THE Department of Health plans to mitigate the effect of exchange-rate fluctuations on its suppliers of HIV/AIDS drugs, and has changed the rules for its next tender to be more responsive to sudden swings in the strength of the rand.
This an acknowledgement of the margin squeeze that has faced many local suppliers, as the depreciating rand has made imported active pharmaceutical ingredients (APIs) more expensive. The stakes are high as the state requires large volumes of HIV/AIDS drugs, which have historically had much thinner profit margins than other medicines.
Bids for the next tender, which runs for three years from April 1, close on December 1. Current tender rules allow adjustments on the portion of the drug price that faces exchange-rate risks, which can be considerable: APIs can account for upwards of 70% of the cost of an imported drug, says department deputy director-general for health regulation and compliance Anban Pillay.
But drug makers Aspen Pharmacare and Cipla Medpro say they have been forced to sell some HIV/AIDS drugs at a loss because the rules have not adequately compensated them for exchange-rate losses.
"There has been a 30% decline of the rand against the dollar in the past two years. The price adjustments (made by the department) were in no way commensurate with the depreciation of the rand," said Cipla Medpro CEO Paul Miller.
The department’s current HIV/AIDS drug tender allowed three price reviews — the first after a year and then every six months after that. Each review considered the average exchange rate from the inception of the tender on April 1 2012, which meant the last review in May used the average exchange rate over two years.
The next tender will allow five price reviews over its three-year term, each of which will use the average exchange rate over the previous six months.
"This is a lot fairer, and more reasonable. The current approach isn’t sensitive enough," said Aspen Pharmacare’s head of strategic trade Stavros Nicolaou.
Picture: THINKSTOCK
THE Department of Health plans to mitigate the effect of exchange-rate fluctuations on its suppliers of HIV/AIDS drugs, and has changed the rules for its next tender to be more responsive to sudden swings in the strength of the rand.
This an acknowledgement of the margin squeeze that has faced many local suppliers, as the depreciating rand has made imported active pharmaceutical ingredients (APIs) more expensive. The stakes are high as the state requires large volumes of HIV/AIDS drugs, which have historically had much thinner profit margins than other medicines.
Bids for the next tender, which runs for three years from April 1, close on December 1. Current tender rules allow adjustments on the portion of the drug price that faces exchange-rate risks, which can be considerable: APIs can account for upwards of 70% of the cost of an imported drug, says department deputy director-general for health regulation and compliance Anban Pillay.
But drug makers Aspen Pharmacare and Cipla Medpro say they have been forced to sell some HIV/AIDS drugs at a loss because the rules have not adequately compensated them for exchange-rate losses.
"There has been a 30% decline of the rand against the dollar in the past two years. The price adjustments (made by the department) were in no way commensurate with the depreciation of the rand," said Cipla Medpro CEO Paul Miller.
The department’s current HIV/AIDS drug tender allowed three price reviews — the first after a year and then every six months after that. Each review considered the average exchange rate from the inception of the tender on April 1 2012, which meant the last review in May used the average exchange rate over two years.
The next tender will allow five price reviews over its three-year term, each of which will use the average exchange rate over the previous six months.
"This is a lot fairer, and more reasonable. The current approach isn’t sensitive enough," said Aspen Pharmacare’s head of strategic trade Stavros Nicolaou.
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