| At a small pharmacy tucked into the Beirut neighborhood of Tariq al-Jdideh, a pharmacist recently had to deal with a rather vexing problem: he was running out of drugs. As an example he pointed to an empty box of Vastarel, a medication imported from France and used by patients with heart conditions, or who have suffered strokes, to protect their arteries and improve circulation. It is also a chronic use medication, meaning patients need to maintain a regular supply for a treatment that is long-term. |
The pharmacist said the health of patients who come to him regularly for Vastarel would be threatened should they not have access to their medication, yet he’d been unable to order in new supplies of the drug from his wholesaler or the importer.
Instead, he had to go outside Beirut to buy the medication his patients needed at the pharmacy of a friend, who, running a larger operation than himself, carried more of the drug in stock — a segregate supply both pharmacists were depending on to last them through this drought. He added that a psychotropic drug called Leponex — used to treat schizophrenia and ordered directly, per prescription, from the importer — was completely unavailable on the market, forcing him to look in the Palestinian refugee camps for an illegally smuggled version to treat his patients.
“The importers either have the drugs in their warehouses and they are not selling them, or they are just not ordering more of the drugs in,” the pharmacist said. The dropping value of the US dollar has meant drug importers in Lebanon — where the local currency is pegged to the dollar — have had to pay more to bring in the drugs priced in euros or Swiss francs, which account for roughly 45% of the some 3,500 imported drugs sold in Lebanon.
Shrinking margins
The shelf price of drugs is controlled by the Ministry of Health, and the pharmacist remarked that the minister has stalled in signing a new set of price increases, the result being that the importers’ margins were being squeezed between the higher cost of their product and a static selling price.
Importers, however, have exclusive rights to each of the products they import — for example there is, by law, only one company allowed to bring Vastarel into the country — and as such, the pharmacist said importers were cutting supplies to the Lebanese market in an attempt to leverage the Minister of Health into signing the price increase.
The importers, though, deny this is the case. “There is not a single medicine missing in the market due to the prices,” said Armand Phares, president of the Lebanese Pharmaceutical Importers Association, a syndicate with 37 members constituting 90% of all pharmaceutical importers in Lebanon. To prove his point during an interview he had his assistant run a check, and within 15 minutes she replied that at the three standard pharmacies she’d called — in the neighborhoods of Gemmayze, Badaro and Verdun — Vasteral was on the shelf and available for sale.
As for Leponex, Phares explained the importer was suffering an “exceptional shortage of stock” — originating outside the country — but that the drug would be available again shortly.
The importers’ exclusive rights over a product, adds Phares, enable an “unbroken chain of traceability” from the manufacturer to the consumer, ensuring quality control, though “parallel imports” of products into Lebanon make that exclusivity actually not so exclusive, meaning importers cannot leverage their market positions.
This does not mean all is well in the pharmaceutical business these days, said Phares, noting while there is a system to cope with the rapid currency fluctuations of late, the problem, according to him, is that the system is not being applied properly.
The Lebanese government’s Pricing Decision #306/1 from June 3, 2005, lays out the pricing policy like this: when a foreign manufacturer gets registered to export a drug to Lebanon, the Ministry of Health dictates that the price the manufacturer charges the Lebanese importer must be lower than (1) the ex-factory price in the country of origin, (2) the import price of the same brand in seven selected Middle Eastern countries, (3) the median ex-factory price in seven selected European countries, and (4) the import price of similar products already available in Lebanon.
Once the product is in Lebanon, the ministry also dictates the markup each party can tack onto the product on its way to the consumer, with the importers adding 8-10% when they sell it to pharmacist, who then tags on 24-30% when he puts it on his shelf, with margins decreasing percentage-wise the more expensive the drugs are.
Currencies fluctuate, however, and if, over a two-week period, the average exchange rate between the Lebanese Lira and the currency in which a pharmaceutical is imported (i.e. euro or CHF) moves up or down by more than 3%, the Minister of Health is supposed to apply this change — called the ‘price indicator’ — to the shelf price of the product.
Where the problem starts
Phares said the problem comes from a tendency the Minister of Health has shown to sign price decreases immediately into effect while delaying for weeks signing price increases, resulting in reduced profits for importers when they need to spend more to replace the same stock of drugs coming from Europe, for example, while also not being able to charge more in selling to the pharmacies.
Delayed price rises also have a tendency to spur pharmacies to try and buy more than their usual order of product, said Phares, since pharmacists know that if a certain product will cost more tomorrow, if they can buy today they will make profit on the difference, with the more unscrupulous pharmacists able to increase profits even more by withholding selling a product in anticipation of a price increase.
Even given this situation, importers must still supply the market normally, said Phares, although “normally doesn’t mean stupidly.”
Saleh Dbeibo, president of the Order of Pharmacists in Lebanon, which oversees the 1,900 or so pharmacies in the country, remarked that what happens in situations of delayed price increases is that “importers will ration the distribution, and then there will be some deficiency in the market,” and when this happens smaller pharmacies are the first to feel the impact because they carry very little in reserve stock.
“Whenever they sell an item, they directly buy another one, so a rationing period would be harmful for them and they feel it quickly. But big pharmacies that have a bigger stock and capital, they keep going,” said Dbeibo, adding that “… in this period you will lose your client if you don’t secure his medication.”
Dbeibo notes that a very small number of importers may even stop distribution altogether, and although this is illegal, both he and Phares pointed out that, since it is exceedingly difficult to definitively show where along the supply chain the drugs are being withheld, charges are almost never brought to trial. Both men also agree that although at times there may be less quantities of medications on the shelves, “there was no period when people couldn’t find their medicine [somewhere],” according to Dbeibo.
To put the issue in context, the annual imported value of pharmaceuticals arriving to Lebanon is some $425 million, translating into $650 million in pharmaceutical sales in the country, though about 10% of the market is considered public sector, which buys at less than market prices, and another 20% is reimbursed in some form or another by government and agencies.
Although the Minister of Health was out of the country and unavailable for comment, Dr. Walid Amar, Director General of the Ministry of Health, was able to take EXECUTIVE’s questions. He stated that the ministry is well aware of the situation and at no time have consumers and patients in Lebanon been affected or suffered a loss of supply. The minister signs the price decreases immediately, said Amar, because it is beneficial for the citizens of Lebanon, while he delays on the price increases in order to see if there might be some further change in the currency exchange market.
Tackling the costs of drugs
“I’m sure this would affect negatively the importer … but they seem to be capable to afford this situation for a short few days — the time that the market adapts to the rapid change,” Amar averred. He also pointed out that while imports from Europe have become more expensive, those from the US and other dollar-linked countries have remained stable, questioning why importers have not used this as an incentive “to push them to seek other sources for drugs.”
In illuminating the impact of the high cost of pharmaceuticals on some of the less fortunate Lebanese, Amar pointed out that the Lebanese government, through the YMCA, currently supports the chronic medication cost for 140,000 citizens, to the tune of US$5 million dollars ($3 million from government, $2 million from NGOs), while also underwriting $35 million worth of medications for 12,000 critically ill Lebanese, suffering with diseases such as cancer, multiple sclerosis or major schizophrenia.
Thus, while the margins of importers and supplies of drugs in pharmacies might be paramount to operations in the pharmaceutical industry, the most tangible impact of the rising cost of pharmaceuticals in Lebanon can be found in the people these businesses are meant to serve — the Lebanese who have to pay for and use these drugs in order to live, which perhaps, should be the motivation for all parties involved in the business.
