Insights from Counselor Sarwat Abd El Shahid, Chairman and Founding Partner, Shahid Law Firm

LT: How would you characterise Egypt’s pharmaceutical industry?

In terms of market size, Egypt is considered to be one of the largest pharmaceutical markets in the Middle East region, with very promising growth prospects given the size of the population.

Lately, there has been a growing trend in responding to the needs of the population, moving away from a point where the healthcare expenditure was at US$ 35 per capita, a third of that of other countries with economic conditions similar to Egypt’s, including Lebanon and Iraq. It is also worth noting that Egypt has some of the highest rates of diabetes and hepatitis C diagnosis worldwide, which renders the country a lucrative land of opportunity for pharmaceutical companies to market their products combating these diseases.

Egypt fits the category of what the global healthcare information curator IMS has dubbed pharmerging markets; these are markets that depend on the production of generics, fuelled by economic growth and increased investments in the healthcare sector.

LT: From a legal perspective, how does the pharmaceutical sector function and what are the core legal processes that are undertaken for companies to grow and work effectively?

The pharma industry is one of the most regulated in Egypt. While in theory the aim of these regulations is to safeguard the well-being of the patient, in practice they often lead to repetitive tribulations in the market, ranging from price fluctuations to the occasional absence of commonly-available medications from the shelves.

There have been some regulatory modifications adopted over the past few years to improve the regulatory landscape of the industry. Such modifications are concerned with registration, licensing, and IPR. There is still a long way to go; and all efforts should be aimed at creating a less bureaucratic regulatory system.

One effective recent step taken by the government was the decision to increase the prices of a number of medications. Such a decision is viewed by us – as legal advisors with an understanding of the industry – and by industry leaders as a step that has saved the market, and guaranteed the flow of necessary imported products within the market for some time.

LT: As a law firm with extensive experience working in the pharmaceutical industry, can you describe some of your successes and biggest areas of learning? We are not asking you to divulge confidential details about organisations but rather to describe processes.

Shahid Law’s history with pharma can be traced back possibly to prior to the firm’s establishment; particularly since I was a judge at the Egyptian State Counsel (Conseil d’État), and an advisor to the Ministry of Health (MoH).

Regarding successes, we can name many; but the most notable are as follows:

In the late 80s, Shahid Law Firm succeeded in lobbying and ultimately obtaining the first approval for establishing a privately held joint stock pharmaceutical company (JSC), through the collaboration of Italian and Egyptian investors. This company was later acquired by GSK.

Moving on to the mid-90s, at this time scientific offices (even those of multinationals) were being established under the auspices of the agent, making the latter in control of the marketing efforts and strategies of the product’s company. Shahid Law Firm lobbied extensively to make it possible for the scientific offices to be established under the auspices of their mother company, thus giving the latter full control over marketing and promotional efforts.

During the late 2000s, we lobbied to change certain practices of the Ministry of Health and the adoption of less restrictive, more transparent rules for importation. Before our lobbying, the importing of pharma products was only permitted through agents; today, standard distributors or importers can be appointed by multinationals to import and distribute pharmaceuticals in Egypt.

More recently, Shahid Law Firm has become directly involved in a number of mandates that reflect its commitment to giving back to the community from a corporate responsibility standpoint. Some such recent mandates include: advising on the legal matters surrounding the local production of world-renowned Hepatitis C medication, to support and contribute to the eradication of this disease from Egypt, as well as advising multinational companies in their deals with the Egyptian government to supply a range of oncology drugs at exceptionally reduced prices.

This is work we take pride in, and we consider it one of the means through which we are able to directly give back to society, by putting to use the legal principles we work to apply every day.

LT: Do you think the pharmaceutical industry in Egypt would benefit from the reform of any particular legislation? If so, which legislation and how would you recommend reforming it?

Excessive bureaucratic regulations are a nightmare for pharmaceutical companies. The registering and pricing of products take years and are the cause of excessive expenditure, which reduces the competitiveness of the market.

Deregulation is a must; and not only in the pharmaceuticals legal landscape, but in the regulatory framework in its totality.

LT: With pharmaceuticals being a highly competitive and highly profitable industry, how does this constant competition affect processes such as M&As? Is the acquisition of specialised knowledge, information or products (e.g. particular vaccines or medication) a core factor in M&As?

We have worked on a few mega deals in the pharmaceutical sector over the past couple of years (e.g. GSK and Novartis assets’ swap, Abbott’s spin-off, and the GSK acquisition of the business of Bristol Myers Squibb), all characterised by the attempts of the big industry names to specialise by shedding non-core assets, so as to be able to focus research and development (R&D) on specific areas of strength, and to extract revenue from medical research as patents on earlier discoveries expire.

Mergers, acquisitions, spin-offs, asset swaps can be divided into three main categories:

1. Global transactions that trickle down to Egypt;

2. Multinational organizations acquiring local pharma companies to expand in Egypt or to diversify their portfolio of “generic” products; or

3. Financial institutions that acquire local players to help grow and thus benefit from this lucrative and profitable sector (usually also eyeing a future exit at greater multiples).

LT: How would you advise any of your pharmaceutical clients to approach the issue of pricing, given the impact of the new VAT law and the issue of its applicability?

The Value Added Tax (VAT) Law no. 67 for the year 2016 exempts pharmaceutical products as well as the ingredients used in their production from VAT.

Accordingly, pharmaceutical companies should primarily focus on the deregularization of the pricing process.

LT: Are there particular areas for improvement in the legal environment in Egypt (and the MENA region) to help the pharmaceutical industry operate more effectively, particularly given the current context?

As mentioned, deregulation is the road to a better business community. And since the pharma industry is extensively regulated, we are of the opinion that decreasing the complexity of regulations and bureaucracy will have a positive impact on the industry.

A practical step to follow concerns pricing regulations: pricing is usually done through submitting requests and documentation to the Ministry of Health, which in turn decides on the best price for each product based on its production costs and the margin of profit the producer should make.

A first step should be to allow medication to be sold at market prices, with the aim of creating a more competitive market; and we recommend starting with non-prescription or – as they are dubbed in the States – over-the-counter (OTC) – drugs. Those products are used to treat an expansive range of common ailments, and selecting them is more of a consumer-driven choice.

We are of the opinion that the pricing of OTC drugs should be deregularized.

Consequently, market competitiveness will be realized, freeing capacity within the Ministry of Heath to focus on the more pressing needs of the market, such as ensuring the permanent availability of medication to treat chronic diseases or oncology drugs, for instance.

Ultimately, regularized pricing should be lifted of all medicines.

Finally, we recommend the establishment of a supreme authority for medicines to oversee the regulation of all activity associated with the medical trade inside the country.