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Pay-to-delay debate hits South Africa Posted 04/11/2011

A report issued in August 2011 by the US Federal Trade Commission (FTC), on the short and long-term effects of authorised generics has sparked a debate over how this affects generics in South Africa.

The article in the Business Report on 14 October 2011, states that a practice common in South Africa, i.e. deals between brand-name and generics manufacturers to delay launch of generics (‘pay-to-delay deals’), is forcing consumers to pay 80% more for their medication.

An authorised generic drug is a brand-name manufacturers own generic version of its patented drug that is marketed either directly by the brand-name firm or by a company that it licenses to produce and/or market the generic drug.

Mr Paul Anley, a director of the South African National Association of Pharmaceutical Manufacturers, said this was a common practice and kept affordable generics off the market.

Some argue that authorised generics are also offered at a reduced price, giving relief to patients and allowing for price competition to take place when generics manufacturers launch their own products. The FTC report, however, found that authorised generics have a substantial effect on the revenues of competing generic firms, reducing revenue by up to 62% and delaying the entry of lower cost generics by 17 months longer on average than those that do not include a payment [1,2].

Mr Anley, who is also the managing director of South African generics firm Pharma Dynamics, said the release of authorised generics was done ‘in a bid to muscle out generics manufacturers to ensure a continued price advantage’, adding that the same methods identified in the FTC report were being employed in South Africa, to the detriment of consumers and the healthcare system as a whole.

South Africa implemented mandatory generic substitution in 2003 in an attempt to control expenditure on medicines. Research into cost savings from generic prescriptions and substitutions in South Africa has shown that an average saving of 41.1% can be made. With further savings of 10% possible if generic prescription and substitution were practised to the maximum in South Africa [3].

However, Ms Vicki St Quintin, chief operations officer of the Pharmaceutical Industry Association of South Africa, said ‘South Africa had a totally different system to the US, as competition is highly regulated. She said the tactics documented by the report were ‘very American’, as the exclusivity period for the original drug manufacturer and an array of other drug laws did not exist in South Africa.

South Africa for example, does not allow for the term of a patent to be extended beyond its 20 years, as is the case in the US. The country’s legislation also does not offer any exclusivity period for first-to-file generics, which in the US (where 180-days exclusivity is offered) encourages generics manufacturers to challenge patents.

Other experts in law also voiced their opinion that the South African pharmaceutical market was not the same as the US one. Attorneys Mr Alexis Apostolidis and Mr Jac Marais stated that it was highly unlikely that in South Africa pay-to-delay agreements would be entered into. In South Africa it is rather a case of unilateral conduct which is perfectly legitimate as a result of the exclusivity offered by a patent. They added that it was ‘unfortunate that the article did not address the differences between the legal and regulatory framework in South Africa versus that of the United States.’

Despite these arguments, Pharma Dynamics has launched a complaint with the South African Competition Commission on anticompetitive behaviour in the industry.

Editor’s comment
There are conflicting reports out there on these pay-to-delay deals. One thing most people can agree on though is that affordable medicines should be available as soon as possible. But what is the best way to make this happen?

Please feel free to share your thoughts via email to editorial@gabionline.net or in the comments section below. What are your views on the continuing pay-to-delay debate? Should legislation be introduced banning these deals? Or do these deals result in generics being available sooner than would otherwise be possible? Is this issue even relevant for South Africa?

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Generic substitution generates savings in South Africa

Generic substitution rates in South Africa

Savings due to generic substitution in South Africa

References

1. GaBI Online - Generics and Biosimilars Initiative. Authorised generics implicated in pay-to-delay deals [www.gabionline.net]. Mol, Belgium: Pro Pharma Communications International; [cited 2011 November 04]. Available from: www.gabionline.net/Pharma-News/Authorised-generics-implicated-in-pay-to-delay-deals

2. GaBI Online - Generics and Biosimilars Initiative. Pay-to-delay deals up by 60% in US [www.gabionline.net]. Mol, Belgium: Pro Pharma Communications International; [cited 2011 November 04]. Available from: www.gabionline.net/Pharma-News/Pay-to-delay-deals-up-by-60-in-US

3. GaBI Online - Generics and Biosimilars Initiative. The status of generic substitution in South Africa [www.gabionline.net]. Mol, Belgium: Pro Pharma Communications International; [cited 2011 November 04]. Available from: www.gabionline.net/Generics/Research/The-status-of-generic-substitution-in-South-Africa

Source: Adams & Adams, IOL Business Report, FTC

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