Distribution versus Agency Agreement as applicable to pharmaceutical industry

user Youssry Saleh & Partners calender 3 Jul 2021 views 1823 Views

Pharmaceutical sector of Egypt is one of the oldest strategic sectors in Egypt which has managed to reach an important measure to achieve self-sufficiency of the Egyptian medicine. The main competent authority responsible for managing pharmaceutical industry in Egypt is the Egyptian Drug Authority (EDA), which in its role has adopted policies targeting drug development in various stages of the industry, both in the field of pharmaceutical raw materials, basic chemicals, manufacturing and packaging as well as for the marketing, sale and export.

In order for investors and manufacturers to practice their activities in the pharmaceutical field and provide their pharmaceutical and medicinal products to the Egyptian Markets, it is required to appoint a commercial Agent or a Distributor in order to sell their products in Egypt, which in turn is taking us to the next step related to the conclusion of Commercial Agreements including Agency and Distribution Agreements.

Accordingly, it is critically important to differentiate between Distribution and Agency Agreements, also the difference between Distributors and Agents in order to be fully aware of the type of Agreements every investor needs to conclude which will be discussed and presented in the following points.

Distribution Agreements

Distributor is that person or a company whose main role is to carry out the process of products’ purchase from a manufacturer or Supplier and resell it on his own account with profit to other stores, or customers, which is often being performed by transporting the goods to different places.

Accordingly, Distribution Agreement is an agreement concluded between an entity that supplies goods and the distributor who in its turn distributes such goods. Distribution Agreements are subject to the general provisions of the Egyptian Civil and Commercial Codes, as there is no specific law that regulates such type of Agreements.

Agency Agreements

On the other hand, Agent is every natural or legal person who usually submits bids, concludes purchases, sells, rents, or provides services in the name and for the account of producers, traders or distributors which is regulated by Article 1 of the Law No.120 of the year 1982.

Agency Agreement is an agreement under which the agent is obligated to perform legal work for the principal’s account as per Article 699 of the Civil Code (Law No.131 of the year 1984) and Article 177 of the Commercial Code (Law No.17 of the year 1999) regulating commercial Agency and some commercial mediation work.

The general rule in the Egyptian Civil Code (Article 147) the contract makes the law of the parties…”.

Moreover, the Egyptian commercial Agreements such as Agency Agreements and Distribution Agreements are subject to the provisions of the following Regulations:

  • The Egyptian Commercial Law No.17 of the year 1999;
  • The Egyptian Civil Code No.131 of the year 1984; and
  • The Law regulating commercial Agency business and some commercial Mediation Activities No.120 of the year 1982 and its Executive Regulation No.342 of the year 1982.

Procedures of registration of Pharmaceuticals in Egypt

In addition to the above-mentioned, and in order for investors to be able to sell their products in the Egyptian market either through Agents or Distributors, the agreed upon products which are intended to be sold in the market shall be registered in Egypt before being supplied to the Market. The said registration is regulated by virtue of Decree of the Minister of Health and Population No.425 of the year 2015 regarding the reorganization of the rules and procedures for the registration of human pharmaceuticals.

Main points that shall be highlighted with regards to the registration process of Pharmaceutical products are as follows:

  • The Applicant shall submit an inquiry request about the product submitted for local circulation to the Human Medicines Registration Department. The Applicant shall be notified of the acceptance or rejection within twenty-one working days.
  • In order to issue a notification of registration of imported products, it is required that the product be circulating in the country of origin or any of the reference countries approved by the Assistant Minister for Pharmaceutical Affairs or licensed by the World Health Organization for at least one year.
  • For preparations submitted for registration which is imported from non-reference countries and not circulated in any of the reference countries or not approved by the World Health Organization, the product shall be presented to the Technical Committee for Drug Control to take a decision either to reject or transfer to the specialized Scientific Committees or request to submit the Site Master File to the Administration General inspection or both.
  • The company is committed to submit the required documents within thirty working days.
  • With regards to the products offered for local trading, the company is obligated to provide the following:
  1. A list that includes twenty-five proposed trade names for the preparation within a maximum period of fifteen working days from the date of issuing the approval of the inquiry request or from the date of issuing the approval of the Scientific Committee, otherwise the registration application will be canceled.
  2. Submit the documents required for pricing of local or imported products to the Pricing Department within 30 working days from the date of issuing the approval of the inquiry request or from the date of issuing the approval of the Scientific Committee.
  3. Submit required documents to the Egyptian Pharmaceutical Vigilance Center in full within 30 working days from the date of issuing the approval of the inquiry request or from the date of approval of the Scientific Committee. Otherwise, the registration request will be canceled, provided that the documents submitted by the company are evaluated no later than 60 working days from the date of receiving the complete vigilance documents.

Pharmaceutical products pricing

It is worth mentioning that Pharmaceutical products in Egypt are subject to compulsory pricing which is issued by the Ministry of Health and regulated by virtue of the Minister of Health and Population Decree No. 499 of the year 2012 concerning the pricing of human pharmaceuticals.

Advantages and Disadvantages of Distribution Agreements and Agency Agreements

  1. Distribution Agreements:

Advantages of the Distribution Agreements

  • Suppliers can pass on the large degree of risk associated with medical products, which also extends to responsibilities as complying with local legislation and obtaining certain permissions to sell certain pharmaceutical products or certain medical devices in other countries.
  • Create awareness of the supplier’s brand on an international level.
  • Suppliers will overstep the issue of establishing accounts with numerous customers, and will only enter into a relationship with the distributor who will be responsible for the sale of the agreed upon products with the Supplier.

Disadvantages of the Distribution Agreements

  • The supplier enjoys less control on the Distributor’s activities.
  • By appointing a distributor for a certain territory, the entire risk of this territory is placed on the distributor.
  • There is no specific Law regulating Distribution Agreements in Egypt.
  1. Agency Agreements

Advantages of Agency Agreements

  • Suppliers have the power to control the sale of products.
  • After the sale of products, there will be direct contract between the customs and the supplier.

Disadvantages of the Agency Agreement:

  • Supplier maintain all of the financial risk of not selling the products.
  • The Agent might have fewer resources than a distributor.
  • The supplier is bearing the burden of monitoring the effectiveness of the Agent’s works.

Common disputes and issues that arise in Distribution and Agency agreements

The parties to the Agreement might not include certain clauses in the agreements or include clauses that benefit the stronger party (usually, the Principal). One of the major issues faced by contracting parties is the non-regulation of the cases and process of Termination and its consequences in the agreement, which complicate the process of terminating the Agreement whether the Termination is taking place for cause or without. As different jurisdictions have different provisions with regards to treatment of Agents and Distributors.

Therefore, prior to selecting the type of Agreement to conclude, parties shall carefully consider Laws and Regulations that govern and regulate Distribution and Agency Agreements which in turn will facilitate setting the expectations right. Specifically clauses related to Termination, Compensation and Consequences of Termination.