Presentation to The JP communications Conference on Market access and

Pricing of Healthcare held at the Protea Conference Centre, OR Tambo,

Kempton Park on 24th May by CEO of NAPM

Each one of you in this audience have a perception about generic medicines. I wonder what shapes

this perception whether good or bad.

Let’s start by putting healthcare costs into perspective by category.

As is apparent, expenditure on medicine according to the 2013 annual report of the Council for

Medical Schemes, at R16,3 billion which accounts for 15,4% of the total after the 35,6% and 22,7% of

Hospitals and Medical Specialists respectively. This figure does not relate to out of pocket expenses

paid by the patient.

If we were to breakdown the market into prescription and Over The Counter medicines, according to

IMS Healthcare the R19,981 billion of the prescription market accounts for 70% of the total market.

The prescription market comprises the originator or innovator medicines and generic medicines

worth 61,3% and 35,7% respectively in Rand value. The 3% missing is classed as non-categorised

products.However if we look at the volume of products we find that the market share of innovator

products is 35,8% versus the generic volume of 63%. In summary then, despite providing 63% of

medicine products generic medicines gain only one third of the money.

To put this in simple terms, if averages are relevant it means that the average innovator product is

R218,86 vs R213,55 and generic product R72,52 which compares with an average price in the

previous year of R68,25.

What is a generic medicine?

The Food and Drug Administration describes a generic medicine as comparable to a brand product in

dosage form, strength, route of administration, quality, performance characteristics and intended

use.

While the World Health Organization states that a generic medicine is a pharmaceutical product

marketed after the expiry of the patent and manufactured without a license from an innovator

company. It is intended to be interchangeable with an innovator product.

How can a patient be assured that he or she is receiving an equivalent

therapy?

The registration process is the same as an originator product, although the level of evidence

is not as high. One must consider that the active ingredient has been on the market for at

least 20 years, so to prove the efficacy of the active ingredient in a clinical trial would be a

waste of resources.

Bioequivalence studies are comparison studies conducted to ensure the same amount of

active ingredient is present in the bloodstream as that of the originator product.

Generic manufacturers are subject to the same standards of Good Manufacturing Products

as the originator company.

Challenges

The credibility gap

Before we can expect doctors to prescribe generic medicines we need them to have belief in the

medicines. Millions of patients have used generic medicines over the years with favourable results. If

they did not work there would be a decline in the use which is patently not the case.

Why are there doctors who do not like the idea of prescribing generic medicines? There are many

reasons.

1. The hardest marketing challenge in pharmaceuticals is to get a clinician to prescribe a brand

with which they are not familiar. This is human nature. The medicine a doctor prescribes is a

reflection of his ability as a medical person. The patients judge him or her on the ability to

cure. The point I am making is that the same forces are at play in changing a clinician’s

perception of one brand over another as changing from an originator to a generic medicine.

What conditions would cause you to change from Kellogg’s Cornflakes to a house brand- and

that’s an innocuous food.

2. There are clinicians who wish to keep their ties with originator companies, so enabling them

to take part in innovator trials as investigators. This benefits them from being associated

with scientific research, enhances reputations and provides financial rewards.

SLIDE 13

3. Marketing of drugs in the private market is a very competitive endeavour and one of the

strategies adopted by the innovator companies is the fear factor.

To illustrate this I will use the example of an injectable antibiotic used in hospital for

treating meningitis.

The medical representative would merely say to the doctor “if your child was suffering from

a life threatening disease like meningitis, would you gamble on the generic drug to treat

him. I related this story in a previous presentation and the responsible pharmacist from one

of the big pharma companies jumped up and objected. A member of a drug evaluation

committee from one of the leading Medical Aid Administrators stood up and said this was

true as she experienced these types of comments virtually daily.

4. I am generalising now, but doctors consider themselves as independent thinkers and don’t

want to be straitjacketed n their treating regimens. In some focus groups that we ran,

doctors are not pleased with the way in which they are held to generic formularies by

medical aid ad pharmaceutical benefit managers. The natural tendency is to rebel against

this as they feel that they have no input in these formularies.

The challenge for the generic pharmaceutical industry therefore is to get wider acceptance

among doctors for the use of generic medicines. Patients in this country accept what the doctors

prescribe. I could also be cynical and say as long as this corresponds with what they read on the

internet.

One must ask the question to what extent pharmacists implement section 22F of the Medicines

and related Substances Act.

22F. (1) Subject to subsections (2), (3) and (4), a pharmacist shall—

(a) inform all members of the public who visit his or her pharmacy with a

prescription for dispensing, of the benefits of the substitution for a

branded medicine of an interchangeable multi-source medicine; and

(b) dispense an interchangeable multi-source medicine instead of the

medicine prescribed by a medical practitioner, dentist, practitioner,

nurse or other person registered under the Health Professions Act,

1974, unless expressly forbidden by the patient to do so.

Intellectual Property

The publication of a draft Intellectual Property Policy by the Department of Trade and Industry

has hardly disturbed other industries, but in the health industry has led our Minister of Health to

accuse pharma companies who are members of the Innovator Pharmaceutical Association of SA

as potentially committing genocide

Certainly, the policy has advantages for the generic medicines industry, which are currently

barriers to marketing of older drugs.

Under the current laws, a company merely fills in the correct application form without spelling

mistakes and gets granted a patent. There is no objective examination procedure to determine

whether the invention is novel and thus deserved of a patent registration. The only way this can

be challenged is through application to the High Court. Either an originator alleges that a generic

marketer has transgressed a patent and sues them or a generic company applies for a patent to

be set aside. The problem is that cost of litigation is high in this country and we do not have

specialist judges who have technical expertise in pharmaceutical research, development and

manufacturing.

One of our members has been challenged by an originator company on an oral contraceptive

drug. In most European countries the patent has been set aside, but the criminal court judge has

taken the conservative route and sided with the originator. With costs already at R10million for

the generic company the case is waiting among the backlog of appeals at the court in

Bloemfontein.

The generic industry is not against the granting of patents. Our Association agrees that a

company should be granted a 20 year patent period for developing an innovative therapy.

We have the problem with the concept known as ever greening whereby a company modifies

the method of manufacture and makes application for a new patent. As far as the patient is

concerned the product has no extra benefit or performance, but the routine granting of another

patent will block a generic alternative for a further number of years.

It is a logical conclusion then that a prerequisite for a patent registration system should be an

examination office. Our Patent Act 57 of 1978 does make provision for examination, but regulations

have never been implemented to exercise this provision. MSF claimed in a recent media release that

in SA, 2 442 pharmaceutical patents were granted in 2008, while in Brazil only 273 were granted

from 2003 to 2008.

As a note our current medicine law allows parallel importation, but the regulatory authority requires

a complete dossier to be completed which information only the originator would have.

Regulatory Concerns

One of the aspects which is of concern to the whole pharmaceutical industry in the country is the

shortage of skills for specialist evaluators. A pharmacy qualification is the most acceptable

background for the evaluation of the pharmaceutical and analytical aspects of a dossier. These skills

are needed both in the pharmaceutical companies and in the Medicine Regulatory Authority. The

skills are developed through on the job experience. The DOH is examining the establishment of a

Regulatory Scientific Institute which will provide tailored qualifications for regulators and

registration personnel. Hopefully this would lead to both an improvement of dossiers submitted and

the speed of evaluations.

The ability of retail chains to establish in house pharmacies has led to a greater demand for

pharmacists at reasonable salary levels. This has added to the shortage of qualified personnel.

Clinical evaluations are done by part-time clinicians working in tertiary institutions and again due to

a shortage of specialist skills, the processing of dossiers is not the primary responsibility. The

Committees and Council who ultimately approve the medicine meet at predetermined times of the

year and often have insufficient time to complete the planned agenda at each meeting.

As a consequence of this a backlog of registrations has built up. Sources say it is around 3000

dossiers. Among our members, as at December there were more than one thousand dossiers which

had been submitted. The members claim that the average registration times are round four years.

In addition to the backlog problem, once the drug obtains registration after four years, critical

aspects have in the interim changed, such as Active Ingredient Source or method of manufacture.

The dossier must then be resubmitted for updating , meaning another one to two years post

registration regulatory delay.

This has an impact in a multitude of ways.

It allows the originator an extra four years of marketing exclusivity

It prevents competition which inevitably is responsible for causing price reductions

It discourages investment in the pharmaceutical industry.

It deprives the consumer of quicker access to medicine

The proposed South African Health Products Regulatory Agency has the potential to speed up the

regulatory process as it will be governed by a CEO, board of directors and full-time technical

committees. The Authority will be funded in part by higher registration fees. Our members have

indicated that they are more than willing to pay the higher fees if these were tied to performance

contracts.

Input Costs and the Single Exit Price.

In terms of the Medicines and Related substances Act as amended in 2002 a single exit price for

medicines was introduced. The Minister of Health on advice from the Pricing Committee makes a

decision as to the percentage by which the prices may be adjusted each year. There is a guideline

formula which is supposedly used to determine this and includes the Producer Price Index, and the

Consumer Price Index, Rand Dollar and Euro exchange rate, but at least over the past two years the

Consumer Price Index seems to have been the only consideration.

The problem with this is that the average consumer price over the previous year ended in October

does not take into effect the approximate 18% devaluation of the Rand against the Dollar in the past

three months. All medicines marketed in this country have a high importation content which ranges

from 100% for a finished imported pack to 70% which is the active ingredient imported for local

manufacturers. The exchange rate at a particular time determines the price at which the

pharmaceutical company pays for the imported component and because the profit margins for

generic medicines are much lower than those of originator products it is harder to absorb these

additional costs. This is certainly a contributory factor to stock outs.

Other price factors

If we turn to the output aspect there are many facets to the pricing aspects of generics in the market

price. As per the Medicines Act, any increases can only be done with the blessing of the Minister of

Health, but a company can apply for a reduction at any point during the year.

If we look at anecdotal evidence, it appears that once there are five or six copies of a medicine on

the market competitive market forces cause the price to reduce dramatically. Only the lowest cost

producers will survive, which could in turn reduce competition.

Here is an example of atorvastatin, the originator of which was Lipitor one of the blockbuster cardiac

drugs.

Notwithstanding the competition there are other elements which determine ultimate pricing in the

private sector. A major component of this is the reimbursement level determined by the Medical Aid

Administrators. In general depending on what level of cover a member chooses, reimbursement

levels are set at a price in line with the second lowest generic price. Co-pay is a deterrent for

patients to accept a particular generic medicine and the expectation is not to pay co-pay for a

generic medicine.

As a consequence of the proliferation of generic medicines of the same molecule, retailers,

particularly the medicine chain stores have introduced formularies, because it would be unwieldy to

stock the whole range of available generic medicines. Each group have different measures for

defining their formularies, but given that registration, quality and manufacturing requirements are at

a common level, price is usually the determinant.

Victor Mendoca an economist in the European Generic Association said during a presentation at the

International Pharmaceutical Generic Alliance in December, that the targeting of generic medicines

for short –term cost containment as part of the austerity measures by European governments was

having a detrimental effect on the industry and the industry experienced negative growth if -1,7% in

2013. Some of the reasons for this were that generic medicines faced price freezes, claw-back

policies and retail tendering, while legislation on falsified medicines, pharmaco vigilance, clinical

trials and environmental issues were adding to complexity.

Our authorities are tending to follow the lead of the EU and with the concentration of power

swinging to the retail chains, retail tendering is virtually in operation.

Complementary medicines

A final anomaly is that IMS measures the OTC/ Complementary medicines market at R8,3 billion

which is R2 billion mere than the generic medicine industry. As this learned audience knows that

many of the so called complementary medicines are unregistered and unable to prove the claims

they make for treating sometimes serious diseases. Yet the general public are prepared to spend a

vast amount of money on them. It is not uncommon for a consumer to spend R250 on a pack of

vitamin tablets that merely increase the value of his or her urine, and baulks at the thought of

spending R50 on a generic anti-inflammatory medicine which will bring proven pain relief.

It is a welcome sign that the MCC has decreed in regulations to classify complementary medicines as

schedule A medicines, which means they have to go through a registration process and provide

some level of proof for their claims.

So what benefits do generics bring to the country?

Proven medical benefits proven after at least 20 years of use

Generic medicines should be a stimulant for innovator companies to develop new medicines after

the patent period.

Competition does cause prices to decline which makes medicines more accessible.

Over the past year, the growth of the generic market in volume has been 4,2% as opposed to the

branded market at half that amount the market share of generic medicines has remained static at

just over 60%. We have computed that at current price levels for every 5% market share gain of

generic medicines, the private sector will save R400million per annum. If one considered this on a

compounded annual basis it is not inconsiderable.