private laboratories achieve comfortable profit margins

Since the start of the pandemic, the statistics provided by the Moroccan health department show more than 11 million people tested, including more than 1 million confirmed cases at the end of January 2022, i.e. a positivity rate of 10%. , indicates the Competition Council in a study relating to the analysis and monitoring of the evolution of the situation of the Covid test market.

While the performance of PCR tests was entrusted at the start of the pandemic only to public laboratories, the National Institute of Hygiene (INH) and the Pasteur Institute (IP), the worsening of the epidemic situation in the Kingdom has pushed the Ministry of Health to gradually open the market for Covid-19 diagnostic tests to private structures, in particular private analysis and medical biology laboratories.

Despite this openness to the private sector, the Moroccan Covid test curve did not show an upward trend during the pandemic due to the high level of prices charged (700 to 800 DH for the PCR test) which would have limited access to these tests, in particular for households with limited incomes, specifies the study of the Competition Council.

It is in this context that the Competition Council received on August 31, 2021, a request for an opinion from the Minister of Economy, Finance and Administrative Reform (MEFRA) concerning the fixing of prices screening tests for Covid-19, specifies the study.

In its Opinion No. A/2/2021 of September 6, 2021, the Council declared itself in favor, in view of market conditions, of regulating the prices of said tests for a transitional period not exceeding six months, in accordance with the provisions of the Article 4 of Law No. 104-12 on freedom of pricing and competition.

The Competition Council study explains that this decision was justified by the absence of conditions for effective competition between players in the market for Covid-19 screening tests, due to the presence of regulatory barriers that do not favor no fluid, efficient and equitable access to the various private biomedical analysis laboratories subject to different authorization procedures.

These restrictions, continues the same source, have been translated by the reduced number of laboratories eligible to carry out these tests which reached only 203 private laboratories on September 1, 2021 (i.e. 35% of all existing private laboratories in Morocco) which has led to the creation of an artificial shortage in supply, while the demand for tests has continued to increase. Consequently, the structure of this market at the local level has remained oligopolistic.

In its opinion, the Council thus considered that the setting of the level of prices for Covid-19 screening tests must guarantee a reasonable level of incentive margin to encourage the entry of new players into the market and that it must not only cap the profit margin of private biomedical analysis laboratories, but also cover by its scope the margins of all stakeholders in the chain, in particular producers and importers of reagents and consumables necessary for the performance of Covid-19 tests.

The study indicates that the supply of Covid-19 tests is ensured by the industry of in vitro diagnostic reagents intended for the diagnosis of this infection. This market for in vitro diagnostic tests is in full technological evolution since it allows, in addition to managing the emergence of new respiratory infections, to allow the diagnosis of several other diseases (cancers, chronic diseases, etc.), specifies the study. .

In Morocco, the in vitro diagnostics market represents 20% of registered medical devices and has 100 importing and distributing companies, as well as a limited number of manufacturers who have recently entered the market in the context of the current health crisis, reports the study.

With a total dependence of the Moroccan market on foreign markets, the import prices of diagnostic reagents and products have recorded unprecedented increases, the study points out. These factors are determined by several factors, in particular supply and demand on world markets, the composition of prices and then the origin of the product.

For the composition of the price, the study indicates that in addition to the import prices of reagents and equipment for carrying out the tests, other components have been added which have weighed them down, namely transport costs. which increased 10-fold during the early stages of the pandemic.

In addition, the mode of transport, dominated before the pandemic by maritime or road transport given their low costs, has shifted towards air transport, customs duties and VAT which are applied to freight costs. For the case of Covid products, customs duties are at a tax rate of 2.5% and VAT is around 20%, explains the study, while the management costs linked to the charges of the importing company and the profit margin adopted varies between 20% and 30% depending on the size of the company.

Coming thus to the layout of the premises (three laboratory rooms reserved for diagnosis, the establishment of a dedicated sampling room, generally installed outside the laboratory) which is an essential step conditioning the issuance of the authorization the launch of the diagnostic activity.

Thus, this development cost is estimated by private sector operators at 221,900 DH for conventional RT-PCR. As for the cost of development necessary for the other Covid-19 tests, it is 43,500 DH for rapid RT-PCR and antigenic tests, and 28,700 DH for serological tests, distributed as follows, indicates the same source.

PCR test: Comfortable margins of up to 115 DH

Regarding the estimated cost price of the conventional RT-PCR technique, the study by the Competition Council notes in its study that the price of the conventional PCR test is highly dependent on the costs of reagents and consumables at a rate of 38% for a minimum price of cost price, at 61% for a maximum price, noting that the share of the price of the reagent alone varies between 13% for the case of a locally produced reagent, to 37% for the case of an imported reagent.

These data show, according to the study, that despite the price cap for Covid-19 tests in September 2021, private laboratories continue to achieve relatively comfortable profit margins, ranging from 12 DH to 115 DH, while considering the costs linked to the personnel component and the amortization of equipment and fittings, which should decrease according to the increase in the number of tests per day and the parallel performance of other types of diagnostic tests by the same laboratory.

Compared to the rapid PCR test, the study indicates that the calculation of the cost price of this service first made it possible to note that 80% of the estimated cost price relates to the price of the imported reagent, which is why the CC recommends a local production of this type of product to mitigate the costs of this service and ensure convenient access to citizens. As for profit margins, it seems that the values ​​shown remain reasonable according to the CC, which can range from 37 dirhams to 41 dirhams.

The use of cheaper Asian products seems to guarantee a commercial margin ranging from 38 DH to 64 DH compared to the provision of Covid diagnosis by antigen tests at the level of private sector laboratories. It should be recalled that the prices of these reagents fell by varying from 13% to 24% between the period preceding and following the decision to fix the prices of the tests.“, recommends the Council.

Same observation for the case of rapid serological tests, with a profit margin which can go up to 23 dirhams, confirms the CC. In the case of automated serological tests, the 24% drop in reagent prices made it possible to guarantee a commercial margin ranging from 25 DH to 60 DH, since the share of reagents and consumables represents 36% of the cost price of the related service to this type of test, the study says.

Conclusions, the Competition Council estimates that with the current conditions and after the fixing of the tests by the government, the private laboratories continue to achieve fairly comfortable profit margins which vary according to the size of the laboratory, the number of tests carried out and the choice of investment adopted for each laboratory, specifies the Council.

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