Fix The Patent Laws

Will local production of APIs offer the health, development and economic benefits promised by government?

Posted on | April 11, 2012 | No Comments

The South African government recently announced plans to manufacture active pharmaceutical ingredients (APIs) in partnership with the Swiss based company Lonza Ltd. APIs are the active ingredients that are used to produce medicines. Medicines also contain inactive ingredients called excipients.

South Africa has a relatively large and competitive generic pharmaceutical industry made up of a number of private companies that manufacture finished products for sale from raw materials or semi-finished products. However, the vast majority of APIs for these medicines are being imported.

The joint venture between government and Lonza Ltd will set up a local API manufacturer called Ketlaphela. Generic manufacturing companies will be able to purchase APIs from this joint venture. Initially Ketlaphela will focus on developing APIs for HIV, moving into Malaria and TB and later expanding into medicine to treat a wider range of diseases.

Government has promoted Ketlaphela as a mechanism to reduce the cost of medicines through local, cost-effective production of APIs. As well as reducing medicine costs and addressing health needs, government has also promoted the additional development and economic benefits of the venture – such as job creation and a reduction of South Africa’s trade deficit.

These promises have largely been uncritically repeated in the media. They deserve to be unpacked and discussed as government advances its investments into API manufacturing.

In the long run, Ketlaphela could provide the impetus for a competitive API manufacturing industry in South Africa. This could promote medicine access by expanding competition and reducing vulnerability of API supply. Competition has been key to reducing the cost of medicines, as seen with the significant drop in the price of antiretroviral therapy with the entry of generic competition (see below).

Additionally, a number of medicines (including medicines for MDR-TB) that are off patent remain extremely expensive due to vulnerable and inadequate supply of APIs. If South Africa is able to establish an API manufacturing industry, it could reduce supply vulnerability for some of these medicines.

While local API production offers great potential, establishing a local API industry will not be easy. India and China, countries with low manufacturing costs and a highly skilled work force, have emerged as the major global suppliers of APIs. Ketlaphela will need to reach the levels of efficiency of these international companies to sell its products. Given government’s poor track record with managing parastatals, there is cause for concern that Ketlaphela may not be competitive.

It is vital that Ketlaphela competes fairly and transparently with other manufacturers. Should Ketlaphela not be able to match best internationally available prices, government may be tempted to engineer its medicine tenders so as to favour generic companies supplied by Ketlaphela. This could ultimately lead to higher prices and reduced access to medicines.

Additionally, pharmaceutical and API manufacturing is not a labour intensive industry and Ketlaphela is unlikely to stimulate the kind of job growth that South Africa needs. Pharmaceutical and API production requires significant numbers of highly skilled workers such as pharmacists and chemists. South Africa already faces a critical shortage of these workers, with more than 60% of pharmacist posts in the public sector remaining vacant. Therefore following the construction phase, the venture will for the most part stimulate job creation in a field where there is already a high demand and a large shortage of skills.

The Department of Trade and Industry has promoted Ketlaphela as a tool to reduce South Africa’s trade deficit. Business Day recently reported that pharmaceutical imports (costing R21,3bn for the first 11 months of last year) were the fifth largest contributor to the country’s deficit. The paper quoted Minister of Health, Aaron Motsoaledi, saying that South Africa’s pharmaceutical market was worth R25 billion.

An analysis of the pharmaceutical industry in 2008 (published by Deloitte in 2010) found that pharmaceutical imports at R12.97 billion far outnumbered pharmaceutical exports at R1.38 billion. However the top 5 countries from which South Africa imports medicines are, in order: Germany, the USA, France, India and the UK. Tellingly, this list does not include China and India only falls in the 4th position. While these figures should be further analysed by a health economist they strongly suggest that the importation of branded medicines under patent play a far larger role in contributing to the trade deficit than the importation of APIs for the production of generics.

Public sector investment the manufacture of APIs in India, as planned in South Africa, played a role in stimulating the growth of the industry. However this was coupled with the removal of pharmaceutical products from patentability in 1970 in an effort to build local industry and improve medicine access. This led to rapid growth of the industry, moving India from a net importer to a net exporter of medicines by the 90s.

For many medicines in South Africa it is not the lack of APIs (there are exceptions such as MDR-TB medicines), but rather the lack of licences for generic manufacture and sale that drives up medicine prices. Today the Department of Health is able to purchase low cost 1st and 2nd line treatment through mainly locally based generic manufacturers. A first line antiretroviral (ARV) regimen for the treatment of HIV costs only R115 per person per month. In the early 2000s the cost of an inferior regimen was over R5000 per month. Today’s low prices have been achieved through generic competition and open and fair medicine tenders.

However, many newer, better ARVs are not available in the public sector due to high costs. In fact, no third line ARV treatment is currently being provided in the public sector. Many of these medicines remain prohibitively expensive due to the lack of competition in the market. Without legislative reform of South Africa’s Patents Act, it is likely that Ketlaphela’s cost-saving potential will be undermined by strict patent barriers. If the joint venture is restricted to producing off-patent APIs or finished medicines, Ketlaphela will be roped into a part of the market that has already seen massive price reductions due to generic competition.

Only through progressive legislative reform will Ketlaphela break out of that roped-off area and get to make in-roads into the excessive pricing of many life-saving drugs that are still under patent.



Contributors: Marcus Low and Catherine Tomlinson


Leave a Reply

  • About the Campaign

    fix the patent laws
    Fix the Patent Laws is a campaign co-founded by SECTION27, Treatment Action Campaign (TAC) and Doctors Without Borders (MSF) in 2011. Since then, the coalition has grown to include 38 other organisations fighting together to push South Africa to amend its patent laws to prioritise public health. Through this blog we will highlight how amending South Africa’s Patents Act 57 of 1978 will reduce the cost of medicines, improving the health and saving the lives of millions of South Africans.

    The members of the Fix the Patent Laws Campaign are as follows: Treatment Action Campaign (TAC), Doctors Without Borders (MSF), SECTION27, the South African Non-Communicable Diseases Alliance (SANCD Alliance), DiabetesSA, EpilepsySA, Marie Stopes South Africa, Stop Stock Outs Project (SSP), South African Depression and Anxiety Group (SADAG), Cape Mental Health (CMH), the South African Federation of Mental Health (SAFMH), Schizophrenia and Bipolar Disorders Alliance (SABDA), as well as the following members of the Cancer Alliance and Advocates for Breast Cancer: Breast Course 4 Nurses, Breast Health Foundation, Cancer Association of South Africa (CANSA), Cancer Heroes, Can-Sir, CanSurvive, Care for Cancer Foundation, Childhood Cancer Foundation of South Africa (CHOC), Hospice Palliative Care Association (HPCA), Igazi Foundation, Look Good Feel Better, Love your Nuts, Lymphoedema Association of South Africa (LAOSA), Men’s Foundation, National Council Against Smoking, National Oncology Nursing Association of SA, Pancreatic Cancer Network of SA (PanCan), People Living With Cancer (PLWC), Pink Trees for Pauline, Pink Phoenix Cancer Foundation, Pocket Cancer Support, Project Flamingo, Rainbows and Smiles, Reach for Recovery, South African Oncology Social Work Forum (SAOSWF), The Pink Parasol Project, The Sunflower Fund, Vrede Foundation and Wings of Hope.

  • Read the TAC and MSF campaign pamphlet

  • Latest tweets