•  johannesburg
• Monday, January 24, 2011
• Inter Press Service

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. 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.

© Inter Press Service (2011) — All Rights Reserved. Original source: Inter Press Service

Where next?

Advertisement