LOCAL pharmaceutical companies need greater guarantees of state contracts if they are to satisfy investors and ensure sustainable supplies of AIDS drugs.

This is according to Cipla SA CEO Paul Miller, who spoke on Wednesday to Business Day on the sidelines of the 21st International AIDS conference in Durban.

Cipla is one of India’s biggest generic pharmaceutical manufacturers and supplies one in three African patients on antiretroviral therapy. A third of those medicines are manufactured in SA.

New World Health Organisation guidelines that SA plans to implement in September, say people should start treatment as soon as they are diagnosed with HIV instead of waiting until their immune systems weakens.

For SA, this potentially means doubling the number of patients on treatment, from 3.4-million to 6.8-million, and raises questions for the government about how to ensure it has reliable and affordable supplies of AIDS drugs.

Miller said the price of generic AIDS drugs had plummeted in the past 15 years and margins were now so thin that they could be squeezed no further.

His comments were broadly in line with those of rival Aspen Pharmacare, which said on Tuesday that generic AIDS drug prices were as low as they could go.

"It gets to a point where ... the price starts to have an impact on the broader business. The profitability in HIV drugs is margin dilutive in all companies," said Miller. Once factories were running at optimal capacity and the best deals had been secured for the active pharmaceutical ingredients used for manufacturing medicines, there was limited scope to cut costs and protect profit margins when prices came under pressure.

Miller said Cipla had found the "sweet spot" and could defend its current prices and margins to shareholders but, like all domestic suppliers, it was vulnerable to currency swings.

Miller said the state tender system placed too much emphasis on price and that greater preference should be given to domestic manufacturers. Local firms also wanted better guarantees of volumes and off-take to offset the risks of investing in manufacturing capacity.

One of the themes emerging at the week-long conference is how to expand treatment beyond the 17-million patients to the estimated 34-million people in need across the world. Numerous high-profile speakers have raised the alarm about stagnating global funding and rising rates of new infections in many parts of the world.

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SA is fortunate in that it enjoys strong donor support to complement domestic financing sources and has seen a very slight drop in the rate of new infections, according to research published in the Lancet this week.

But the sheer scale of the epidemic means the government will need to treat millions of people for years to come.

On Tuesday, the Treasury reaffirmed the government’s commitment to funding its HIV/AIDS programmes. "We consciously choose to fund over 80% (of the HIV/AIDS budget) with domestic public funds because it is our duty and responsibility to do so," said Treasury chief director for health and social development Mark Blecher.

US Global AIDS co-ordinator Deborah Birx also affirmed her country’s commitment to help SA fund its HIV/AIDS programmes, saying that now was not the time to pull back.