Drug makers push for extra price rise
• Falling value of rand squeezes manufacturers’ profit margins on imported ingredients
Pharmaceutical manufacturers are lobbying the department of health for an extra price increase to offset the rand’s steep slide, which has made their imports of active ingredients and finished goods more expensive. The rand has fallen 14.9% against the dollar since the start of 2018 and has so far breached the R15 mark twice in August.
Pharmaceutical manufacturers are lobbying the department of health for an extra price increase to offset the rand’s steep slide, which has made their imports of active ingredients and finished goods more expensive.
The rand has fallen 14.9% against the dollar since the start of 2018 and has so far breached the R15 mark twice in August. It was trading at R14.61 to the dollar at 5pm on Monday.
The weak rand has added to the woes of pharmaceutical manufacturers, who were already unhappy with the modest price increase permitted for 2018. They said that increase failed to cover their increased input costs.
“It places pharmaceutical manufacturers under tremendous strain,” said pharmaceutical task group spokesman Stavros Nicolaou.
Medicine prices in the private sector are tightly controlled by the health department, which usually permits one increase a year on the ceiling price for each drug, known as the single exit price. The capped prices mean companies cannot pass on increased input costs to consumers, and thus face a squeeze on their profits.
Nicolaou said manufacturers were seeking an additional single exit price increase of 2.8%, after the 1.26% increase permitted in January. The last time the department granted an extraordinary price increase was in early 2016, after the rand slid more than 30% against the dollar over a 12-month period.
An extra price hike may offer some relief to drug firms, but is unlikely to sit well with medical schemes and consumers.
Health department deputy director-general for national health insurance Anban Pillay said the government was amenable to an extra price hike to cushion drug manufacturers against the slide in the rand.
“Any adjustment will take time to implement, so it is just a question of whether to do it now, or in January,” he said.
The task group and the pricing committee charged with making recommendations to the health minister on single exit price increases were due to discuss the issue at the end of August, he said.
The task group represents four pharmaceutical manufacturing bodies: the Innovative Pharmaceutical Association of SA, a body for multinational drug firms; Generic and Biosimilar Medicines Southern Africa; Pharmaceuticals Made in SA; and the Self Medication Association of SA.
Nicolaou said the task group wanted the department to revise the mechanism used to determine single exit price increases and introduce a formula that provided greater certainty to drug manufacturers.
The pricing committee had too much discretion in how it applied the formula, and it was not clear how it reached its determinations, he said.
“We need a consistent formula from 2019,” said Nicolaou. The task group also wanted an automatic review of the single exit price if there was a swing in the exchange rate of more than 10%, he said.
Pillay said regulatory provisions allowed companies to apply for an extraordinary price increase for specific products, but they had to provide evidence that there had been a significant increase in input costs and that they would be selling the goods at a loss.