Dispensary. Picture: SUNDAY TIMES
Dispensary. Picture: SUNDAY TIMES

THE health department is planning to allow pharmaceutical companies an extra price increase later this year to cushion them against the sharp slide in the rand, which has made imports more expensive.

The department has also promised to speed up drug companies’ applications to adjust their prices, which currently only kick in 30 working days after they submit their paperwork.

While these developments will offer relief to drug companies under margin pressure, medical schemes and consumers are likely to be unhappy about any further increases in medicine prices.

The rand has depreciated by 31% against the dollar since the beginning of last year, and was trading at R16.78 to the dollar on Monday afternoon, according to Bloomberg data. The weak rand has affected importers of finished medicines and domestic manufacturers who import raw ingredients, pushing up the cost of production and squeezing profit margins.

Medicine prices in the private sector are tightly regulated, and the department usually allows one price increase a year. The figure is set using a weighted formula that includes the consumer price index (70%) and the exchange rate (30%). The latest price increase, which used September data, was published in the Government Gazette last week and allowed pharmaceutical manufacturers a maximum price increase of 4.8%.

However, the rand’s slide in the fourth quarter of last year prompted the Pharmaceutical Task Group, which represents four industry associations, to call on Health Minister Aaron Motsoaledi to institute an extra price increase.

The rand has depreciated by 17% since October 1.

On Monday the department’s head of regulation and compliance, Anban Pillay, said the department was willing to review the movement in the currency since September and allow drug companies an extra price increase later this year. "In principle, we have no problem doing it. The question is how and when," he said.

Dr Pillay said the department would prefer to consider the exchange rate over the six months to March 31 but was willing to consider a shorter time frame. It would publish its proposed price adjustment for public comment, he said, and would allow drug companies to implement price increases as soon as they had been approved by the health department. "If we find we have a bottleneck, we will bring in more people to process the applications," he said.

Aspen Pharmacare’s head of strategic trade Stavros Nicolaou said a four-month window for gauging currency movements and calculating the extra price increase would be preferred. Drug companies had been hard hit by the weak rand and did not want to wait until after March to institute further price increases, he said.

Pharmaceutical Task Group (PTG) chairman Timothy Kedijang welcomed the department’s efforts to accelerate its approval processes to allow pharmaceutical companies to take the 2016 price increase as soon as possible.

The task group represents the Innovative Pharmaceutical Association of SA, a body for multinational drug firms; the National Association of Pharmaceutical Manufacturers, which represents generic companies; Pharmaceuticals Made in SA; and the Self Medication Association of SA.

"Members of the PTG are working with government to ensure the pharmaceutical industry is able to continue to supply our full range of medicines on a sustainable basis, despite the dramatically increasing cost pressures emanating from the sharp depreciation in the rand," said Dr Kedijang.