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8 April 2004

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8 April 2004

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									    Comments On The Regulations Relating To a Transparent Pricing System For
                                  Medicines And Scheduled Substances

1          Introduction


The Regulations Relating to a Transparent Pricing System for Medicines and Scheduled Substances
(„Regulations”) were published for public comment in the Government Gazette on the 16th of January
2004 by the Department of Health (“DOH”), in terms of section 22G of the Medicines and Related
Substances Control Act, No 101 of 1965 (“MRSC Act”), as amended1.


DOH has given the public 3 months to submit comments on the Regulations. The Competition
Commission (“Commission”) welcomes the opportunity to comment on these regulations.


This document outlines the relevant provisions of both the MRSC Act and the Regulations, refers to the
relevant provisions of the Competition Act 89 of 1998 (“the Act”), as amended2, raises general as well as
competition-specific concerns in respect of specific clauses in the Regulations and recommends certain
alternatives and/or revision of clauses.


2.         The role of the Competition Commission


The Commission is an economy-wide regulator established in terms of section 19 of the Act to
investigate, control and evaluate restrictive practices, abuse of dominant position and mergers, with the
overall objective of promoting and maintaining competition in the market.


The Act came into effect in September 1999 and prescribes principles to, inter alia, achieve a more
efficient and effective economy, provide markets in which consumers can have a choice of products and
competitive prices and restrain particular trade practices that undermine a competitive economy.


Section 21 of the Act clearly outlines the functions of the Commission, and this include the responsibility
to review legislation and public regulations over time and report any provision in such legislation that


1
    Medicines and Related Substance Control Amendment Act of 1997
2
    Competition Second Amendment Act of 2000



                                                                                                         1
permits anticompetitive behaviour and to ensure the consistent application of the Act across all sectors of
the economy. It is important to emphasise that the Act applies to all economic activity within or having an
effect within the Republic across all sectors of the economy.


In carrying out its functions, the Commission also plays an advocacy role, which include commenting on
draft Bills and Regulations published in various sectors, to ensure that all pieces of legislation passed after
1998 do not permit anticompetitive behaviour that undermine the spirit of competition. This is mainly in
view of the fact that once legislation or regulations permitting anticompetitive behaviour is passed, the
extent to which the Commission can deal with such legalised anticompetitive behavior under the Act is
limited.


Section 81 of the Act states that it binds the State. This means that the state and all state organs must take
into account, in advance, the effect of policies, regulations and legislation that they seek to implement on
competition.


It is on the basis of both the above-mentioned mandate in the Act and the request for comments by DOH
that the Commission is making this submission.


3.         Provisions of the MRSC Act relevant to the Regulations


It is important to consider these Regulations in the context of the stated purpose of the MRSC Act, which
was enacted to, inter alia:


          regulate the control of medicines and scheduled substances,
          provide for measures for the supply of more affordable medicines in certain circumstances;
          prohibit bonuses and sampling of medicines, provide for licensing of certain persons to
           compound, dispense or manufacture medicines,
          provide for generic substitution of medicines,
          provide for the establishment of a pricing committee and
          regulate the purchase and sale of medicines by wholesalers.


Section 22G(1) of the MRSC Act provides for the establishment of a pricing committee whose members
shall be appointed by the Minister as he/she deems fit. Section 22G(2) further provides that the Minister
of Health may, on recommendation by the Pricing Committee, make regulations:




                                                                                                             2
         on the introduction of a transparent pricing system for all medicines and scheduled substances
          sold in the Republic;
         on an appropriate dispensing fee to be charged by pharmacists or a person licensed in terms of
          section 22C(1)(a).


In terms section 22G(3), the transparent pricing system shall include a single exit price (SEP), which shall
be published as prescribed. The SEP shall be the only price at which manufacturers shall sell medicine
and scheduled substances to any person other than the state.


The Regulations in question are therefore pursuant to and in line with the above provisions of the MRSC
Act.


4.        Specific Concerns Regarding the Regulations


4.1       The purpose of the Regulations not clearly stated


Though the purpose of these Regulations can be deduced if read in the context of the purpose for the
enactment of the MRSC Act, the Regulations do not expressly outline the purpose. It appears that they are
aimed at not only promoting a transparent pricing system, but also to control the price at which medicines
are sold by the manufacturer, distributor, retailer, pharmacies and/or other persons licensed in terms of
section 22C(1)(a) in the Republic.


Whereas we understand the need for a transparent pricing system in general, it is not clear what the
intended outcomes of the pricing system in the manner contemplated in these Regulations are. Is the need
to control prices aimed at addressing certain concerns in the industry that DOH has identified as a cause
of apparently high prices charged to consumers?


There is unfortunately no memorandum or research document attached to these Regulations to assist us to
understand amongst other things:


         the need for these Regulations in their current form,
         what DOH seeks to achieve through these Regulations,
         specific problems identified in the industry that necessitated development of these Regulations,
         what other mechanisms were explored to address problems identified before deciding on the
          mechanisms set out in these Regulations and
         stakeholders that have been consulted in the process.



                                                                                                             3
We therefore propose that the purpose or objectives of these Regulations be clearly stated to make it
easier to assess if the Regulations in their current form will achieve those stated objectives or whether the
proposed form of regulation is the best option to achieve such stated objectives.


4.2         Single Exit Price System (SEP)


4.2.1       Use of the Blue Book as a basis and the proposed 50% cut off the Blue Book price


According to Regulation 5 of the Regulations, the SEP is supposed to be set by the manufacturer/importer
concerned, provided that for a period of one year after the commencement of these Regulations, such
price shall not be more than 50% of the manufacturer‟s net price (“MNP”) as reflected in the Blue Book.
This means that the SEP is capped at 50% of the Blue Book price.


We are concerned about the decision to use the Blue Book as a basis for setting the SEP. We are not
aware of any research findings that indicate that the Blue Book price minus 50% is necessarily a
reflection of prices that would fairly reward manufacturers, i.e. what might be termed their „true‟ MNPs.
Thus chances are the prices after the 50% cut may still be artificial or may actually be below the actual
MNP.


The choice of a 50% reduction to be applied across all types of pharmaceuticals assumes that there are
equal mark-ups applied to all products, whereas this may not necessarily be the case. Pharmaceutical
manufacturers have stated in various reports that for some products, a 50% reduction in prices would not
be possible without losses being sustained. Also that discounts offered vary on a company by company
and on product-by-product basis. Therefore, we are not only concerned that the 50% figure may have
been chosen arbitrarily, but that it would also affect different products and different manufacturers.


Though there is no indication as to how the 50% cap was arrived at, media reports on the Minister of
Health‟s statement in announcing the Regulations suggests that the 50% is informed by the apparent gap
between the MNP and the price effectively charged. It is suggested that prices are inflated to allow for a
system of bonuses, rebates, incentive schemes resulting it hospital groups, pharmacy groups and major
outlets to obtain medicines at prices 50% or more below the listed MNP. Due to complex mark-ups in the
distribution chain, the consumer seldom benefits from the incentive schemes. In any event, these
incentive schemes are discriminatory in that not all outlets are eligible3.




3
    Article in Bua News: 15 January 2004, ‘SA to pay less for medicines, Tshabalala Msimang’



                                                                                                           4
If the suggestion of prices being inflated is correct, equally certain prices reflected in the Blue Book might
have been inflated more than others, to reflect the fact that competitive conditions between drugs and/or
manufacturers do vary. Further, the suggestion that the incentive schemes are discriminatory may indicate
that firms are not able to offer the 50% or more below the MNP price without a loss, which they probably
recoup from those sales where they do not offer such discounts.


While there is a possibility that prices are inflated, there is unfortunately no report or memorandum to
these Regulations indicating that research was done by DOH, or any institution commissioned by it, the
finding of which justify the 50% cut. It is thus our view that to assume that prices were inflated by that
much without empirical evidence is too simplistic.


For instance, an analysis in 2000 by Duncan Reekie4on AIDS drugs indicated that manufacturers prices in
SA are among the lowest in the world, but that the retail mark-ups in the private sector are among the
highest. Manufacturers then got about 55% of the price of drugs, while wholesalers added 11% and
retailers 34%. SA‟s prices for manufacturers were low compared to Germany were manufacturers got
65% while in Sweden they got 88%. The study identified the existence of cartel-like distribution in non-
competitive retail market as the cause for high retail margins. A study of this nature by DOH would be
good as a basis rather than an arbitrary 50% cut across the board.


The arbitrary 50% cut-off departs from the intention of the Regulations to have the SEP set by the
manufacturers and not government. The Regulations define the single exit price as including all costs
associated with the manufacture or sale of the medicine or scheduled substance. The effect of these
Regulations is that manufacturers will just cut their prices by 50% (maximum) and start increasing them
from that point, whether or not the 50% cut off in the Blue Book price actually reflects their „true‟ net
prices. It seems therefore that government will indirectly set the SEP contrary to the intention of these
Regulations.


To the extent that the 50% cut may not be the correct reflection of the MNP, it may pose operational
problems for firms in the industry and may threaten survival of certain firms, particularly given the fact
that prices can only be increased once in a year. Further, manufacturers do not determine the extent to
which the increase can be done and the procedures associated with the application to increase prices may
add to the costs of doing business in the industry5.




4
 SA battle with AIDS and drug prices, a brief analysis No 334, 13 Aug 2000, National Centre for Policy Analysis
5
 Rule 6 states that the Minister in consultation with the pricing committee will determine the extent of the increase annually. Rule 8
provides for the authorisation of increase in exceptional circumstances.



                                                                                                                                     5
It is further not clear if firms can determine their price based on their geographic location to take into
account different prevailing conditions of urban and rural areas. Since the cap is 50% of the MNP and it is
not stated that it would be geographic, the SEP as it is may result in over compensation of other players
situated in areas with low costs. Again if the 50% is too high compared to the costs of the manufacturer,
then there may be a need for further regulation of entry as high margins may needlessly attract entry. This
has been the experience in Hungary and France6.


4.2.2     Application and Effect of the SEP


Though the Commission aligns itself with the importance of having a transparent pricing system and a
reduction of prices, it does not necessarily agree that the SEP as proposed in the Regulations is the best
way to achieve this.


The SEP is effectively price control. In this instance, it is a maximum price. Maximum prices are set in
order to, among other things, keep the prices of basic goods/services low and avoid excessive pricing and
exploitation of consumers. However, where there is a need to intervene in prices, price regulation theory
indicates that subsidies are preferable to maximum or minimum prices. Since maximum prices are set
below equilibrium price, not only would they distort the market by creating excess demand but also have
the potential of affecting competition, and the viability of participants, in the market.


Where government nevertheless decides to persist with the SEP system, manufacturers should at least
have some say in the setting of these prices to reflect scarcity, cost, and demand, based on efficacy.


Regulation 6 clearly states that SEP applies only to private sector and not government. Thus government
will continue buying drugs through the tender system. As a monopsonist, government is able to negotiate
attractive deals, putting it at a competitive advantage vis–a-vis the private sector. To the extent that
government may be in competition with the private sector, the discriminatory application of the SEP may
affect competition negatively. This may mean further divergence and distortion in prices paid by the
private and the public sectors.


These Regulations also have the potential of affecting SMEs negatively and may result in them exiting the
market. The phasing in of the system does not appear to allow for much time for firms to organise
operations to address negative effects that may arise from introduction of the SEP in its current form.
Costs of complying with new requirements may raise the costs of business thus affecting SMEs more.




6
    OECD Report



                                                                                                         6
Still on phasing in of the SEP, the period of 45 days provided for in Regulation 27 for the sale of
medicine already in stock does not seem reasonable. Sale of stock depends on number of factors, such as
demand for a particular product at a particular point, which may result in failure to sell within 45 days.
We therefore propose that the period be reviewed or that an exception be created in the Regulations to
allow sales beyond 45 days.


Regulation 7 provides for the SEP to be decreased many times during the year, but can only be increased
once a year. The fact that it can only be increased once removes the incentive to decrease the price at any
time, irrespective of what the changes in the market conditions are. The uncertainty regarding the extent
of the increase that the Minister, in consultation with the pricing committee, may allow, and costs that
may be associated with the procedure of increasing the price under exceptional circumstances would also
make firms wary of taking the risk of reducing the price. In balancing the pros and cons of decreasing the
SEP, the cons seems to be more and it is unlikely that a manufacturer will decrease its prices.


Regulation 6 provides that a manufacturer may not sell at any price/charge any fee other than SEP to a
person other than the state. This means that a firm is prohibited from offering any discounts even for bulk
purchases. Manufacturers are thus compelled to treat all customers alike, whether they buy in bulk or not.
This ban on negotiations between manufacturers and retailers may prevent situations of discriminatory
granting of discounts/rebate. However, the fact that it does not even allow for differential treatment
similar to the one allowed in section 9 of our Act denies consumers the efficiency gains that might arise if
the conduct was permitted. This eliminates price competition and is contrary to principles outlined in the
Act.


Regulation 4 states that the immediate container of every medicines or scheduled substance intended for
sale to a user must reflect the SEP. Though it can be assumed that since the manufacturer sets the SEP, it
would be the manufacturer‟s responsibility to ensure that the SEP is reflected, Rule 4 is not clear on
whose responsibility it is. We propose that the regulation be revised to state the responsible person clearly
to avoid possible confusion. We further propose that the responsible person be required to publish a price
list that should be placed at an area where a customer would be able to read it. This will not only
minimise confusion but will increase access to information for consumers to make informed choices on
products and prices.


Further, since the SEP will be the only price at which medicines can be sold, reflection of the price on the
container may technically constitute both a minimum price (in that you cannot discount it) and maximum
price (can‟t go above). Thus to the extent that this amounts to minimum resale price, in the absence of the
Regulations, it would constitute a prohibited practice (per se) in terms of section 5(2) of the Act. Thus
these Regulations legalise what is prohibited under competition law.


                                                                                                           7
Regulation 24 states that the Director-General (DG) may determine that the price of a medicine or
scheduled substance is unreasonable and communicate to the wholesaler, manufacturer, retailer,
distributor or importer in any manner, or to consumers by notice in the Gazette. Though Regulation 25
lists factors to be taken into account, it is not stated what the effect of such determination is. Will the price
be continued or will the DG recommend a reasonable price? Can the DG make such determination even if
the price concerned is within the extent to which a price may be increased as determined by the Minister
in terms of terms of Regulation 8? Who will play the monitoring function and advise the DG that a price
seems unreasonable? Will the notice to consumers merely be for information that they be aware of the
said unreasonable price for them to shop for a better price? We recommend that the effect of this
determination be clearly stated in the Regulations.


Finally, it is expected that price cuts in one area might result in increases in another area within the
interlinked health care system, for instance, hospitals might increase fees for wards, theatres of equipment
to compensate for lower margins in the sale of drugs. Media reports also indicate that the Minister of
Health hopes to use these Regulations to reduce prices by about 40% to 70% to the benefit of consumers7.
While this result seems very attractive in offering affordable medicines in the short term, it might not be
sustainable if firms start compensating for low prices of medicine elsewhere in the industry.


4.3         Restrictions on fees to be charged


The restrictions on the margins that may be earned beyond the factory gate may have a negative effect on
the viability of distributors, wholesalers and retailers alike. Again the restrictions appear to be general in
application, as the regulations do not indicate whether this would be geographic or not.


Since players are not compelled to charge or add percentages based on factors such as the size of market
and area of operation, it is unlikely that they will charge below the maximum price prescribed. For
instance, a distributor may charge 15% (maximum) irrespective of the proximity of the outlets.
Restrictions on margins have various disadvantages, for instance, if allowed profit margin is set too high,
a firm may have little incentive to control its costs. Not only do they relate to wasteful expenditure, but
can also affect competition. For instance, if a firm‟s marginal costs of marketing a substance is zero, this
can lead to barriers to entry in that the firm with zero marginal costs for marketing may increase its
marketing substantially to prevent new entrants. Further, if margins are set too low, firms may have little
incentive to innovate as the returns on their investments may not be realised to their satisfaction. This may
result in inefficient markets, which ultimately may push prices in the industry.


7
    Business Day: 16 January 2004, ‘Shake up for costs of medicines’



                                                                                                               8
It is also not clear how the percentages for margins and/or fees were arrived at. If they were determined
independent of the costs of relevant players, the danger is that one needs to ensure that the margins are
high enough to sustain even the most marginal firms in highest costs or lower volume areas. This again
may result in overcompensation, in which case regulation of entry and ownership of firms may be
necessary. For instance in Hungary they allow 1 pharmacy per 5000 people and no person other than a
pharmacist may own a pharmacy. In Denmark they introduced a system of profit pooling, which means
that most profitable firms will subsidise the least profitable in an attempt to deal with overcompensation.
In France, the sector is highly regulated and entry is also regulated as to 1 pharmacy per 2 500 people.


The other danger associated with fixed margins is that if a pharmacy‟s compensation is based on a fixed
% margin, the wholesaler or retailer will have an incentive to increase rather than reduce the price. This
may affect the development of the generics market or parallel imports. Where retail margins are fixed,
pharmacies have an incentive to reduce wholesale purchasing price. They may import low cost drugs
from other countries and sell them at high prices locally. While this may increase their profitability it
would not necessarily translate to lower prices for consumers in SA.


Having said the above, we propose that DOH ensures that the criteria for arriving at the proposed
fee/margin percentages is consistent and that the fee/margins can be said to be „appropriate‟ in order to
minimise the above-mentioned potential problems associated with the system.


With respect to the proposed fees payable to retailers, wholesalers and distributors, the Regulations seek
to place a fixed value on the services of each participant in the supply chain, regardless of the actual costs
involved. Depending on logistical variables such as the volumes delivered, or the distances travelled by a
distributor, a fixed fee as prescribed by the regulations might meet those costs, or it might over-reward the
distributor, or it might fail to meet the delivery costs.


Faced with these problems, there will tend to be a new search for equilibrium in the delivery and selling
of pharmaceuticals, and that might lead to unintended consequences. For example, pharmacies in remote
areas might not be able to survive on the prescribed dispensing fee, and that might be exacerbated by a
reduced willingness of distributors to make a low-volume delivery to a remote area when they cannot
charge more than the prescribed distribution fee. This may be more of a concern if the majority of the
wholesalers or distributors affected are SMEs and if such effect translates into substantial job losses.


5.      Proposed Alternatives to Price Control




                                                                                                            9
Regulations of the nature proposed by DOH make it illegal for manufacturers of products to negotiate
with retailers. This may actually keep prices high for consumers as it removes the benefit of efficiencies
that may be realised if such negotiations were allowed.


The nature of the industry in question is such that even under effective competition, prices of products
may be „high‟ because participation in the market is expensive, risky and time consuming, but more
importantly, because the product may yield significant benefits to the final consumer. There is further
major investment capital required for the development, testing, manufacture and marketing of the
products. The effect of high entry costs may be limited or ineffective competition, in which case prices
may be higher than warranted by the cost and benefit structure of the market.


While price control may be an option, there are other mechanisms that can be implemented to address the
problems in this industry. These are discussed below.


5.1 Encouraging the Dissemination of Information


The proposed Regulations are an attempt to provide consumers with transparent prices with which they
can make appropriate decisions concerning the potential benefit of the product relative to its regulated
price. An economic system functions more efficiently if the price of the product truly reflects the
production, development, and other costs associated with the product as well as the potential benefits to
the consumer (such as product efficacy) net of potential harms to the consumer (e.g., side effects
associated with use).


The proposed Regulations do not address any issues concerning the benefits consumers may derive from
the uses of different medicines. Even if the regulations allowed the manufacturers to set the single exit
price, which should allow firms to incorporate perceived net benefits to the consumers, it is not clear that
the final consumers of the medicines will truly be able to vote with their feet (choose the product that is
best for their condition, given the price of the product), which is an important determinant of the
effectiveness of competition in the market.


Generally, consumers trust their doctors to know what is best for them. Unfortunately, doctors do not
know all there is to know about the efficacy characteristics of different drugs. The typical patient is even
less likely to know, which is why they turn to their doctors and pharmacists. In order for doctors to make
the right decisions for the consumers, the doctors need to know more about the medicines available, or,
more realistically, the pharmacists must be able to act as consultants to the patient. Pharmacists without
the proper incentives (and this proposed regulatory structure completely eliminates pharmacist incentives)
will not have a reason to provide information to consumers concerning available substitutes, potential


                                                                                                         10
efficacy of products, nor any potential side effects of the prescribed medicines. Pharmacists should be
allowed the freedom to dispense advice as well as medications, in which case those same pharmacists
must also be allowed to charge for those services.


5.2     Encouraging competition in the industry


It is accepted that issues of safety and effectiveness of drugs cannot always be achieved by competition,
highlighting the need for regulation in this sector to a certain extent. Although competition is not a
panacea, there is a need to open up the industry to increased competition, particularly within the
distribution chain where competition is feasible. This will ensure that the industry and the economy at
large do not lose out on the efficiencies that may result from competition.


The OECD Report on Competition and Regulation issues in the Pharmaceutical Industry shows that
competition policy is applicable to the industry in almost all OECD countries, with regulation limiting
application to a certain extent. However, in our case it appears that not only will the mandate of the
Commission to deal with competition matters be limited, but may be excluded through these Regulations.


There is a move in the economy at large to open up sectors for competition, where such is feasible. This is
seen through changes being introduced in sectors such as electricity, fuel and ICT. It is therefore a
concern that the proposed Regulations prevent possible introduction of competition of competition in this
industry.


The Competition Act was enacted particularly to deal with anticompetitive conduct prevailing in this
industry. For instance, the alleged cartel like operation in the distribution of products can be investigated
and addressed under section 4(1)(a) or (b) of the Act. Discriminatory rebate and discount schemes can
also be addressed under the abuse of dominance provisions of the Act, in particular section 9 dealing with
discriminatory pricing.


Increased price regulation may increase barriers to entry in this industry thus further affecting
competition. It would also remove consumers‟ incentive to shop around in that prices are likely to be the
same irrespective of whether or not some firms may be more efficient than others. If consumers are not
price sensitive, there may be no need for firms to compete.


Closing the market for competition may also affect development in the generics market, and thus may
impact on the effective implementation of generic substitution clauses envisaged by DOH in the MRSC
Act. The OECD Report indicates that the Italian Antitrust Authority considers the fixed margin system as
hampering the growth of the generics market in the industry. A similar situation was confirmed in France


                                                                                                         11
when it was found that after years of price control, the generics market remained static and under
developed.


In view of the above, we therefore propose that DOH consider the potential benefits of competition and
the possibility of addressing certain aspects under the Competition Act, then determine the extent to
which price control of this nature may be necessary.


5.3     Parallel Imports


The MRSC Act provides for parallel importation of products, obviously within the confines of the Patents
Act and the Trips Agreement. DOH thus needs to encourage this in an attempt to influence the prices at
which medicines are sold, and where possible, ease the restrictions on persons allowed to import drugs.


Parallel imports would help firms to source patented products cheaper from other countries and sell them
cheaper in the Republic. However, it is important for DOH to ensure that this does not only benefit the
traders but that it is passed on to consumers.


This mechanism, when effectively managed, has been found useful in the European Union in that it
compels patent holders to decrease their prices in view of price competition that may result from drugs
sourced outside the country.


5.4     Generic substitution


The MRSC Act in section 22F provides for generic substitution, and is compliant with the Trips
Agreement. This mechanism is favoured particularly for developing countries in providing affordable
drugs to consumers. This is however not possible in respect of patented products, unless a compulsory
license has been granted.


Generic substitution basically forces pharmacists to prescribe a cheaper version of generic products,
unless a customer specifically wants a particular product or the prescribing doctor has indicated that the
medicine should not be substituted.


The system has proved to be effective in reducing the costs of medicines for consumers in countries such
as US, Australia and the European Unions. However, if the generics market remains static and under-
developed, this mechanism will not produce the desired effect.




                                                                                                          12
If generic substitution is not vigorously enforced, it is unlikely that it will achieve the intended benefits.
Thus it is recommended that since the MRSC Act allows it, DOH should increase measures to put it into
full effect.


Furthermore, consumers need to be informed about the system so that they understand how it works and
how they can benefit from it. Informed consumers will help monitor its implementation and enforcement
in that they will be able to report those outlets or pharmacies that arbitrarily prescribe expensive
medication instead of a cheaper, or generic substitute.


5.5        Compulsory Licensing


The South African Patents Act provides for compulsory licensing on patented products on various
grounds, including public interest ground. In addition to generic substitution and parallel importation as
other means of ensuring affordability of medicines, DOH should identify those products that may require
compulsory licensing and pursue it under the Patents Act.


Not only will compulsory licensing contribute to affordability of drugs, but it will also encourage speedy
development of generic products and allow early introduction of generics.


5.6        Reduction or removal of import duty on machinery and equipment


Attempts must be made to reduce or remove import duty on machinery and equipment used in drug
manufacturing. This may help reduce the costs of producing drugs and thus influence the price at which
drugs can be sold.


5.7        Reducing barriers to entry


By nature, the pharmaceutical industry appears to be expensive and the barriers associated with this
industry impact on the possibility of competition being fully introduced, as there is little entry by new
players.


DOH should make attempts to remove or reduce the costly barriers to entry. The Commission can also
play a role in this by dealing with conduct that adds to barriers to entry.


Subsidies in respect of research associated with this industry may also be useful.




                                                                                                          13
DOH can also increase measures to facilitate speedy registration of drugs and make the process less costly
for firms in the market.


6.      Conclusion


The Regulations in their current form would remove the benefit of competition in the distribution chain.
This may actually keep prices high rather than low for consumers.


The Regulations do appear to address the issue of transparency through the requirement to publish prices,
and the elimination of incentives, bonuses and so on. However, the extent to which it prescribes
transparency of prices can be increased by adding other mechanisms of making in formation more
accessible to the consumer other than the Notice in the Gazette.


It is further doubtful that the price control is contemplated in this Regulations is the best method to deal
with problems of high prices at this stage. Instead, it may distort the operation of markets and deny
consumers the benefits of competition.


We therefore propose that the Regulations be reviewed in view of the above comments.


COMPETITION COMMISSION
15 April 2004




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