The government faces a tough task balancing the competing aims of health policy and industrial strategy if it is to grow the local pharmaceutical sector, according to a report commissioned by the Presidency.
The report by Genesis Analytics consultancy stems from work done by the Harvard group of economists last year, which identified the pharmaceutical sector as a priority sector for the government's Accelerated and Shared Growth Initiative for SA (Asgi-SA).
e report, a copy of which has been seen by Business Day, is intended to drive debate between the government, business and civil society about what kind of pharmaceutical industry SA needs, how to achieve it and whether to accord the sector priority status.
It concludes that the pharmaceutical sector is of strategic importance, primarily because of the need to ensure a sustainable supply of drugs to treat the growing burden of infectious diseases such as HIV and tuberculosis (TB).
The long-term supply of cheap generic drugs from India and China is uncertain because their domestic demand is expected to rise with those countries' own growing HIV and TB burdens. The report also says that despite the weaknesses in the local pharmaceutical sector, it has the potential to grow, particularly in the infectious disease sector.
Only 10 of the 94 pharmaceutical firms registered in SA have production facilities here, and they import the bulk of their raw inputs as few local firm produce the necessary active pharmaceutical ingredients.
Pharmaceutical firms struggle to find skilled staff, and growth is hampered by inefficiencies at the Medicines Control Council, which regulates the sector, say the report's authors, Nick Segal and Christopher Maloney.
The report highlights several contentious health policies that have contributed to a climate of uncertainty that besets the industry, the most recent of which is the health department's proposal to set medicine prices in the private sector against a select group of countries and peg generic drugs 40% below the price of innovative medicines.
This international benchmarking plan has been criticised by pharmaceutical firms, who say the proposals will squeeze margins and render their businesses unviable.
In a bid to cut the cost of medicines in the private sector, the health department has also tried to control the markups on medicines from factory gate to pharmacy shelf.
"We have found no evidence to support the idea that the pricing proposals will reduce private sector prices so much that people in the public sector will be able to afford to move to the private sector," says the report, challenging the health department head on over its rationale for controlling medicine prices.
Unlike Asgi-SA's existing priority sectors of agriculture, tourism and business-process outsourcing, which reflect a positive trade balance and export growth in double figures, the pharmaceutical sector has a deep trade imbalance ($830m in 2005), weak export growth (9% in rand terms between 2005 and 2006) and a dearth of skills, says the report.
"The industry has been in difficulty for more than a decade, and ...without changes in public policy it will probably continue to weaken," it says..
spen Pharmacare's head of strategic trade, Stavros Nicolau, welcomed the report, saying that it was "long overdue".
"From an industry perspective it forms a base for us to look at growth opportunities," said Nicolau.
The AIDS Law Project's Jonathan Berger, who represents civil society on the Nedlac task team considering the report, said he was concerned that Genesis had not consulted more widely outside the pharmaceutical industry and the government. Berger was the sole civil society voice interviewed for the study.
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