South African’s Overcharged for Medicines
South African consumers are paying more for their medicine than they could be, says Paul Anley, CEO of Pharma Dynamics. He was speaking at the annual International Generic Pharmaceutical Alliance (IGPA) conference that took place in Cape Town this month.
He claims that originator pharmaceutical companies (patent holding drug developers) produce their own “pseudo generics” don’t offer long term cost saving benefits to consumers.
Controlling the market
Pseudo generics are identical to the original drug, but are sold by the original manufacturer under a different name and at a slightly discounted price before the patent expires. This allows the original manufacturer to maintain control of the market for a particular drug, even after the patent expires.
These pseudo generics are often more expensive than true generics. Their presence also discourages generics companies from entering the market, meaning higher prices for SA’s cash-strapped consumers. This is unacceptable in a country where the government struggles to carry the disease burden load and citizens struggle to make ends meet.
When pharmaceutical companies develop a new drug, they apply for a patent and are given exclusivity to sell that drug for as long as the patent lasts. In South Africa, this could be for up to 20 years. These patents allow companies to recover the costs of research and development (R&D) for the new drug, serving as a stimulus for further innovation.
When the patent expires, however, other companies have the opportunity to manufacture and sell drugs using the same active ingredient as the original drug. These so-called “generic” drugs can be sold at substantially lower prices, as the companies in question need not recover the R&D costs.
Repackaging to combat loss
Originator companies are counteracting this by repackaging their drugs as ‘generics’ and selling them at a slight discount before the patent expires. These pseudo-generic drugs are able to capture the majority of the market because they can operate without any competition until the patent runs out. Even after the patent expires, the pseudo generic tends to retain its momentum and remains the dominant force in the market.
Explaining some of the reasons why pseudo generics are able to dominate the market, Anley had the following to say: “Because they are launched before the patent ends, they are always first to market, which is a huge advantage.” He also said that pseudo generics encounter less resistance from doctors and patients; a common problem for generics, as they know that it is identical to the original drug.
“This means pseudo generics can compete on a perception of quality, leaving the rest of the market to compete on price,” Anley continued. He said that companies often play up this perception by launching pseudo generics with marketing campaigns that call into question the efficacy of true generics.
Pseudo generics do offer some benefits to consumers. For instance they enter the market earlier than would be otherwise possible. But Anley still maintained that on balance, pseudo generics are bad for consumers.
Why pseudo generics lead to higher prices
Pseudo generics are normally priced higher than a true generic would be. And because they are first to market, they are often used by medical aids to set reference prices. This means that there is no incentive for the generics market to reduce prices.
Because the pseudo generic can capture the majority of the market under the protection of the patent, generics companies are discouraged from launching true generics, even once the patent expires. This leads to a lack of competitive pressure to drive down prices.
Anley’s conclusions are supported by research conducted by Loretta Atkinson. In her 2009 MBA dissertation for the Henley Management College, she researched the impact of pseudo generics on South African consumers. She found that the presence of pseudo generics in a market not only increased the average price of the drug, but also lead to fewer generics companies entering the market, resulting in less pressure on the price from competition.
“The marketing of pseudo generics by originator companies has a negative impact on consumer welfare in SA,” said Atkinson.
To prevent this from continuing, Atkinson recommended regulatory intervention: “The consent to launch pseudo generics should be scrutinised, considering it a potential obstacle to the reduction of the price bill of medication in the country.”
Anley suggested that applying proposed international benchmarking standards was one way of doing this. “This would result in parity pricing of originator brands and pseudo generics, removing all incentives to launch pseudo generics and levelling the playing fields for generics,” he said.
“I cannot think of another industry in which a manufacturer could manufacture an identical product and sell it at a lower price while still selling the original. If it is the same medicine, price it the same,” he concluded.
The 14th Annual IGPA conference, hosted by the National Association of Pharmaceutical Manufacturers (NAPM), a member of the IGPA, took place at the CTICC from 1-3 November 2011.
