Egypt’s Pharmaceutical Sector

Survival and Development Strategy Report

Incorporating Results and Conclusions Of Review Activity

Prepared by: ADE / DOL

Dated: 22nd 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

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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 16th 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 7th 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

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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.

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Cost Heading Indigenous Manufacturers In

Egypt

International Manufacturers In

Egypt

Manufacturers Outside 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

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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

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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

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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.

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Part B

Egypt’s Pharmaceutical Sector Survival And Development Strategy

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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

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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.

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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.

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• 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.

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• 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:

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- 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.

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• 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 – Tends To Be Applied In These Situations:

Features Of Offensive Economic Policy – Tends To Be Applied In These Situations:

To synthetic products To natural (phytopharmaceutical) products Domestically manufactured products which depend on imported input materials

Domestically manufactured products which use domestically sourced raw materials

Products that are still under-protection Product that are off-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

Concentrate exports on selected products where the country has genuine and strong competitive advantages

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

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.

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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

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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.

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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.

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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

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

China India Jordan Egypt 1.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

Not necessarily

clearly articulated

Strong

offensive policy

throughout healthcare

system

Apart from Israel only

country with

positive trade

balance

Strong defensive economic

policy

2.A regulatory framework, including pricing regime and EDL, that are aligned to implement the defensive and offensive economic policies and meet separate national healthcare objectives

Since1996

Number of reviews and

changes implemented.

Further reviews required

First country in

Middle East to

implement Trips,

current review

No major changes for many years

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

Since 1998

Still 3 regulatory

organisations

Since 1996

Still 3 regulatory

organisations

4.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

Developing approach.

Commitment to Chinese

Traditional Medicines.

Under-protection synthetics through

joint ventures

Strong on this approach -

integrated in with

healthcare purchasing and R&D

expenditure

High percentage of exports in single product

area

Does not exist, except

as a defensive

policy

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

In selected Traditional

Chinese Medicines

In selected generics (India has BPC and

API manufacturers),

and in Trditional

Indian Medicines

Through joint

ventures with US

companies access to

Bolar Provision

Does not exist, except in vaccines.

6.Business development programmes which support the indigenous manufacturing companies to become international leaders in their selected areas of product specialisation

Not clear extent to which exist

Strong support, but not clear how

delivered

From Central Economic

Development Department

Do not exist as of now, except as functional business

up-grading

7. Domestic manufacturers that are internationally competitive

Too many small producers, need to

re-structure production

facilities

126 Indian manufacturing facilities have received, or

have applied to receive FDA

approval

Small number of

companiess, with

specialisations and US joint

ventures

Was previously a

strong activation but

now increasingly

uncompetitive

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• 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.

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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.

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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

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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

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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,

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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

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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.

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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

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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.

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• 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.

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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.

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

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.

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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.

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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).

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The Deal-making Steering Committee will have the following structure: 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.

Signatories to Pharmaceutical Sector Development Charter (PhSDC)

Members of Pharmaceutical Sector Development Initiative (PhSDI) Forum

Deal-making Steering Committee of PhSDI

Representatives of: • MFTI • MoF • MoI • MoH

Representatives from each private sector sub-groups: • Manufacturers headquartered outside Egypt • Synthetic manufacturers headquartered inside Egypt • Phyto manufacturers headquartered inside Egypt • Importers of pharmaceutical products into Egypt

Executive Team

MFTI

GoE

Support to Ministries: • Sector economic

development targets • Specification of flexibilities • Changes required • Implementation timescales • Economic benefit bid review

Support to pharmaceutical companies - economic benefit bid preparations

Manufacturers headquartered outside Egypt

Synthetic manufacturers headquartered inside Egypt

Phyto manufacturers headquartered inside Egypt

Importers of pharmaceutical products into

Egypt

2 monthly progress reports Final report

Final report presentation

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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.

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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.

Pharmaceutical Sector Development Initiative

(PhSDI)

Pharmaceutical Sector Development Activities Mechanism (PhSDAM)

Overall Action Plan

Continued Research,

Review and Up-dating

Sector Development

Projects

FDI And International

Strategic Alliances

Assessment of Development Opportunities

Business And Market Development Programmes

Monitoring

Communications

Remove Development Constraints

Action Plans

Improvements In Sector Performance Economic Benefits

Monitoring Of Sector

Performance

Contributions To Increased National Economic Growth

Flexibilities In Sector Operating

Framework

Pharmaceutical Sector Partnership

Agreement

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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:

PhSDI Board

PhSDAM Executive Team

Government Of Egypt

Pharmaceutical Sector

Performance Agreement

Continued Research,

Review and Up-dating

Monitoring

Communications

Overall Current PhSDI Action Plan

Changed / Up-dated PhSDI Action Plan

Latest PhSDI Detailed Content

• CEO • Programme Manager(s) • Marketing Expert • Sector Specialists • Researchers / Analysts • Administration

Remove Development Constraints

Sub-committee

FDI And Internat. Strategic Alliance

Activity Sub-committee

Strategic Development

Projects Sub-committee

Assessment Development Opportunities

Sub-committee

Business And Marketing Development Programmes

Sub-committee

Ministry Of Investment

Contracted Delivery Of Programmes To

Packaging Businesses

Specific consultancy exercises by specialists to TORs prepared by PSDAM

Executive

Funding To Implement PhSDSI

and PhSDAM Reports to Board

Recommend Changes / Up-dates to PhSDI

Relevant Part Of GOE

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• 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.

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• 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.

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• 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.

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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.

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• 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.

Amount Of Economic

Benefit Bid

Required Flexibilities

Link Between Flexibilities and

Economic Benefit Bid

Bid Topic

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

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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.

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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.

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Unit 9 Months

2005 2006 2007 2008 2009

1.Increased export performance of pharmaceutical products manufactured in Egypt

$ mns

+25

full year 2005

+33

+42

+40

+40

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

No target as of now

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

No. of new

products

-

1

2

3

3

4.Domestic manufacture of new products, not previously manufactured in Egypt, either for domestic consumption, and / or for export

New

products value of sales in

EGP mns

-

25

75

125

200

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

EGP mns value of subsidy

Being negotiated

50

65

80

100

6.Commitments to contract specified values of product development services from Egypt’s research organisations

$ mns Annual value of contracts

5

10

15

30

50

7.Contributions to strengthening Egypt’s research and development organizations

$ mns value

-

2

4

5

5

8.Establishing joint ventures or strategic alliances with Egypt’s indigenous pharmaceutical manufacturing companies

No. of

new jvs / alliances

-

-

2

3

3

9.Obtaining internationally accepted accreditations for manufacturing facilities based in Egypt

No. new approvals

-

2

6

10

10

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Part C

Results And Conclusions Of Review Activity In The Global And Domestic Pharmaceutical Sectors

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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.

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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

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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.

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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 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 1st 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 PMCs will offer a wide range of products, including latest products that are under international protection.

1. Higher prices for most pharmaceutical products, with higher costs to be met by either the public sector, private insurance, or households.

2. PIMCs can be attracted to establish International PMC facilities within the Country.

2. Some products may become too highly priced to be afforded by those who need them.

3. Regional PMCs can be attracted to use the country as a manufacturing hub to supply its regional market sales network.

3. Government is criticised for allowing the profits of the pharmaceutical companies to 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 products that are either made available free-of-charge, or where the price is subsidised on a percentage basis.

1. The product portfolio available domestically is restricted to out of protection products, where there are better products available in markets with policies accepting higher prices.

2. Reduced prices to households for products where they either pay a percentage of the cost, or the full cost.

2. Patients have to accept receiving products with lower effectiveness than is available elsewhere, or patients use various means to import the higher priced products at premium prices.

3. Popular politically, if the policy is sustainable.

3. The PIMCs restrict product availability to out of protection products and may even make these available on a selective basis.

4. A healthier population, but this is relative to how health could be improved through having a wider range of products available.

4. International and Regional PMCs make available their products on a selective 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.

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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 %

Chn Value %

Chn Value %

Chn Value %

Chn Value %

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

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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.

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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

ALIMENTARY T.& METABOLISM24%

SYSTEMIC ANTI-INFECTIVES18%

CARDIOVASCULAR SYSTEM11%MUSCULO-SKELETAL SYSTEM

10%

RESPIRATORY SYSTEM9%

CENTRAL NERVOUS SYSTEM8%

G.U.SYSTEM & SEX HORMONES5%

DERMATOLOGICALS5%

BLOOD + B.FORMING ORGANS2%

SENSORY ORGANS3%

SYSTEMIC HORMONES2%

P0 PARASITOLOGY1%

VARIOUS2%

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.

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Alimentary and Metabolism Market Share Domestic

Private PMC Scientific

Offices (Imports) International

PMC Domestic Public

PMC Total

46.5% 23.4 19.8 10.2 100.0 Systemic Anti-infectives Market Share International

PMC Domestic Private

PMC Domestic

Public PMC Scientific

Offices (Imports) Total

54.5% 31.5% 7.0% 7.0% 100.0 Cardiovascular System Market Share International

PMC Scientific

Offices (Imports) Domestic

Private PMC Domestic Public

PMC Total

45.7% 38.4% 13.8% 2.1% 100.0 Musculo-skeletal System Market Share International

PMC Domestic Private

PMC Scientific

Offices (Imports) Domestic

Public PMC Total

39.1% 38.7% 17.1% 5.0% 100.0 Respiratory System Market Share International

PMC Domestic

Private PMC Domestic

Public PMC Scientific

Offices (Imports) Total

33.2% 30.7% 20.2% 15.8% 100.0 Central Nervous System Market Share International

PMC Scientific

Offices (Imports) Domestic

Private PMC Domestic Public

PMC Total

46.0% 22.4% 17.0% 14.6% 100.0 G.U. System And Sex Hormones Market Share

Scientific Offices (Imports)

International PMC

Domestic Private PMC

Domestic Public PMC

Total

40.2% 24.6% 20.4% 14.8% 100.0 Other Products Market Share International

PMC Domestic

Private PMC Scientific

Offices (Imports) Domestic

Public PMC Total

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.

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• 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.

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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

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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.

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Exported Pharmaceutical Products – 2003 In USD mns Top 5 Importing Countries For Egypt’s Exports Product Egypt’s Exports

World Rank 1st 2nd 3rd 4th 5th

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

antibiotics 0.023 30th Jordan

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

hormones 0.984 38th Romania Ethiopia Oman

7 Penicillins, Steptomycins

0.619 62nd Romania Algeria Jordan Bahrain Kenya

8 Hormones, not antibiotics

0.132 78th Ethiopia Kenya Uganda Tanzania

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 50th, 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.

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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.

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In USD mns Product Value 2002 Value 2003 Change In

Value 2002 – 2003

% Change

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:

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Product % Change Value Export

Sales 2002 – 03

World Position

2002

World Position

2003

Change In Ranking

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 Vitamins - 9.9 40th 39th + 1 place Alkaloids + 44.9 45th 40th + 5 places Penicillins, Steptomycins - 43.8 48th 62nd - 14 places Antibiotics - 21.2 57th 63rd - 6 places Medicaments nes + 22.4 66th 68th - 2 places Hormones, not antibiotics - 96.5 34th 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 52nd in vitamin C. The product where Egypt had the highest world position in 2002, penicillins and stepomycins experienced a fall from 12th to 16th position. Egypt’s significant world performance of export sales of dosage products was in insulin, which gained 12th 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

Union MENA Rest Of

Africa EU Others Total

42.3 % 34.2 % 8.7 % 8.2 % 6.5 % 100.0 Bulk Product Exports

MENA EU Rest Of Africa

Former Soviet Union

Others Total

40.0 % 39.3 % 10.8 % 8.6 % 1.3% 100.0

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Dosage Product Exports Former Soviet

Union MENA Rest Of

Africa Others EU Total

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

Soviet Union

MENA Rest Of Africa

EU Others Total

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.

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• 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).

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Egypt’s Exports By Country - 2003 In USD mns Country Bulk Products Dosage Products Value % Split Value % Split

Total Value

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

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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.

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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

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Change In Export Sales Of Bulk Products, By Country 2002 - 03 In USD mns Country Value 2002 Value 2003 Change In

Value 2003 – 2003

% Change

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

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Change In Export Sales Of Dosage Products, By Country 2002 - 03 In USD mns Country Value 2002 Value 2003 Change In

Value 2003 – 2003

% Change

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

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- 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.

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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.

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Net Trade Balance By Product - 2002 In USD mns Product Area Bulk Products:

Exports Imports Net Position

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

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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.

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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

In EGP mns % Turnover

Public Enterprise

Sector

Profits 2003 Profits As %

Turnover

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

PMCs PIMCs Domestic all

PMCs International 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

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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.

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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 PMC

Domestic public 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

cGMP Standards Below, But Close To cGMP Standards

Already At cGMP Standards

1. Description of production and input materials

International PMCs Domestic public PMCs

Domestic private PMCs

2. Description of manufacturing

operations

Domestic public PMCs International PMCs Domestic private PMCs

3. Main products, dosage forms and volumes

International PMC Domestic private PMC Domestic public PMC

4. Staff numbers International PMC Domestic private PMC

Domestic public 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 PMC

Domestic public 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

cGMP Standards Below, But Close To cGMP Standards

Already At cGMP 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 Inspections

International PMCs 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 PMC

Domestic public 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

cGMP Standards Below, But Close To cGMP Standards

Already At cGMP 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 PMC

Domestic public PMC

10 3 3 2 Far Away From

cGMP Standards Below, But Close To cGMP Standards

Already At cGMP Standards

1. Engineering Resources

International PMCs Domestic public PMCs Domestic private PMCs

2. Spares and Consumables

International PMCs 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-skeletalAnti-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 $

bns 2003 Growth

Rate 2002 – 03

% Country Market Share

% World Generics Market 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

Import Value % World 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

or spermicides (counted as dosage product) 51.5 5.3

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 % Market Share Product Area

EU MiddleEast

North Africa

Rest Africa

1st Country

2nd Country

3rd Country

1 Medicaments in dosage 2.4 50.9 17.9 28.7 Turkey 783.9

Israel 531.8

S. Africa 374.1

2 Hormones, not antibiotics in dosage 1.3 74.3 10.4 13.9 Saudi Ar. 165.0

Turkey 136.5

Iran 46.6

3 Antibiotics in dosage 1.9 53.4 22.6 22.1 Turkey 61.5

S.Africa 43.1

Algeria 41.9

4 Medicaments formulated in bulk 0.2 55.5 26.4 17.9 Tunisia 58.8

S.Arabia 51.5

Turkey 46.7

5 Penicillins or streptomycins in bulk 0.02 0.1 90.9 9.0 S.Arabia 289.0

Iran 45.0

Sudan 30.2

6 Vaccines, human use 0.8 0.8 51.2 47.1 Egypt 33.0

Turkey 32.1

S.Arabia 27.5

7 Vitamins and derivatives in dosage 1.8 73.4 9.5 15.3 S.Arabia 28.8

Turkey 26.5

Algeria 14.8

8 Antibiotics in bulk 2.2 76.5 8.0 13.3 Turkey 114.9

Iran 31.1

Egypt 29.0

9 Penicillins or streptomycins in dosage 2.7 39.2 26.2 31.8 Algeria 30.2

Iran 29.6

Turkey 15.6

10 Alkaloids not antibiotics in dosage 0.7 66.0 10.9 22.3 Turkey 41.2

Kuwait 5.7

Zimbabwe 5.2

11 Adrenal cortex hormones in dosage 1.2 52.4 29.2 17.1 Turkey 34.8

Algeria 12.4

S.Africa 12.0

12 Sutures 1.0 51.6 20.7 26.8 Turkey 11.7

S.Africa 9.8

S.Arabia 9.6

13 Hormones, formulated not antibiotics 0.07 84.6 1.2 14.2 S.Arabia 43.5

Iran 17.0

S.Africa 1,2

14 Erythromycin and derivatives in bulk 1.9 83.8 7.9 6.3 Turkey 45.0

Iran 6.8

Israel 4.7

15 Insulin in dosage 1.9 61.6 22.7 13.8 Turkey 28.8

Israel 8.0

S.Africa 6.4

16 Antibiotics formulated in bulk 1.8 62.3 12.9 13.6 Turkey 25.9

S.Arabia 6.6

Egypt 5.9

17 Contraceptive preparations based on hormones or spermicides

0.5 17.9 32.5 49.1 Algeria 6.5

Egypt 6.2

S.Africa 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

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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:

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• 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. 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. 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.

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.

Despite the progress made in improving its IPR legislation; effective enforcement mechanisms and legal procedures have not been fully implemented.

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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. 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

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.

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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. 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.

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.

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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. 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

[Need more information on Egypt’s existing situation before a comparison statement can be made.]

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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. 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:

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.

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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. 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. 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

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.

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.

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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. 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:

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.

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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 13th 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. 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

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.

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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. 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.

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.

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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. 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

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.

Although this is a positive development 30% of the graduates emigrate to the USA. Of those that remain in India 80% end-up employed in the public sector.

There is also a problem with research undertaken within universities as is too faculty based, which constrains innovative cross-discipline research activities and staff not being up-to-date with research techniques.

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.

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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. 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

Balance Negative

Trade Balance Overall Net

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,

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.

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prior to the recent accession, which provides the background for its role in the parallel trade described in section 11. Import Tariffs China In compliance with TRIPS import tariffs have been reduced from 20% to 4.2%, as applied in 2003. 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.

With a negative trade balance in both bulk and dosage pharmaceuticals totalling $ Egypt is in a worse situation than the above countries.

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.

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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. • 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

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.

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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. 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.

India’s policies lack specificity in their targets, budgets and timescales, which makes it difficult to measure progress.

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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

USD 2002 Value In USD 2003

Change In Value In

USD

% Change

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

0.6% Nigeria 0.1%

UAE 0.08%

Iran 0.03%

2 Penicillins, Steptomycins

Turkey 5.2%

Egypt 2.5%

UAE 1.2%

S.Arabia 0.2%

3 Medicaments nes

Jordan 2.5%

Turkey 0.7%

Israel 0.35%

Iran 0.28%

UAE 0.17%

S.Africa 0.12%

Egypt 0.08%

4 Vaccines, human use

Egypt 0.03%

S.Africa 0.03%

UAE 0.015%

Turkey 0.003%

5 Antibiotics nes, formulated

Jordan 1.4%

Turkey 0.19%

Egypt 0.15%

Syria 0.11%

Zimbab. 0.10%

Ghana 0.08%

6 Antibiotics nes

Israel 0.1%

Turkey 0.06%

UAE 0.02%

Iran 0.01%

S.Arabia 0.01%

Egypt 0.008%

7 Hormones, not antibiotics

Kuwait 1.9%

S.Arabia 0.4%

S,Africa 0.34%

Israel 0.22%

Iran 0.22%

UAE 0.19%

Egypt 0.11%

8 Vitamin concentrates

S.Africa 0.4%

Israel 0.1%

Turkey 0.03%

Egypt 0.02%

9 Vitamin B1 UAE 0.07%

Egypt 0.02%

10 Glycosides Morocco 0.3%

S.Africa 0.02%

Egypt 0.005%

11 Vitamin C Ivory Co. 0.2%

Israel 0.09%

UAE 0.03%

Cameroon 0.02%

Turkey 0.02%

S.Africa 0.01%

Egypt 0.003%

12 Theopylline / aminophylline

Egypt 0.02%

Dosage Products: 1 Medicaments

nes Israel 0.82%

Jordan 0.10%

Cyprus 0.072%

Turkey 0.060%

S.Africa 0.024%

Morocco 0.013%

Egypt 0.013%

2 Vitamins UAE 3.1%

Israel 1.7%

S.Africa 0.44%

Egypt 0.19%

Turkey 0.06%

3 Hormones, not antibiots

Israel 0.067%

S.Arabia 0.066%

Egypt 0.050%

S.Africa 0.038%

Turkey 0.010%

4 Antibiotics Turkey 0.36%

Jordan 0.13%

S.Arabia 0.041%

Morocco 0.033%

S.Africa 0.033%

Egypt 0.023%

5 Alkaloids Turkey 0.65%

Zimbab. 0.25%

Egypt 0.069%

S.Africa 0.008%

6 Penicillins, Steptomycins

Turkey 0.41%

Iran 0.12%

Egypt 0.05%

Syria 0.05%

Cyprus 0.044%

Nigeria 0.043%

7 Adrenal cortex horms.

Egypt 0.033%

Morocco 0.011%

Malta 0.010%

Turkey 0.004%

8 Insulin S.Arabia 0.038%

Turkey 0.009%

Egypt 0.006%

Oman 0.003%

9 Suture Israel 0.20%

S.Africa 0.12%

Tunisia 0.11%

Turkey 0.10%

Morocco 0.04%

UAE 0.03%

10th 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

Product Sales Highest % Dosage

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

Arabia 4.072 8.240 +102.4

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 8th 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

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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

Operating In Egypt International PMC Operating In Egypt

PMC Outside 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

Phytopharmaceutical Domestic PMC

Operating In Egypt International PMC 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.

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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

Share % World Generics

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.

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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.

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Part D

Appendices

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Appendix 1

Steering Committee Members

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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 Salem

Pharmaceutical Industries Holding Co.

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 Development Strategy

Impact on other sectors

Application of horizontal

strategies

Sector

Development Activity

Mechanism

Deliver 5 Main Development Activity Packages (DAPs)

Aggregate net improvements

in business trading

performance

Removing constraints on development

Positive impact on manufacturing businesses to improve their trading performance

Interactions with businesses throughout the sector implement development activity and to overcome development and

performance gaps

International Sector Development Drivers

Level Of Activation In Egypt Compared To Other Countries

Strong Activations In Egypt Competitive Advantages

Weak Activations In Egypt Competitive Disadvantages

Interactions with public sector to provide positive environment for

sector business development

FDI And International

Strategic Alliances

Strategic Development

Projects

Assessment Of

Development Opportunities

Business And Marketing

Development Programmes

Sector Performance Agreement

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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: 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

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.

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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 2Accordingly, 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.

3TM 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.