Rumours of a South African state owned pharmaceutical player have been gathering momentum in the last few weeks. ManufacturingHub.co.za takes a look at the drivers for such a move and the impact it may have on the local pharmaceutical manufacturing sector.
While the move is likely to be met with stern resistance from a number of pharmaceutical companies who had positioned themselves to meet governments Anti-Retroviral (ARV) demands, the move would make sense for a number of reasons:
- Price setting vs. price taking
- Job creation
- Leveraging CSIR technology
- Bad publicity around the slow roll out of ARVs
- Slow pace of transformation in the sector
Price setting vs. Price taking
Despite government’s habit of intervening around price setting in the pharmaceutical sector, their end ‘control’ over finished product has led to no shortage of friction between the manufacturers and government.
At the end of the day, government does not have to be held (in their view) to ransom in terms of pricing if they can control their supply chain.
It is very unlikely that the business unit will operate on a ‘for profit’ basis, but if government can turn around to the country and show they have a ready supply of ARV’s and potentially products to counter the likes of ‘Bird flu’ – South Africans are not going to raise too many questions.
However the mandate for such an entity will need to be made very clear – it cannot be the equivalent of South African Airways (SAA) where it could be treated as the stick to always beat down any competition from the pharmaceutical sector.
Job creation
Government has already indicated that it will be proceeding with the development of a state owned mining company – so the move is not totally unexpected.
With the current global economic crisis and widespread job cuts on the cards, more state owned entities attacking the unemployment situation will be vital and a key driver to hurry this process up.
I believe that government has missed an opportunity to establish a government owned and managed food manufacturing operation as a realistic way to counter high prices.
It is important to remember that this stance would not be a backward step from capitalism toward socialism. These entities would fulfill an important social function, create employment and in fact stimulate mainstream business to supply into them.
The sector remains a vibrant participant in the SA economy and should be allowed to continue to develop.
Leveraging CSIR technology
The CSIR has already announced that it has neared completion of the development of low cost ARV’s - if you wanted a direct challenge to the SA pharma sector, then you have it.
The failure of government to effectively leverage the technology and human capital being developed within the CSIR has been a regular issue. This would alleviate some of the problems being faced here and is likely to be well received by researchers and science professionals across the board.
Bad publicity around the slow roll out of ARVs
Over the last few years, government has taken a lot of flak for its slow roll out of ARV’s. The Department of Health has been portrayed as incompetent and unable to react quickly to health challenges facing the country.
This would give further impetus to the establishment of such an entity.
Slow pace of transformation in the sector
Government has been critical of the pace and nature of transformation within the SA pharmaceutical sector – particularly because of the large numbers of foreign national firms who have not been keen to give up equity stakes in their business units.
If the sector won’t play ball, then government will introduce its own player.
But will it work and who wins and who loses?
It was interesting to note that Dr. Padayachee – a non executive of Adcock Ingram resigned on the 1st of December to “take up a senior appointment within the Department of Health.”
This announcement came shortly after the CSIR made some song and dance about its ARV technology. My guess is that the move is gaining ground
The people I have chatted to have been pretty negative on the concept – but then they represent SA pharmaceutical interests so they would be.
I think it would need to be made very clear which product lines the new entity would operate in and where it would play.
Those pharma manufacturers who have geared themselves up to meet governments ARV requirements could find themselves blown out of the water. Of the three JSE listed entities we believe that this could be most negative for Cipla Medpro (Enaleni) in the short term. Adcock Ingram’s competition commission issues may prove to be a blessing in disguise because they had not positioned themselves around the ARV market.
Posts
