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SOUTH AFRICA: How Better ARV Prices Were Won

JOHANNESBURG, Jan 21 2011 (IPS) - South Africa’s recently-awarded tender for antiretroviral drugs halved drug costs for the world’s largest ARV programme. Driven by a better-prepared and more aggressive government, the deal may stand up to criticism better than initially thought.

In a country with an estimated HIV prevalence rate of about 18 percent, more than a million South Africans are currently on ARVs.

South Africa will save an estimated 685 million dollars over the two-year life of the new tender. The deal was nonetheless criticised for an alleged lack of transparency, and for possibly preventing even greater savings by locking in prices for drugs that could become yet cheaper.

Generally, the agreement was praised, although it could prove a difficult example for other countries to follow.

How the deal was done

Details of the deal

South Africa’s national ARV programme will save an estimated 685 million dollars in drug costs through the new, two-year tender. Although the same long-standing suppliers will continue to provide South Africa with the life-saving drugs, increased competition from new manufacturers of recently registered generic ARVs, and the government’s demand for better prices and increased transparency from suppliers have translated into massive savings over the prices negotiated in the country’s previous tender in 2008.

According to a Department of Health statement, the country previously paid about $23 for a month’s supply of a 300 mg tablet of the ARV tenofovir in 2008. In 2011, the country will pay just less than $8 – on par with the prices paid by international drug procurers such as the Clinton Health Access Initiative (CHAI) and the United Nations drug-funding agency, UNITAID.

Despite confusion about whether the contract might lock South Africa into what may become higher than market prices for ARVs and critiques about an alleged lack of transparency in its awarding, the agreement has been widely praised as a step forward for a country that represents about 20 percent of the global ARV market but has long been paying high prices for its ARVs.

While increased competition from new manufacturers of generic medicines alone could have reduced drug prices, the South African government took steps to ensure tender prices were internationally competitive, partnering with CHAI to set out target prices prior to issuing the tender – a first for the country.

Bidding companies were also required to submit detailed breakdowns of drug costs, listing the proportion of costs associated with production – from active ingredient purchases and drug formulation to shipping.

“What South Africa tried to do was get a sense of the cost of actually manufacturing the drug and what might be a reasonable profit margin,” says Brenda Waning, Coordinator of Market Dynamics for UNITAID, the United Nations drug-funding agency. “It’s very difficult figure for companies to release – it’s like their best kept secret.”

It’s not clear how accurate the information provided is, but by comparing the submissions of a number of manufacturers, it’s possible to judge how valid the figures are, she adds.

These cost breakdowns may prove crucial later on, should either drug companies or the government try to argue for a change in prices mid-tender.

The tender allows companies to apply to raise drug prices mid-tender, but firms will have to justify these increases. Having an initial benchmark of cost components will allow government to better evaluate these claims, says Vishal Brijlal, the Clinton Health Access Initiative’s (CHAI) South Africa country director. The government is under no obligation to accept proposed price hikes, he adds.

Newly introduced clauses like these may be in response to past abuses by drug suppliers, who have tried to claim for costs, such as currency fluctuations, that are not only part of ordinary business costs but often offset by insurance.

Room for improvement?

Meanwhile, a quarterly review of the prices for active pharmaceutical ingredients in antiretrovirals, which comprise up to 70 percent of some drugs’ costs, will allow government to identify any change in the cost of manufacturing them. While government may then request price reductions from tender prices suppliers, it remains unclear whether firms will be obligated to reduce these prices.

According to Brijlal, suppliers will be mandated to lower their prices. Jonathan Berger, a senior researcher for South African human rights organisation Section 27, disagrees.

“My understanding is that the department says there is a provision to renegotiate price,” Berger says. “But there is no obligation for companies to accept that. It’s meaningless – that was the biggest problem for the tender.”

The Department of Health was not available for comment.

For Waning, South Africa’s new tender represents a shift in international purchasing power, away from donors and towards large national buyers of essential medicines like India, China and South Africa, which funds 60 percent of its treatment programme.

“As countries assume more responsibility for treatment of patients and donors assume less, countries are having more of a say over who’s who in terms of pharmaceutical suppliers,” she says.

South Africa’s massive purchasing power and large share of the global market may make civil society criticisms about the tender’s lack of transparency more important.

In a December 2010 statement, Section 27 and the advocacy group Treatment Action Campaign called on government to detail how points were awarded in future tenders.

“We don’t know how points were worked out… competitors can’t tell whether or not the tender was correctly awarded,” Berger says. “Other competitors have a right to know how points were allocated and why they didn’t win.”

According to Brijlal, competitors could deduce points earned from public documents but he admits it would be difficult.

What the future holds

But South Africa’s ability to negotiate cheaper drugs mid-tender will likely only apply to possible savings on newer ARVs such as tenofovir, where advances in formulation, generic competition or economies of scale could bring down prices, according to Andy Gray, a senior lecturer at the department of therapeutics and medicines management at South Africa’s University of KwaZulu-Natal.

Prices for older drugs, like stavudine, are unlikely to show more than single digit percentage drop in coming years, and prices for these drugs have likely gone as low as they can go, says Brijlal.

While Waning warns that international pressure for cheaper drugs has to be balanced against concerns that ARV producers will lose interest in the market, Gray says the nature of the AIDS pandemic continues to make it an attractive venture for companies – and opens up the possibility for potentially cost-saving advancements.

As HIV continues to mutate, patients may develop resistance to first-line drugs and will need new drug regimens.

“Even in high priced markets like the US, patients are requiring rescue regimens because of resistance and that’s still sufficient to keep some firms in research and development,” Gray says. “What makes it easier [to attract companies], is that, as opposed to conditions like hypertension, HIV requires a lifelong treatment.”

About 14 percent of patients attending South African clinics run by the international medical charity, Medicines Sans Frontiers, developed resistance to first line drugs within five years of starting ARVs; a quarter of those patients needed third line drugs just two years later.

While advancements in ARVs and markets may make it cheaper for countries like South Africa to access the drugs, Brijlal says countries sourcing their own ARVs need to do their research to capitalise on better prices but admits that capacity remains weak.

“With the movements among donors to post drug prices, there’s no reason that countries can’t be prepared when they negotiate and that’s the most powerful tool,” Waning said.

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