South Africa’s growing regulation and oversight of firms operating within the pharmaceutical market is likely to continue over the coming years as the country remains unflinching on its quest to adopt its new Competition Act, according to Fitch Solutions.

In February 2022, the South African Competition Commission announced that it had filed a round of referrals to prosecute Switzerland-based healthcare company Roche Holding AG (Roche AG) and its subsidiaries, F Hoffman La Roche AG (Roche Basel) and Roche Products (Pty) Ltd (Roche SA) for their pricing of breast cancer treatment Herceptin (trastuzumab).

According to the Commission, more than 10,000 breast cancer patients, representing nearly 50% of the total number of newly infected patients in the private and public healthcare sectors, were unable to get much-needed treatment due to ‘excessive pricing’ applied to the drug trastuzumab. Association of SA (CANSA), a 12-month course of Herceptin is said to cost about ZAR485, 800 (US$31,880), or more if higher dosing is required.

“We at Fitch Solutions expect to see stricter monitoring and oversight in South Africa over the coming years as the country continues to adopt its new Competition Act. We note that South Africa amended its Competition Act of 1998 in February 2019, with the changes coming into effect as from February 2020.

“The Act saw a number of alterations, deletions and additions- tightening existing legislation regarding anti-competitive behaviour throughout the South African economy, and particularly by large firms, while also introducing a number of new powers and roles for various actors within the business environment. The Act grants competition authorities greater power and oversight on large firms and corporate behaviour”.
Fitch

Stricter Regulations to Reduce Investment

During the investigations, Roche declined to provide the Commission with its cost data and therefore the Commission considered three competitive benchmarks in its assessment. These were: Herceptin biosimilar manufacturing cost estimates; prices of a biosimilar drug supplied in SA; and value-based price benchmarks which relied on ratios estimating the additional value and/or the benefit attributable to Herceptin against the income per capita- a proxy of the affordability of Herceptin.

The Commission found that Roche is able to charge such a high price as it holds multiple patents on the drug, until 2033. Consequently, the Commission further found that Roche’s conduct also infringed several constitutional rights.

Based on the Commission’s findings, the excessive pricing took place between January 2011 and November 2020 in the private sector and between November 2015 and July 2020 in the public sector.

Noting these concerns, Fitch believes that, South Africa’s operating landscape will become increasingly challenging, reducing revenue earning capacity of dominant players and large corporations.

“We therefore believe that increased monitoring and scrutiny in the South African market will lead to a reduction of revenue earning capacity for drug makers in the country, making the country less attractive for investment.”
Fitch

Specifically, innovative drugmakers are more at risk given their reliance on patents and higher prices in order to recover their investments in R&D. Fitch posited that “this will limit potential of South Africa’s pharmaceutical market, and we forecast that the market will grow by a CAGR of 8.3% in local currency terms and 5.4% in US dollar terms over the next 10 years.”