24 January 2013

South Africa: Drug Companies Disappointed By Low Price Rise

Pharmaceutical companies will be allowed to hike their private sector prices by a maximum of 5.8% this year, the Department of Health announced on Tuesday (22 January) - a move that is likely to disappoint the local manufacturing industry.

Last year Adcock Ingram's chief executive Jonathan Louw said local manufacturers expected that the formula used by the department would yield price increases of about 7.14%, but industry ideally needed a "close to double digit increases" to counter the effects of the depreciation of the rand and the sharp increase in utility costs.

Aspen Pharmacare said the low price increase was disappointing.

"It is lower than we had expected. We had been hoping for an increase closer to 7%," said Aspen Pharmacare's head of strategic trade, Stavros Nicolaou. "Given the rand's weakness and inflationary pressures we are experiencing in the economy, we are disappointed," he said.

Medicine prices are controlled by the Department of Health, which publishes regulations each year indicating the size of the maximum increase allowed for drugs destined for the private sector. The increase is applicable to the Single Exit Price (SEP) of a medicine, which is the price paid by all retailers - be they a small pharmacy or a national chain. The retailers then add their own markups to the shelf prices.

Nicolaou welcomed the fact that the SEP announcement came this week, noting that in previous years it had often been delayed by months.

The increase in the SEP is calculated using a formula that takes into account inflation and exchange rates against the US dollar and other foreign currencies. The Department of Health's pricing committee uses the result of the calculation to make a recommendation to Health Minister Aaron Motsoaledi, who has the power to approve their recommendation or change it.

Nicolaou said the industry needed greater certainty about the way the formula was calculated as it was not clear what date was used to set the exchange rates and inflation rates used to determine the increase.

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