Recent Study: South Africa Pharmaceuticals Competitive Intelligence Report Q4 2010

Nov. 25, 2010 - PRLog -- South Africa is a fast-emerging pharmaceutical market. The country's pharmaceutical industry is relatively well developed, although mostly focused on the production of generics, including manufacturing copy drugs under licence. Some multinationals have a direct presence through local subsidiaries and the country is increasingly targeted by foreign companies looking for a stable base from which to penetrate sub-Saharan Africa. Public-sector tendering is fiercely competitive - focusing largely on price, with some favouritism towards firms with positive black economic empowerment (BEE) policies - as it provides huge opportunities for winners.

Presently, the market is relatively fragmented, with no one player or group holding more than a 15% market share in the 1990s. In more recent years, however, the market has been consolidating around fewer major players, led by Aspen Pharma. Domestic producers meet around one third of the country's demand in volume terms, with the percentage being higher in the generics sector. While its political and economic climate, and healthcare funding issues render South Africa a risky market, its status as a gateway to other emerging and less penetrable African markets provides a draw for foreign firms. Key local players include Adcock Ingram Ltd and the generics firm Aspen. On the foreign front, the UK's GlaxoSmithKline (GSK), Sanofi-Aventis (France), and US-based Bristol Myers Squibb (BMS) and Johnson & Johnson (J&J) are among the firms that have operations in the country. US companies lead the foreign camp, supplying over one-fifth of the market, followed by German, British and Swiss firms.

In June 2010, South Africa's Minister of Trade and Industry Rob Davies said the government welcomed Indian pharmaceutical companies establishing manufacturing units in the country. The invitation comes as part of the government's national industrial policy framework (NIPF), under which it offers a suite of incentives for various sectors, including the pharmaceutical sector. Davies said the pharmaceutical industry, which possesses an unexplored potential for development, would receive specific attention from the government.

Pharmaceuticals and healthcare have seen very strong growth in South Africa since 2003, though the sector has come to represent a smaller share of the country's total GDP. Nevertheless, South African healthcare remains an attractive prospect for investment as the country's economy strengthens. On the other hand, the strong rand is likely to hurt domestic companies' international operations, though its effects will be dependent on the exposure to foreign markets by individual local players.

The government's policies to encourage the private instead of public healthcare sector will force more people to spend out-of-pocket on drugs. If the trend continues, it is likely that patented drugs will form the greater portion of drug spending, since the private sector has little incentive to adopt generic substitution. However, we caution that, despite appearances, this is not an attractive prospect for South Africa's foreign direct investment (FDI) in the pharmaceutical sector. Most of the wealth is distributed in the urban areas, and the majority of the population are on relatively low incomes. Therefore, generic drug use should be actively encouraged by the government.

The agreement to allow Indian generic drugmaker Aurobindo to set up a manufacturing base in the country will go some way toward the need to encourage the use of generics. However, we note that the focus lies on antiretrovirals (ARVs) for the treatment of HIV/AIDs. While essential, the government has not made clear policies on the selective import in other therapeutic areas, partly because it is simultaneously promoting the domestic pharmaceutical manufacturing sector.

Pricing legislation should result in a significant increase in volume sales as large sections of the population, previously disenfranchised by high medicine prices, are able to afford drugs. However, the new price directives are already reported to be having a negative impact on the pharmacy sector, with rural drug stores being forced out of business, with patented drugs also potentially threatened by government proposals to expand access to treatment.

The rising cancer death toll has led to multinational pharmaceutical companies increasingly targeting the continent. Cancer vaccines could be one way of providing protection for patients with little access to basic healthcare, with GSK and Merck & Co's cervical cancer vaccines both recently winning regulatory approval in South Africa. Currently, the survival rate for cancer in Africa is very low, due to the rudimentary health infrastructure and severe shortages in funding. Radiotherapy, for example, is only available in 21 out of Africa's 53 nations.

Consequently, drug companies are unlikely to be able to establish a market for their leading treatments, which will be beyond the means of patients, without even taking into account intellectual property (IP) implications. However, older, or generic drugs, could witness an increased uptake. In addition, there is a real shortage of available painkillers, with analgesics thus being an area that could be targeted, especially generic opioids.

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Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.