Cape Town – The shortage of skills in South Africa’s pharmaceutical industry makes it easier for collusion to take place in the healthcare sector, said Anban Pillay, chief director of health, financing and economics at the Department of Health.
“There is collusion because there’s no competition. So clearly if you have more skills it will lead to more competition,” told Fin24 on the sidelines of a Parliamentary briefing.
Fin24 earlier reported that the Board of Healthcare Funders urged the Competition Commission to investigate the pricing of all life-saving medicines – and not just cancer drugs.
The Competition Commission is launching an investigation into the excessive pricing of cancer medication against Roche, Pfizer and Aspen Pharmacare.
Commissioner Tembinkosi Bonakele described the matter as of grave national importance. He explained that anti-competitive behaviour in the healthcare sector, particularly in pharmaceuticals, could have a negative impact on specifically poor and vulnerable consumers.
Pillay said South Africa has a severe shortage of chemical engineers which are responsible for the manufacturing of active pharmaceutical ingredients for tablets, injections or capsules.
According to him, local chemical engineers have not been attracted to South Africa pharmaceutical sector as the country does not have a single active pharmaceutical ingredient plant.
“China is the big producers of active pharmaceutical ingredients in the world,” he says, “as it does not have the same environmental regulations we do in South Africa.”
He explained that the production of pharmaceuticals have a significant impact on the environment and South Africa’s environmental laws make it more expensive to produce pharmaceuticals here.
“So, it’s difficult to compete with the Chinese and the barriers of entry are high.”
Pillay said it would be beneficial for South Africa to focus more on the formulation side of pharmaceutical production. “In other words, we would buy the active pharmaceutical ingredient and produce the tablet, injection or capsule locally.”
Although South Africa has a number of formulation plants they operate under capacity, Pillay said, as input costs, such as labour are cheaper in countries, such as India for example.
“We must look at these factors to see how we can formulate optimally in South Africa,” Pillay said.
He was also of the view that South Africa would need to look at duties and import controls if it is to boost formulation. “If you want to promote local formulation your tariffs and duties used for ingredients must be lowered.”
Imports overshadow exports
The Department of Trade and Industry (DTI) presented an overview of pharmaceutical manufacturing, imports and exports in South Africa, to Parliament’s economic development committee, which showed that exports accounted for 85% of the country’s pharmaceutical trade.
Asian and European markets are the main sources of South Africa’s pharmaceutical imports.
The large reliance on imports increase South Africa’s trade balance deficit, the DTI said.
Pharmaceutical exports from South Africa however has recently gained momentum, having expanded from R3.3bn in 2011 to R4.9bn in 2015. It is expected that by 2019 South African exports of pharmaceutical products will increase to reach R7.1bn.
Domestic pharmaceutical manufacturers focus almost exclusively on producing generic products. In 2015, the generics medication market was estimated at R11.7bn, compared to the originators market valued at R16bn.
The African continent has become the main destination for South Africa’s pharmaceutical exports and the DTI expects that more multinational companies will continue using South Africa as a platform to explore opportunities in the African market.
Challenges for domestic pharmaceutical manufacturing
A shortage of adequately trained industrial pharmacists and formulation chemists are cited as one of the biggest hurdles to a more robust local pharmaceutical manufacturing sector, both the DTI and Department of Health said.
In addition, rand weakness leaves local pharmaceutical manufacturers which rely on the imports of active pharmaceutical ingredients for formulation vulnerable.
In addition, pharmaceutical companies are of the view that the level of Single Exit Pricing (the maximum price that a medicine can be charged at) increases do not cover costs sufficiently, as the industry is largely dependent on imported materials and the SEP mechanism is not flexible enough to compensate for the erosion of profit margins.