State muddling drug-pricing issue
THE COMPETITION Commission’s investigation into several pharmaceutical companies for alleged “excessive pricing, price discrimination and/or exclusionary conduct” has many people scratching their heads.
The investigation demonstrates that the prices determined by one government agency could potentially be found by another to be illegal. In addition, the holding of a patent approved by one arm of the government in compliance with South Africa’s patent laws, could also potentially be found to be illegal and punishable by another arm of the government.
The Department of Health regulates the price of medicines sold in the private sector through the Single Exit Price (SEP) mechanism. The SEP compels all manufacturers and importers to sell their products at the same price to all their private sector customers, regardless of the size of the order, and prohibits them from offering any discounts or donating medicines. Not subject to the SEP constraints is the department, which has a pricing committee that, by using a formula decides on, and stipulates what the annual increase for the private sector should be. The government also has the freedom to negotiate with manufacturers. State tender prices reveal that some medicines are available to the government at about a 10th of the cost to the private sector.
To compound matters, the commission is investigating Pfizer for charging “excessive prices” for a cancer drug that is not registered for sale in South Africa. A handful of patients have accessed this drug using a “Section 21 Permit” that allows them to purchase the drug overseas and import it. Competition Commission spokesperson Sipho Ngwenya states: “Whilst we accept that the drug is not registered in South Africa, however, the conduct has an effect in the country as there are patients who use the drug here. These patients are subjected to very high pricing. Further, our investigation will in any event probe why it is not registered here.”
Ngwenya need look no further than the Medicines Control Council (MCC). Due to bureaucratic bungling and an inefficient drug registration system, there is a backlog of medicines waiting for marketing approval. This administrative inertia is denying thousands of patients ready access to medicines available in other countries that could cure or manage their symptoms. For cancer and HIV patients, these delays could be fatal.
Data from the department shows that it takes an average of 37 months for a generic medicine to be approved, and 38 months for an innovative medicine. Only 70% of new medicines targeted for priority fast-track review – cancer, HIV, TB medicines and vaccines – are approved within two years. The official account of the cause for the delays makes for depressing reading. “Old medicines applications dated from the 1990s still in system. Unable to comply with current regulatory requirements. Lack of experienced and skilled valuators”, says the MCC in its annual report.
When government regulators are slow and inefficient in approving generic versions of products some old, off-patent drugs might not be facing competition from other generic entrants, which creates an opening for companies to extract extraordinarily high profits. But this is the result of regulatory incompetence creating an artificial distortion in the market.
Without the government-imposed barriers, the high price would be the signal for other pharmaceutical companies to step into the market and competition would reduce prices.
With the chronic delays in drug registration, price controls, proposed amendments to patent laws that seek to legitimise the appropriation of innovative companies’ property, the introduction of a state pharmaceutical manufacturer, and the general hostile environment toward any private sector participation in healthcare, pharmaceutical companies are probably feeling increasingly uneasy about their future.
The government conveniently overlooks its own failures and incompetence, and continues to point fingers at the private sector that obeys all the laws and regulations the government has instituted. This approach will result in fewer medicines, higher prices and worse healthcare, with the poor paying the highest price – often their lives.
Administrative inertia is denying access to medicine
Director, Foundation Free Market
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SIDE EFFECTS: The commission is investigating Pfizer for charging “excessive prices” for a cancer drug that is not registered for sale in South Africa. Picture: Mark Lennihan / AP