After a tumultuous few years, the relationship between the pharmaceutical industry and government seems to have settled down. It is now characterised by behind-the-scenes consultation, rather than fighting through the courts. The change in attitude bodes well for an industry that faces huge challenges.
"The pharmaceutical companies have taken the view that they won't resort to legal action against government in the future," says AstraZeneca CEO Guni Goolab.
As government targets different players in the health-care sector to make health services more affordable, pharmaceutical companies have come under increased pressure to reduce the costs of medicine. Longer term, the industry will also have to meet black empowerment targets set out in an industry charter in the coming year.
Associations representing the main players in the industry, Innovative Medicines South Africa (Imsa), the Pharmaceutical Manufacturers Association (PMA) and the National Association of Pharmaceutical Manufacturers (NAPM) have worked together to come up with ways to engage government.
"The charter represents a golden opportunity for health-care players to work constructively together," says Goolab, who is also head of transformation at the PMA.
Multinational players in the sector are worried the requirement of 25% black ownership by 2015, contained in other empowerment charters, may be applied to them. This poses a difficult challenge for global players that generally have a policy preventing local ownership in the countries they operate in.
"We're hoping the focus will be on making health care more accessible, rather than on ownership," says PMA chief operating officer Vicki Ehrich.
She says meeting procurement targets may also be tricky for multinationals. With such high barriers to entry, most international drug companies have centres of excellence where they manufacture medicines for all their subsidiaries in a few countries. Shifting that to local manufacturers will be near impossible.
On the whole, the industry supports the drive towards a new regulatory framework. Government has put pressure on pharmaceuticals through legislation (see graph).
The latest changes were to the medicines act and pricing regulations, forcing pharmaceutical companies to exclude discounting and rebate structures and reduce prices.
Though other players such as retail pharmacists took the health department to court to challenge aspects of the regulations, the pharmaceutical industry chose instead to consult extensively with government.
Spooked by suggestions that they would have to reduce their prices by half, some multinationals threatened to leave the country. But through consultation with the minister, the industry managed to scale back the price cuts to take account of individual manufacturers' cost structures.
"In the end," says Goolab, "we achieved a much more constructive outcome, with prices in the future being determined against international benchmarks."
"Over time, the single exit price should lead to savings of about 15% on branded drugs and 30% on generics, and costs should come down by a third after about a year," says Innovative Medicines SA (Imsa) executive director Val Beaumont.
But those savings have yet to be seen by the consumer as pharmacists charge higher dispensing fees in the interim and hospitals seek to recoup lost earnings by increasing ward and theatre fees.
Pharmaceutical companies are also under increasing financial pressure. Though government is focused on making medicines more affordable, it also wants drug companies to invest in new drug development to treat diseases such as tuberculosis and malaria. But pharmaceutical firms say they need to generate returns on their investment in developing new drugs.
It costs about R8bn to bring a drug to market, so most companies that develop drugs for the developing world subsidise their losses through big blockbuster drugs in richer markets. As a result companies are increasingly focusing their research and development (R&D) efforts exclusively on drugs that promise big returns.
Big pharmaceutical companies are beginning to work together to combine patented compounds into newer combination therapies.
But SA also needs to focus its attention on retaining high-end scientific skills. One way to do this is to support and nurture local R&D.
According to a report - "Encouraging Pharmaceutical R&D in Developing Countries" - there is a strong link between a nation's economic success and its capacity to carry out R&D of an international standard.
The report's author David Webber says the present global pattern of biopharmaceutical R&D is not efficiently allocated and some developing countries could be big participants in the future.
"Countries are competing with each other to attract and retain R&D," says Webber.
Critically important factors for establishing a pharmaceutical base include government support, intellectual property protection and skilled scientists and technicians.
But should SA focus on supporting a research-based pharmaceutical industry? It could simply buy pharmaceuticals or focus on manufacturing alone.
"An important attraction of knowledge-based industries such as innovative pharmaceuticals is their strong and enduring export potential compared with commodities," says Webber.
He says the value of producing commodity items such as generics is always likely to slip away as countries with lower costs of manufacture undermine previously low-cost producers.
"A developed and successful R&D base and associated private-sector industry generates social, political and economic benefits for the country," says Webber.
