Pharmaceuticals Value Proposition

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Invest in Egypt Invest In Egypt Pharmaceuticals Pharmaceuticals Invest in Egypt Contents Pharmaceuticals: Sector Overview Competitive Strengths and Capabilities Sector Drivers Leading Opportunities in a Dynamic Market Pharmaceutical Outlook opportunities Strong Policy support Success Stories Pharmaceuticals Invest in Egypt Pharmaceuticals Invest in Egypt Pharmaceuticals Overview The pharmaceutical sector in Egypt is one of the oldest strategic sectors in the country, founded in 1939 with the establishment of the Misr Company for Pharmaceutical Industries. The Egyptian pharmaceuticals and cosmetics sector is considered the largest in the region with regards to growth capacity and expansion during the coming five years compared to similar sectors in neighboring countries The industry has enjoyed a period of considerable development in recent years. There is a strong domestic production sector and, while the majority is destined for the domestic market and imports play an important role, Egypt has emerged as a leading exporter of pharmaceuticals to Arab, Asian and Eastern European markets. Public production, represented by the state-owned holding company HOLDIPHARMA, accounts for around one-tenth of sales by value and nearly two-tenths by volume. Investments in Egypt's pharmaceutical industry currently stand at EGP 26 billion, with the industry employing a total of 39,500 professional staff and production workers. Large multinationals, including GlaxoSmithKline (GSK), Sanofi-Aventis and Novartis are among the top manufacturers of pharmaceuticals in the domestic market. Other leading multinational companies active here include Pfizer, Bristol-Myers Squibb, Servier, Eli Lilly, AstraZeneca and Otsuka. Foreign participation in the local production of under-license pharmaceuticals is of major importance to both the Egyptian economy and local consumers, supplying a significant portion of domestic demand at a fraction of the import cost. Locally owned Egyptian companies producing generic products also play a key role in the domestic market with the Egyptian International Pharmaceutical Industries Company (EIPICO) being ranked as the leading manufacturer in the domestic market and the largest Arab Invest in Egypt Pharmaceuticals pharmaceutical company overall. A top company on the Cairo and Alexandria Stock Exchange (CASE), EIPICO is also one of Egypt's 100 largest exporters. Pharmaceutical prices in Egypt are based on a cost-plus formula, allowing for a profit margin of 15% on essential drugs, 25% on non-essential drugs and 40% or more on overthe-counter products. The formula, managed by the Ministry of Health and Population, guarantees positive returns for all companies operating in Egypt. Providing the political situation stabilizes and the economy continues to perform well, the Egyptian pharmaceutical market at retail prices is expected to rise by a double-digit CAGR in US dollar terms between 2011 and 2016. Espicom1 estimates that the market increased by nearly five times between 1995 and 2010. And went from EGP 18.23 billion in 2011 to EGP 20.33 billion in 2012; a +11.5% in local currency terms. The country’s  pharmaceuticals market is ranked 13 th in BMI’s proprietary Risk/Reward Ratings (RRRs) for the region. Projected Pharmaceutical Market, 2011-2015 Value USD billion % GDP % Health Expenditure Per capita (USD) 2011 4.7 2 31 54 2012 5.4 2 31 61 2013 6.2 1.9 30.8 69 2014 7 2 31.6 77 2015 8 2 32.3 86 Source: ESPICOM 1 Espicom Business Intelligence is a UK-based company with a 30-year pedigree providing business intelligence on Medical Devices, Pharmaceuticals & Healthcare a nd Therapeutics across global markets. Invest in Egypt Pharmaceuticals Competitive Strengths and Capabilities Highly effective Workforce, Egypt produces more doctors and pharmacists than any other country in the Middle East. Egypt’s workforce is the largest in the Arab world and the second largest in the MENA region, after Iran. Egypt’s pharmaceutical workforce offers the highest quality of performance standards and simultaneously promotes cost efficiency in the form of low labor costs and a large pool of highly trained professionals. The industry currently employs a total of 39,500 professional staff and production workers. Increase in Investment Appeal, Egypt is looking to further solidify its stronghold by increasing investment in the sector and expanding production capacity. Pharmaceutical production increased in 2009, reaching EGP3.5 billion. The Ministry of Investment announced plans to build 76 new pharmaceutical plants, bringing the national total to 180, in order to help meet its target of USD1billion in exports by 2015. Investments in Egypt's pharmaceutical industry currently stand at EGP 26 billion. Largest drug-manufacturing base in the MENA, Egypt has the largest drug- manufacturing base in the Middle East and North Africa (MENA), accounting for 30% of the regional market. With a 75% market share, the private sector dominates pharmaceutical production. The total value of the Egyptian pharmaceutical market is USD 1 billion annually. Local manufacturers of generic drugs supply 52% of the market, while research-based multi-national companies account for the balance, either through "under licensing"' local manufacturing or direct imports. Invest in Egypt Sector Drivers Labor Force Pharmaceuticals Egypt’s Value Proposition Investor Benefits With an average of 11 000 annual Large potential talent supply graduates from pharmacy schools, Egypt provides a large pool of skilled with the skill sets necessary for a healthcare business to labor to draw from. succeed. Wages in Egypt are considered the Labor Costs lowest in the MENA region. The Unique opportunities to average wage in the pharmaceutical sector is comparatively low at a minimum wage of LE 1500 per minimize costs while offering high-quality services. month. Diversity of Opportunities Egypt offers significant opportunities for investment in primary, secondary and tertiary care centers, clinics Provides a wide range of catering to the growing global medical options for players looking tourism sector, medical equipment and to enter the market. supplies distribution, and pharmaceuticals distribution. In 2011/2012, government expenditure on health reached EGP 23.8 billion High Healthcare compared to EGP 20.3 billion in Presents market 2010/2011. opportunities for investment at all levels of This increase in public healthcare expenditure will also increase total the value chain. Expenditures healthcare expenditure in Egypt. There are few providers of health insurance in Egypt, and penetration rates remain very low by comparison Low Insurance Penetration Rates to Brazil and Turkey. Insurance covers only 56% of total population, with most insurance covered by public-sector companies and a few private firms. Strong need for additional providers. This presents a significant market opportunity. Invest in Egypt Pharmaceuticals Leading Opportunities in a Dynamic Market The Egyptian pharmaceutical industry has enjoyed a period of considerable development in recent years. There is a strong domestic production sector and, while the majority is destined for the domestic market and imports play an important role, Egypt has emerged as a leading exporter of pharmaceuticals to Arab, Asian and Eastern European markets. Public production, represented by the state-owned holding company HOLDIPHARMA; accounts for around one-tenth of sales by value and nearly two-tenths by volume. There are a number of leading local private producers, some of them involved in biotechnology, which are strengthening their capabilities; Minapharm Pharmaceuticals, for example, acquired 95.0% of the share capital of the German ProBioGen in June 2010. Some leading multinational producers also manufacture in Egypt, including AstraZen . Today, Egypt has the largest drug-manufacturing base in the Middle East and North Africa (MENA), accounting for 30% of the regional market. With a 75% market share, the private sector dominates pharmaceutical production. Pharmaceutical companies operating in Egypt fall into three categories: public sector companies (12 companies are affiliates of Holdipharma previously known as Drug Holding Company D.H.C), private sector Egyptian companies and multinational companies. Before the 1990s, the sector was dominated by state-owned companies but this has changed with the introduction of privatization program that has allowed the private sector to take the highest share of the production in the domestic market. As of Dec. 2012, the Pharmaceutical industry consisted of 680 companies with total investments of USD 3.87 billion, with 64% Egyptian shares and 36% foreign shares. 671 companies operating inland with total investments of USD 3.73 billion, and 9 companies operating in free zones areas with total investments of USD 144.65 million, according to GAFI DB. Invest in Egypt Pharmaceuticals Outlook Experts agree that, the Egyptian pharmaceutical industry is very positive: Rapid population growth and expansion in healthcare coverage and expenditures are key growth drivers, as are an increasing awareness of health issues and the modernization of the healthcare industry. Egypt's exports of pharmaceuticals have grown steadily in recent years, topping USD 270 million in FY 2011/2012 compared to USD 238 million in FY 2006/2007. In April 2008, Novartis became the first multinational drug producer operating in Egypt to add its local facility to its global supply chain. In addition to making 123 products for local consumption, Novartis Egypt will now supply the company's global operations with treatments for ocular and hormonal conditions. Egypt is the largest consumer of pharmaceuticals in the MENA region with an annual increasing pharmaceutical spending reaching about USD 2.48 billion, by the end of 2009, and experts forecast to continue rising to reach about USD 4.24 billion by 2014 at a compound annual growth rate (CAGR) of 11.4%, although Egypt's pharmaceutical expenditure per capita is still one of the lowest in the region. Annual production is recorded to be EGP 15 billion in 2009. In 2010, the market size has reached USD 4.1 billion at retail prices or USD 48 per capita which represents 1.9% of GDP and 30.6% of health expenditure. Egypt has the largest drug  –manufacturing base in the MENA region accounting for around 30% of the regional market. Local production covers around 93% of the market with 7% made up of highly specialized pharmaceuticals not produced locally. Multinational corporations account for about 30% of local sales through domestic manufacturing, and about 35% through licensing agreements, while the remaining ratio represents generic medicines produced by local companies. Invest in Egypt Pharmaceuticals This industry has a good potential for the future with investments keep increasing. The number of pharmaceutical factories has increased from 90 factories in 2006 to 120 factories in 2010 with other 70 plants that are under construction. Large multinationals as GlaxoSmithKline (GSK) is the leading company in the Egyptian market with 9% of the market share. Sanofi-Aventis and Novartis are also among the top multinational manufacturers in the market. Furthermore, multinationals like Pfizer, Servier, and Bristol- Myers are active players in the pharmaceutical industry in Egypt. Holdipharma, the state owned producer, contributes with 1700 types of medicine, 42.1% of them are sold in cheap prices, with LE 1.3 billion as new investments every three years, bearing LE 0.5 bn. annual losses because of its low prices. The total capital of Holdipharma and its affiliates is about LE 2 billion, with a cumulative growth rate over the last five years 50%. Opportunities - The government's plans to introduce a basic health insurance that will extend its benefits to more Egyptians. - The growing health and pharmaceutical expenditure. - The ability to open new markets in Africa through bi or multi-lateral agreements like the COMESA for Egyptian medicine. It's expected that the industry will witness an increase in its value through the coming three years to reach USD 8 billion in 2015 with an average CAGR of 14.3%. However, it will keep a consistent percentage of the GDP ranging from 1.9 - 2.0 %.This increase is accompanied with the increase in health expenditure to form 32.3% of the market value in 2015. Moreover, per capita share is anticipated to increase to be USD 86 in the same year. The Pharmaceutical industry in Egypt is rising, stimulated by many factors like the increasing size of the market and the entrance of new investors to the market. The Invest in Egypt Pharmaceuticals government seeks more liberalization for the industry with less control over prices and more privatization for the sector. This industry faces many challenges like the rising competition with international producers and poor healthcare system in Egypt. However, many specialists have positive expectations that Egypt would become one of the leading countries in that field. Strong policy support The Egyptian Drug Authority (EDA) is the pharmaceutical regulatory body of the Egyptian Ministry of Health (MOH) and it is committed to supporting initiatives which help promote its goals of protecting people's health by regulating safety and quality of pharmaceutical products, regulation & legislation of pharmacy practice, availability of high quality medicines at affordable prices, strategic planning & policy making for the sector, setting standards of pharmaceutical services for both hospital & community, cooperation with relevant international organizations (such as the WHO) in order to improve standards of pharmaceutical products and practices. In January 2012 the Egyptian Ministry of Health and EDA announced the launch of new Pharmaco vigilance (PV) guidelines for Marketing Authorization Holders (MHAs). These laws make the reporting of adverse drug effects compulsory for firms and are part of a wider increase in focus on regulatory activity in the field of PV in Africa, which help combating soaring rates of drug counterfeiting. Invest in Egypt Pharmaceuticals Success Stories VACSERA VACSERA (Holding Company for Biological Products & Vaccines) is a vaccine producer, comprising five subsidiaries, and manufactures blood and biotech treatments as well as being the sole local producer of a variety of vaccines. The company also has a solid R&D infrastructure. BMI estimates its annual revenue to be in the region of USD 45-65 million. Misr Pharmaceuticals Originally established in 1939 as the first pharmaceuticals company in Egypt, Misr Pharmaceutical Industries is one of the government-owned pharmaceutical firms in Egypt, and part of Holdipharma. Misr exports to a number of countries in the region, as well as in Africa and Romania in Europe. The company employs around 1,750 individuals. Misr is engaged in production and wholesale trade in pharmaceuticals, as well as some research and development of new drugs. The company mostly produces medicines in a powder, syrup, ampoule and tablet forms, although some of its output is generated as creams and vials. Most sales are in the human medicines segment, with animal health representing the remainder. In FY08/09, Misr posted EGP155.9 million in net revenue. Amoun Pharmaceutical Company (APC) APC is one of the leading domestic drug makers in Egypt, with five branches in the country manufacturing human and veterinary pharmaceuticals products and nutritional supplements. Following the sale of two factories to GSK Egypt in the 1990s, Amoun was the first Egyptian drug firm to gain ISO 9001 certification, and Invest in Egypt Pharmaceuticals now operates a large modern plant in El-Obour City. It was also the first private drug company founded in the country to import and distribute drugs. APC was established as a drug import and distribution firm in 1976 and currently operates three facilities, which produce cardiovascular drugs, analgesics, vitamins, antihistamines, antirheumatics, gastrointestinal drugs and antipyretics, as well as food supplements. APC exports to 19 countries in Africa, Europe and the Middle East, and has sister companies in the US, Romania, Russia and Kenya. Amoun works as a contract manufacturer for German Merck and Rowa, and French Leurquin, as well as for Sanofi-Aventis (for some veterinary products). Egyptian International Pharmaceutical Industries Co (EIPICO) EIPICO started production in 1985 and now claims to be the largest domestic drug manufacturer in Egypt, with a 10-12% total drug market share by volume and nine manufacturing plants in the country. It exports medicines around the world, accounting for 20% of Egypt’s total pharmaceuticals exports. The company also owns majority shares in Egyptian International Ampoules Company (EIACO), which produces some 800mn units annually. Additionally, EIPICO holds a 30% share in the Saudi Arabia- based ‘Universal for Pharmaceutical Production’, having invested EGP27.7  million. EIPICO has its own R&D laboratories, which are included under its ‘Quality Sector’ category of activities. This category also includes its chemical control and Biotechnology Centre. The Biotechnology Centre was inaugurated in 2001 to produce raw materials, extract useful compounds from natural sources, and to conduct preclinical and clinical trials for drug efficacy and bioequivalence as well as other detailed research using pharmacology. This centre is considered as separate to the operations of the main body of EIPICO, and has its own budget and staff. The drug production facilities are GMP certified, which adds respectability to the company’s standing as an exporter to the EU. Invest in Egypt Pharmaceuticals EIPICO’s 2010 financial results show revenue increasing from EGP1.0 billion (USD 180 million) in 2009 to EGP1.1bn (USD195 million) in 2010. In 2010 net income rose 14% to EGP326 million (USD 55 million). After the re-opening of the Egyptian stock market in March 2011, EIPICO’s share price slumped to EGP33.24, though it has since recovered to EGP37.21. South Egyptian Drug Industries (SEDICO) SEDICO started production in 1990 and its facilities are GMP certified. The company manufactures a variety of insulins, in addition to the non-traditional dosage forms such as the soft gelatin capsules, lyophilized products, gels, sprays and effervescent tablets. Products launched in the first quarter of 2007 include magnabiotic injections (amoxicillin and clavulanic), bromurex and ultracillin vials. The company focuses on generics, but also has three patented medicines  – all skin treatments containing Jojoba oil as the active ingredient. The 24% share of SEDICO is owned by Akzo- Nobel’s Organon, one of the companies for which SEDICO provides contract manufacturing services. SEDICO is engaged in the production of some biotechnology products, in partnership with foreign players. In 2009, the company posted EGP345.7 mil lion in sales, as a result of higher production levels (which reached a record EGP398.8mn). Income before tax came in at EGP65.7million, with income after tax reaching EGP51.1 million. Exports were worth EGP15.2 million. Medical Union Pharmaceuticals (MUP) First established in 1984 through the cooperation of the medical professionals syndicates union data, MUP was listed on the Egyptian stock exchange in April 1997 and has since gone on to become one of the largest domestic drug makers in the country with a market share of 4.4% of the domestic market in value terms in 2010. It is believed to produce 60 million units of drugs in various pharmaceuticals forms. The company predominantly produces generic and licensed drugs with its most important partners listed as Schering Plough and Kline Smith Beecham, although Invest in Egypt Pharmaceuticals both of these two companies have since merged and no longer exist under these names. According to its 2010 annual report the company’s biggest shareholder is the Arab Company for Drug Industries and Medical Devices (ACDIMA) which holds 40% of the company’s shares. The next biggest shareholder is the Industrial Investment Company which holds around 10% of the company’s equity. MUP’s sales grew from EGP456.5 million (USD 77.4 million) in 2005 to EGP780.9 million (USD 131.5 million) in 2010 at a CAGR of 11.3% in local currency terms. In the same time period, net profit doubled from EGP84.2 million (USD 14.3 million) to EGP167.1 million (USD 28.1 million). However, the company issued a sales guidance note in September 2010 that forecast sales of EGP700 million for 2011, down 10% on the previous year. The Egyptian financial year runs from July 1 to June 30 so the latter half of FY 2011 is also likely to have been impacted by the effects of the revolution. GlaxoSmithKline (GSK) GSK operates in Egypt through its 91%-owned subsidiary GSK Egypt, which employs around 1,500 staff. The subsidiary, established in 1990, principally manufactures ethical drugs, but also markets and distributes other pharmaceuticals products and toiletries. GSK was listed in Egypt in 1985 and has a market capitalization of EGP1.55 billion (USD 266.45 million). The company has more than USD 100 million of investments in Egypt. According to IMS Health data for September 2009 MAT, GSK ranked first in Egypt, with an 8.7% value share of the market. GSK’s main activities in Egypt are manufacturing, packaging, marketing, selling and distributing GSK products. GSK Egypt also imports and distributes a range of its parent company’s products that are not manufactured in Egypt. In addition, GSK Egypt manufactures a range of products under license from other pharmaceuticals manufacturers. Invest in Egypt Pharmaceuticals GSK’s production capacity in Egypt equates to approximately 107 million medicine units per year. The factory, laboratories, warehouse and head office are in El -Salam City, Cairo. GSK Egypt also has scientific and sales offices in Mohandessin, Nasr City, Alexandria, Tanta, Mansoura and Souhag. Company officials claim that about 90% of the subsidiary’s production is sold in Egypt, with the remaining 10% being exported to other MENA markets. This indicates the retention of a significant share of the local Egyptian market, despite profit slides suffered by the firm, resulting from turbulent market conditions, relating to currency devaluation and tight price controls. During Q4 2008, GSK acquired BMS’s mature products business in Egypt for USD 210 million, giving it a 9% market share in the country. The strategic move consolidated GSK’s ambitions to increase its portfolio and presence in emerging markets such as Egypt. With GSK reporting revenue for its emerging markets division of US$4.2bn in 2008, the acquisition of a high-value portfolio from BMS will boost future sales. In 2009, the proportion of its ‘white pill/Western markets’ sales to total sales fel l from 36% to 30%, as the company aims to diversify its presence. Emerging markets represented GBP 66 million, or some 14% of the company’s total sales in 2009. Sanofi-Aventis Sanofi-Aventis is among the five largest pharmaceuticals companies in Egypt. It operates in Egypt through its affiliate, Sanofi-Aventis Egypt, which operates a plant and four offices in the country, emp loying more than 800 people. The company’s manufacturing capacity is 50 million boxes and 20 million packs per annum. The company markets the following medicines in Egypt: Plavix, Aprovel (irbesartan), Tritace (ramipril), Actonel (risedronate), Depakine (sodium valproate), Amaryl (glimepiride), Lantus, Eloxatin (oxaliplatin), and Taxotere (docetaxel), among a number of other products. Sanofi- Aventis has also provided the vaccines used in mass polio immunization programmes in the country. In 2009, the company posted Invest in Egypt Pharmaceuticals EUR 29.31 billion in global sales, up by 6.3% y-o-y. Markets other than those in Europe and the US accounted for around 26.7% of the company’s total sales. Pfizer Pfizer, the world's largest pharmaceuticals company, operates in Egypt through its 100% owned subsidiary Pfizer Egypt. The company was established in 1961 and was one of the first foreign-owned companies to commence operations in Egypt. It now employs around 800 people. The company specializes in manufacturing and distributing chemicals, pharmaceuticals and animal health products. Its main pharmaceuticals product areas are antibiotics, cardiovascular preparations, anti allergy treatments and anti-infectives. Pfizer recently acquired compatriot Wyeth, which also has operations in Egypt. The company deals in prescription and consumer health products. Novartis Novartis operates in Egypt through its subsidiary Novartis Pharma, established in 1962. It is based in Cairo and manufactures, markets and sells patented pharmaceuticals, OTCs, generics and animal healthcare products. Leading product areas are analgesics, cardiovascular treatments and ear, nose and throat preparations. Novartis employs approximately 1,120 individuals. In 2009, Novartis posted USD 44.3 billion in global net sales, up from USD 41.5 billion achieved in the previous year. Sales of Voltaren (excluding OTC sales) reached USD 797 million, up by 1% y-o-y in local currency, driven by solid performance in emerging markets, including those in Africa. In 2009, net sales in Asia/Africa/Australasia rose to USD 8.09 billion, thus representing 18% of the total, up from 17% in the previous year (or USD 7.14 billion).