. Spain China
18 Vitamin C 1.090 53rd Germany Nether. China France Belgium
19 Theopylline 0.940 19th Germany China France Slovakia Switz.
20 Chloramphenicol 0.938 17th Italy China Spain
21 Caffeine 0.929 18th Germany China
22 Vitamins B12 0.751 28th France Switz. Nether. Spain China
23 Vitamins E 0.751 53rd Switz. China Nether. Belgium UK
24 Vitamins B6 0.698 28th Nether. Germany Switz. France
25 Hormones, form, not antibiotics 0.638 46th USA Germany UK
26 Cortisons, etc 0.564 37th China Belgium Italy Spain Malaysia
27 D- or DL- Panothothenic Acid 0.486 45th
28 Vitamins A 0.469 59th
29 Rustoside 0.469 19th
30 Opium alkaloids 0.447 47th
31 Vitamins B2 0.432 39th
32 Pseudoephedrine 0.346 26th
33 Penicillins, Steptomycins form 0.320 44th
34 Ephedrine 0.202 12th
35 Ergotamine 0.126 12th
36 Ephedrines nes 0.076 18th
37 Alkaloids, form not antibiotics 0.039 67th
38 Quinine 0.030 55th
39 Provitamins 0.021 62nd
Total in Bulk 161.696
In Dosages:
1 Medicaments nes 177.385 51st France Switz. Belgium UK Nether.
2 Antibiotics nes 37.431 34th Belgium Switz. UK Germany France
3 Hormones, not antibiotics 21.588 38th Switz. Germany UK France Nether.
4 Penicillins, Steptomycins 8.924 41st UK Austria Mexico Belgium France
5 Suture materials 6.982 28th UK Belgium Ireland Spain France
6 Contraceptive preparations 6.185 32nd Germany Nether. Belgium Switz. Ireland
7 Vitamins 5.194 59th Switz. France Germany Denmark Ireland
8 Adrenal cortex hormones 5.105 45th UK Belgium Switz. Germany Italy
9 Insulin 4.298 41st China Germany France Nether. USA
10 Alkaloids not antibiotics 4.245 45th USA Germany Switz. Italy France
Total in Dosages 277.337
Overall Total 439.033
Source: TradeMap

ADE – DOL 105

The points to be noted from the above table are:

• The top 3 imported bulk products account for 46% of the value of all bulk
pharmaceutical imports, with the main imported products being vaccines for
human use, antibiotics and medicaments.

• The top 10 imported bulk products represent 84% of the total value of bulk
imports. With these products there is a clear emphasis on importing from
developed economies in Western Europe and USA.

• With at least 3 of the top 10 imported products there are alternative suppliers
which could be cheaper:

- Concentrated vitamins: Singapore, China, Mexico and Thailand.

- Insulin: Brazil and Czech Republic.

- Halogenated derivatives: Singapore, China, Bahamas and Mexico.

Exports

The table overleaf indicates Egypt’s pharmaceutical product exports during 2003.
The world ranking in exporting performance is indicated, alongside the importing
countries ranked first to fifth by value of imports from Egypt.

Bulk Product Exports Penicillins and penicillins / steptomycins together account for
68% of bulk export sales and represent the lead product areas for Egypt’s
international bulk pharmaceutical sales. The other leading bulk product exports are
medicaments and antibiotics with combined sales of $ 1.626 mn export sales. The
highest world export rankings in bulk pharmaceutical products are:

• 9th in ergotamine;

• 16th in penicillins / steptomycins;

• 19th in penicillins;

• 21st in quinine.

The average ranking across all of the bulk products is 37th. It should be noted that
section 12 indicated that penicillins are old of the oldest drug forms available.

EU countries have seven first positions, out of thirteen, with exports into the EU
market accounting for 39.1% of bulk exports.

ADE – DOL 106

 Exported Pharmaceutical Products – 2003 In USD mns
Product World Top 5 Importing Countries For Egypt’s Exports
Egypt’s Rank 1st 2nd 3rd 4th 5th
Exports
Bulk Pharmaceuticals:
1 Pencillins 2.962 19th France Russia Germany Spain Italy
2 Penicillins, Steptomycins form
1.340 16th Jordan
3 Medicaments nes 0.731 40th Jordan Iran Algeria Ethiopia Tunisia
4 Antibiotics nes 0.450 44th Italy Jordan India
5 Antibiotics nes, formulated 0.445 36th Senegal
6 Vegetable alkaloids 0.113 35th UK
7 Vitamin concentrates 0.060 58th Algeria Netherlands
8 Vitamin C 0.058 56th Netherlands
9 Vaccines, human use 0.048 68th Turkey Namibia
10 Ergotamine 0.032 9th Czech Rep
11 Alkaloids, not 0.023 30th Jordan
antibiotics
12 Quinine 0.021 21st Ireland
13 Vitamin A 0.012 43rd Netherlands
Total in Bulk 6.295
In Dosages:
1 Medicaments nes 15.847 68th Romania Pakistan Jordan Kazakhstan Lebanon
2 Insulin 4.105 12th Morocco S. Africa
3 Vitamins 3.461 39th Romania Kazakhstan Ecuador Ethiopia Oman
4 Alkaloids 1.733 40th Romania Kenya
5 Antibiotics 1.409 63rd Morocco Romania Algeria Italy Jordan
6 Adrenal cortex 0.984 38th Romania Ethiopia Oman
hormones
7 Penicillins, 0.619 62nd Romania Algeria Jordan Bahrain Kenya
Steptomycins
8 Hormones, not 0.132 78th Ethiopia Kenya Uganda Tanzania
antibiotics
Total in Dosages 28.290
Overall Total 34.585
Source: TradeMap

Dosage Product Exports The top three dosage products; medicaments, insulin and
vitamins account for 82.7% of export sales. The highest world export rankings are:

• 12th in insulin;

• 38th in adrenal cortex hormones;

• 39th in vitamins.

The above rankings are lower than for the bulk products, with the dosage products
having an average ranking of 50 th, compared to 37th for the bulk products.

With dosage products there is no instance of an EU country being the number one
export market. Romania is the lead importer of Egypt’s dosage products in five out of
the eight product areas. Only 1.1% of the exports of dosage products are to the EU,
compared to 39.1% for the bulk products indicated above.

ADE – DOL 107

Overall Exports The above results indicate that Egypt has greater strength in
exporting higher added-value dosage products, representing 81.8% of export sales
value in 2003, compared to 18.2% for bulk pharmaceutical products.

Change In Overall Export Performance 2002 - 03

The overall changes in export performance between 2002 and 2003 are indicated in
the following table:
In USD mns
2002 2003 Value Change % Change
Bulk products 15.862 6.295 - 9.567 - 60.3
Dosage products 25.316 28.290 + 2.974 + 11.8
Total 41.178 34.585 - 6.593 - 16.0

Exports of bulk products fell by 60 % over the two year period from $ 15.862 to
6.295 mn. Exports of dosage products increased by 12 %, from $ 25.316 to 28.29
mn, but this was insufficient to counter balance the significant drop in bulk product
exports. Overall exports fell from $ 41.178 mn in 2002 to $ 34.585 mn in 2003, a
decrease of 16 %.

Change In Product Export Performance 2002 - 03

The table overleaf indicates the change in export performance, by pharmaceutical

products, between 2002 and 2003. The products are ranked by export sales value in
2003.

The main changes in the bulk products are:

• The three leading bulk products in 2002 experience respective decreases in export
sales of 59.1 %; 56.5%; and 74.9 % over the two year period. Combined these
products had export sales value of $ 13.239 mn in 2002, but this fell to $ 5.033 mn
in 2003, a decline of 62 %.

• Product no.’s 14 – 17 had discontinued sales in 2003, which accounted for a total
of $ 0.35 mn in 2002.

• Product no.’s 6 and 10 to 13 had export sales in 2003, but were not exported the
previous year. These “new” products generated export sales of $ 0.201 mn,
which is less than the value of the products that had stopped selling.

The main changes in the dosage products are:

• The three leading products in 2002: medicaments; vitamins and hormones had
combined export sales of $ 20.522 mn, representing 81 % of total export sales.
In 2003 the leading three products: medicaments, insulin and vitamins achieved
export sales of $ 23.413 mn, representing 82.8 % of the total.

ADE – DOL 108

 In USD mns
Product Value 2002 Value 2003 Change In % Change
Value 2002 –
2003
Bulk Pharmaceuticals:
1 Pencillins 7.249 2.962 - 4.287 - 59.1
2 Penicillins, Steptomycins form 3.078 1.340 - 1.738 - 56.5
3 Medicaments nes 2.912 0.731 - 2.181 - 74.9
4 Antibiotics nes 0.403 0.450 + 0.047 + 11.7
5 Antibiotics nes, formulated 0.753 0.445 - 0.308 - 40.9
6 Vegetable alkaloids - 0.113 + 0.113 n/a
7 Vitamin concentrates 0.122 0.060 - 0.062 - 50.8
8 Vitamin C 0.014 0.058 + 0.044 + 314.3
9 Vaccines, human use 0.981 0.048 - 0.933 - 95.1
10 Ergotamine - 0.032 + 0.032 n/a
11 Alkaloids, not antibiotics - 0.023 + 0.023 n/a
12 Quinine - 0.021 + 0.021 n/a
13 Viramins A 0.012 + 0.012 n/a
14 Hormones, not antibiotics 0.285 - - 0.285 - 100.0
15 Vitamin B1 0.033 - - 0.033 - 100.0
16 Glycosides 0.021 - - 0.021 - 100.0
17 Theopylline / aminophylline 0.011 - - 0.011 - 100.0
Total in Bulk 15.862 6.295 - 9.567 - 60.3
In Dosages:
1 Medicaments nes 12.946 15.847 + 2.901 + 22.4
2 Insulin 0.117 4.105 + 3.988 + 3,408.5
3 Vitamins 3.840 3.461 - 0.379 - 9.9
4 Alkaloids 1.196 1.733 + 0.537 + 44.9
5 Antibiotics 1.789 1.409 - 0.380 - 21.2
6 Adrenal cortex hormones 0.509 0.984 + 0.475 + 93.3
7 Penicillins, Steptomycins 1.102 0.619 - 0.483 - 43.8
8 Hormones, not antibiotics 3.736 0.132 - 3.604 - 96.5
9 Suture 0.081 - - 0.081 n/a
Total in Dosages 25.316 28.290 + 2.974 + 11.7
Overall Total 41.178 34.585 - 6.593 - 16.0
Source: TradeMap

• The most significant increases in export sales from 2002 to 2003 was of insulin
from $ 0.117 in 2002 to $ 4.105 and medicaments from $ 12.946 to 15.847 mn.
The most significant decrease was of hormones, not including antibiotics which
fell from $ 3.736 in 2002 to 0.132 mn in 2003.

• The only product with discontinued export sales in 2003 is sutures, with no new
dosage products added to replace this product.

There is considerably less volatility of export sales performance in dosage, than in

bulk products.

Changes In Global Positioning By Product

The table overleaf indicates the change in world rankings of Egypt’s pharmaceutical
product export performance:

ADE – DOL 109

Product % Change World World Change In
Value Export Position Position Ranking
Sales 2002 – 03 2002 2003
Bulk Products:
Penicillins, Steptomycins form - 56.5 12th 16th - 4 places
Pencillins - 59.1 18th 19th - 1 place
Antibiotics nes, formulated - 40.9 27th 36th - 9 places
Antibiotics nes + 11.7 44th 43rd + 1 place
Vitamin C + 314.3 56th 52nd + 4 places
Medicaments nes - 74.9 40th 55th - 15 places
Vitamin concentrates - 50.8 43rd 58th - 15 places
Vaccines, human use - 95.1 32nd 68th - 36 places
Dosage Products:
Insulin + 3,408.5 New – in at 12th
Adrenal cortex hormones + 93.3 39th 38th + 1 place
th
Vitamins - 9.9 40 39th + 1 place
th
Alkaloids + 44.9 45 40th + 5 places
th
Penicillins, Steptomycins - 43.8 48 62nd - 14 places
th
Antibiotics - 21.2 57 63rd - 6 places
th
Medicaments nes + 22.4 66 68th - 2 places
th
Hormones, not antibiotics - 96.5 34 78th - 44 places

Under the bulk products Egypt’s ranking improves in only two products area: from
44th to 43rd in antibiotics; and from 56th to 52 nd in vitamin C. The product where
Egypt had the highest world position in 2002, penicillins and stepomycins
experienced a fall from 12 th to 16th position.

Egypt’s significant world performance of export sales of dosage products was in

insulin, which gained 12 th position in 2003, not having been exported during 2002.
Three other dosage products improved their world export rankings: adrenal cortex
hormones; vitamins and alkaloids. Three dosage products experienced declines in
world export rankings: penicillins and steptomycins; antibiotics; and hormones (not
including antibiotics), where the fall was from 34th to 78th place.

Exports By Main Market 2003

The break-down of export sales, by value and by main market area are indicated in the
following tables:

Total Export Sales

Former Soviet MENA Rest Of EU Others Total
Union Africa
42.3 % 34.2 % 8.7 % 8.2 % 6.5 % 100.0

Bulk Product Exports

MENA EU Rest Of Former Soviet Others Total
Africa Union
40.0 % 39.3 % 10.8 % 8.6 % 1.3% 100.0

ADE – DOL 110

Dosage Product Exports
Former Soviet MENA Rest Of Others EU Total
Union Africa
49.6 % 33.0 % 8.2 % 7.6 % 1.6 % 100.0

The key points from this analysis are:

• The former Soviet Union market is the largest for Egypt’s exports, accounting for
42.3 % of all pharmaceutical product export sales and half (49.6 %) of the export
value of dosage products. This market concentrates on taking dosage products as
it only accounts for 8.6 % of bulk product export sales.

• MENA is the second largest export market accounting for 34.2 % of total export
sales, with a relatively balanced split between bulk products (accounting for 40.0
% of export sales) and dosage products (accounting for 33.0 % of these sales).

• Combined the former Soviet Union and MENA markets account for 76.1 % of all
export sales, with the other three market areas: rest of Africa; EU; and other
countries accounting for 23.9 %.

• The rest of Africa represents only 8.7 % of Egypt’s total export sales; 10.8% of
bulk products; and 8.2 % of dosage products.

• Sales into the EU market account for 8.2 % of all export sales, but there is a
significant difference between the two product types, with this market
representing 39.3 % of bulk product exports, but only 1.6 % of dosage product
exports.

• It should be noted that there are no export sales into USA which is by far the
world’s largest market for pharmaceutical products, accounting for 48 % of all
sales value.

Change In Egypt’s Exports By Main Market Area 2002 - 03

The changes in the export value of the main markets is indicated in the following
table, with the key points highlighted below:

In USD mns
Former MENA Rest Of EU Others Total
Soviet Africa
Union
Export Sales 2002 7.707 18.730 5.995 5.665 1.603 39.700
Export Sales 2003 15.101 12.211 3.100 2.923 2.323 35.658
Value Change + 7.395 - 6.519 - 2.895 - 2.742 + 0.720 - 4.042
% Change + 96.0 - 35. 5 - 48.3 - 48.4 + 44.9 - 10.2

• Export sales to the former Soviet Union main market increased by 96 % between
2002 and 2003, with also an increase of 45 % to “other” countries.

ADE – DOL 111

• Significant falls in export sales values to each of the other three main markets: EU
(48.4 %); rest of Africa (48.3 %); and MENA (35.5 %).

• Without the near doubling in export values to the former Soviet Union market
there would have been a much worse decline in export sales performance between
2002 and 2003.

• Although the growth of export sales to the former Soviet Union countries is
encouraging, the significant declines in export sales to the MENA, rest of Africa
and EU markets is disturbing.

Exports By Country 2003

The table overleaf indicates Egypt’s exports to all countries, in 2003, also split into
bulk and dosage products. The key points from the table are:

• Romania is by far Egypt’s largest export market accounting for $ 11.367 mn of

sales in 2003, which represents 32.9% of total export sales. All of these sales are
of dosage products, with Romania accounting for 40.2% of export performance in
these products.

• The top 5 countries for export sales: Romania; Morocco; Jordan; Kazakhstan; and
Pakistan account for 70.7% of all export sales in 2003, but the difference between
the two product areas is significant with them accounting for 79.8 % of dosage
product export sales, but only 29.6 % of bulk products.

• In bulk products Jordan is the largest export market with sales of $ 1.847 mn,
which represents 29.4 % of Egypt’s total. The second largest market is France
with $ 0.839 of sales, followed by Italy at $ 0.548 mn. It is encouraging that two
out of Egypt’s top three markets for bulk products are EU countries. The
relatively high incidence of EU countries is continued down the ranking of
countries importing Egypt’s bulk pharmaceutical products:

- four out of the top 10 importing countries are EU, and;

- nine out of the top 20 are EU countries.

• The following EU countries imported only bulk pharmaceutical products from

Egypt during 2003: France; Germany; Spain; Hungary; Czech Republic; and
Ireland. Four EU countries imported both dosage and bulk products: Italy;
Netherlands; UK; and Swtzerland, with an almost exact 50 : 50 split across all
four countries between bulk and dosage products.

• The leading MENA importing countries of Egypt’s pharmaceutical products in

2003 were: Morocco ($ 4.628 mn); Jordan ($ 3.877 mn); Oman ($ 1.200 mn); and
Lebanon ($ 1.099 mn).

• The leading countries from the rest of Africa for importing Egypt’s
pharmaceutical products in 2003 were: Ethiopia ($ 0.926 mn); Kenya ($ 0.906
mn); and Senegal ($ 0.472 mn).

ADE – DOL 112

Egypt’s Exports By Country - 2003 In USD mns
Country Bulk Products Dosage Products Total Value
Value % Split Value % Split
1 Romania - - 11.367 100.0 11.367
2 Morocco 0.018 4.2 4.610 95.8 4.628
3 Jordan 1.847 47.6 2.030 52.4 3.877
4 Kazakstan - - 2.468 100.0 2.468
5 Pakisatan - - 2.107 100.0 2.107
6 Oman - - 1.200 100.0 1.200
7 Lebanon - - 1.099 100.0 1.099
8 Ethiopia 0.080 8.6 0.846 91.4 0.926
9 Kenya - - 0.906 100.0 0.906
10 France 0.839 100.0 - - 0.839
11 Italy 0.548 79.0 0.146 21.0 0.694
12 Russian Federation 0.517 86.6 0.080 13.4 0.597
13 Algeria 0.150 26.2 0.423 73.8 0.573
14 Senegal 0.458 97.0 0.014 3.0 0.472
15 South Africa 0.112 28.6 0.280 71.4 0.392
16 Germany 0.386 100.0 - - 0.386
17 Spain 0.359 100.0 - - 0.359
18 Bahrain - - 0.313 100.0 0.313
19 Turkey 0.284 100.0 - - 0.284
20 Moldova 0.021 7.8 0.247 92.2 0.268
21 Netherlands 0.087 33.1 0.176 66.9 0.263
22 UK 0.124 67.0 0.061 33.0 0.185
23 Armenia - - 0.168 100.0 0.168
24 Iran 0.150 100.0 - - 0.150
25 Ecuador - - 0.134 100.0 0.134
26 Tanzania 0.016 12.8 0.109 87.2 0.125
27 Mauritius - - 0.115 100.0 0.115
28 Bosnia / Herzegovina - - 0.108 100.0 0.108
29 Switzerland 0.024 24.0 0.076 76.0 0.100
30 Azerbaijan - - 0.089 100.0 0.089
31 Uganda - - 0.088 100.0 0.088
32 Tunisia 0.049 68.1 0.023 31.9 0.072
33 India 0.064 100.0 - - 0.064
34 Namibia 0.011 18.3 0.049 81.7 0.060
35 Hungary 0.044 100.0 - - 0.044
36 Kyrgyzstan - - 0.036 100.0 0.036
37 Czech Republic 0.032 100.0 - - 0.032
38 Ireland 0.021 100.0 - - 0.021
39 Nicaragua 0.018 100.0 - - 0.018
40 Togo - - 0.016 100.0 0.016
41 Syria 0.015 100.0 - - 0.015
Total 6.274¹ 29.384¹ 35.658¹
Source: TradeMap
¹ There is a differences of $ 1.2 mn between the totals in the country break-down compared to the earlier product
break-down.

• In 2003 the top thirteen importers of Egypt’s dosage products are all developing
countries, with the highest ranking developed country importer being Netherlands,
with a value of $ 0.146 mn. When this situation is compared to the situation with

ADE – DOL 113

 dosage products, see above, it is clear that the EU market is more willing to accept
Egypt’s bulk pharmaceutical products, than its dosage products.

Change In Egypt’s Exports By Country 2002 - 03

Three tables are provided overleaf that compare export sales performance by recipient
country between 2002 and 2003. The three tables cover: all pharmaceutical products;
bulk products; and dosage products. The results in each table are ranked by export
sales value in 2003.

All Products The key points are:

• The high number of countries which have imported Egypt’s pharmaceutical

products, with 39 countries in 2002 and 41 countries in 2003. The average level
of export sales by country in 2002 was $ 1.056 mn , but this fell to $ 0.870 in
2003.

• The high turnover and fluctuations in country markets between 2002 and 2003, as
evidenced by the following points:

- 11 country export markets were lost, with a value of $ 20.98 mn, which means
that Egypt’s Pharmaceutical Sector lost half its export markets, by value over
a two year period.

- 14 new country markets were added with a 2003 export sales value of $ 7.075
mn.

- Of the 28 countries that had export sales during both 2002 and 2003, 14 had
increases of over 50%, and 6 had declines of over 50 %.

• The key conclusion from the assessment of Egypt’s export performance by

country is a high level of instability between 2002 and 2003.

Bulk Products The key points are:

• In 2002 24 countries imported bulk pharmaceutical products from Egypt with a

value of $ 15.862 mn, at an average value of $ 0.661 across the countries. In
2003 the number of countries increased to 26, but export sales values fell to $
6.274, with an average value for each country of $ 0.241.

• The high turnover and fluctuations in country markets between 2002 and 2003, as
evidenced by the following points:

- 8 country export markets were lost, with a value of $ 8.759 mn export sales
during 2002. Egypt lost half of its bulk pharmaceutical product export
markets, by value over a two year period.

- 10 new country markets were added during 2003, but with export sales values
of only $ 0.413 mn.

ADE – DOL 114

Change In Export Sales Of All Products, By Country 2002 - 03 In USD mns
Country Value 2002 Value 2003 Change In Value %
2002 – 03 Change
1 Romania 6.891 11.367 + 4.476 + 65.0
2 Morocco 1.404 4.628 + 3.224 + 229.6
3 Jordan 2.069 3.877 + 1.808 + 87.4
4 Kazakstan - 2.468 + 2.468 n/a
5 Pakisatan - 2.107 + 2.107 n/a
6 Oman 1.102 1.200 + 0.098 + 8.9
7 Lebanon - 1.099 + 1.099 n/a
8 Ethiopia 0.597 0.926 + 0.329 + 55.1
9 Kenya 0.456 0.906 + 0.450 + 98.7
10 France 2.694 0.839 - 1.855 - 68.9
11 Italy 0.068 0.694 + 0.626 + 920.6
12 Russian Federation 0.247 0.597 + 0.350 + 141.7
13 Algeria - 0.573 + 0.573 n/a
14 Senegal 0.581 0.472 - 0.109 - 18.8
15 South Africa 0.029 0.392 + 0.363 + 1,251.7
16 Germany 0.827 0.386 - 0.441 - 53.3
17 Spain 0.125 0.359 + 0.234 + 187.2
18 Bahrain - 0.313 + 0.313 n/a
19 Turkey 1.069 0.284 - 0.785 - 73.4
20 Moldova 0.111 0.268 + 0.157 + 141.4
21 Netherlands 0.016 0.263 + 0.247 + 1,543.8
22 UK 0.604 0.185 - 0.419 - 69.4
23 Armenia 0.123 0.168 + 0.045 + 36.6
24 Iran 0.068 0.150 + 0.082 + 120.6
25 Ecuador 0.109 0.134 + 0.025 + 22.9
26 Tanzania - 0.125 + 0.125 n/a
27 Mauritius 0.030 0.115 + 0.085 + 283.3
28 Bosnia / Herzegovina - 0.108 + 0.108 n/a
29 Switzerland - 0.100 + 0.100 n/a
30 Azerbaijan 0.040 0.089 + 0.049 + 122.5
31 Uganda 0.124 0.088 - 0.036 - 29.0
32 Tunisia 0.136 0.072 - 0.064 - 47.1
33 India 0.130 0.064 - 0.066 - 50.8
34 Namibia - 0.060 + 0.060 n/a
35 Hungary 0.64 0.044 - 0.596 - 93.1
36 Kyrgyzstan - 0.036 + 0.036 n/a
37 Czech Republic - 0.032 + 0.032 n/a
38 Ireland - 0.021 + 0.021 n/a
39 Nicaragua - 0.018 + 0.018 n/a
40 Togo 0.016 0.016 - -
41 Syria - 0.015 + 0.015 n/a
42 Guetemala 0.016 - - 0.016 - 100.0
43 Albania 0.021 - - 0.021 - 100.0
44 Zimbabwe 0.023 - - 0.023 - 100.0
45 Korea 0.089 - - 0.089 - 100.0
46 Ukraine 0.453 - - 0.453 - 100.0
47 Sweden 0.466 - - 0.466 - 100.0
48 Belgium 0.801 - - 0.801 - 100.0
49 Hong Kong 1.259 - - 1.259 - 100.0
50 Qatar 1.271 - - 1.271 - 100.0
51 Sudan 3.971 - - 3.971 - 100.0
52 Saudi Arabia 12.610 - - 12.610 - 100.0
Total 41.142 35.658 - 5.484 - 13.3
Source: TradeMap

ADE – DOL 115

Change In Export Sales Of Bulk Products, By Country 2002 - 03
In USD mns
Country Value 2002 Value 2003 Change In % Change
Value 2003
– 2003
1 Jordan 0.449 1.847 + 1.398 + 311.4
2 France 2.694 0.839 - 1.855 - 68.9
3 Italy 0.068 0.548 + 0.480 + 705.9
4 Russian Federation 0.068 0.517 + 0.449 + 660.3
5 Senegal 0.452 0.458 + 0.006 + 1.3
6 Germany 0.827 0.386 - 0.441 - 53.3
7 Spain 0.125 0.359 + 0.234 + 187.2
8 Turkey 1.069 0.284 - 0.785 - 73.4
9 Algeria - 0.150 + 0.150 n/a
10 Iran 0.052 0.150 + 0.098 + 188.5
11 UK 0.604 0.124 - 0.480 - 79.5
12 South Africa 0.029 0.112 + 0.083 + 286.2
13 Netherlands - 0.087 + 0.087 n/a
14 Ethiopia 0.027 0.080 + 0.053 + 196.3
15 India 0.130 0.064 - 0.066 - 50.8
16 Tunisia 0.124 0.049 - 0.075 - 60.5
17 Hungary 0.064 0.044 - 0.020 - 31.2
18 Czech Republic - 0.032 + 0.032 n/a
19 Switzerland - 0.024 + 0.024 n/a
20 Ireland - 0.021 + 0.021 n/a
21 Moldova - 0.021 + 0.021 n/a
22 Morocco 0.629 0.018 - 0.611 - 97.1
23 Nicaragua - 0.018 + 0.018 n/a
24 Tanzania - 0.016 + 0.016 n/a
25 Syria - 0.015 + 0.015 n/a
26 Namibia - 0.011 + 0.011 n/a
27 Azerbaijan 0.026 - - 0.026 - 100.0
28 Korea 0.054 - - 0.054 - 100.0
29 Ukraine 0.253 - - 0.253 - 100.0
30 Qatar 0.329 - - 0.329 - 100.0
31 Belgium 0.801 - - 0.801 - 100.0
32 Hong Kong 1.259 - - 1.259 - 100.0
33 Saudi Arabia 2.799 - - 2.799 - 100.0
34 Sudan 3.238 - - 3.238 - 100.0
Total 15.862 6.295 - 9.567 - 60.3
Source: TradeMap

ADE – DOL 116

Change In Export Sales Of Dosage Products, By Country 2002 - 03
In USD mns
Country Value 2002 Value 2003 Change In % Change
Value 2003
– 2003
1 Romania 6.891 11.367 + 4.476 + 65.0
2 Morocco 0.775 4.610 + 3.835 + 494.8
3 Jordan 1.620 2.030 + 0.410 + 25.3
4 Kazakstan - 2.468 + 2.468 n/a
5 Pakisatan - 2.107 + 2.107 n/a
6 Oman 1.102 1.200 + 0.098 + 8.9
7 Lebanon - 1.099 + 1.099 n/a
8 Kenya 0.456 0.906 + 0.450 + 98.7
9 Ethiopia 0.570 0.846 + 0.276 + 48.4
10 Algeria - 0.423 + 0.423 n/a
11 Bahrain - 0.313 + 0.313 n/a
12 South Africa - 0.280 + 0.280 n/a
13 Moldova 0.111 0.247 + 0.136 + 122.5
14 Netherlands 0.016 0.176 + 0.160 + 1,000.0
15 Armenia 0.123 0.168 + 0.045 + 36.6
16 Italy - 0.146 + 0.146 n/a
17 Ecuador 0.109 0.134 + 0.025 + 22.9
18 Mauritius 0.030 0.115 + 0.085 + 283.3
19 Tanzania - 0.109 + 0.109 n/a
20 Bosnia / Herzegovina - 0.108 + 0.108 n/a
21 Azerbaijan 0.014 0.089 + 0.075 + 535.7
22 Uganda 0.124 0.088 - 0.036 - 29.0
23 Russian Federation 0.179 0.080 + 0.621 + 346.9
24 Switzerland - 0.076 + 0.076 n/a
25 UK - 0.061 + 0.061 n/a
26 Namibia - 0.049 + 0.049 n/a
27 Kyrgyzstan - 0.036 + 0.036 n/a
28 Tunisia 0.012 0.023 + 0.011 + 91.7
29 Togo 0.016 0.016 - -
30 Senegal 0.129 0.014 - 0.115 - 89.1
31 Iran 0.016 - - 0.016 - 100.0
32 Albania 0.021 - - 0.021 - 100.0
33 Zimbabwe 0.023 - - 0.023 - 100.0
34 Korea 0.035 - - 0.035 - 100.0
35 Uganda 0.124 - - 0.124 - 100.0
36 Ukraine 0.200 - - 0.200 - 100.0
37 Sweden 0.466 - - 0.466 - 100.0
38 Sudan 0.722 - - 0.722 - 100.0
39 Hong Kong 0.943 - - 0.943 - 100.0
40 Saudi Arabia 9.811 - - 9.811 - 100.0
Total 25.316 29.384¹ + 4.068 + 16.1
Source: TradeMap

ADE – DOL 117

 - The level of value of opening-up new export markets for bulk products did not
compensate for the decline from the lost markets.

- Out of the 16 countries which imported bulk pharmaceutical products from

Egypt during both 2002 and 2003; 7 countries increased their purchases by
over 50 %, whereas 7 countries decreased their purchases by over 50 %.

Dosage Products The key points are:

• In 2002 27 countries imported Egypt’s dosage pharmaceutical products, with an

average value of $ 0.938 mn for each country. During 2003 the number of
countries was increased to 30 and the average level of imports into each countty
increased to $ 0.979 mn.

• High turnover and fluctuations in country markets between 2002 and 2003, based
on the following points:

- 10 country export markets were lost, with a value of $ 12.361 mn export sales
during 2002. This represents almost half of the value of total dosage export
sales being lost over two years.

- 13 new country markets were opened-up during 2003, with export sales value
of $ 7.275 mn, but this is $ 5 mn below the value of the lost markets.

- products over both 2002 and 2003, 9 generated increases in export sales of
over 50%, whereas only 1 country registered a decrease of over 50%.

Specific Countries The specific country situations that should be noted are:

• Loss of Egypt’s single largest export market for its pharmaceutical products
between 2002 and 2003, Saudi Arabia which accounted for $ 12.61 mn in 2002
and represented 30.6 % of Egypt’s export value.

• Loss of Egypt’s second largest export market between 2002 and 2003, Sudan
which accounted for $ 3.971 mn of Egypt’s export value during 2002.

• Losing the first and second export markets over two years is a very significant
blow to any industrial sector, in particular when these two markets accounted for
over 40 % of export sales.

• Positive results were provided by increases in export sales into: Romania, up from
$ 6.891 to 11.367 mn; Morocco, up from $ 1.404 to 4.628 mn; and Jordan up from
$ 2.069 to 3.877 mn. Further positive results were the opening-up of export sales
into the following new markets: Kazakhstan $ 2.464 mn; Pakistan $ 2.107 mn;
and Lebanon $ 1.099 mn.

• There were also substantial reductions in export sales into developed countries:
export sales to France fell from $ 2.694 to 0.839 mn; Germany $ 0.827 to 0.386
mn; UK from $ 0.604 to 0.186 mn; and in Turkey from $ 1.069 to 0.284 mn.

ADE – DOL 118

Overall Conclusion

The most significant result of the assessment of the export performance of Egypt’s
Pharmaceutical Sector is the high “Churn Effect” in country export markets and the
sales performance. The churn effect comprises two elements; high numbers of export
markets being lost and new markets being opened on an annual basis; and high
fluctuations in annual export sales in export markets that are retained.

The only exception to the above conclusions are Romania, Morocco and Jordan which
generated significant growth in export sales values between 2002 and 2003.

The most likely reason for the churn effect is that most of Egypt’s pharmaceutical
companies are restricting their exporting activity to responding to international
tenders and are therefore only reacting to tenders as they become available. The
export performance of these companies is dependent on the decisions of tender
evaluation panels, rather than being directed by proactive market development
activities.

Achieving an increase in Egypt’s export performance in pharmaceutical products will

require a fundamental change in approach to opening-up and developing the export
sales potential of individual country markets. The way export sales growth has been
achieved in the three countries indicated above may provide case studies on
approaches that have provided successful results.

It needs to be recognised that the 2003 results were only available at the end of the
study and there has not been any possibility to explore the issues further before
submitting the final report.

Egypt’s Net Trade By Product 2002

The table overleaf indicates the net trade performance of each pharmaceutical product
in 2002. The purpose of the table is to indicate the products with the most significant
net negative trade balance where efforts to increase exports and / or to reduce imports
would have the greatest impact. With the bulk products the top four products account
for 56% of the net negative balance. With the dosage products the single top product
accounts for 81% of the net negative balance. These provide targets to explore ways
of increasing exports, subject to the findings of the next section and reducing imports.

ADE – DOL 119

Net Trade Balance By Product - 2002 In USD mns
Product Area Exports Imports Net Position
Bulk Products:
1 Vaccines, human use 0.981 33.024 (32.043)
2 Antibiotics nes 0.403 29.047 (28.644)
3 Vitamin concentrates 0.122 11.436 (11.314)
4 Medicaments nes 2.912 13.149 (10.237)
5 Insulin - 6.221 (6.221)
6 Antibiotics nes, formulated 0.753 5.907 (5.154)
7 Halogenated derivaties - 5.175 (5.175)
8 Vegetable alkaloids - 4.592 (4.592)
9 Penicillins 7.249 11.606 (4.357)
10 Streptomycins - 3.775 (3.775)
11 Hormones nes - 3.712 (3.712)
12 Rye ergot alkaloids - 3.336 (3.336)
13 Glycosides 0.021 2.597 (2.576)
14 2.391 (2.391)
15 Vitamins nes 2.030 (2.030)
16 Tetracyclines 1.872 (1.872)
17 Vitamins B1 0.033 1.545 (1.512)
18 Vitamin C 0.014 1.090 (1.076)
19 Theopylline 0.011 0.940 (0.929)
20 Chloramphenicol 0.938 (0.938)
21 Caffeine 0.929 (0.929)
22 Vitamins B12 0.751 (0.751)
23 Vitamins E 0.751 (0.751)
24 Vitamins B6 0.698 (0.698)
25 Cortisons, etc 0.564 (0.564)
26 D- or DL- Panothothenic Acid 0.486 (0.486)
27 Vitamins A 0.469 (0.469)
28 Rustoside 0.469 (0.469)
29 Opium alkaloids 0.447 (0.447)
30 Vitamins B2 0.432 (0.432)
31 Hormones, form, not antibiotics 0.285 0.638 (0.353)
32 Pseudoephedrine 0.346 (0.346)
33 Ephedrine 0.202 (0.202)
34 Ergotamine 0.126 (0.126)
35 Ephedrines nes 0.076 (0.076)
36 Alkaloids, form not antibiotics 0.039 (0.039)
37 Quinine 0.030 (0.030)
38 Provitamins 0.021 (0.021)
39 Penicillins, Steptomycins form 3.078 0.320 +2.758
Total Bulk Products 15.862 152.177 (136.315)
Dosage Products:
1 Medicaments nes 12.946 177.385 (164.439)
2 Antibiotics nes 1.789 37.431 (35.642)
3 Hormones, not antibiotics 3.736 21.588 (17.852)
4 Penicillins, Steptomycins 1.102 8.924 (7.822)
5 Suture materials 0.081 6.982 (6.901)
6 Contraceptive preparations - 6.185 (6.185)
7 Vitamins 3.840 5.194 (1.354)
8 Adrenal cortex hormones 0.509 5.105 (4.596)
9 Insulin 0.117 4.298 (4.181)
10 Alkaloids not antibiotics 1.196 4.245 (3.049)
Total Dosage Products 25.316 277.337 (202.021)
Overall Total 41.178 429.514 (388.336)
Source: TradeMap

ADE – DOL 120

Pharmaceutical Manufacturing Sector

Egypt was successful in establishing a pharmaceutical manufacturing sector during

the 1980s and 90s which includes International, Regional and Domestic PMCs. This
success reduced the level of dependency on imported products to under 24% of
domestic consumption in 1998, and fell further to 21% in 2002. This is a relatively
low level of imports compared to other developing countries. Egypt’s success should
be viewed against the background that according to UNIDO, 82% of all
pharmaceutical production is in industrialised countries ($ 244 bn, excluding
marketing and sales costs), with only 18% ($ 54 bn) in developing and middle-income
countries

There are only two primary manufacturers; the VACSERA public enterprise which
produces vaccines and blood products; and a private sector manufacturer of antibiotic
APIs. All of the other manufacturers concentrate on secondary and tertiary
production. All of the International PMCs import the materials required for
undertaking the secondary manufacturing, but as indicated in section 11, this is not
unusual outside the PIMC countries.

Secondary Manufacturing

A consequence of the last point is that a high proportion of material inputs for the
secondary stage of production are imported. This applies equally to the International,
Regional and Domestic PMCs, but an advantage for the International PMCs is that
they can source these material inputs from their internal manufacturing facilities.
This situation is not specific to Egypt, with many countries also relying heavily on
imported material inputs. There are two key issues relating to the above situation:

• such countries cannot have access to the 40% of supply chain value associated
with the primary stage of production;

• a key determinant of the success of PMCs operating from any such countries is the
price they pay for their material inputs into the secondary manufacturing stage. If
the prices are higher than prevailing international prices this will put the all of the
International, Regional and Domestic PMCs operating in the country at a
competitive disadvantage.

Manufacturing costs in Egypt’s pharmaceutical producers represent 80% of total

product costs. This high level of manufacturing costs knocks-out Egypt’s competitive
advantages from having lower energy, manufacturing expenses and administration
costs. A key structural issue is therefore the high material input prices having to be
paid by Egypt’s pharmaceutical manufacturers. If this structural issue can be
addressed successfully, to provide Egypt’s pharmaceutical manufacturers with the
same material input prices as comparable international producers, they could gain a
20% cost advantage.

The most significant impact of the higher raw material is a squeezing of financial
resources available to fund research and development, as the manufacturers struggle
to remain profitable.

ADE – DOL 121

Private And Public Companies

In Egypt Domestic PMCs include private companies and public enterprises. Within
Egypt’s PSCs there are also private companies and public enterprises. Egypt is
unusual in continuing to have a significant presence of publicly-owned PMCs and
PSCs.

The Holding Company for Pharmaceuticals, Chemicals and Medical Appliances

(HCPCMA) has 11 Affiliated Companies, with a total turnover of EGP 3.75 bn. In
addition to the eight pharmaceutical manufacturing companies mentioned earlier,
there are: Egyptian Pharmaceutical Trading Co. (Egy Trading), which acts as a
wholesaler and distributor of pharmaceutical products; El Gomhouria, which
manufactures equipment; and Medical Packaging Co., which manufactures medical
packaging. Each of these companies is involved to varying extents in vetinary,
cosmetic and chemical products. This point is important in assessing the following
levels of turnover from 2003.

Company Turnover 2003 % Turnover Profits 2003 Profits As

In EGP mns Public %
Enterprise Turnover
Sector
Egy Trade n/a n/a n/a n/a
El Gomhouria n/a n/a n/a n/a
Medical Packaging n/a n/a n/a n/a
Nile 230 6.1 25.3 11%
Nasr 220 5.9 17.6 8%
Cairo 200 5.3 27.0 13.5%
CID 190 5.1 18.0 9.5%
Alexandria 180 4.8 30.6 17%
Memphis 150 4.0 23.2 15.5%
ADCO 110 2.9 11.0 10%
Misr 100 2.7 12.5 12.5%
Total 3,750 165.2

Each of the public enterprises produces a wide range of products, some under out-
sourcing agreements from the International PMCs, with little specialisation. There is
a considerable level of overlap between the product ranges of these companies, and in
many product areas they are, or should be, competitors.

The average profitability of Egypt’s Domestic public PMCs, compared to PIMCs,

International PMCs operating in Egypt and Domestic private PMCs, are:

Domestic public PIMCs Domestic all International PMCs

PMCs PMCs Operating In Egypt
12% 13% 8% -4%

The average profitability of the Domestic public PMCs is nearly as high as the
PIMCs. The average profitability of all Domestic PMCs, including the public
enterprises is 8%, which suggests it is much lower for the Domestic private PMCs, at

ADE – DOL 122

under 5%. The International PMCs are incurring losses of 4%, compared to the 12%
profitability of the Domestic public PMCs. Elsewhere in this report it has been
indicated that the product capabilities are lowest in the Domestic public PMCs, they
have the oldest equipment and have significant excess employees. The high
profitability of these companies is therefore a surprise. If this is the result of
favouratism in setting prices, and allowing them to be increased, this would have
serious implications for the future development of the sector.

There are two reasons for making this statement:

• Firstly, there is an endemic problem of marketing and sales within Egypt’s public
enterprise which results in them being poor at implementing market development
activities. This is supported by them being categorised earlier in this section as
market strugglers. These pharmaceutical companies are generating the levels of
profitability that could support the implementation of significant international
market development campaigns, but this is not happening.

• Secondly, the public enterprises are the worst performers in undertaking research
and development activities and bringing new products to market. As under the
last point these companies are generating the levels of profitability that should be
capable of supporting significant research and development programmes, but this
is not happening.

The explanation for the high profitability could be that the public enterprises are
allocating relatively small levels of expenditure to marketing and sales, and to
research and development. If this is the case there are short-term benefits to their
shareholders, but in they will continue to lose market share and their product ranges
will become increasingly out-of-date. The profits that are being made in Egypt’s
public PMCs should be being made in Egypt’s private PMCs and they should use
these profits to support the implementation of international market development
campaigns and to strengthen their existing product development activities.

Some of the Domestic public PMCs have plans to increase their exports, in particular
into higher value European markets. This is the correct medium to longer-term
approach to sales development, but as of now these companies are well behind the
product capabilities required to enter such markets and their ownership needs to be
changed before implementing such an initiative.

ADE – DOL 123

15 Egypt’s Pharmaceutical Companies Review Results

Background

Nine International and Domestic PMCs participated in the company review activity
which provide the benchmarking results for the sector. The benchmarking is against
international best practice as described under section 11. The best practice is taken
from PIMCs as main suppliers into European and North American markets. The
review covered four areas of product capabilities:

• manufacturing facilities and production information;

• quality and regulatory standards;

• environment, health and safety;

• engineering and maintenance.

It needs to be recognised that the benchmarking is against cGMP standards, which

have not yet been applied in Egypt, with most manufacturers operating to GMP
standards. Product capability scores are out of 10, with the highest indicating being
closest to international best practice and low scores indicating being furthest away
from international best practice.

Manufacturing Facilities And Production Information

The results of the review under this area of product capabilities are:

PIMC International PMC Domestic private Domestic public

PMC PMC
10 4 4 2

There are eight elements to the scoring system under this review activity. The results
against each element are:

Far Away From Below, But Close To Already At cGMP

cGMP Standards cGMP Standards Standards
1. Description of International PMCs Domestic private
production and input Domestic public PMCs PMCs
materials
2. Description of Domestic public PMCs International PMCs
manufacturing Domestic private PMCs
operations
3. Main products, International PMC Domestic private PMC
dosage forms and Domestic public PMC
volumes
4. Staff numbers International PMC Domestic public PMC
Domestic private PMC
5. Company structure Domestic public PMC International PMC
Domestic private PMC
6. Training International PMC
Domestic private PMC

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 Domestic public PMC
7. Membership
professional bodies
8. R&D capability

Under the manufacturing facilities and production information area of review activity
the elements where most improvements are required are:

• Description of production and input materials for International PMCs and

Domestic public PMCs.

• Description of manufacturing operations for Domestic public PMCs.

• Main products, dosage forms and volumes for International PMCs.

• Staff numbers for International PMCs and Domestic private PMCs.

• Company structure for Domestic public PMCs.

Quality And Regulatory Standards

The results of the review under this area of product capabilities are:

PIMC International PMC Domestic private Domestic public

PMC PMC
10 4 4 3

There are four elements to the scoring system under this review activity. The results
against each element are:

Far Away From Below, But Close To Already At cGMP

cGMP Standards cGMP Standards Standards
1. QMS Domestic public PMCs Intermational PMCs
Domestic private PMCs
2. GMP registrations International PMCs
Domestic public PMCs
Domestic private PMCs
2. Audits and International PMCs
Inspections Domestic private PMCs
Domestic public PMCs
4. Policy for suppliers International PMCs
Domestic public PMCs
Domestic private PMCs

Under the quality and regulatory standards area of review activity the elements where
most improvements are required are:

• QMS for Domestic public PMCs.

• GMP registrations for all three categories of PMCs.

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Environment, Health And Safety

The results of the review under this area of product capabilities are:

PIMC International PMC Domestic private Domestic public

PMC PMC
10 6 6 5

There are five elements to the scoring system under this review activity. The results
against each element are:

Far Away From Below, But Close To Already At cGMP

cGMP Standards cGMP Standards Standards
1. EH&S policies International PMCs
Domestic public PMCs
Domestic private PMCs
2. Environmental laws International PMCs
Domestic public PMCs
Domestic private PMCs
3. Operational safety International PMCs
Domestic public PMCs
Domestic private PMCs
4. Occupational health International PMCs
Domestic public PMCs
Domestic private PMCs
5. First aid International PMCs
Domestic public PMCs
Domestic private PMCs

Under the environment, health and safety area of review activity the elements where
most improvements are required are:

• Occupational health for all three categories of PMCs.

Engineering And Maintenance

The results of the review under this area of product capabilities are:

PIMC International PMC Domestic private Domestic public

PMC PMC
10 3 3 2

Far Away From Below, But Close To Already At cGMP

cGMP Standards cGMP Standards Standards
1. Engineering International PMCs
Resources Domestic public PMCs
Domestic private PMCs
2. Spares and International PMCs
Consumables Domestic public PMCs
Domestic private PMCs
3. Change control International PMCs
Domestic public PMCs
Domestic private PMCs

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Under the engineering and maintenance area of review activity the elements where
most improvements are required are:

• Engineering resources for all three categories of PMCs.

• Change control for all three categories of PMCs.

Specific Requirements

The specific requirements for improvements under each of the areas of review activity
can be summarized as follows.

Manufacturing Facilities And Production Information

• Majority of facilities are over 10 years old, in some cases life expired, and
generally do not meet cGMP requirements.

• The best practice model requires manufacturers to be involved in the manufacture

of primary, as well as secondary products and to maintain research and
development activities throughout the three manufacturing stages. In Egypt most
manufacturers only operate from the second stage.

• Some up-grading of facilities and plant will be required to manufacture higher

potency innovative products.

• Staff numbers are high and productivity low.

• cGMP involves a continually advancing set of minimum standards, with

compliance requiring continuous investment in up-grading facilities and plant.
The low level of investment by PMCs operating in Egypt has resulted in them
falling behind international standards.

• Almost no evidence of membership of international pharmaceutical trade and

technology forums, which is an effective way of keeping up-to-date with changes
in regulatory practices and increasing standards.

• Research and development capabilities are low, even in basic pharmaceutical

sciences such as assay, stability, physical properties and bio-equivalency,

Quality And Regulatory Standards

• As the regulatory system in Egypt concentrates on product testing, and not the
manufacturing facilities as is the case internationally, there is low compliance with
GMP and cGMP registrations.

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Environment, Health And Safety

• Lack of procedures, or recognition, of the issues associated with the occupational

health of employees. Engineering systems and plant control measures are
generally inadequate.

Engineering And Maintenance

• The domestic engineering and pharmaceutical equipment supply sector is not well
developed and most specialist services and equipment are imported.

• Lack of understanding of the principles of change control, where any change to

any aspect of facilities, processes and systems must be carefully documented and
assessed in terms of impact on the safety and quality of the products.

Overall Conclusions

The overall conclusions from the company review activity are:

• None of Egypt’s pharmaceutical manufacturers are operating to cGMP standards

under any of the four areas of review activity. This means that none of the
manufacturers would pass a manufacturing inspection by European, or North
American inspectors. The result is that these markets are effectively closed to
Egyptain exporters of dosage products. This conclusion is supported by the trade
assessment results up to 2002 presented in the last section.

• The area where Egypt’s manufacturers have the most to catch-up with cGMP
standards is engineering and maintenance. The area where its manufacturers are
closest to cGMP standards is environment, health and safety.

• Under all four areas of review activity the International and Domestic private
PMCs achieve the same product capability scores.

• Under all four areas of review activity the Domestic public PMCs achieve lower
product capability scores than both the International and Domestic private PMCs.

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16 International And Regional Markets

Global Market

The global market had a value of $ 425 bn, in 2002. Up to 2001 there had been a
decade of annual growth in value of over 10%, but during 2002 this fell to 8%. 80%
of the world market is accounted for by 10 countries: USA (48.2%); Japan (11.0%);
Germany (4.7%); France (4.2%); UK (3.8%); Italy (3.5%); Canada (2.4%); Spain
(2.1%); Mexico (1.6%); and China (1.6%). The dominance of USA within the global
market is evident from these figures, representing almost half of the market value.

The following diagram indicates world sales volumes by main therapy class, with the
leading product areas being: cardiovascular, central nervous system and alimentary /
metabolics.

Dermatological Genitourinary Musculo-skeletal

Anti-infective Respiratory Alimentary/metabolism
CNS Cadiovascular Others
Source: IMS

World Trade

The leading trading areas and countries in the sector, in 2001, were:

• Europe, with imports of $ 70 bn, exports of $ 100 bn, and a trade surplus of $ 30
bn;

• USA, with imports of $ 18 bn, exports of $ 15 bn, and a trade deficit of $ 3 bn;

• Japan, with imports of $ 5 bn, exports of $ 3 bn, and a trade deficit of $ 2 bn;

• China, with imports of $ 4.2 bn, exports of $ 4.9 bn, and a trade surplus of $ 0.7
bn;

• India, with imports of $ 1.3 bn, exports of $ 2.1 bn, and a trade surplus of $ 0.8 bn.

The world’s largest import market is by far Europe, with nearly four times the level of
imports of USA. Care needs to be taken in assessing these figures as they do not
differentiate between the imports of material inputs and final products. Even taking

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this into account imports into Europe are likely to be double the value of imports into
USA.

Parallel Trade

A specific feature of the European market is parallel trade as explained in section 11

which has an annual value of $ 3.5 bn. Historically the higher priced markets have
been Germany, UK and the Netherlands, with the lowest prices in Greece, Spain and
Portugal. The product flows under this trade have tended to be between these
countries, with the UK and Germany being the largest importers. It is expected that
the accession countries to the EU will enter the parallel trade area of activity.

PIMCs

The world’s top 10 PIMCs have annual sales ranging from $ 12 to 28 bn, with these
companies as a group accounting for $ 178 bn of sales, representing 42% of the global
market, up from 28% in 1990. PIMC product sales, as a whole, are $ 350 bn,
representing 82.4% of the global market.

Generic Products

The world generic market is worth $ 60 bn, representing 14.1% of the total, and is
split by country as follows:

Country Value in $ Growth % Country % World Generics Market

bns 2003 Rate 2002 Market Share
– 03 Share
USA 16.4 30% 8.0 27.3
China 5.8 82.4 9.7
Germany 5.0 13% 25.0 8.3
France 4.0 51% 22.2 6.7
UK 3.5 42% 21.9 5.8
India 2.5 71.4 4.2
Italy 2.5 41% 16.7 4.2
Spain 2.0 23% 22.2 3.3
Canada 1.8 17% 18.0 3.0
Mexico 1.7 24.3 2.8
Japan 1.4 -4% 3.0 2.3
Others 13.4 22.3
Total 60.0 14.1 100.0
Source: Various

As with “innovative” products, the USA is the world’s largest market for generic
products, valued in 2003 at USD 16.4 bn. Although these products only account for
8% of the USA market by value, they account for 35% by volume. Generic products
achieved impressive sales growth between 2002 – 03, with five out of the eight
countries where results are available, achieving over 20% growth, and three countries
achieving over 40% growth. This can be compared to world growth in the sales of
“innovative” products of 8% over the same period. With all of the other countries
listed above, except Japan, the country market shares achieved by generic products
are above 16.7%, with particularly high levels in China and India.

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Regional Market

The regional market has been split into four sub-regions:

Middle East, comprising: Bahrain; Iran; Israel; Jordan; Kuwait; Lebanon; Oman;
Qatar; Saudi Arabia; Syria; Turkey; UAE.

Mediterranean EU: Cyprus; Malta.

North Africa: Algeria; Egypt; Libya; Morocco; Tunisia.

Rest of Africa: all other countries in Africa.

The value of imports in 2002, into the overall regional market was $ 8.3 bn, split $ 2.2
bn bulk products (26.3%) and $ 6.1 bn dosage products (73.7%). There is therefore a
significant regional market for Egypt’s pharmaceutical manufacturers to exploit.

The following table indicates the level of imports in 2002 into the region as a whole
by main product, restricted to products with over $ 50 mn in imports. The table also
indicates the percentage of world imports of each product area accounted for by the
region. There are 17 product areas which each exceed $ 50 mn in imports. It needs to
be recognised that by achieving 20% market share in any of these products would
boost Egypt’s exports by 25%. The total value of imports across the 17 product areas
is $ 7,827.7 mn, of which Egypt’s exports represented 0.5% in 2002. Although
medicaments in dosage represent 56.3% of imports by value, imports of the other 16
products into the overall region are worth $ 3,420.9 mn.
In USD mns
Product Area Regional % World
Import Value Imports
1 Medicaments in dosage 4,406.8 4.5
2 Hormones, not antibiotics in dosage 524.3 6.2
3 Antibiotics in dosage 485.5 6.3
4 Medicaments formulated in bulk 391.0 5.2
5 Penicillins or streptomycins in bulk 374.0 75.8
6 Vaccines, human use in bulk 294.2 9.3
7 Vitamins and derivatives in dosage 279.0 14.3
8 Antibiotics in bulk 249.7 4.5
9 Penicillins or streptomycins in dosage 213.2 10.5
10 Alkaloids not antibiotics in dosage 108.9 5.0
11 Adrenal cortex hormones in dosage 100.4 6.4
12 Sutures (counted as dosage product) 80.4 7.8
13 Hormones, formulated not antibiotics in bulk 72.4 18.5
14 Erythromycin and derivatives in bulk 69.9 8.9
15 Insulin in dosage 67.0 2.1
16 Antibiotics formulated in bulk 59.5 7.4
17 Contraceptive preparations based on hormones 51.5 5.3
or spermicides (counted as dosage product)
Total 7,827.7
Source: TradeMap

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Having demonstrated that a significant regional market exists it is now up to Egypt’s
pharmaceutical manufacturers to determine in which of the above product areas it has
competitive advantages to start winning increasing market share. In this context it
should be noted that out of the list of 57 pharmaceutical products covered by the trade
statistics, 47 are bulk and only 10 are dosage products. In the above results all 10
dosage products are included in the list, but only 7 of the bulk products are included.
This has implications for the type of pharmaceutical products to be exported from
Egypt as in section 14 it was indicated that 38.6% of Egypt’s exports are as bulk
products.

Matching the results of the previous table with Egypt’s export performance as
indicated in section 14 provides three product areas that are worth further exploration
for an accelerated programme of exports:

• Penicillins or steptomycins in bulk where Egypt had exports of $ 3.1 mn in 2002

and the regional market had $ 213.2 mn of imports.

• Hormones, not antibiotics, in dosage where Egypt had exports of $ 3.7 mn in 2002
and the regional market had $ 524.3 mn of imports.

• Vitamins and derivatives in dosage where Egypt had exports of $ 3.8 mn in 2002
and the regional market had $ 279.0 mn of imports.

Once a decision has been reached on the product(s) to be exported the table overleaf
will help to determine where marketing and sales efforts should be concentrated.

Taking the three product areas highlighted earlier we can provide the following
comments on the marketing and sales strategy:

• Penicillins and steptomycins in bulk – the market is divided fairly evenly

between the Middle East, North Africa and the Rest of Africa. The largest
individual country market is Algeria with imports valued at $ 30.2 mn in 2002.
The other leading country markets are: Iran - $ 29.6 mn; Turkey – 15.6 mn;
Nigeria $ 15.2 mn; UAE $ 12.3 mn; South Africa $ 9.9 mn; Egypt $ 8.9 mn; Saudi
Arabia $ 6.1 mn; Lebanon $ 6.0 mn; and Morocco $ 5.6 mn.

• Hormones, not antibiotics, in dosage – the market is concentrated in the Middle

East. The largest individual country is Saudi Arabia with imports valued at $
165.0 mn in 2002. The other leading countries are: Turkey - $ 136.5 mn; Iran - $
46.6 mn; South Africa $ 25.4 mn; Egypt $ 21.6 mn; Algeria $ 17.7 mn; Lebanon $
14.1 mn; Nigeria $ 14.0 mn; Morocco $ 10.6 mn; Kuwait $ 8.7 mn; Ethiopia $
8.6 mn; UAE $ 8.0 mn; Israel $ 6.3 mn; and Botswana $ 3.6 mn.

• Vitamins and derivatives in dosage – the market is concentrated in the Middle

East. The largest individual country is Saudi Arabia with imports valued at $ 28.8
mn in 2002. The other leading countries are: Turkey $ 26.5 mn; Algeria $ 14.8
mn; UAE $ 13.9 mn; Lebanon $ 12.8 mn; South Africa $ 6.5 mn; Angola $ 6.5
mn; Egypt $ 5.2 mn; and Sudan $ 4.6 mn.

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 In USD Mns
Product Area % Market Share 1st 2nd 3rd
EU Middle North Rest Country Country Country
East Africa Africa
1 Medicaments in dosage 2.4 50.9 17.9 28.7 Turkey Israel S. Africa
783.9 531.8 374.1
2 Hormones, not antibiotics in dosage 1.3 74.3 10.4 13.9 Saudi Ar. Turkey Iran
165.0 136.5 46.6
3 Antibiotics in dosage 1.9 53.4 22.6 22.1 Turkey S.Africa Algeria
61.5 43.1 41.9
4 Medicaments formulated in bulk 0.2 55.5 26.4 17.9 Tunisia S.Arabia Turkey
58.8 51.5 46.7
5 Penicillins or streptomycins in bulk 0.02 0.1 90.9 9.0 S.Arabia Iran Sudan
289.0 45.0 30.2
6 Vaccines, human use 0.8 0.8 51.2 47.1 Egypt Turkey S.Arabia
33.0 32.1 27.5
7 Vitamins and derivatives in dosage 1.8 73.4 9.5 15.3 S.Arabia Turkey Algeria
28.8 26.5 14.8
8 Antibiotics in bulk 2.2 76.5 8.0 13.3 Turkey Iran Egypt
114.9 31.1 29.0
9 Penicillins or streptomycins in dosage 2.7 39.2 26.2 31.8 Algeria Iran Turkey
30.2 29.6 15.6
10 Alkaloids not antibiotics in dosage 0.7 66.0 10.9 22.3 Turkey Kuwait Zimbabwe
41.2 5.7 5.2
11 Adrenal cortex hormones in dosage 1.2 52.4 29.2 17.1 Turkey Algeria S.Africa
34.8 12.4 12.0
12 Sutures 1.0 51.6 20.7 26.8 Turkey S.Africa S.Arabia
11.7 9.8 9.6
13 Hormones, formulated not antibiotics 0.07 84.6 1.2 14.2 S.Arabia Iran S.Africa
43.5 17.0 1,2
14 Erythromycin and derivatives in bulk 1.9 83.8 7.9 6.3 Turkey Iran Israel
45.0 6.8 4.7
15 Insulin in dosage 1.9 61.6 22.7 13.8 Turkey Israel S.Africa
28.8 8.0 6.4
16 Antibiotics formulated in bulk 1.8 62.3 12.9 13.6 Turkey S.Arabia Egypt
25.9 6.6 5.9
17 Contraceptive preparations based on 0.5 17.9 32.5 49.1 Algeria Egypt S.Africa
hormones or spermicides 6.5 6.2 5.3
All Products 2.1 50.7 22.6 24.5
Source: TradeMap

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17 International And Regional Structural Comparisons

Introduction

The main countries that are used for the structural comparison are: China; Europe as a
whole, with particular reference to Spain and UK; India; and Jordan. Other countries
such as Canada, Spain USA are referred to under specific topics. The elements of the
pharmaceuticals sectors under which the comparisons are provided are taken from 11:

• Regulatory frameworks.

• Cost and price controls.

• Essential drugs list.

• Drug procurement.

• Sector representative organizations.

• Pharmaceutical production.

• National markets.

• Public sector manufacturing.

• Research and development.

• Trade.

• Sector development initiatives.

Under each of the above the situation on each of the comparator countries is provided
in country alphabetical order, with the comparable situation for Egypt provided in
italics in a box at the end of each sub-section.

Regulatory Frameworks

China The currently regulatory framework in China is managed by the State Food &
Drug Administration (SFDA), which had food products added to its sphere of
influence in 2003. The original State Drug Administration (SDA) was established in
1998, with the regulatory regime dating back to 1996. The SDA was given two years
to bring China’s regulatory framework in-line with international standards and
procedures. It now interacts regularly with the International Conference on
Harmonisation.

The SDA introduced new transparent pharmaceutical registration and approval

procedures, and introduced self-imposed time limits for its inspection and approval
activities. It implemented new regulations to: cover drug imports; protect intellectual

ADE – DOL 134

property rights; established drug standards; and tightened-up on regulations for drug
packaging and labeling.

New compulsory quality standards were introduced which are compliant with the
international guidelines on GMP, GCP and GLP, and a scheme to register drug
research institutions was also implemented. It is interesting to note that Traditional
Chinese Medicines (TCMs) were included within the SDA’s remit to improve product
quality and to support initiatives to increase the exports of these products.

The SDA developed a system to differentiate between over-the-counter medicines

(OTCs) for minor ailments, where the consumer pays for the product directly, and
products that can only be prescribed by a registered doctor, on safety grounds. Other
activities of the SDA have included:

• The restructuring of China’s Pharmaceutical Sector to bring idle production

capacity into use.

• Maintaining price controls on imported products, but in this case the objective was
to keep prices high in order to support the development of China’s indigenous
producers and to restrict imports. This policy is being changed in the run-up to
implementing TRIPS.

• Re-orienting its local network of SDA offices to operate independently from

pharmaceutical companies and the healthcare system.

• Reviewing and approving Administrative Protection, see section 11, for holders of
international patents.

Canada It takes regulators on average over two years to review and approve new
products, which is longer than in most developed countries.

Europe Although each of the EU member states (pre-accession) has its own
regulatory framework, and approval systems, in recent years the UK based European
Medicines Evaluation Agency (EMEA) has been offering a centralised approach for
product approvals. It should be noted that this is an evolving situation as not all steps
in the approval process, or product types, are covered by this agency.

Regarding testing products, Clinical Trial Certificates (CTCs), or exemptions to such

certificates, are granted by the national authority for the country in which the tests
will be conducted.

Marketing approvals can still be granted by national governments, with the applicants
seeking mutual recognition by other European countries, (see section 11 for
explanation). There is increasing pressure on applicants to submit their approvals to
the EMEA, though, there is some resistance to this as there is an “all or nothing”
result, compared to the national approach which provides more flexibilities.

India There are three main government agencies responsible for drug regulation and
control:

ADE – DOL 135

• Drug Controller of India, with responsibility for: licensing new products; product
approval; clinical trials; setting product standards; and issuing import licenses.

• State Food and Drug Administrations are set-up on a state-by-state basis and are
responsible for: overall product quality and safety; manufacturing facilities;
distribution, marketing and sales; in-company product testing; their own product
quality testing.

• National Drug Authority, which monitors quality control and the rational use of
medicines.

There are moves starting to overhaul India’s regulatory structure as it is not operating efficiently.
There has been some criticism that DCI does not operate to a fixed timetable and that some
documentary requirements are not as rigorous for generics as for innovative products.

Jordan Registration of drugs is through the Jordanian Food and Drug

Administration, which operates under the auspices of the Ministry Of Health.

Jordan was the first country in the Middle East to implement the TRIPS Agreement,
which required it to bring its bring its intellectual property laws and procedures in-line
with international requirements. Patents are registered with the Registrar of Patents,
copyrights with the National Library and trademarks with the Ministry of Industry and
Trade.

Despite the progress made in improving its IPR legislation; effective enforcement mechanisms and
legal procedures have not been fully implemented.

Jordan is in the process of introducing a new drugs policy that will be based on the
following principles:

• Restructure the regulatory framework with greater emphasis on paying fees to

achieve a greater level of self-financing.

• New drugs legislation to cover US and EU regulations and to incorporate

traditional medicines.

• Review Jordan’s Essential Drugs List with initiatives to cover: rational selection
of products; categorization into primary, secondary and tertiary use; introduction
of treatment protocols.

• Flexible pricing system, with encouragement to include generic products in

tendering, purchasing, prescribing and dispensing.

• Support for local research and development; price preference for domestic
suppliers in government tenders; rationalisation of public sector procurement;
overhaul of distribution systems; and regulation for sector promotional activities.

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Spain Previously Spain has a reputation for being bureaucratic the clinical trials
stage of the approval process. Applicants had to deal with three distinct bodies:
ethics committees; hospital administrations; and the Agencia Española del
Medicamento. The system has been overhauled and simplified with significant
reductions in the timescale required to undertake clinical trials.

UK The Medicines and Healthcare Products Regulatory Agency (MHRA) has self-
imposed timetables for the review of documentation, with the actual performance
results against these timescales made publicly available. The Agency is self-funding
through imposing a new set of fees based on the workload of dealing with each
application.

USA The FDA receives the majority of its $ 1 bn a year operating costs from central
government, with only 14% covered by user fees. It sets out strict guidelines for
applicants and it is often challenged in the US courts, if a pharmaceutical company is
of the view that there are discrepancies in the application of these guidelines.

Before starting product tests in humans an Investigational New Drug Application

(INDA) must be submitted to the FDA for approval.

Before starting to market a new product a New Drug Application (NDA) must be
submitted for approval to the FDA, which involves negotiating items such as product
labeling. Approval times are not fixed and recently have been averaging 16 months.

International Practice The World Health Organisation (WHO) provide the

following guidelines on national regulatory systems, but they emphasise this should
not be taken as best practice as situations differ significantly between countries:

• Clear mission and strategy adopted to domestic requirements. Included within

the strategy should be a statement on the extent of self-regulation.

• Adequately resourced, publicly accountable, transparent, outside political

influence and supported by professional associations and lobby groups.

• National drug legislation to provide a framework within which it will operate.

• Appropriate organisational structure, based on independent decision-making and

autonomy from government. The organisation should have adequate personnel,
who have been trained and with an appropriate fee structure. Rules, procedures
and limits on discretionary powers should be clearly specified to avoid corruption
and conflicts of interest.

Benchmark Result In most countries covered by the global review activity it takes
on average one year to review and approve a new product.

With three separate organisations and base legislation dating back to 1955,
there is the need to overhaul Egypt’s pharmaceutical regulatory framework to
bring it up-to-date with international practices, efficiency and transparency.

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Cost And Price Controls

China The responsibility for pricing controls was taken-on by the State Development
and Planning Committee (SDPC), with the main policy tool being the use of a State
Essential Drugs List (SEDL), see below. There is freedom of pricing of products not
on the list, though, the government retains the right to require prices of specified
products to be reduced if they are deemed to be too high. Products on the list are
covered by a reimbursement scheme, where the SDPC applies a cost-plus formula.
The plus factor represents the level of profitability, which varies from between 8% for
generic products, up to 40% for new innovative products that have incurred high
research and development costs.

There has been some freeing-up of China’s price regime to allow more imported
drugs on to the reimbursement list, which is viewed as being key for products to reach
a mass market. In parallel, the SDPC reduced prices of price-controlled drugs on 10
occasions since 1998, most recently in June 2004, when the prices of 400 products
were reduced by 30%. In order to limit the risk of corruption the SPDC limits the
permitted discounts on retail prices to 5%.

India, the early 1980s had one of the most regulated pricing systems in the world,
with 90% of the products under government price control. By 1995 this had been
reduced to 40%. In 1997 an independent body, the National Pharmaceutical Pricing
Authority (NPPA), was established to control prices on behalf of the government. A
review of the existing system in 2002 recommended a further significant reduction in
the scope of price controls to under 30 product categories. Delays in implementing
the recommendations have resulted in 74, out of about 500 commonly used products
still being under statutory price control.

NPPA can exempt a product from price control if its cost to the patient exceeds 2
Rupees per day (the cost of a daily newspaper in India). Price approvals must be
issued by NPPA within 2 months for final formulation products, and within 4 months
for bulk products.

In recognition of the problems of applying price controls on mass market products,

the approach has shifted to a combination of; restricting intervention to situations
when the government determines prices have increased to an unacceptably high level,
and the application of price ceilings to product areas with few competitors.

The historic severe pricing regime and competition from domestic generics resulted in the
international pharmaceutical companies being reluctant to offer their patented products for sale.

New products developed through research and development undertaken in India are
free of price controls for 15 years.

Fifteen years ago India was viewed as having the most severe pricing regime of any
country, but now it is viewed as having an approach that is generally balanced
between the healthcare needs of its population and the trading performance of its
Pharmaceutical Sector. The rate of growth of the domestic sector, see elsewhere in
this section, provides evidence of the sector development benefits, with these being

ADE – DOL 138

achieved at the same time as improving the availability of essential drugs to the
population.

Jordan’s New Drug Policy includes a commitment to a more flexible pricing regime,
but significant changes have still to be implemented. One of the driving forces
behind pricing reform has been an acceptance, that the governments of countries
receiving the exports from Jordan’s pharmaceutical manufacturers use the prevailing
prices in Jordan to set the prices they are willing to pay.

Spain Although Spain had the second lowest prices in Europe, they are now
converging with the rest of Europe. The government has introduced many cost
containment measures, including promoting generics and applying a price reference
system.

A key conclusion of this study is that, through the implementation of a defensive

economic policy, Egypt’s pricing system has been applied to control the price of
final products, when the manufacturers have been having to cope with increased
costs of input materials. There needs to be greater acceptance of the balancing
point in regulating prices between costs to consumers and the development of
the domestic Pharmaceutical Sector.

Essential Drugs List

China The SEDL was created in 1992 initially as a list of drugs that would be
reimbursed under the State insurance system. The list now comprises approximately
1,000 products, representing half of the medicines on the Chinese market. The
products on the list tend to be the low to medium-priced products that are chosen for
their effectiveness, safety and cost-effectiveness and are targeted at the mass
population.

The SEDL has been increasingly up-dated to include new products manufactured in
China and imported products. It has been split into two categories:

• Class A: essential drugs, commonly used, therapeutically efficacious, but low in

price. These products are reimbursable nationwide, with no flexibility to change
the contents of the list.

• Class B: selective drugs, therapeutically efficacious, but more expensive, which

are more likely to be either joint venture products, or imported. Regional
governments have the option to modify, or substitute up to 15% of this category of
products.

India started its EDL in 1996 based on the Model EDL prepared by WHO, but
adapted to meet domestic requirements. The list was up-dated in 2002 and is now
referred to as the National List of Essential Medicines, with a commitment to be
reviewed every two years. The list is not mandatory and individual states,
government institutions and private healthcare providers are free to adapt the list
based on their requirements.

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Delhi is currently the only state to operate a comprehensive drugs policy and now
90% of state’s hospital patients receive the drugs that are prescribed to them. A key
feature of the system is that doctors in the state are advised on prescribe only drugs
that are on the state’s EDL. In preparing its list Dehli has gone beyond the original
principles as described in section APP4 adding three additional principles:

• encouraging more rational prescribing and issuing treatment guidelines for a

number of conditions;

• selecting established generic products that can be manufactured cheaply in India,

based on B PCs and APIs that are manufactured domestically;

• using bulk purchasing for the state as a whole to obtain discounts.

In 1995 only 30% of the prescribed products were available to patients, which has
risen to 90% under the new approach. Overall cost savings of 40% have been
achieved.

Jordan Has operated an EDL for many years with it being up-dated every two years.
The new drug policy (see above) includes developing the role of the list into
guidelines for rational selection and prescribing products. A National Drug and
Toxicology Information Centre will be established to support this development.

[Need more information on Egypt’s existing situation before a comparison

statement can be made.]

Drug Procurement

India Individual states are responsible for their own drug purchasing and there is no
central government purchasing scheme. In Delhi, by 1996 all hospitals participated
in a pooled procurement scheme achieving a 70% discount on some products over
other purchasing agencies and overall a 40% saving.

China There has been a gradual introduction of tender bidding to procure commonly
used drugs, with also increasing decentralisation of the drugs budget and
procurement. Examples of procurement initiatives are:

• Henan Province introduced China’s first state-wide drug procurement process in

mid 2001, which required all hospital products covered by the reimbursement
scheme to be purchased centrally. Products that were not selected through the
tendering system were excluded from the reimbursement scheme.

• In Beijing 18 categories of medicines (total of 483 products) were included in a

tendering process, including some widely used imported products and TCMs.

• Shanghai put half of its hospital drugs budget out to tender, with a value of $ 602
mn and achieved a 6% saving.

Jordan Under the new policy it has been recognized that improvements in the
procurement function can help to control product prices and such are to be

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implemented alongside an overhaul of the distribution chain. Rationalisation of
public sector procurement will be introduced, starting with high volume and, or
expensive products, with a priority for products on the EDL. The long-term aim is to
have a semi-autonomous public sector procurement authority covering tendering and
purchasing, but also with links in to prescribing and dispensing products.

Regional Purchasing Schemes An Eastern Caribbean Drug Service has been

established to manage the procurement on behalf of member countries, which
achieved a 44% reduction in prices during the first tender cycle. The reductions were
achieved based on combining the following factors: selective list; pooled quantities;
competitive bidding; supplier monitoring and quality assurance; variable quantities by
member country; sole-source commitments; and a reliable payment scheme.

Although Egypt is relatively advanced in the application of public tendering it is

behind in the application of procurement schemes to bring down prices.
Applying this activity successfully could allow prices received by pharmaceutical
manufacturers to increase without affecting consumer prices.

Sector Representative Organisations

Jordan The Jordanian Association of Manufacturers of Pharmaceuticals and

Medical Appliances (JAPM) was established in 1996 as the representative body of
almost all manufacturers of pharmaceuticals and medical appliances in Jordan, and is
affiliated to IFPMA. Its role is to support, develop and up-grade Jordan’s
Pharmaceutical Sector to world-class standards through facilitating: technology
transfer; sector integration; and the implementation of cGMP, GLP and GCP. Its
activities include:

• Consultative role with Jordan’s Food and Drug Administration and the Ministry of
Health to meet the overall objective to develop affordable solutions for
pharmaceutical care and increase Jordan’s position in the global pharmaceutical
market.

• Involvement in preparing pharmaceutical legislation.

• Assist with establishing international working relationships on behalf of Jordanian

manufacturers.

• Represent the Sector on IPR issues; attract technology transfer; international

promotion of Jordan’s Pharmaceutical Sector.

• Establish databases, introduce codes of practice and apply arbitrations.

JAPM has its own board and executive.

Turkey The Turkish Pharmaceuticals Manufacturing Association (IEIS) was

established in 1964, the same time Turkey joined the IFPMA, The main roles of the
IEIS are:

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• Address sector-wide issues and enter into national agreements on behalf of its
members and represent members at the international level, in particular at IFPMA;

• undertake research on sector-wide issues, publish and disseminate the results.

The IEIS structure has the following elements:

• General Assembly formed of representatives from all of the member companies.

• Board of Directors comprising 9 elected members, elected for period of three

years.

• Science Board involving members from IEIS and University representatives.

• Advertisement Principles Supervision Board, including businesses and University

representatives.

• Consultative Committee to advise the Board of Directors.

UK Association of the British Pharmaceutical Industry (ABPI) is the trade

association that represents leading prescription medicine producers involved from the
early research stages, through product development to final formulation
manufacturing. It covers both innovative products and generics and is affiliated to
the IFPMA. Due to its spread across the breadth of the UK’s Pharmaceutical Sector
its views carry weight within both the UK and EU Government. It acts as a liaison
point between the pharmaceutical manufacturers and the healthcare system and
medical professional organisations.

The APBI has its own board comprising representatives of a cross-section of the
Sector. There are three task forces reporting to the board: Access Strategy Group;
Economic Strategy Group; and National Health Service Task Force. The Association
has 60 staff and operates under the following structure:

• Commercial Affairs promotes the interests of the member companies and helps
to develop commercial policy with government.

• Medical Division focuses on the discovery of new products, through undertaking

clinical trials, and on manufacturing investment, quality and health and safety
issues.

• Public Affairs promotes the image of the Sector and expresses the views of the
Association.

• Legal, Intellectual Property & Regulatory Division works closely with

government agencies to influence and develop legislation relevant to the
Pharmaceutical Sector, nationally and internationally.

• ABPI Institute provides support to training.

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• Office of Health Economics undertakes research into the economic aspects of
healthcare, collects data and publishes results.

• Animals in Medicine Research Information Centre provides information on the

essential role of animals in the discovery, development and safety testing of
medicines.

• Datapharm Communications Ltd develops the electronic Medicines

compendium, which provides healthcare professionals, and the public, with
information about prescription medicines available in the UK.

• Prescription Medicines Code of Practice Authority oversees the Sector’s

guidelines on how prescription medicines are promoted to health professionals in
the UK.

Most of the above areas of activity have supporting working committees, which
combine member company executives and ABPI specialists.

Although the ABPI represents all sectors on the UK’s Pharmaceutical Sector it is dominated by the
larger, research-based companies, and some of the smaller companies feel left-out and have not
joined. This is also related to the high fees, paid as a percentage of turnover.

There is also a separate British Generic Manufacturers Association, which is specific

to this sub-sector. Many pharmaceutical companies are members of both
associations.

USA The Pharmaceutical Research and Manufacturers of America (PhRMA)

represent the leading US research-based pharmaceutical and biotech companies.

International The International Federation of Pharmaceutical Manufacturers

(IFPMA) is an international NGO that represents the worldwide network of research-
based pharmaceutical manufacturers of prescribed medicines. The members of the
IFPMA are pharmaceutical sector associations for 60 countries. Conditions of
membership include commitments on behalf of in-country memberships to GMP and
the Association’s Code of Pharmaceutical Marketing Practices. Nearly all of the
PIMCs operating in Egypt are members of IFPMA, through their head offices.

Egypt lacks a strong represenantive organisation for pharmaceutical

manufacturers. There has therefore been a lack of a balancing influence in the
positioning of the sector as described in section 10.

There is no subsidiary of IFPMA in Egypt.

Pharmaceutical Production

China There are estimated to be between 6 – 8,000 pharmaceutical product

manufacturers, up from 1,800 in 1989, and 4,000 in 1995, with at least 40% of the
current number being partly foreign owned. A significant restructuring of the sector

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is expected, with the key theme being consolidation into larger units to be able to
meet the requirements GMP.

According to PharmaVantage there are 4,000 producers of APIs, manufacturing

approximately 300,000 tonnes, of 1,350 different API products.

India Although there are 22,000 registered businesses in India’s Pharmaceutical

Sector, there are only 260 which count as drug manufacturers. The top three
companies are indigenously owned, with the largest International PMC being Glaxo
SmithKline which is in fourth place.

With the emphasis on the internationalisation of India’s Pharmaceutical Sector, see

Trade section below, India has the largest number of US FDA approved
manufacturing facilities outside the USA, and has 126 Drug Master Files, filed with
the Agency.

Jordan Has 17 pharmaceutical manufacturers, with production value of $ 249 mn in

2000, with capital investment exceeding $ 40 mn. None of the manufacturers are
PIMCs. 97% of the output is branded generics, with only 3% as licensed products.

Spain There are 250 pharmaceutical companies, of which 25% are domestically-
owned. Prior to joining the EU, Spain disregarded international agreements on patent
protection, with the development of a strong generics sector. This acted as a barrier
to PIMCs entering the market on their own and many co-marketing agreements were
formed with local manufacturers. Many of the companies, though, are small to
medium-sized, with 100 – 250 employees; only 5 of the companies have over 1,000
employees. There is a concentration of pharmaceutical companies in the Catalonia
region.

In Egypt the market leaders are International PMCs, with Domestic PMCs
being market followers. In China, India, Jordan and Spain the market leaders
are domestically-owned. Egypt’s Domestic PMCs need to become stronger to
become domestic market leaders and international players. As in other
countries this is likely to require consolidation within the sector and the
privatisation of the public enterprises.

National Markets

China The Chinese market is estimated to have a value of $ 8.6 bn in 2004, with the
market having grown by an average of almost 17% a year between 1978 and 2000,
though since 2000 this has slowed to 10% a year. Current per capita expenditure on
pharmaceutical products is $ 3.39. Many analysts expect China’s market to become
the largest in the world be 2050.

Domestic producers have 70% market share, with the remaining 30% from imported
products. The IFPMA’s projections for changes in the market are indicated in the
table overleaf:

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 2000 2010
Generics 62% 37%
Branded Generics 14% 19%
Innovative 9% 21%
Others 15% 23%
Total 100% 100%

The top 10 companies (all indigenous Chinese), with total sales of $ 3.5 bn have only
20% market share (these companies on average exporter half of their production),
with no single company having more than 2.5% of the market.

India By volume India has the fourth largest pharmaceutical market in the world, but
due to low pricing it is in 13 th position by value, having annual sales of $ 3.5 bn.
Domestic sales have been growing at an average annual rate of 8.5%. Annual average
per capita expenditure on pharmaceutical products is $ 3.50.

Indian owned companies have 60% market share, with imported products and
products produced by PIMCs in India accounting for 39% of the market. Public
enterprises have only 1% market share. This situation has changed significantly from
the 1970s when the international pharmaceutical companies had 70% market share.
The reason for the decline in market share was India’s lax patent legislation. It is
expected that with the implementation of TRIPS their market share will increase
again.

India’s indigenous manufacturers supply 70% of its consumption of bulk drugs, with
domestic manufacturers, including PICMs, meeting over 90% of demand.

Jordan In 1999 per capita consumption of pharmaceuticals was about $ 47. Four
domestic manufacturers account for 43% of domestic sales, valued at $ 143 mn.

Spain The Spanish pharmaceutical market is the 8th largest in the world, with annual
sales of $ 7.7 bn, in 2003. Generics have 55% market share.

With a value of $ 0.92 bn, Egypt’s market is 11% of China’s market; 12% of
Spain; 26% of India; but is six times larger than Jordan’s market.

Public Sector Manufacturing

Brazil Applied a policy of maintaining and developing its public enterprises,

specifically to ensure research and development, and manufacturing, capability in
drugs essential to public health. In Brazil’s case this related to antiretroviral drugs
for the treatment of HIV / AIDS, with the policy being to manufacture the drugs
domestically. Before Brazil adjusted its patent laws to be TRIPS compliant, it used
its more lax IPR legislation to enable domestic manufacturers to copy existing PIMC
products and to have them patented in Brazil. Although this caused a strong reaction
from USA, a new flexibility was introduced during the Doha WTO talks, that nations
can use public health concerns to threaten PIMCs with the compulsory license of
specified products. Countries that have followed Brazil’s lead have found that there
has not been the need to invoke the new clauses as it has been possible to enter

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voluntary agreements and licenses have been provided to domestic manufacturers.
The new flexibility results in countries not having to rely on Brazil’s original
approach of using public enterprise to manufacture these products.

Bulgaria Following the privatisation of Balkanpharma it received investment of € 25

mn to open a new manufacturing facility operating to cGMP, which resulted in a
significant increase in exports to Western Europe.

Hungary The largest public enterprises were privatised between 1991 and 96, with
all having majority foreign shareholders. The government retained 25% shareholdings
in three of the companies. The sale of companies in the pharmaceutical sector
produced the third largest sector proceeds for the government after energy supply and
telecommunications. Part of the proceeds of sale were re-invested back into the
companies, in particular into research and development and marketing.

India In the 1980s the Indian Government wanted to ensure the supply of certain
essential medicines and designated these only to be supplied by publicly-owned
companies. This policy did not reduce shortages and the government was forced to
take supply from other sources, and later dropped the approach.

Modern Approach As will be evident from the remainder of this section most
countries have moved away from using public ownership of pharmaceutical
manufacturing facilities as a way of securing the supply of pharmaceutical products.
The approach has shifted to relying on a combination of: regulatory frameworks;
essential drug lists; sophisticated procurement procedures; supporting domestic
manufacture; and identifying cheapest solutions.

Egypt is unusual in maintaining 8 public enterprise pharmaceutical

manufacturers, with only one appearing to have strategic importance. These
companies are the worst performing in the domestic manufacturing sector and
require investment if they are to be able to compete effectively following the
full implementation of TRIPS.

Research And Development

China Chinese pharmaceutical companies have traditionally spent 1% of turnover on

research and development, though this has increased in recent years with the leading
companies allocating up to 5%.

China is the only developing country involved in the human genome project and has
developed world class capabilities in genomics and biotechnology.

The costs of undertaking research and development in China are estimated to be 20 –

25% of the costs in PIMC countries.

See further points below under Sector Development, as research and development has
been a priority area for developing the capabilities of China’s Pharmaceutical Sector.

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India Current levels of expenditure on research and development represent 1.9% of
annual turnover of India’s pharmaceutical companies, but as a sector level of
expenditure has been growing at 18% a year.

The National Institute of Pharmaceutical Education and Research (NIPER) was

established to up-grade standards of pharmaceutical education, and research and
development.

Research and development activities are focused on diseases that are endemic in
India.

A few Indian pharmaceutical companies have started to be Innovators, but due to the time period
(11 – 15 years reported earlier) required to bring new products to market it will be many years
before new Innovative products are being sold.

There is also a problem with research undertaken within universities as is too faculty based, which
Although
constrains this is across-discipline
innovative positive development 30%
research of the graduates
activities emigrate
and staff not being to the USA.with
up-to-date Of those
that remain in
research techniques.India 80% end-up employed in the public sector.

Most pharmaceutical research is still government funded, but although referred to as grant based, is
in fact low interest loans, which are not conducive to innovation.

Some of India’s medium-sized pharmaceutical companies, such as Glenmark, Lupin

and Cadilla are in the process of developing their own internal research capabilities,
following the example set by the market leaders, Ranbaxy and Dr. Reddy. The
country has several state-of-the-art pharmaceutical research centres, with some basic
research undertaken in government funded institutions.

Jordan According to a study conducted by the Jordanian National Competitiveness

Team, pharmaceutical companies only undertake research in product formulation and
stability, and in bioequivalence.

Spain Based on its previous approach of copying products and ignoring international
patents, Spain has a strength in product formulation expertise. As it has been abiding
with international patents since joining the EU, the scope for applying this expertise
has been restricted to products that are out of patent and administration protection. It
has been implementing initiatives to strengthen its research and development
activities.

Currently 9% of the Pharmaceutical Sector’s workforce is directly involved in

research and development activities. Pharmaceuticals is rated as being Spain’s most
effective area of research and development. The Catalonian region produces nearly
a third of all European pharmaceutical patents. In 1994 the number of clinical trials
in Spain was about 330 during the year, with this increasing to 572 during 2000.

USA According to the Pharmaceutical Research And Manufacturers Association

(PhRMA) pharmaceutical companies based in USA spend 17.1% of their turnover on

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research and development. It is this commitment to research and development that
results in over 50% of pharmaceutical and biotech patents emanating from USA.

Research and development is one of the weaknesses of Egypt’s Pharmaceutical

Sector due to a combination of lack of expenditure by International and
Domestic PMCs and current lack of such capabilities to operate to international
standards.

Trade

Canada Has a trade deficit in pharmaceuticals that is narrowing rapidly and should
be eliminated by 2008, through differential rates of growth of 30% a year for exports
and 18.8% for imports. Export growth is based on a strong indigenous generics
sector and its leading position in biotech research and development described below.

China Has a net trade surplus of $ 1 bn, with exports of $ 4.2 bn and imports of $
3.2 bn. Export sales represent 50% of the value of the domestic market. China has a
positive net trade balance of $ 2.1 bn on bulk drugs, mainly APIs, but a negative trade
balance of $ 1.1 bn in finished products.

India Latest information from the Indian Pharmaceutical Drug Manufacturers

Association is up to 1999/00, and can be summarised as follows:

Positive Trade Negative Overall Net

Balance Trade Balance Trade Balance
Bulk drugs $ 300 mn
Intermediate chemicals $ 200 mn
Final formulations $ 600 mn
Overall Sector $ 700 mn

In 1999/00 India achieved an overall positive trade balance of $ 700 mn in

pharmaceutical products. Trade in bulk drugs contributed $ 300 mn, with final
formulations performing at double this level. There was a negative trade balance of $
200 mn on intermediate chemicals.

Exports were initially to developing and emerging country markets, but are
increasingly to developed consumer markets.

Jordan The Pharmaceutical Sector in Jordan is export driven, with sales of $ 180
mn, exporting on average 70% of its output. In the first quarter of 2001
pharmaceutical exports accounted for 12.5% of all exports, having increased by 27%
in value during the previous year. Arab countries provide the main market

Spain Is a small net exporter of APIs, but a significant net importer of finished
products, with a $ 2.5 bn deficit. The positive trade balance under APIs is under
threat as this area of primary production is being relocated to China, India, Korea and
Taiwan, as indicated earlier. Spain had the second lowest pricing regime in the EU,

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prior to the recent accession, which provides the background for its role in the parallel
trade described in section 11.
With a negative trade balance in both bulk and dosage pharmaceuticals totalling
$ Egypt is in a worse situation than the above countries.

Import Tariffs

China In compliance with TRIPS import tariffs have been reduced from 20% to
4.2%, as applied in 2003.

Most countries have stopped using import tariffs as a way of protecting domestic
pharmaceutical manufacturers. This is partly due to the requirements of
TRIPS, but more importantly due to a realisation that defensive economic
policies on their own are no longer effective. The emphasis has switched to
having a package of selective development measures to support the development
of indigenous pharmaceutical manufacturers.

Sector Development

Canada Based on a period of restricted prices which put-off external investors,

Canada had a relatively weak pharmaceutical manufacturing sector in the 1980s and
only in 1987 were the compulsory license provisions removed. From this time there
was increasing emphasis on building-up an international position in research and
development, with a focus on the biotech area of activity. Pharmaceutical research
and development has increased by 700% over the last decade, which is a faster rate of
growth of any country in the world. Total investment in research and development
exceeds $ 3.9 bn, which puts Canada as world leader in the biotech sector.

China In the Ninth Five Year Plan in 1997, the Chinese Government made its
Pharmaceutical Sector one of the “pillar” industries of the economy and its
Biotechnology Sector one of six key industrial technologies for development.
Specific initiatives include:

• Encouragement of FDI, mainly through joint ventures, where the Chinese partner
provides the manufacturing facilities, including land, and their knowledge of the
domestic market. The foreign partner provides capital, technology, the product
range, management skills and access to international markets.

• Support for exports, with one of the priorities to promote TCM’s with sustainable
medical claims

• Modernisation of rexulatory regime to encourage competition, see above, with an

additional area being the tightening of regulations relating to the activities of
distribution and wholesale businesses.

• Increasing flexibilities to allow more imported products to be included on the list

of reimbursed products, see above.

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• Encouraging innovation in new product development, with a key project having
been the setting-up of the Centre To Administer Drug Research And
Development, which is administering nearly 400 research projects being
undertaken by pharmaceutical companies, research institutes and hospitals.
Under this area of activity the following targets were set to be achieved by 2005:

- international launches of 10 new products;

- complete clinical testing of 50 additional products;

- develop 20 new types of TCMs and launch 2 – 3 internationally.

• In 1999 China introduced “Measures for New Drug Administration” to promote

innovation and improve productivity in its Pharmaceutical Sector.

There are still serious cases of intellectual property abuse in China and until these are
eradicated this will act as a disadvantage for attracting international leading edge investment
associated with research and development.

• During 1999 242 state run research centres were turned into commercial ventures.
At the end of year 2000, 100 state scientific research institutes were transferred to
the private sector.

• The Beijing Global Technology Centre is reputed to be the largest biopark in

China and is projected that the businesses located here will have combined annual
turnovers of $ 7 bn by 2010.

• China has applied the approach of encouraging the formation of joint ventures to
ensure international business management and scientific skills are transferred to
the indigenous partners.

India The start of the transformation of India’s Pharmaceutical Sector can be traced
back to 1986, with the introduction of the “Measure for Rationalisation, Quality
Control and Growth of the Drugs and Pharmaceuticals Industry in India. The key
elements of the original national drug policy were:

• Ensure availability of essential medicines of appropriate quality and affordability

for mass consumption, through the creation of an Essential Drugs List, see above.

• Strengthening quality systems, through overhauling the regulatory framework, see

above.

• Establishing an environment conducive to cost-effective production and targeted

investment.

• Strengthening the indigenous sector.

The national policy was up-dated in 1994 and 2002, with increasing emphasis on
making India’s Pharmaceutical Sector internationally competitive. Examples of new

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national initiatives that have been applied that are of assistance to the development of
the sector are:

• Import tariff and tax rate reductions, implemented from 1991.

• Streamlined FDI approvals for priority sectors, such as pharmaceuticals and

targeted international promotion activity.

• Technology agreements with international pharmaceutical companies given

automatic approval, for all drug products, except recombinant DNA technology.

• Reductions in rate of interest on export financing.

• Export Promotion “Cell” implemented specifically for the Pharmaceutical Sector.

This initiative also organises seminars and workshops on international standards
and changing quality requirements.

• The Government reimburses 50% of the costs of the regulatory fees for
registration of products outside India.

• Identification of products where local manufacture is preferred, with other policy

measures used, such a pricing, to encourage the achievement of local manufacture.
It should be noted that under TRIPS some of the actions are unlikely to be
allowed.

• Removing regulations that constrained manufacturing activities, such as now

manufacturers have freedom to decide where each of their products will be
manufactured in India.

• Removing the advantageous positions that were provided for public enterprise
manufacturers through their privatisation. The list of pharmaceutical products
that was reserved for manufacture by the public enterprises was abolished in 1999.
Currently public enterprises are restricted to manufacturing products that are of
strategic significance to India’s healthcare system and which require high levels of
investment.

• $ 35 million set aside to promote research and development, with a focus on

diseases that are endemic in India.

• The establishment of NIPER has already been described above, under the
Research and Development heading.

• A patent facilitation centre has been set-up.

• Pharmaceutical and biotech companies have tax holidays for 10 years and are
eligible for weighted reductions in research and development expenses of up to
150%.

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• Patented pharmaceutical products developed in India are free of price controls for
15 years.

• Tax and import concessions on materials imported to conduct clinical trials.

India’s policies lack specificity in their targets, budgets and timescales, which makes it
difficult to measure progress.

Based on the combined implementation of the above, but in particular related to

encouraging investment in research and development, India’s Pharmaceutical Sector
has already made considerable progress in moving-up the value chain: from reverse
engineering drugs as pirate copies (15+ years ago); to being an accepted international
manufacturer of bulk products and generic final formulations; to emerging as a new
player in developing new Innovative products.

Jordan Although many of the generic products were developed when Jordan had a
more relaxed control of patents and intellectual property rights, nevertheless it
succeeded in negotiating accession to the WTO, and an early implementation of
TRIPS, without contravening international patent protections.

The Jordanian Pharmaceutical Sector is embarking on its second stage of

internationalisation, which is based on two areas of development:

• Jordanian pharmaceutical companies are seeking to establish joint ventures and

strategic alliances with international pharmaceutical companies. An example of
success in this area of activity is in 1999 The Jordanian Pharma International Co.
signed a strategic partnership agreement with Schein Pharmaceuticals, now a
division of Watson Pharmaceuticals, the second largest generics company in USA.
The advantages to the Jordanian company have been:

- Access to leading technology.

- New products to be sold in Jordan and through its Middle East sales channels.

- Easier access to FDA approvals.

- Application of the Bolar Provision in Jordan.

- Testing of products developed in USA, in Jordan.

• Attraction of FDI under the Investment Promotion Law of 1995, which provides:
full project ownership; freedom from customs duties; exemption from taxes and
tax holidays; unrestricted transfer of capital and profits; and export earnings being
exempt from corporation tax.

Spain Has been concentrating on the following competitive advantages to develop

pharmaceutical research and development activities, with a particular focus on the
Catalonia region, where the regional government has created three science parks
focusing on biotechnology, including Spain’s first bio-incubator.

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• Number of new graduates, with salaries 35% the prevailing rates in the US.

• Catalonia’s Investment Promotion Agency is actively supporting the development

of indigenous biotechnology companies.

The last national Profarma programme that has been made available to us covers the
period 1998 – 2000, set four sector sector development objectives:

• Expenditure on research and development to reach 8% of ethical drug sales.

• Research and development investment / expenditure to increase to € 312 mn a

year.

• At least 3,000 employees in research and development roles.

• Improvements in the trade balance.

56 pharmaceutical companies participated, representing 85% of the Spanish market,

with the performance of each evaluated against each of the sector development
objectives. The companies that achieved minimum performance standards were
eligible to benefit from subsidies and zero interest loans. Catalonia has its own
government funded venture capital fund which is targeted at start-up biotech
companies, offering investments up to € 1 mn.

Singapore Is becoming an important regional hub for pharmaceutical research and

development, through for example the Biopolis Centre opened in late 2003 at a cost of
$ 500 mn, with facilities for over 2,000 researchers. In additional to supporting the
development of indigenous businesses, the facility has attracted some international
companies to invest. Singapore’s Economic Development Board encourages local
biomedical research and the commercialisation of new products, through Singapore
based joint ventures.

USA New technical initiatives are supported through the widespread availability of
venture capital, where 35% of these funds are directed towards “early seed” and
“early stage product development”. An example of tax incentives is that research and
development work on “orphan drugs” receive 50% tax credits on reaching the clinical
trial stage of development.

This is the area of greatest comparative weakness for Egypt as it has continued
to lead with a defensive economic policy when other countries have switched
their emphasis to development economic policies. For this reason Egypt lacks
a package of development measures that apply in other countries. Egypt needs
to move quickly if it is to benefit from the implementation of TRIPS and avoid a
contraction of its pharmaceutical manufacturing secto.r

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18 Regional Performance Comparisons

Regional Export Performance

Israel is the leading regional exporter of pharmaceutical products with $ 927 mn of

mn export sales in 2003. Turkey was in second place with $ 211, and Jordan in third
place with $ 183 mn, export sales. These three countries are significantly ahead of
the rest which all achieved $ 75 mn, or under export sales during 2003. Egypt is in
seventh place behind also Cyrprus, South Africa and UAE.

The top twenty regional exporters during 2002, by value, are indicated in the
following table, which compares their exporting performance in 2003 to 2002. The
raning is based on 2003 export performance. Only eleven countries in the region
achieved exports of pharmaceutical products that exceeded $ 10 mn in 2003.

Exports By Country, 2002 And 2003 In USD mns

Rank Country Value 2002 Value 2003
1 Israel 900.537 926.729
2 Turkey 141.769 211.230
3 Jordan 197.950 183.112
4 Cyprus 70.602 75.025
5 South Africa 57.639 62.649
6 UAE 91.759 40.876
7 Egypt 41.178 34.585
8 Iran 22.770 31.732
9 Kenya 6.541 28.312
10 Saudi Arabia 15.586 18.537
11 Morocco 17.868 17.571
12 Tunisia 5.662 6.537
13 Malta 4.602 6.373
14 Syria 4.273 4.666
15 Lebanon 1.350 3.931
16 Senegal 3.048 3.122
17 Nigeria 2.602 2.627
18 Zimbabwe 9.318 1.735
19 Kuwait 6.741 0.962
20 Ivory Coast 2.031 0.583
Source: TradeMap

The table also indicates the changes in ranking between 2002 and 2003. The upward
pointing arrows indicated countries that improved their ranking, with downward
pointing arrows indicating countries that have worse rankings in 2003, compared to
2002. Countries without an arrow retained the same position in 2003 as in 2002. The
outcome for all of the countries is summarised in the table overleaf.

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Changes In Regional Export Positions 2002
Climbers Same Position Fallers
Turkey Israel Jordan
South Africa Cyprus UAE
Kenya Egypt Morocco
Tunisia Iran Zimbabwe
Malta Saudi Arabia Kuwait
Syria
Lebanon
Senegal
Nigeria
Ivory Coast

Egypt is in the group of countries that stayed in the same rank position in 2003 as in
2002.

The following table indicates the change in the value of export sales between 2002
and 2003, by country. The ranking is based on the percentage change in export sales
value. The countries with the fastest growth in export sales values were Kenya and
Lebanon, which both experienced more than a doubling over the two years. Other
countries with export sales growth over 15% were Turkey, Iran, Malta, Saudi Arabia
and Tunisia. Egypt was one of seven countries that experienced a fall in export
sales.

Change In Exports By Country, 2002 To 2003 In USD mns

Country Value In Value In Change In % Change
USD 2002 USD 2003 Value In
USD
1 Kenya 6.541 28.312 + 21.771 + 332.8
2 Lebanon 1.350 3.931 + 2.581 + 191.2
3 Turkey 141.769 211.230 + 69.461 + 49.0
4 Iran 22.770 31.732 + 8.962 + 39.4
5 Malta 4.602 6.373 + 1.771 + 38.5
6 Saudi Arabia 15.586 18.537 + 2.951 + 18.9
7 Tunisia 5.662 6.537 + 0.875 + 15.4
8 Syria 4.273 4.666 + 0.393 + 9.2
9 South Africa 57.639 62.649 + 5.010 + 8.7
10 Cyprus 70.602 75.025 + 4.423 + 6.3
11 Israel 900.537 926.729 + 26.192 + 2.9
12 Senegal 3.048 3.122 + 0.074 + 2.4
13 Nigeria 2.602 2.627 + 0.025 + 1.0
14 Morocco 17.868 17.571 - 0.117 - 0.6
15 Jordan 197.950 183.112 - 14.838 - 7.5
16 Egypt 41.178 34.585 - 6.593 - 16.0
17 UAE 91.759 40.876 - 50.883 - 55.4
18 Ivory Coast 2.031 0.583 - 1.448 - 58.3
19 Zimbabwe 9.318 1.735 - 7.583 - 81.4
20 Kuwait 6.741 0.962 - 5.779 - 85.7
Source: TradeMap

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Egypt experienced a decline in export sales values between 2002 and 2003 of $ 6.6
mn, representing a 16% decline. Out of the top 20 regional exporters, Egypt was in
sixteenth position for the change in export sales between 2002 and 2003.

If the trends of export performance between 2002 and 2003 are continued into 2004,
Egypt will lose its seventh position to both Iran and Kenya, which experienced strong
growth in export sales.

Regional Trade Balances

The table below indicates regional trade balance performance during 2002. Only two
countries, Israel and Jordan, have positive trade balances in pharmaceutical products.
The countries with negative trade balances are ranked by the scale of the balance,
with the lowest balances achieving the highest rankings. Egypt is in 15th position, but
has a better balance, than UAE, South Africa, Algeria, Saudi Arabia and Turkey.
The reason for this better performance is that Egypt’s pharmaceutical imports are
lower than in these other countries.

Trade Balances By Country, 2002 In USD mns

Country Exports Imports Trade Balance
1 Israel 900.537 646.357 +254.180
2 Jordan 197.950 163.397 +34.553
3 Bahrain 0.227 36.573 -36.346
4 Cyprus 70.602 108.167 -37.565
5 Malta 4.602 46.847 -42.245
6 Qatar - 50.641 -50.641
7 Syria 4.273 59.820 -55.547
8 Yemen 0.038 62.505 -62.467
9 Kenya 6.541 72.578 -66.037
10 Oman 1.097 80.690 -79.593
11 Kuwait 6.741 141.510 -134.769
12 Morocco 17.868 156.898 -139.030
13 Tunisia 5.662 203.107 -197.445
14 Lebanon 1.350 271.709 -270.359
15 Egypt 41.178 429.514 -388.336
16 UAE 91.759 559.240 -467.481
17 South Africa 57.639 586.408 -528.769
18 Algeria 0.281 544.935 -544.654
19 Saudi Arabia 15.586 959.537 -943.951
20 Turkey 141.769 1,532.468 -1,390.699
Source: TradeMap

Competitor Market Shares

Competitors have been restricted to regional manufacturers, with the products

selected being Egypt’s exported pharmaceutical products in 2002. The countries are
ranked indicating their share of world exports by product area, with the results
provided in the table overleaf.

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World Market Share, Selected Products, Egypt’s Regional Competitors, 2002
Product Regional Country Positions
1st 2nd 3rd 4th 5th 6th 7th
Bulk Products:
1 Pencillins Egypt Nigeria UAE Iran
0.6% 0.1% 0.08% 0.03%
2 Penicillins, Turkey Egypt UAE S.Arabia
Steptomycins 5.2% 2.5% 1.2% 0.2%
3 Medicaments Jordan Turkey Israel Iran UAE S.Africa Egypt
nes 2.5% 0.7% 0.35% 0.28% 0.17% 0.12% 0.08%
4 Vaccines, Egypt S.Africa UAE Turkey
human use 0.03% 0.03% 0.015% 0.003%
5 Antibiotics nes, Jordan Turkey Egypt Syria Zimbab. Ghana
formulated 1.4% 0.19% 0.15% 0.11% 0.10% 0.08%
6 Antibiotics Israel Turkey UAE Iran S.Arabia Egypt
nes 0.1% 0.06% 0.02% 0.01% 0.01% 0.008%
7 Hormones, Kuwait S.Arabia S,Africa Israel Iran UAE Egypt
not 1.9% 0.4% 0.34% 0.22% 0.22% 0.19% 0.11%
antibiotics
8 Vitamin S.Africa Israel Turkey Egypt
concentrates 0.4% 0.1% 0.03% 0.02%
9 Vitamin B1 UAE Egypt
0.07% 0.02%
10 Glycosides Morocco S.Africa Egypt
0.3% 0.02% 0.005%
11 Vitamin C Ivory Co. Israel UAE Cameroon Turkey S.Africa Egypt
0.2% 0.09% 0.03% 0.02% 0.02% 0.01% 0.003%
12 Theopylline / Egypt
aminophylline 0.02%
Dosage Products:
1 Medicaments Israel Jordan Cyprus Turkey S.Africa Morocco Egypt
nes 0.82% 0.10% 0.072% 0.060% 0.024% 0.013% 0.013%
2 Vitamins UAE Israel S.Africa Egypt Turkey
3.1% 1.7% 0.44% 0.19% 0.06%
3 Hormones, Israel S.Arabia Egypt S.Africa Turkey
not antibiots 0.067% 0.066% 0.050% 0.038% 0.010%
4 Antibiotics Turkey Jordan S.Arabia Morocco S.Africa Egypt
0.36% 0.13% 0.041% 0.033% 0.033% 0.023%
5 Alkaloids Turkey Zimbab. Egypt S.Africa
0.65% 0.25% 0.069% 0.008%
6 Penicillins, Turkey Iran Egypt Syria Cyprus Nigeria
Steptomycins 0.41% 0.12% 0.05% 0.05% 0.044% 0.043%
7 Adrenal cortex Egypt Morocco Malta Turkey
horms. 0.033% 0.011% 0.010% 0.004%
8 Insulin S.Arabia Turkey Egypt Oman
0.038% 0.009% 0.006% 0.003%
9 Suture Israel S.Africa Tunisia Turkey Morocco UAE 10th
0.20% 0.12% 0.11% 0.10% 0.04% 0.03% Egypt
0.008%
Source: TradeMap

Bulk Products

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Egypt has competitive strengths in:

• Pencillins, where it is the regional export leader with 0.6% of world exports. Its
main regional competitors have significantly lower export market shares.

• Penicillins / Steptomycins formulated, where although Turkey is the regional

export leader with 5.2% of the world export market, Egypt achieves an impressive
2.5%, which is by far its highest market share of any product. The only regional
competitors are UAE and Saudi Arabia, with the latter being much smaller.

• Vaccines, human use, where Egypt is equal regional export leader with South
Africa. UAE has half the market share of the two leaders, with Turkey being
significantly behind.

• Vitamin B1, where Egypt is only one of two regional exporters, with UAE being
the market leader.

• Glycosides, where Egypt is one of only three regional exporters, albeit at a much
lower level than the other two countries.

• Theopylline / aminophylline, where Egypt is the only regional exporter, but at a

low level.

Dosage Products

Egypt has much weaker market positions in dosage products, than in bulk products,
with competitive strengths restricted to:

• Adrenal cortex hormones, where Egypt is the regional leader for exports.

• Hormones, not antibiotics, where Egypt’s performance is only slightly behind

Israel and Saudi Arabia.

Market Positioning Impact

Previous results indicated the products with the highest net negative trade positions
and suggested the levels could be reduced by either increasing exports, or reducing
imports. The products in which Egypt has relatively strong market positions do not
coincide with those with the largest negative trade balances. There will therefore
have to be separate initiatives to increase exports, possibly based on the set of
products indicated above, from an initiative relating to the products with the highest
levels of imports, see section 14.

Sector Performance

Regional Trade in pharmaceutical products can be used to provide an indicator of

sector performance in countries throughout the region. The indicator that has been
selected is exports as a percentage of imports, across all pharmaceutical products, see
next table:

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 Trade Performance, By Regional Country, 2002
Country Exports As % Of Imports
1 Israel 139.3
2 Jordan 121.1
3 Cyprus 65.3
4 UAE 16.4
5 Morocco 11.4
6= Malta 9.8
6= South Africa 9.8
8 Egypt 9.6
9 Turkey 9.2
10 Kenya 9.0
11 Syria 7.1
12 Iran 5.4
13 Kuwait 4.8
14 Tunisia 2.8
15 Saudi Arabia 1.6
16 Oman 1.4
17 Bahrain 0.6
18 Lebanon 0.5
Source: TradeMap

Egypt is in 8th place, which is a low ranking based on: the stage of development of the
sector; its role within the national economy; and the time it has been operating.
Israel and Jordan are the clear leaders as they both have exports that exceed imports.
The performance of Cyrus is also impressive. Countries that have relatively strong
performance in relation to the stages of development of their economies are: UAE at
16.4%; Morocco at 11.4%; Malta at 9.8%; Kenya at 9.0%; and Syria at 7.1%. It can
be assumed that all of these countries are improving the performance of their
Pharmaceutical Sectors.

The performance of Egypt’s Pharmaceuticals Sector, at 9.6%, is on par with South

Africa at 9.8% and Turkey at 9.2%.

Additional Performance Indicators Two additional performance indicators that have

been applied are:

• Split of export sales between bulk and dosage products, with there being a link
between the higher the proportion of dosage sales, the higher the level of sector
performance.

• The strength of sector performance related to the concentration of export sales in

single product areas, either within bulk, or dosage products.

The results to both of these indicators are provided in the tables overleaf:

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 Split Of Export Sales – Bulk / Dosage Products - 2002
Country % Bulk Products % Dosage Products
1 Cyprus 0.02 99.98
2 Kenya 1.6 98.4
3 Israel 8.3 91.7
4 Morocco 8.8 91.2
5 Tunisia 9.5 90.5
6 UAE 13.3 86.7
7 Turkey 23.5 76.5
8 Zimbabwe 24.2 75.8
9 Syria 30.6 69.4
10 South Africa 31.8 68.2
11 Saudi Arabia 35.9 64.1
12 Egypt 38.5 61.5
13 Malta 60.2 43.6
14 Iran 48.3 51.7
15 Jordan 45.1 54.9
Source: TradeMap

Egypt has one of the lowest proportions of export sales allocated to the higher added-
value dosage products, and one of the highest proportions of bulk products.

Single Product Proportion Of Export Sales - 2002

Country Highest % Bulk Highest % Dosage
Product Sales Product Sales¹
1 Cyprus n/a 98.5
2 Israel 27.7 95.0
3 Jordan 88.6 89.4
4 Malta 91.5 81.4
5 UAE 45.1 79.0
6 Iran 34.8 76.0
7 Morocco 80.7 74.6
8 Kenya N/a 70.9
9 South Africa 37.7 58.9
10 Turkey 67.1 52.8
11 Syria 42.1 52.3
12 Egypt 45.7 51.1
¹ Table ranked by this column
Source: TradeMap

With the dosage products Egypt has the lowest level of sales allocated to a single
product area, which indicates a lack of specialisation. In bulk products it is in a
better position with the fifth highest level of proportion of sales allocated to a single
product area. It can be concluded from this assessment that Egypt has more
specialisation in its bulk product export sales, than in its dosage products. It is
proposed that one of the dosage product areas, possibly from the two areas of strength
indicated above, should be selected for a targeted initiative to increase export sales.

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Changes In Country Exporting Performance

UN statistics have been used to indicate changes in country exporting performance

from 1998 to 2002. The comparisons have been restricted to the countries where
results are available for both 1998 and 2002. The results are split into
pharmaceuticals, excluding medicaments, and medicament products:

Pharmaceuticals, Excluding Medicaments Export Sales, 2002 In USD mns

Country Export Sales 1998 Export Sales 2002 % Change 1998 – 02
1 Iran 0.131 2.027 +1,584.7
2 Jordan 0.652 6.710 +929.1
3 Saudi 4.072 8.240 +102.4
Arabia
4 Israel 53.562 94.336 +72.8
5 Morocco 2.791 3.929 +40.8
6 Egypt 3.512 4.510 +28.4
7 Tunisia 2.663 2.647 -0.6
8 Turkey 43.252 27.367 -36.7
9 Cyprus 0.088 0.006 -93.2
Source: UN Trade Statistics

Medicaments Export Sales, 2002 In USD mns

Country Export Sales 1998 Export Sales 2002 % Change 1998-02
1 Saudi Arabia 2.932 20.117 +586.1
2 Iran 3.557 21.467 +503.5
3 Israel 343.023 834.859 +143.4
4 Cyprus 39.105 70.605 +80.6
5 Turkey 76.731 137.047 +78.6
6 Jordan 142.089 194.688 +37.0
7 Morocco 11.808 15.613 +32.2
8 Egypt 59.395 61.450 +3.5
9 Tunisia 15.697 4.267 -72.8
Source: UN Trade Statistics

In pharmaceuticals, excluding medicaments Egypt achieved growth in export sales of

28.4%, but is in 6th position as other countries achieved fast growth in export sales. In
medicaments, Egypt achieved only 3.5% growth in export sales, being in 8 th position.

All Pharmaceutical Export Sales, 2002 In USD mns

Country Export Sales 1998 Export Sales 2002 % Change 1998-02
1 Iran 3.688 23.494 +537.0
2 Saudi Arabia 7.004 28.357 +304.9
3 Israel 396.585 929.195 +134.3
4 Cyprus 39.193 70.611 +80.2
5 Turkey 119.983 164.414 +44.4
6 Jordan 142.741 201.398 +41.1
7 Morocco 14.599 19.542 +33.8
8 Egypt 62.907 65.960 +4.8
9 Tunisia 18.360 6.914 -62.3

ADE – DOL 161

Source: UN Trade Statistics

With all pharmaceutical export sales Egypt achieved growth of only 4.8%, with much
higher growth rates by all other countries, except Tunisia.

Manufacturing Cost Comparison

The following table compares the break-down of manufacturing costs of a PMC

operating in Egypt (international or domestic) with its international equivalent.

Cost Heading PMC Operating In Egypt PMC Outside Egypt

Material inputs 80% 60%
Energy 3% 4%
Manufacturing expenses¹ 3% 20%
Administrative costs² 3% 4%
Servicing fixed / working capital 13% 12%
Total 100% 100%
Source: Company review results
¹ Salaries and wages
² Excluding research and development, sales and marketing

Material inputs represent a higher proportion of manufacturing costs in PMCs based

in Egypt, at 80%, than their international equivalents, where these costs are 60%.
The result of this situation is that the advantage of lower manufacturing expenses,
energy costs and administrative costs in Egypt are lost.

Product Cost Comparison

The following table compares the total product cost structures of PMCs operating in
Egypt, international and domestic presented separately, with their international
equivalent.

Cost Heading Domestic PMC International PMC PMC Outside

Operating In Egypt Operating In Egypt Egypt
Cost of sales 78% 68% 48%
Sales and marketing 5% 18% 32%
R&D 2% 3% 5%
Other costs 6% 6% 1%
Taxes 1% 1% 3%
Profit after interest 8% -4% 11%
Total 100% 100% 100%

Both the Domestic and International PMCs have considerably different product cost
structures from their equivalents operating outside Egypt. The main differences are
that PMCs operating outside Egypt have considerably lower cost of sales; 20% lower
that Egypt’s International PMCs and 30% lower than Egypt’s Domestic PMCs. This
allows them to allocate financial resources to sales and marketing, at 32%, compared
to 18% and 5%; and to research and development, at 5%, compared to 3% and 2%.

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There are also significant differences between the Domestic and International PMCs
operating from Egypt, which can be summarised as:

• International PMCs have cost of sales which are 10% lower than the Domestic
PMCs.

• International PMCs maintain a relatively high level of expenditure on sales and

marketing, even though they are experiencing losses, whereas the Domestic PMCs
have cut marketing and sales expenditure to 5% of total product costs to maintain
profitability.

• Both Domestic and International PMCs have low levels of expenditure on

reasearch and development, at 2 and 3%, respectively.

• The “other cost” and tax burden on the Domestic and International PMCs is the
same.

• The International PMCs are putting their market positions ahead of

profitability,which confirms their status as market leaders, whereas the Domestic
PMCs put profitability ahead of market position, which confirms their status as
market followers.

Export Conclusion

The overall conclusion is that Egypt’s exporting performance is, and has been poor,
for some years. Other countries in the region are improving the regional performance
of their Pharmaceutical Sectors, but this is not happening in Egypt. It is the structural
issues, described earlier, that have been holding-back the internationalisation of the
sector. These issues need to be addressed as a priority to enable a development
economic policy to be successfully implemented.

From the figures presented in this section it can be deduced that Egypt’s
Pharmaceuticals Sector went through a considerable developmental phase in the late
1980s and the first half of the 1990s, but this had stopped by 1998, and needs to be
started again. An explanation for this situation could be that the economy was
booming up to 1998, with the manufacturers concentrating on keeping-up with growth
in domestic demand. The recession kicked-in from 1998, but due to the continued
implementation of the defensive economic policies there was no incentive to increase
exports. The sector therefore stagnated.

Cost Conclusion

The results of the cost comparison are important as they indicate that Egyt’s PMCs
are currently uncompetitive due to the high relative cost of input materials, but if this
situation could be resolved there are cost competitive advantages to be applied. The
way Egypt’s PMCs are uncompetitive is not in final price as these are controlled to
avoid being increased. Uncompetitiveness is evident in relatively low levels of
expenditure on marketing and sales, and on research and development which will
have a medium to longer-term adverse impact.

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The usual response to the above situation is to request increased prices, but another
approach would be to address the reasons for the higher input costs and to bring these
down to international levels. Implementing this approach would not only have the
benefit of reducing manufacturing costs and profitability of products manufactured for
domestic consumption, but would also make the manufacture of these products more
competitive for export markets. Due to the issue of importers assessing prices in the
country of export as provide price base points, there is likely to be the need of both
reducing input material costs and applying price increases. The letter, though, can be
concentrated on products that are to be exported.

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19 Phytopharmaceuticals

Background

The market data used in this report is based on IMS data for products sold through
pharmacies. In the phytopharmaceuticals area of activity the data only covers
products which make a medical claim. Products that make no such claim are not
covered which inclues all products sold through supermarkets and other types of retail
outlets. The figures on market size presented in this section under-estimate the
overall size of the market, which is likely to be 3 – 5 times the indicated level.

Regulatory Framework

The regulatory framework is the same as for synthetic products, with the same
situation as internationally, with this product area requiring less burden of proof of
clinical efficacy. This applies as long as the product does not make direct medical
claims.

Pricing

The approach to pricing phytopharmaceutical products is the same as for synthetic

products, see section 14, but the average price for the former is EGP 8.3, compared to
EGP 6.7 for synthetics.

Domestic Market

IMS data indicates a market of EGP 46.3 mn in 2003, which is under 1% of the total
domestic pharmaceutical market. Although this reported level is low it more
indicates the extent of the potential, than that this is a sub-sector which is too small to
justify attention. If total sales are EGP 200 mn this would represent 3.5% of the
pharmaceutical market, which is low compared to a country, such as India which
achieves 22% market share. If phytopharmaceutical products could achieve this level
of market penetration in Egypt the market would be worth EGP 1.254 bn.

The market grew by 32% 2001 - 02 and 22% 2002 - 03 and is therefore growing
much faster than the mainstream synthetics market. This, though, is against a
decrease in the market from EGP 39 mn in 1999 to EGP 30 mn in 2001. The growth
2001 - 02 only recovered the market position of 1999 and real growth has only been
experienced in 2002 - 03 for the first time since 1998/99.

Main Players

There are sixteen manufacturers of phytopharmaceutical products, with five counted

as main players: Mepaco with 55% market share by value; Sekem with 22%; Ipsen
Beaufour with 8%; Sigma with 8%; and October Pharma with 4%. The remaining
4% is spread across the other eleven manufacturers.

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Products

The main product areas are: cough and cold preparations, with sales in 2003 of EGP
5.6 mn; cardiac preparations, with EGP 5.4 mn; plant derived vitamins, with EGP 4.9
mn; cerebal periphery and vaso therapeutic, with EGP 4.2 mn; and prostrate disease
products, with EGP 4.0 mn. Since 2001 the products with the strongest growth have
been cough and cold preparations and cardiac preparations. Cerebal periphery and
vaso therapeutic, and prostrate disease products have experienced much slower
growth. Sales of plant derived vitamins have declined from a peak of EGP 5.7 mn in
1999 to EGP 4.9 mn in 2003.

Trade

Egypt has a strength in phytopharmaceuticals, but requires clinical trials to

international standards to support the development of this sector.

Product Costs

The following table compares product costs:

Cost Heading Domestic Domestic PMC International PMC

Phytopharmaceutical Operating In Egypt Operating In Egypt
Cost of sales 50% 78% 68%
Sales and marketing 15% 5% 18%
R&D 4% 2% 3%
Other costs 12% 6% 6%
Taxes 8% 1% 1%
Profit after interest 11% 8% -4%
Total 100% 100% 100%

The phytopharmaceutical sub-sector has a significantly different product cost profile

compared to the International and Domestic PMCs, with the profile being closer to
international norms. This can be explained as the phytopharmaceutical
manufacturers source their raw materials domestically and undertake primary
manufacturing. This results in the businesses achieving a healthy level of
profitability at an average of 11%, while at the same time allocating 15% of turnover
to marketing and sales and 4% to research and development.

Although the above product cost profile looks healthy it needs to be compared to the
PIMCs for their mainstream activities. This comparison is justified as it is these
companies that also produce through all three stages of production, and also Egypt has
the long-term potential to have indigenous phytopharmaceutical manufacturers that
achieve the “innovator” status, as is happening in China and India.

ADE – DOL 166

The cost comparisons are:

Cost Heading PIMC Domestic

Phytopharmaceutical
Cost of sales 28% 50%
Sales and marketing 34% 15%
R&D 18% 4%
Other costs 2% 12%
Taxes 5% 8%
Profit after interest 13% 11%
Total 100% 100%

The PIMCs have a cost of sales which is almost half of the level of the domestic
phytopharmaceutical manufacturers. This allows them to allocate more than double
their turnover to marketing and sales, and over four times to research and
development. If any of Egypt’s phytopharmaceutical manufacturers are to move into
the “innovator” status they need their product cost profiles to get closer to those of the
PIMCs. This can be achieved through a combination of moving into higher added-
value products, but also close control of manufacturing costs and raw material
purchases.

World Market

The World Health Organisation (WHO) estimates that 65 – 80% of the world’s
population rely on traditional medicines and indicate the world market is worth $ 60
bn. Separately UNIDO estimates the market to be valued at $ 30 bn. Based on the
IMS statistics, recording only products that make a medical claim, the world market is
worth $ 15.5 bn, which suggests this approach under-estimates the market to at least a
half of its full value.

The world phytopharmaceuticals market represents 3.6% of the total pharmaceutical

market, and is split by country as follows:

Country Value in $ bns 2003 % Country Market % World Generics

Share Market Share
Japan¹ 4.0 8.5 25.8
USA 4.0 2.0 25.8
China 2.0 23.5 12.9
Germany 1.3 6.5 8.4
France 1.0 5.5 6.4
UK 0.25 1.6 1.6
India 0.9 25.7 5.8
Italy 0.25 1.7 1.6
Spain 0.14 1.6 0.9
Others 1.66
Total 15.5 3.6 (World) 100.0
Source: IMS data
¹ This represents a minimum figure, with other sources indicating a market that could be up to 5 times
larger.

ADE – DOL 167

Japan is the market leader with sales of at least $ 4 bn, but this could be up to $ 20 bn,
depending on the source that is used. USA provides the second largest market, but
there are also significant markets in China, Germany, France and India.

In Germany, 70% of general practitioners prescribe herbal medicines, most of which

are reimbursable through the public health insurance system. In most European
countries a high proportion of sales are OTC, either through health-food outlets, or
through pharmacies. The largest categories of herbal medicines are cardiovascular
and respiratory treatments, tonics and digestives. Homeopathic remedies are popular
in France and the UK, whereas herbal products are more popular in Germany and
Italy.

The production of phytopharmaceutical products in USA and Europe is still relatively

fragmented, with a significant incidence of privately-owned businesses. Most
German manufacturers are privately-owned and have annual sales ranging between $
20 and 100 mn, with these companies becoming a growing target for acquisition by
both European and USA based multi-nationals.

Traditional Chinese Medicines (TCMs) are fully integrated into China’s healthcare
system and prescribing such products are actively encouraged. The recent creation of
an OTC market is likely to support further growth in sales from the 700 factories
producing such products. According to the Ministry Of Commerce Of China exports
of TCM products were $ 671 mn in 2002, with the majority of exports going to Asia,
in particular Japan. The USA and European markets have been experiencing 40%
and 30%, respectively year-on-year growth for TCM products. The majority of
exports were as raw materials, but this is changing to achieve higher levels of added-
value within China.

Exports of Traditional Indian Medicines are projected to be $ 650 mn in 2005, with

the most important market being USA.

ADE – DOL 168

 Part D

Appendices

ADE – DOL 169

 Appendix 1

Steering Committee Members

ADE – DOL 170

The Steering Committee members are:

No. Name Company

1 Dr. Sherine Hassan Abbas Pharco
2 Dr. Helmy Abouleish Sekem
3 Dr. Sarwat Basily Amoun Pharma
4 Dr. Samia Salah El-Din Ministry of Health
5 Dr. Galal Ghorab, or Dr. Fatma
Pharmaceutical Industries Holding Co.
Salem
6 Dr. Moustafa Hassan Bristol Myers
7 Dr. Osama Kandil BioPharm
8 Dr. Makram Mehana Global Nappi
9 Dr. Abdullah Molokhia European Egyptian Co. for Pharmaceutical
10 Mr. Galine Moroni USAID – TRIPS
11 Dr. Mohamed Salah Roushdy Pfizer
12 Dr. Ahmed Zaghoul Astrogenica

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 Appendix 2

Preparation Of Sector Development Strategies

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Background

The purpose of this Appendix is to explain how sector development strategies are
prepared and contribute to achieving increases in national economic growth, through
improving the trading performance of individual businesses within each sector. This
section provides an overall context for the content of the Pharmaceutical Sector
Development Strategy (PhSDS), as described in the main part of this report.

Development Activity

The term “development activity” is used throughout this appendix. It refers to the
delivery of an integrated approach to realising development potential in either
economic sectors, or geographic areas. In Egypt the current approach is to focus on
manufacturing sectors. The integrated approach covers the delivery of a number of
policy instruments, such as: export development; competitiveness; up-grading of
individual businesses; technology transfer; strategic alliances; FDI; privatisation;
modernisation; and reducing bureaucracy that delays business activities. The main
part of this report recommends the development activities to be delivered in Egypt’s
Pharmaceutical Sector.

Development Strategy Concepts

The submission of this PhSDS is based on six concepts relating to the preparation of
sector development strategies:

1. Undertaking global sector review activity to: identify international trends; assess
trade flows; compare the product capabilities of businesses in Egypt against best
practice in selected countries; assess the level of international competitiveness of
Egyptian businesses; and to identify development opportunities.

2. Providing a framework for delivering development activity to meet the objective

of improving sector performance. The sector development strategies should also
indicate the types of development activity that are required and the “mix” in
which they should be delivered.

3. Establishing a link between improving the trading performance of individual

manufacturing businesses at the micro-level, and increasing the national economic
growth rate at the macro-level.

4. Introducing private business leadership in setting priorities for delivering the

development activity and ensuring individual businesses participate in, and benefit
from, the delivery.

5. Using partnerships between the private business and public sectors to overcome
constraints on realising sector development potential.

6. Having a dedicated delivery mechanism for implementing the sector development

strategy and the associated development activity.

Each of the above concepts are explained in greater detail in this Appendix.

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A Sector Development Strategy, such as the PhSDS, can be presented and
implemented on its own, independent of other sectors. The more of these
development strategies that are being implemented the greater the need for an overall
national framework to: learn lessons from each delivery; co-ordinate the realisation of
development potential between sectors (for example packaging and food); co-ordinate
the delivery of development activities between sectors; and achieve cost effectiveness
in delivering the activities.

European Experience

There is considerable European experience in designing effective individual

development activities and in establishing the co-ordinating mechanisms that operate
at sector, geographic area, or national levels. In comparing the European experience
to Egypt’s current situation two points are important:

• the way private - public sector partnerships operate in Europe have evolved and
developed over 25 years, with the relationship becoming increasingly
sophisticated. The basis of this is increasing trust, using the learning process, and
acceptance of each others’ strengths. As Egypt is only at the start of this process
it may be found that the European approaches from the 1980s are more
appropriate than latest approaches, to take into account differences in stages of
development;

• some of the European countries that are recognised as being at the forefront of
delivering development activity, such as Ireland and Scotland, started with
national development mechanisms, which determined the national frameworks, in
which sector, and area, development strategies are prepared and implemented.
Egypt is currently applying a more “bottom-up” approach of starting with
individual sector development strategies.

Change Of Approach

The basis of our recommendations is that private businesses should take responsibility
for the performance of their individual businesses and the sectors in which they
operate. This represents a fundamental change of approach, from that applied under
the previous government and represents a move towards approaches that apply in
most developed economies, hence the European comparison. Under the new
approach the government’s role should be restricted to activities, such as: managing
the macro-level economy; applying fiscal policies; setting statutory regulations and
standards where required; and providing the framework within which private business
can flourish. The over-riding message should be; that the public sector exists to
provide the conditions under which private business can demonstrate their ability to
compete in the domestic and world markets, and be successful.

The new approach is fundamentally different from the previous approach, which
relied on: government making decisions on behalf of the private business sector;
directing sectors and businesses on how they should develop; and business owners
operating under a system of being favoured to be allowed to act.

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Purpose

One of our objectives in preparing this report has been to demonstrate how the new
approach can be applied to greatest effect and benefit within Egypt’s Pharmaceutical
Sector. On this basis, the whole of this report can be viewed as being a pilot exercise
to indicate how the new “bottom-up” approach can work in practice to deliver results
faster, more cost effectively and with wider benefits than was previously the case.

Process Of Change

As the government has made the first step, by changing itself, there is the need for the
private business sector also to change and take-on increased levels of responsibility,
that are required to fill the gap that will emerge through the contraction of the sphere
of influence of the public sector. With no change in the way private business sector
operates, there will be a vacuum, and the level of national economic growth is more
likely to worsen, than improve. On the other hand, the faster and stronger the process
of introducing private business leadership into delivering development activity, the
greater will be the benefits to the national economy (fourth concept above).

Private Business Leadership And Support

An issue for implementing the process of change is that most private business owners
and managers are not used to taking-on responsibilities for the performance of the
sectors in which their businesses operate. Those that do have such experience may
be associated with the previous government regime, and if they take-on leadership
roles, there is the danger that the majority of the businesses feel that little is being
changed. It is essential to bring private business leadership “new blood” into filling
the vacuum, but the downside of this is a lack of experience in taking-on the wider
responsibilities, and how they should be delivered. This situation requires the
introduction of new working relationships between the public and private sectors that
enables both to operate to their respective strengths.

Partnership

The starting-point of the new working relationship is partnership (fifth concept above)
between the private and public sectors to achieve common objectives. In this report
the common focus is on realising the full development potential of Egypt’s
Pharmaceutical Sector. A key feature of implementing a process of change, through a
partnership, should be to accept it will be a learning process; with each side learning
from other, based on their respective strengths and abilities to deliver improved sector
performance.

Implementation Mechanisms

There is therefore the need for new implementation mechanisms (sixth concept
above) that allow for partnership working relationships to be formalised and operate,
and for private business leaders to manage the delivery of development activity to
achieve improvements in the performance of their respective sectors. On the same
basis as the need to inject “new blood” into the process of change, there is the need to
have new mechanisms in which the business leaders will have the belief that they can

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make a difference. If existing organisations are used there is likely to be a view that
they will operate as previously and nothing will change. The new business leaders
have to feel that they have the greatest opportunity to successfully fill the vacuum left
by the contraction of the sphere of influence of the public sector. This requires them
to be empowered to fill their new role.

In this context it needs to be appreciated that the business owners, or managers, who
are willing to play sector leadership roles will be exposing themselves to criticism
from other businesses in the sector, if the sector development strategy is not working.
To gain the commitment of private business owners / managers, who can act as sector
development leaders, they must have a high level of confidence that the
implementation mechanism will operate effectively to deliver results. They also need
to be supported by highly professional and experienced personnel who will mentor
Egypt’s private sector business leaders on how they should operate at the sector level
and to advise on sector strategy decisions.

Strategic Vertical And Horizontal Dimensions

The PhSDS is one of a number of “vertical” development strategies that focus on

separate manufacturing sectors. Each of these development strategies should indicate
how to improve the sector’s performance, from within, by recommending a dynamic
framework for delivering development activities to realise identified development
opportunities. Separately, a number of “horizontal” development strategies are being
prepared that cut across a number, possibly all, of the manufacturing sectors and
vertical development strategies, to support their implementation.

National Industrial Policy

The planned National Industrial Policy for Egypt represents the combination of the
vertical and horizontal development strategies. A key reason for preparing this
appendix is to indicate how a vertical development strategy, for Egypt’s
Pharmaceutical Sector, can contribute to shaping, and when prepared operate within, a
National Industrial Policy.

Policy Objective

We understand that a key national economic policy objective is to achieve annual

economic growth of 8%. From the perspective of the national economic policy-
makers there needs to be understanding as to how each manufacturing sector will
contribute to achieving the national growth objective (third concept above). Key
elements in developing such understanding are:

• The contributions will come from the improved trading performance of individual
manufacturing businesses, within the sector.

• It is the aggregated net improvement in the trading performance of all businesses

within a sector that generate positive contributions to increase the national
economic growth rate.

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• The need to avoid the potential danger that, increased business activity within a
sector merely activates increased competition between businesses within domestic
markets, without any net benefit being delivered.

• One of the most important roles of a sector development strategy is to focus the
delivery of development activity on areas where maximum net benefits will be
generated. These areas are identified from the review activity that forms the
basis of the sector development strategy (first concept above), but needs to be kept
continually up-to-date as domestic and global changes are likely to require
changes in strategic focus.

Unless the need to achieve an increase in the national economic growth rate is built-in
from the start of implementing a sector development strategy, there is danger that the
increased activity that is stimulated at the micro-level does not have the required net
positive contributions at the macro-level.

Achieving The Policy Objective

Key points relating to achieving the national policy objective, through economic
development activity are:

1. There are other options to manufacturing sectors, such as geographic areas, for
delivering development activity between the macro and micro levels.

2. Sector development strategies provide an “entry point” into the national economy
where private business and public sector partnerships can operate effectively,
without getting in the way of their respective main responsibilities; being the
macro-level for the public sector; and the micro-level for the private business
sector.

3. In countries that started with national development mechanisms the initial entry
point is the delivery of overall economic development activity, with sub-entry
points being the implementation of development strategies for individual sectors,
or geographic areas.

4. Performance agreements between the private businesses and the public sector
provides a way of establishing a link between improvements at the micro-level
and increasing the national economic growth rate. Under this approach the
agreement will specify annual targets for improving sector performance across a
number of economic indicators, such as; trade balance, job creation and
investment.

This report emphasises the role of the sector performance agreements, as sector
development strategies have already been selected as the point of entry. If a national
approach is being implemented such agreements are likely to operate at a higher level.

Steps In Sector Development

Below we describe the main steps in the sector development process, based on the
diagram overleaf.

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Overall Steps In Sector Development Process

Contributions To Increased National Economic Growth Rate

rate

Sector Performance Agreement

Sector Development Strategy

International Sector Development Drivers

Level Of Activation In Egypt Compared To Other Countries

Strong Activations In Egypt Weak Activations In Egypt

Competitive Advantages Competitive Disadvantages

Application
of horizontal Sector Impact on
other sectors
strategies Development
Activity
Mechanism
Aggregate net
improvements
in business
trading
performance

Interactions with public sector to

provide positive environment for
sector business development

Interactions with businesses throughout the sector implement

development activity and to overcome development and
performance gaps

Deliver 5 Main
Development Activity Packages (DAPs)

Strategic Assessment FDI And Business And

Removing Development Of International Marketing
constraints on Projects Development Strategic Development
development Opportunities Alliances Programmes

Positive impact on manufacturing businesses to improve their trading

performance

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Step1 - Contributions To Increase National Economic Growth Rate The objective
has already been indicated to achieve an annual national economic growth rate of 8%.
Each of the Sector Development Strategies (SDSs) should indicate how they will
contribute to achieving this objective.

Step 2 - Sector Performance Agreement For each sector, where a development

strategy is to be implemented, there should be a Sector Performance Agreement (see
above). The most direct ways in which the contributions to increased national
economic growth are generated are: improvements in export performance; reductions
in imports; net job creation; and capital investment, with more indirect contributions
from: bringing used existing assets back into productive use; increasing production
capacity utilisation throughout the sector; and payment of corporate taxes.

Examples of the main points to be included in a Sector Performance Agreement, for

any sector, are indicated in the following table:

Direct Trade Improvements:

• increase in annual exports of EGP …. mn by 2009;
• reduction in annual imports of input materials of EGP …. mn by 2009;
• net trade balance improvement of EGP …. mn by 2009.

Added-Value Gains:
• additional EGP …. mn worth of production going to final product stage, rather than being sold as a
semi-finished product as of now by 2009;
• EGP …. mn worth of raw materials sourced and processed domestically;
• EGP …. mn worth of product exported as part of other types of final product, for example ……….;
• total added-value gain of EGP … mn by 2009.

Total Trade Improvements And Added-Value Gains:

• EGP …. mn + EGP …. mn = EGP ….. mn by 2009.

Job Creation
• creation of ….. new jobs relating to ………., by 2009.

Investment
• FDI of EGP ….. mn over … years;
• strategic partner value (not necessarily direct capital investment) of EGP …. mn over … years;
• indigenous packaging business up-grading investment of EGP …. mn over … years;
• total investment of EGP …. mn over … years.

Step 3 - Sector Development Strategy (SDS) Each SDS should cover the following
main points:

• The results of the global review activity and the international comparisons,
including international trends and main competitors. Market dynamics should be
identified, including Egypt’s position compared to other leading markets.

• The results of the domestic review, in particular benchmarking exercises, to be

able to compare the capabilities of Egypt’s manufacturing businesses against best
practice from other countries. The domestic review activity should also identify

ADE – DOL 179

 the level of development potential and constraints on the realisation of this
potential.

• The SDS should indicate the actions that are required to realise the development
potential by the domestic manufacturers, and specify where FDI will be more
appropriate. The stages of implementation should be indicated alongwith the links
between sub-sectors.

The role of the SDS is to provide an overall strategic framework for achieving
improved sector performance, by indicating the main areas in which new
developments can be achieved.

Step 4 - International Development Drivers (DDs) The international development

drivers are identified through global review activity, as they apply to all countries.
The DDs for Egypt’s Pharmaceutical Sector are indicated in section 6 of this report,
which also indicates Egypt’s international positioning under each of the DDs
compared to China, India and Jordan.

Step 5 - Level Of Activation In Egypt In any country strong activations of the DDs
provide international sector competitive advantages, whereas weaknesses indicate
areas of competitive disadvantages. Weaknesses in the activation of the international
DDs within Egypt have been identified through the domestic review activity and are
presented in section 6.

Weaknesses in the activation of DDs can be categorised as follows:

• Based on inherent domestic advantages the level of activation should be strong,

not weak, and therefore should be considered to be a priority to realise the sector’s
competitive advantages. In Egypt’s Pharmaceutical Sector the availability of
high quality natural herbs provides an example of an inherent competitive
advantage.

• The activation is currently weak due to either constraints on development or

structural issues within the sector. If these could be overcome a weakness could
be turned into a strength. In Egypt’s Pharmaceutical Sector the relatively high
domestic prices of input materials is an example of this category of weak
activation.

• Areas of inherent weakness, which will be difficult to overcome. An example of

this category of weakness is the lack of domestic manufacturing of BPCs and
APIs.

The delivery of development activity should concentrate on the first and second
categories and find ways of getting around the third category.

Step 6 - Sector Development Activities Delivery Mechanism An important role of

any SDS is the “crossroads” role it can play to provide the link between the vertical
and horizontal development strategies, and to ensure each sector makes positive
contributions to the development of other sectors, where this is possible. An example

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is the link between Egypt’s Packaging and Pharmaceutical Sectors where the former
should develop new forms of packaging that can be sold to the latter.

The most effective way for governments to interact with private businesses is through
supporting the establishment of development activity mechanisms to achieve the
implementation of SDSs. This is because private businesses, operating on their own,
are not capable of acting at a sector strategic level. Governments fund the
implementation of such mechanisms, in return for an agreement, with private
businesses in each sector, on the level of improvement in sector performance that will
be delivered on an annual basis. The formalisation of this “deal” is through a Sector
Performance Agreement (see above), which will include a budget of annual funding
to be provided by government.

Step 7 – Main Development Activities Strengthening the activation of the

development drivers is achieved through the delivery of the development activities
that are identified in the SDS. These are grouped together into five main
Development Activity Packages (DAPs) for ease of management and involvement of
private businesses (see above diagram), which are described below.

1. Removing Constraints On Development Within each sector there will be

constraints on development, which relate to government policies, interventions,
procedures and the application of the fiscal regime which are constraining the
activation of development drivers. These are the development barriers that either
take the form of national barriers, which should be addressed through the horizontal
strategies of the national industrial policy; or, the barriers can be specific to the sector,
which should be addressed through the sector development strategy. Within Egypt’s
Pharmaceutical Sector the current focus on implementing a defensive economic
policy towards the sector is constraining development.

2. Strategic Development Projects Represent either strategic development

opportunities for the sector (see next development activity), or are structural issues
that need to be overcome to release development potential. Under either case the
project will have been subjected to a preliminary assessment, where the results are
sufficiently positive, to justify assessing the project’s viability in greater detail.

In Egypt’s Pharmaceutical Sector, an example of a strategic development project, is to

increase the domestic sourcing of natural plant extracts to be used as raw materials for
pharmaceutical products.

3. Assessment Of Development Opportunities Each sector study should identify a

series of development opportunities from the global and domestic review activities.
Each of these opportunities needs to be assessed to determine if they are sufficiently
viable to be taken further towards implementation, under one of the following
categories:

• Allocated to the strategic development projects development activity (see above).

• Progressed under the FDI, or international strategic alliance, development activity

as the technology associated with the opportunity is only available internationally.

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• Progressed under the business and market development programmes (see below).

4. FDI And International Strategic Alliances This area of development activity

involves the attraction of international: investment; licensed products; market access;
expertise, technology and management skills to business opportunities, existing
projects, or existing businesses, that are found to require international involvement.
The delivery of this area of development activity will have to be co-ordinated closely
with the Ministry Of Investment.

5. Business And Market Development Programmes This is the most important

development activity, as involves the most direct contact with businesses. It is the
delivery of these programmes that will determine the level of positive impact on the
trading performance of individual manufacturing businesses. If the delivery is: of
high quality; meets the requirements of individual businesses; is within the framework
of the sector development strategies; and achieves net sector-wide net improvements
in trading performance, there will be improvements in sector performance. It is
through this delivery that there can be most positive impact on achieving the overall
objective of increasing the national economic growth rate. Development activity
being progressed under each of the other four headings needs to be integrated into the
delivery of the business development programmes to ensure individual businesses are
aware of how they are being implemented.

The key issue under this development activity is identifying and defining the
requirements of individual manufacturing businesses. If this is not undertaken
effectively the content of the business and market development programmes will not
meet the requirements. Sector development strategies must take businesses into new
territory if they are to have the level of economic impact that is required. Delivering
the content of sector development strategies will require individual manufacturing
businesses to change and develop to move into the new territories successfully. It is
essential that the delivery of the business and market development programmes can
challenge manufacturing businesses to think and act in new ways that support the
implementation of the sector development strategies. This requires the assessment of
the requirements of individual manufacturing businesses to be within the context of
the sector development strategy, rather than within their current situations. If the
assessments of their requirements are based on current situations, very little will
change and there will be low levels of improvements in sector performance.

The delivery of the business and market development programmes need to be within
the context of the competitiveness gaps that are identified to exist between
manufacturing businesses in Egypt and best practice manufacturers in the region and
internationally.

Competitiveness Gaps

One of purposes of sector studies is to identify the existence of competitiveness gaps,

which relate to current product capabilities (across a wide range of business
development criteria) of an indigenous Egyptian business compared to, either its
direct regional competitors, or best practice international companies. One of the
most important features of business development internationally is that it is a
continuous process, with up-grading being implemented all of the time.

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One of the key contributions, that any sector study can make to increasing the national
economic growth rate, is to identify businesses that are already internationally
competitive. The extent to which such businesses exist, at the start of implementing
any sector development strategy, will determine the availability of businesses to act as
a vanguard group to strengthen export performance.

The current stage of overall business development in any sector can “make or break”
the implementation of any sector development strategy. If the current stage of
development is low there will need to be significant business up-grading delivered
before they can be accepted to be truly internationally competitive businesses. A
key danger in this area of activity is not to identify the extent of the competitiveness
gap effectively; or not to be sufficiently rigorous in determining the level of
improvement in individual businesses that is required. It is always difficult to tell
businesses that they are not as advanced in their stage of development as they
diagnose themselves, but if this is not undertaken rigorously it will be found during
the implementation of the sector development strategy that the businesses are not
capable of responding to the strategic development opportunities.

One area of competitiveness gaps that apply to many of Egypt’s manufacturing

sectors is exporting experience, where regional competitors and best practice
international companies are likely to have considerably more experience than the
indigenous Egyptian businesses. Other generic competitiveness gaps include:

• Production gaps where indigenous Egyptian companies do not maintain their

production facilities to the required standards; machines have not been up-graded;
or machinery is not operated to its full capability, or capacity.

• Product gaps, where the product manufactured in Egypt is inferior compared to

the products that are available internationally. The reasons for the existence of
product gaps include: lack of investment in new product development; lack of
knowledge of new technology to be applied to the product, or new input materials
that enhance the product’s performance; lack of appreciation of how products
have developed internationally; or pressures from domestic customers to keep
product prices low.

• Marketing, where gaps in capabilities to undertake market research will result in

reliance on middle agents to generate domestic and export sales; and lack of
understanding of branding results in a strong reliance on price competitiveness in
influencing customer purchase decisions.

• Access to technology, through either domestic R & D, or international

agreements, (reverse engineering does not result in technology application).

• Scale of business units, where the scale of individual business units is too small to
be able to overcome the above gaps.

• Diversified groups, where individual business units are part of group structures
and management is too stretched to dedicate sufficient attention to overcome the
competitiveness gaps in the individual businesses.

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Competitiveness gaps can relate as much to the way a business is managed compared
to its regional competitors, or international best practice, as to differences in
manufacturing facilities. These gaps can exist regardless as to the existence of
development gaps.

If the existence, and extent, of competitiveness gaps are not identified before the
delivery of the business support activity, there is the danger that the up-grading
becomes superficial, with the changes and developments not being sufficient to
improve the international competitiveness of individual businesses.

In the context of the above, it should be noted that the role of the sector studies is
restricted to identifying the extent to which generic gaps exist, based on the sample of
businesses reviewed. The most effective way for competitiveness gaps to be
identified, at the level of individual businesses, is through the application of
benchmarking.

Benchmarking

As most sector development strategies are likely to have a strong export development
component, benchmarking can indicate the existence of competitiveness gaps between
businesses in Egypt and in the countries which are to be targeted to achieve increased
export sales. The results will indicate the extent of any gaps that need to be bridged.
The danger of this approach is to assume that it is the indigenous businesses within
each of the target export countries that will be the main competitors. Such an
approach is likely to under-estimate the extent of the competitiveness gaps as the
main competitors could be international businesses from leading developed countries,
which are also selling into the same target countries.

There is also a danger of using benchmarking averages as it disguises the importance

of best practice and market leaders. If the benchmarking is based on averages the
best performance of indigenous businesses, will be average. Within any average
comparison there will be a range of results between high and low. Including the low
results will reduce the average result, but these businesses may themselves be
struggling to survive in their domestic markets, with the high performers taking their
market share. Under such circumstances using averages will under-estimate the
strength of the competition.

The Pharmaceutical Sector in Egypt is unusual as there are internationally accepted

standards of manufacturing practices which domestic manufacturers can benchmark
themselves against. Most of Egypt’s manufacturers of pharmaceutical products use
“Good Manufacturing Practice – GMP” as their benchmarking standard, whereas
international best practice manufacturers now operate to “current Good
Manufacturing Practice – cGMP”.. A key strategic objective for the sector is to have
an increasing proportion of domestic manufacturing facilities accredited to be
operating to cGMP.

Business And Market Development Programmes

The existence of internationally accepted manufacturing standards in the global

pharmaceutical sector provides goals to be achieved by Egypt’s domestic

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manufacturers. Also generic competitiveness gaps in Egypt’s pharmaceutical
product capabilities also need to be overcome in areas such as: research and product
development; international marketing; and export sales development. The business
and market development programmes for Egypt’s Pharmaceutical Sector, therefore
have four main elements:

• Up-grading manufacturing capabilities to cGMP (see above).

• Up-grading the overall product capabilities of indigenous manufacturers to be

internationally competitive.

• Internationalisation of the indigenous manufacturers to become successful

exporters into target markets, with selected products.

• Improve research and product development capabilities for indigenous

manufacturers to increase the flow of new products to be launched from within
Egypt.

Government Involvement

Across the five areas of development activity GoE should be requested to undertake
the following roles:

• leading the first development activity area to remove constraints on development;

• participating enthusiastically in progressing the various strategic development

projects that have been identified, with additional projects to be identified during
implementation of the PhSDS;

• progressing FDI and international strategic alliance cases in co-operation with the
sector development activity mechanism, described above.

Direct GOE involvement is not required in delivering either, the development

opportunities, or business and market development programme activities, but
providing funding to make both elements operational will be required.

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 Appendix 3

WHO Traditional Medicine Strategy 2002 - 05

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Traditional, complementary and alternative medicine attract the full spectrum of
reactions — from uncritical enthusiasm to uninformed scepticism. Yet use of
traditional medicine (TM) remains widespread in developing countries, while use of
complementary and alternative medicine (CAM) is increasing rapidly in developed
countries.

In many parts of the world, policy-makers, health professionals and the public are
wrestling with questions about the safety, efficacy, quality, availability, preservation
and further development of this type of health care.

It is therefore timely for WHO to define its role in TM/CAM by developing a strategy
to address issues of policy, safety, efficacy, quality, access and rational use of
traditional, complementary and alternative medicine.

What is traditional medicine?

“Traditional medicine” is a comprehensive term used to refer both to TM systems

such as traditional Chinese medicine, Indian ayurveda and Arabic unani medicine,
and to various forms of indigenous medicine. TM therapies include medication
therapies — if they involve use of herbal medicines1, animal parts and/or minerals —
and non-medication therapies — if they are carried out primarily without the use of
medication, as in the case of acupuncture, manual therapies and spiritual therapies. In
countries where the dominant health care system is based on allopathic medicine, or
where TM has not been incorporated into the national health care system, TM is often
termed “complementary”, “alternative” or “non-conventional” medicine.2

1
Herbal medicines include herbs, herbal materials, herbal preparations and finished herbal products, that contain as active
ingredients parts of plants, or other plant materials, or combinations thereof
2
Accordingly, in this document, “traditional medicine” is used when referring to Africa, Latin America, South-East Asia, and/or
the Western Pacific, whereas “complementary and alternative medicine” is used when referring to Europe and/or North America
(and Australia). When referring in a general sense to all of these regions, the comprehensive TM/CAM is used.

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Widespread and growing use

TM is widely used and of rapidly growing health system and economic importance. In
Africa up to 80% of the population uses TM to help meet their health care needs. In
Asia and Latin America, populations continue to use TM as a result of historical
circumstances and cultural beliefs. In China, TM accounts for around 40% of all
health care delivered.

Meanwhile, in many developed countries, CAM is becoming more and more popular.
The percentage of the population which has used CAM at least once is 48% in
Australia, 70% in Canada, 42% in USA, 38% in Belgium and 75% in France.

In many parts of the world expenditure on TM/CAM is not only significant, but
growing rapidly. In Malaysia, an estimated US$ 500 million is spent annually on this
type of health care, compared to about US$ 300 million on allopathic medicine. In the
USA, total 1997 out-of-pocket CAM expenditure was estimated at US$ 2700 million.
In Australia, Canada and the United Kingdom, annual CAM expenditure is estimated
at US$ 80 million, US$ 2400 million and US$ 2300 million respectively.

Why such broad use?

Accessible and affordable

in developing countries

In developing countries, broad use of TM is often attributable to its accessibility and

affordability. In Uganda, for instance, the ratio of TM practitioners to population is
between 1:200 and 1:400.3 This contrasts starkly with the availability of allopathic
practitioners, for which the ratio is typically
1:20 000 or less. Moreover, distribution of such personnel may be uneven, with most
being found in cities or other urban areas, and therefore difficult for rural populations
to access.

TM is sometimes also the only affordable source of health care — especially for the
world’s poorest patients. In Ghana, Kenya and Mali, research has shown that a course
of pyrimethamine/sulfadoxine antimalarials can cost several dollars. Yet per capita
out-of-pocket health expenditure in Ghana and Kenya amounts to only around US$ 6
per year. Conversely, herbal medicines for treating malaria are considerably cheaper
and may sometimes even be paid for in kind and/or according to the “wealth” of the
client.

3
TM practitioners are generally understood to be traditional healers, bone setters, herbalists, etc. TM providers include
both TM practitioners and allopathic medicine professionals such as doctors, dentists and nurses who provide TM/CAM
therapies to their patients — e.g. many medical doctors also use acupuncture to treat their patients.

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TM is also highly popular in many developing countries because it is firmly
embedded within wider belief systems.

An alternative approach to health care

in developed countries

In many developed countries popular use of CAM is fuelled by concern about the
adverse effects of chemical drugs, questioning of the approaches and assumptions of
allopathic medicine, and greater public access to health information.

At the same time, longer life expectancy has brought with it increased risks of
developing chronic, debilitating diseases such as heart disease, cancer, diabetes and
mental disorders. For many patients, CAM appears to offer gentler means of
managing such diseases than does allopathic medicine.

Uncritical enthusiasm versus uninformed scepticism

Many TM/CAM providers seek continued — or increased — recognition and support

for their field. At the same time many allopathic medicine professionals, even those in
countries with a strong history of TM, express strong reservations and often frank
disbelief about the purported benefits of
TM/CAM. Regulators wrestle with questions of safety and efficacy of traditional
herbal medicines, while many industry groups and consumers resist any health policy
developments that could limit access to TM/CAM
therapies. Reports of powerful immunostimulant effects for some traditional
medicines raise hope among HIV-infected individuals, but others worry that the use
of such “cures” will mislead people living with
HIV/AIDS and delay treatment with “proven” therapies.

So together with growing use of TM/CAM, demand has grown for evidence on the
safety, efficacy and quality of TM/CAM products and practices. Interestingly, much
of the scientific literature for TM/CAM uses methodologies comparable to those used
to support many modern surgical procedures:
individual case reports and patient series, with no control or even comparison group.

Nevertheless, scientific evidence from randomized clinical trials is strong for many
uses of acupuncture, for and for some of the manual some herbal medicines, therapies.

In general, however, increased use of TM/CAM has not been accompanied by an

increase in the quantity, quality and accessibility of clinical evidence to support
TM/CAM claims.

Challenges in developing TM/CAM potential

To maximize the potential of TM/CAM as a source of health care, a number of issues
must first be tackled. They relate to: policy; safety, efficacy and quality; access; and
rational use.

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Policy: basis of sound action in TM/CAM

Relatively few countries have developed a policy on TM and/or CAM — only 25 of

WHO’s 191 Member States. Yet such a policy provides a sound basis for defining the
role of TM/CAM in national health care delivery, ensuring that the necessary
regulatory and legal mechanisms are created for promoting and maintaining good
practice, that access is equitable, and that the authenticity, safety and efficacy of
therapies are assured. It can also help to ensure sufficient provision of financial
resources for research, education and training.

In fact, many developed countries are now seeing that CAM issues concerning safety
and quality, licensing of providers and standards of training, and priorities for
research, can best be tackled within a national policy framework. The need for a
national policy is most urgent, however, in those developing countries where TM has
not yet been integrated into the national health care system, even though much of their
population depends on TM for health care.

An increased number of national policies would have the added benefit of facilitating
work on global issues such as development and implementation of internationally
accepted norms and standards for research into safety and efficacy of TM/CAM,
sustainable use of medicinal plants, and protection and equitable use of the knowledge
of indigenous and traditional medicine.

Safety, efficacy and quality: crucial to extending TM/CAM care

TM/CAM practices have developed within different cultures in different regions. So

there has been no parallel development of standards and methods — either national or
international — for evaluating them.

Evaluation of TM/CAM products is also problematic. This is especially true of herbal

medicines, the effectiveness and quality of which can be influenced by numerous
factors. Unsurprisingly, research into TM/CAM has been inadequate, resulting in
paucity of data and inadequate development of methodology. This in turn has slowed
development of regulation and legislation for TM/CAM.

National surveillance systems to monitor and evaluate adverse events are also rare. So
although many TM/CAM therapies have promising potential, and are increasingly
used, many of them are untested and their use not monitored. As a result, knowledge
of their potential side-effects is limited. This makes identification of the safest and
most effective therapies, and promotion of their rational use more difficult. If
TM/CAM is to be promoted as a source of health care, efforts to promote its rational
use, and identification of the safest and most effective therapies will be crucial.

Access: making TM/CAM available and affordable

Although many populations in developing countries are reported as depending heavily

on TM to help meet their health care needs, precise data are lacking. Quantitative
research to ascertain levels of existing access (both financial and geographic), and
qualitative research to clarify constraints to extending such access, are called for. The

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focus should be on treatments for those diseases which represent the greatest burden
for poor populations.

Also, if access is to be increased substantially, the natural resource base upon which
certain products and therapies depends must be protected. Raw materials for herbal
medicines, for instance, are sometimes over-harvested from wild plant populations.

Another major challenge concerns intellectual property and patent rights. The
economic benefits that can accrue from large-scale application of TM knowledge can
be substantial. Questions about how best these benefits can be shared between
innovators and the holders of TM knowledge have not
yet been resolved though.

Rational use: ensuring appropriateness and cost-effectiveness

Rational use of TM/CAM has many aspects, including: qualification and licensing of
providers; proper use of products of assured quality; good communication between
TM/ CAM providers, allopathic practitioners and patients; and provision of scientific
information and guidance for the public.

Challenges in education and training are at least twofold. Firstly, ensuring that the
knowledge, qualifications and training of TM/CAM providers are adequate. Secondly,
using training to ensure that TM/CAM providers and allopathic practitioners
understand and appreciate the complementarity of the types of health care they offer.

Proper use of products of assured quality could also do much to reduce risks
associated with TM/CAM products such as herbal medicines. However, regulation
and registration of herbal medicines are not well developed in most countries, and the
quality of herbal products sold is generally not guaranteed.

More work is also needed to raise awareness of when use of TM/CAM is appropriate
(and cost-effective) and when it is not advised, and why care should be taken when
using TM/CAM products.

The current role of WHO

WHO’s mission in essential drugs and medicines policy is to help save lives and
improve health by closing the huge gap between the potential that essential drugs
have to offer and the reality that for millions of people — particularly the poor and
disadvantaged — medicines are unavailable, unaffordable, unsafe or improperly used.

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It does this by carrying out a number of core functions: articulating policy and
advocacy positions; working in partnership; producing guidelines and practical tools;
developing norms and standards; stimulating strategic and operational research;
developing human resources; and managing information.

In terms of TM/CAM, WHO carries out these functions by:

• Facilitating integration of TM/CAM into national health care systems by

helping Member States to develop their own national policies on TM/CAM.

• Producing guidelines for TM/CAM by developing and providing international

standards, technical guidelines and methodologies for research into TM/CAM
therapies and products, and for use during manufacture of TM/CAM products.

• Stimulating strategic research into TM/CAM by providing support for clinical

research projects on the safety and efficacy of TM/CAM, particularly with
reference to diseases such as malaria and HIV/AIDS.

• Advocating the rational use of TM/CAM by promoting evidence-based use of

TM/CAM.

• Managing information on TM/CAM by acting as a clearing-house to facilitate

information exchange on TM/CAM.

But the challenges described earlier demand that WHO activities in this area be
extended and increased.

Framework for action

The WHO Traditional Medicines Strategy
2002–2005 reviews the status of TM/CAM globally, and outlines WHO’s own role
and activities in TM/CAM. But more importantly it provides a framework for action
for WHO and its partners, aimed at enabling TM/CAM to play a far greater role in
reducing excess mortality and morbidity, especially among impoverished populations.
The strategy incorporates four objectives:

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 1. Policy — Integrate TM/CAM with national health care systems, as
appropriate, by developing and implementing national TM/CAM policies and
programmes.
2. Safety, efficacy and quality — Promote the safety, efficacy and quality of
TM/ CAM by expanding the knowledge-base on TM/CAM, and by providing
guidance on regulatory and quality assurance standards.
3. Access — Increase the availability and affordability of TM/CAM, as
appropriate, with an emphasis on access for poor populations.
4. Rational use — Promote therapeutically sound use of appropriate TM/CAM
by providers and consumers.

Implementation of the strategy will initially focus on the first two objectives.
Achieving the safety, efficacy and quality objective will provide the necessary
foundation for achieving the access and rational use objective

Strategy implementation

Maximizing the potential that TM/CAM offers for improving health status worldwide
is a daunting task, covering a diverse range of activities and demanding many types of
expertise. Fortunately, WHO has established a global TM/CAM network, members of
which include national health authorities, experts of WHO Collaborating Centres and
research institutes, as well as other UN agencies and nongovernmental organizations
working on TM/CAM issues, and whose assistance WHO can call upon.
Many organizations have contributed to development of the WHO Traditional
Medicine Strategy 2002–2005, and many of them have agreed to be our partners in its
implementation.

Use of critical indicators will facilitate monitoring of country progress under each of
the strategy objectives.

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