Local pharmacy operators are hurting. And it is becoming more painful for them as the gap widens between the retail prices set by the local authorities on certain prescription drugs and the cost of importing them.
This is happening when pharmacies have been recording exponential growth in their retail presence in all of the prime and emerging locations in the country.
Exchange rate fluctuations — and especially related to drugs imported from Swiss pharmaceutical majors — have been squeezing the margins of local pharmacies.
It has reached a stage where some of the leading names have approached the authorities to have a re-look at their pricing instructions on certain medications affected by the currency fluctuations.
In the UAE, as elsewhere in the Gulf, strict controls are imposed by health authorities on the retail prices of prescription drugs and the extent of the margins distributors and pharmacies can make out of them.
Currently, around 80 per cent of drugs consumed in the region are imported, according to a recent report by Alpen Capital. In the past, local health authorities have held the line once they have lowered drug prices. Moreover, at the current juncture it would take some serious convincing for local authorities to raise prices and thus place an additional cost burden on residents.
Strong Swiss franc
But the retail trade says their well-being needs to be looked into as well. "We are entering into negative margin territory on some vital medicines being imported from Switzerland given the recent strength of the Swiss franc, and we are talking about just one sourcing country," said a pharmacy operator.
"It's our hope that the ministry would give serious thought to the industry's concerns.
"None of us are saying controlled pricing should go; what we want is some flexibility on pricing in select instances like the one we are facing now.
"The only Gulf market that used to have lower margins than the UAE is Saudi Arabia, but the kingdom is several times larger and offers economies of scale. Here the economies of scale are limited and the cost of operations much higher."
As a case in point, industry sources point to Luc-entis, a drug used in the treatment of age-related macular degeneration. It's import price is currently Dh6,815.16, while the wholesale price as dictated by the Ministry of Health is Dh6,059.1.
That makes for a steep differential of Dh756 that pharmacies have to absorb. (As of now, one Swiss franc fetches Dh3.94.)
In the case of Zaditen eye drops, against the purchase price of Dh50.70 for the importer, the wholesale price in the UAE is Dh45.75. That translates into a Dh5 loss for each unit sold.
"What adds to the pain and loss of pharmaceutical distributors are the extra charges for the clearance, transportation, storage and distribution of the products — which estimated as per the best practices standard — fall between 12 to 15 per cent," said Alaa Nabulsi, commercial director for the pharmaceuticals and health-care division at Alphamed, part of Al Khayyat Investments.
No one in the pharmaceutical distribution business says the ministry does not have a social obligation to ensure the lowest possible health-care costs are available for its population. But what they hope to achieve is an open dialogue with the local authorities on a possible revision of drug prices on a case-by-case basis.
Eating into margins
"Gross margins for pharmacies have come down over the years from 25 per cent a few years ago to 17 per cent," said Dr M.K. Ebrahim, chairman and managing director of Docib Healthcare Management. "It may seem as if this is still high, but pharmacy operators are contending with the higher cost of renting premises than was the case years ago.
"Also, on counts such as licence fee renewal for pharmacy assistants, there has been a three-fold increase in recent years. All of this is eating significantly into the industry margins."
Ebrahim said there are options that could be considered by the industry's stakeholders rather than exclusively go in for increasing prices on select medicines.
"It's a good time to take up the debate of branded versus generic drugs," Ebrahim said. "Over the last year, Abu Dhabi authorities have actively recommended that doctors in the emirate should prescribe generic drugs wherever they can.
"Doing so, doctors will not be supporting any particular pharmaceutical company and its products and, at the same time, by prescribing generic drugs they are offering lower cost options to the residents.
"This is something other emirates and the doctors in them could seriously consider. Making access to lower cost drugs is the best solution to creating a low cost — yet high quality — health-care environment."
Docib in expansion drive
Despite the tightness felt on the industry's gross margins, Docib Healthcare Management is going ahead with a phased expansion of its pharmacy network. Perhaps in keeping with its status as a neighbourhood drug store, it will look at locations attached to LuLu supermarkets.
So much so, it has absorbed the LuLu branding for the pharmacies as well. "There was a lot of existing familial and commercial ties between the groups and it was felt this arrangement will best suit the expansion of the pharmacy's presence," said Dr M.K. Ebrahim of Docib Healthcare Management.
"Getting to be in locations that have an established footfall is the optimum way to develop the pharmacy business, which by its very nature is a volume game."
Apart from pharmacies, Docib operates polyclinics and, more recently, nutrition centres, with the latter bearing its own name.
"The health care sector in the country currently offers one of the best prospects for a business to get in and consolidate its presence," Ebrahim added. "That's exactly what we are trying to do now."
There is also the possibility of investing in a multi-speciality hospital in Dubai along with a group of investors. However, the proposal is still only in the sounding out stage, he added.