Country Report: South Africa

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An emerging country with a dynamic market, South Africa is widely seen as the gateway to Africa. From major multinational pharmaceutical corporations to burgeoning local generic companies, a wide range of industry players are present, developing their best strategy to make the most of the many opportunities within the country's borders and beyond.

Cover art 'Dejected' by South African artist Benon Lutaaya

In just the past few years, South Africa has hit several key economic benchmarks demonstrating the country's upward trajectory. The country recently achieved its 1st Millennium Development Goal (MDG), reducing the proportion of the population living on less than 1 USD per day by half. Additionally, South Africa celebrates its second anniversary in 2012 as a member of BRICS, the international economic organization that includes Brazil, Russia, India, China and South Africa. Inclusion into the group of emerging economies bolstered South Africa's global standing and brought hope for a significant increase in trade relations with its fellow member states.

Despite these major steps in the country's development, South Africa still faces significant challenges including the heavy burden of the HIV/AIDS epidemic, persisting poverty, and complicated racial issues. At the crossroads of these challenges, the national healthcare system is affected by major inequalities. Seventeen years after the fall of apartheid, a clear divide still runs through the country's healthcare sector. Fixing the system is one of the government's top priorities.

Dr Aaron Motsoaledi, South Africa's Minister of Health

Minister of Health Dr. Aaron Motsoaledi explains, "Today, discrimination has been cleared and abolished by the constitution. Unfortunately, we discover that we still have two healthcare systems, which, this time, are no longer defined by law. It is not written anywhere, it is not allowed by the constitution, but it is there, and it exists.... Whether you belong to one or the other is no longer determined by your color, but by how much money you have in your pockets."

In an attempt to remedy this situation, the South African government has launched some major national healthcare initiatives. From implementing National Health Insurance (NHI), to engaging in dynamic Public Private Partnerships (PPP), these initiatives are changing the face of healthcare in South Africa. Combined with a dynamic medicines market which includes both innovative drugs and branded generics, the South African market continues to evolve, revealing new opportunities along the way.

Vicki St Quintin, COO of PIASA

A NEW ERA IN HEALTHCARE

The Department of Health in South Africa is committed to completely transforming the country's healthcare system. Launched in 2010 by the ruling party, the African National Congress (ANC), the national health insurance program aims to ensure healthcare coverage for all South African citizens.

Under the current system, South Africans rely heavily on private insurance to access health services. In fact, the country has one of the highest rates of private insurance reliance in the world at 44%. However, only a fraction of the population can afford private insurance, resulting in what the government is calling a 'two-tiered health system.'

The government calls the reform necessary given the country's consistently poor health outcomes despite its relatively high proportion of health spending. Compared to other BRICS countries, South Africa's health contribution, more than 9% of its total budget to public health, is second only to China, which spends 10%.

Val Beaumont, executive director of IMSA

Health Minister Dr. Aaron Motsoaledi says the problem is systemic. "The problem is how the Gross Domestic Product (GDP) is distributed. In South Africa, 5% of the GDP out of the 8.5% spent goes to 16% of the population, while only 3.5% goes to the other 84% of the population. Now, this 16% is the elite, the well-to-do, the employed, the powerful, and the healthy. The remaining 84% of the population are mostly very poor, unemployed, very sick, and carrying the biggest burden of diseases."

The reform is scheduled to be implemented in phases over a 14-year period and is said to involve changes in the service delivery structures, administrative and management systems. The government has worked out a roadmap to boost public healthcare quality before the introduction of the NHI fund.

Luciano Marques, CEO and country president of Novartis South Africa (Pty) Ltd

Chief Director of the National Department of Health, Dr. Anban Pillay, says, "The focus is to improve the system so that when the NHI is ready, even those who are in the private market can use the public health system and be confident about it."

The government will create a fund derived from tax incomes through which private and public providers will be contracted, and patients will access services that will be paid through the fund. However, from a macro-economic perspective, there are concerns related to the modalities of financing. Critics say that the country's small middle class and 25% unemployment rate will make raising sufficient funds through the proposed tax scheme a major challenge.

Aspen Pharmacare, East London, South Africa

However, Pillay refutes these concerns. "Our costing had taken account of the worst case scenario. To assess what is the country's capacity to finance the NHI, we have looked at what the government is currently spending on healthcare as well as how much South Africans are spending on private medical insurance. Combining these two funding streams allows us to achieve efficiency in our purchasing."

From a pharmaceutical industry point of view, the NHI plan could represent significant growth opportunities. Luciano Marques, CEO and country president of Novartis South Africa, says, "The implementation of NHI will broaden the access of medicines to more of South Africa's citizens."

"Only 8 million people are currently covered by private healthcare insurance. An additional 42 million people can have more access to medicines through NHI. Broadening access to healthcare is closely aligned with Novartis' mission of caring and curing," Marques says.

Others from the industry are more cautious. Val Beaumont, executive director of Innovative Medicines of South America (IMSA), says, "Theoretically, South Africa is going to be a much larger market for medicines when we move to universal coverage with equal access to healthcare. However, in the same context, there are going to be new rules, new policies, and new requirements. Therefore we need to make sure that there is an opportunity for innovative medicines there, as clearly we expect a lot of pressure on prices in that environment."

Aspen: South Africa’s Leading Generics Provider

Richard de Chastelain, country division head of Bayer Healthcare South Africa, says that it is too early to give a prognosis on what NHI will mean for the pharmaceutical industry. "These are exciting times, but for the time being, we have to take NHI out of the equation as we do not know what that model is," he explains.

Similarly, Vicki St Quintin, chief operations officer of the Pharmaceutical Industry Association of South Africa (PIASA), says that the jury is still out. "We hope that the NHI will ultimately lead to a greater access to medicines and therefore greater benefits to the patients, while retaining access to innovative medicine. In other words, we would be very concerned if the system introduced would involve an 'always cheapest' type of approach, restricting choice for the patient."

John Fagan, general manager of Sanofi South Africa

FOSTERING PARTNERSHIPS

South Africa's move to providing universal health care through NHI is not meant to weaken the role of the private sector in public health. On the contrary: as part of the reform, the government envisions increased partnership with the public sector.

Dr. Motsoaledi says that NHI should strengthen collaboration between the sectors. "When we say we want to bridge that gap between the public and the private systems, we actually want to blend these systems so that they do not work as separate entities. That is what NHI is all about. Can you blend the systems in such a way that they support each other instead of being separate?"

Collaboration between the public and private sector is occurring in many areas of the healthcare and pharmaceutical industry across South Africa. For many, Public Private Partnerships (PPPs) are seen as a sustainable solution to some of the country's most pressing health challenges.

Michael Flemming, CEO of Life Healthcare

Last year, the treasury department announced that private businesses would be attracted to the public health sector to improve the quality of service in state hospitals. Critics raised concerns that private sector involvement would lead to expenditure increases, job losses and a decline in the quality of care. Proponents countered criticism by arguing that there are not enough state funds to make needed upgrades to public hospitals.

The Life Healthcare Group, a leading private hospital operator in South Africa, has the largest PPP in healthcare in the country. One of the group's hospitals, Life Esidemi, is managed in partnership with the government. Michael Flemming, CEO of Life Healthcare Group, says the collaboration is a success. "We have 4,000 beds which are full every day of the week, where we look after government's patients. Life Esidemi is the perfect response to the government's need to increase the number of beds available to its people."

Flemming believes that the PPP model provides a viable solution to the most pressing health challenges. "It is sad that the government is not using this model more. It is good model, a cheap model, which provides good quality care."

It's a model that has also proven successful in addressing other public health challenges. In 2003, Litha Healthcare Group, Ltd., a South African-based company with product offerings spanning across vaccines, pharmaceuticals, medical devices, and cold chain logistics, set up The Biovac Institute, a PPP which aims to improve the development and production of affordable, quality vaccines for South Africa and its neighboring countries.

Richard de Chastelain, country division head of Bayer healthcare South Africa

The Biovac Institute is the only human vaccine manufacturing facility in South Africa. Its mission is to ensure that the country has the required domestic capacity to respond to both local and regional vaccine needs.

Selwyn Kahanovitz, group CEO of Litha, says that a PPP was the right model given the public health need driving the institute's mission. "In our case, the PPP model also allows the government to have strategic input to monitor what is happening, but not to be in the driver's seat. It allows the private sector to operate, to drive, to make the business decisions. Meanwhile, the government is in the background monitoring and making sure that the strategic objectives are met," he says.

Sanofi Pasteur, the vaccine market leader in South Africa, contributes to the consortium. John Fagan, Sanofi's general manager of South Africa, says, "This partnership, which is fairly unique in our group, provides vaccines for the national pediatric immunization program as well as for the broader public health needs of the country, such as outbreak and mass immunization campaigns and seasonal and pandemic flu responses."

From increasing the number of hospital beds to improving the availability of vaccines, the government is working with the private sector in response to a wide range of public health challenges. Another PPP example can be seen in the effort to produce active pharmaceutical ingredients (API) nationally.

Litha: Expanding its Pharmaceutical Portfolio

With the largest population of people living with HIV in the world (5.6 million), South Africa carries 17% of the global burden of the disease. The HIV/AIDS epidemic remains the biggest threat to public health in South Africa. While there has been a significant improvement in affordable access to antiretroviral (ARV) treatment in recent years, especially thanks to local generic manufacturers such as Aspen, more progress needs to be made.

Not manufactured in South Africa, APIs are subject to unstable pricing with sensitivity to exchange rates. Stephen Saad, co-founder and chief group executive of Aspen, says, "The parts that are not local currency denominated tend to be the chemicals, APIs, and those do have Rand fluctuations. The most expensive chemicals are in ARVs."

Paul Anley, managing director of Pharma Dynamics

In response, South Africa will set up a PPP in order to manufacturer APIs at home. Health Minister Dr. Aaron Motsoaledi explains the strategy. "Today, Active Pharmaceutical Ingredients (APIs) are not manufactured in South Africa, so if we have such a high consumption rate, why can we not establish our own API manufacturing unit here? We want to secure the production internally, because we are the ones who are in need."

The government will invest R1.6 billion (about $204 million) in a plant to manufacture the APIs used in ARVs in a joint venture with the Swiss group Lonza. The project, named Ketlaphela, is to receive funding from the Swiss pharmaceutical company Lonza, the Ministry of Health, and the Ministry of Industrial Development Cooperation. The 50% state-owned facility should create 2,200 direct and indirect jobs and is to be located at the Pelchem's Pelindaba site, near Pretoria. Construction is expected to start in early 2013.

According to the Ministry of Industry and Trade data, if South Africa were to continue to import ARVs at the current rate, in 2016, the country would have to import 1,430 tons of APIs at a cost of R4.7 billion (about $500 million) at current exchange rates. The new facility could manufacture 40% of this in its first phase, with an increase in a possible second phase.

Stavros Nicolaou, chairman of Pharmisa

THE 'MADE IN SA' DEBATE

In the 1980s, South Africa was home to around 45 pharmaceutical manufacturing facilities. Today, only a handful remain. Should the government attempt to bring pharmaceutical manufacturing back into the country?

It's a question touching a number of South African industries. In an effort to create jobs, the government has put into place a number of policies to promote national manufacturing. In 2010, the Minister of Economic Development announced an overarching New Growth Plan (NGP) to create some 5 million jobs across all sectors combined over the next 10 years.

Erika Koppers, general manager of Roche South Africa

In this context, the government launched the Preferential Procurement Policy Framework Act (PPPFA), which sets high targets to favor domestic manufacturing. The legislation affects all industries, to the benefit of national manufacturers, including drug makers.

Dr. Motsoaledi says that when it comes to questions related to public health, economic factors should also be taken into account. "Health is a public good and health is a human right. That is the first and most important thing," he says.

"In the Alma-Ata declaration of the World Health Organization, health is a fundamental human right. The attainment of the highest level of health is the most important worldwide social goal. Of course, we do not remove the economic sector from health. In order to realize health you need the economic and the social sector, in addition to the health sector, to come into action," Motsoaledi says.

John D Hallam, chairman of Abex ­Pharmaceutica

Stavros Nicolaou, chairman of Pharmaceuticals Made in South Africa (PHARMISA), supports the policy and says that it's in the country's overall best interest. "The absolute national imperative for South Africa is the need to grow our economy at levels of around 7% of GDP. This is important in order to close the income disparity gap and create long-term political stability. Local manufacturing, with its multiple spin-offs such as an increased tax base, enhanced education, job creation, and improved service delivery are all closely interwoven to this national imperative. The case for boosting local manufacture is an extremely solid one," he says.

Richard de Chastelain, country division head of Bayer Healthcare South Africa, recognizes that South Africa public health priorities are not always aligned with corporate interests. "A country like South Africa, particularly in the area of health, arguably has more of a social responsibility to have competitive and fair prices, rather than to create large numbers of jobs. That is not to say that the two are mutually exclusive. However, the government, quite rightly, focuses on a limited healthcare spend to try to get the best price out of the market. Whether that is attractive to multinationals is a different story."

Laura Engelbrecht Joubert, general manager for Abbott South Africa

Some critics question whether the policy might be hindering another national priority: access to affordable medicines. Some believe that cheap medicines can best be secured through open competition. Paul Anley, managing director of Pharma Dynamics, is a strong proponent of global manufacturing and global supply and believes the policy will make it difficult for the country to compete with Indian manufactures.

"Primarily, the authorities are doing it to create employment, as the authorities do not appreciate the low level of employment in pharmaceutical factories. Although I believe it is a misinformed objective, considering the pharmaceutical industry has highly skilled and highly automated businesses," Anley says.

"The second objective is the security of supply, which is more associated with manufacturing APIs, less with finished or dosage forms. I do not agree that local manufacture will lead to an increased security of supply. The economic realities are that you will direct your capacity to markets where you will get the best price," he says.

John Norman, CEO of Nycomed South Africa a Takeda company

Policy supporters do not agree that favoring local manufacturing necessarily has a negative impact on prices. Nicolaou, from PHARMISA, says, "Not everything that is imported is cheaper. In many cases, a locally produced product costs less than an imported one. Furthermore, preferential procurement applies only to the public sector and public sector procurement is funded with the national purse. Therefore, the cheapest price is not necessarily the most cost efficient to national funding."

One of the few multinational corporations (MNCs) with a manufacturing plant in South Africa is Sanofi. Its plant employs 300 people and manufactures both TB products and ARVs. "Primarily, there is customer need, and a need to use products made in South Africa; thus, it generates employment," says John Fagan, general manager of Sanofi South Africa. "The other reason that the government would want pharmaceutical manufacturing plants on South African soil is to ensure security of supply, as treatment interruption in diseases like HIV and TB is a disaster."

DEALING WITH MARKET CHALLENGES

One of the biggest challenges that pharmaceutical manufacturers deal with in South Africa is the registration processes, which can take as long as four years. Every delay in registration is delaying market entry, opportunities for generic companies, competition, and lower prices.

The significant backlogs at the Medicines Control Council (MCC) are especially challenging for new companies. John D. Hallam is chairman of Abex Pharmaceutica, Ltd., a strategic marketing and technical services company founded in 2006. He says that regulatory delays can hold companies back. "There is a significant backlog in there which has slowed down the growth potential of a new company. People on the ground need support from the top, which is very slow. If you already have an established company with existing registrations, you can continue to live off that while you wait for new approvals. Abex is not that kind of company."

Roche's phelophepa mobile healthcare train brings primary healthcare to a different rural village in South Africa each week

Hallam says that regulatory improvement is not happening fast enough. "The Medicines Control Council and the Department of Health need a serious shake-up. They have plans to change, but the implementation is not happening ... There is a management issue there in my opinion, which the government itself sees, but as any huge organization, they are constrained by policies."

Roche's answer to registration delays is a Personalized Healthcare Concept (PHC), which takes patients from precise diagnosis to targeted therapy. According to Erika Koppers, Roche's new South African head since January 2012, PHC actually helps to reduce the time it takes to bring products to market.

MC Pharma: Facilitating Market Entry

Koppers explains, "By providing a targeted screening of patient groups, we are able to qualify patients and to predict in a more precise manner that our medicine will work with a sub-group of a specific patient pool. As the medicines are so targeted and the results are so fundamentally different from what we have seen before, these impressive results also convince regulators to shorten the approval process. It is very exciting to see that patients can benefit much quicker than they would have otherwise."

According to Koppers, this concept "has great potential to improve medical decision-making and to not only offer clinical benefits for patients but also economic benefits to regulatory authorities and funders."

Muhammad ­Bodhania, chairman of NAPM

BEYOND BLOCKBUSTERS

It's not a new story. Expiring single molecule patents, historically poor replacement pipelines, and rising R&D costs are pushing the pharmaceutical industry to move beyond the blockbuster model. It's an industry-wide challenge and South Africa is no exception.

Issues related to losing exclusivity rights are also affecting the South African operations of multinational corporations (MNCs). Local affiliates demonstrate varying degrees of creativity in remaining relevant and competitive in an evolving industry.

Some lean on company traditions. John Norman, general manager and director for South Africa, sub-Saharan Africa & Indian Ocean Islands at Nycomed, of the Japanese Takeda group, says its core values are strategically aligned with the South African market. He explains that South Africa is a "market for trusted brands in both innovative and generic medicines ... We have focused and will continue to focus on our core heritage and introduce new products in these therapeutic areas as well as enter new areas where our products can make a significant difference to patients' lives."

Figure 1: Previous period growth % in volume - IMS Data

Other affiliates favor proximity, trying to identify and find solutions to local needs. "Maybe in an unusual way, the best thing that has happened to Sanofi South Africa was that our pipeline did not deliver," says John Fagan, general manager of Sanofi South Africa. "We came to terms with the fact that we were not going to launch two new chemical entities every year. We, in turn, launched a local business development unit that searches for business opportunities which Sanofi can invest in, in order to grow our businesses," he says.

"From this initiative we have developed both a Generic & Consumer Healthcare Franchise, which has made our generic business model different. We have launched generics of our own products coming off patent, forming strategic alliances with other MNCs whose products will also be coming off patent—and we became the MNC company of choice to launch a second generic, owing to our expertise and trusted product quality," says Fagan.

Some critics are concerned that so-called "pseudo generics," describing the practice of originator pharmaceutical companies producing their own generic versions, are anti-competitive. They argue that such practice unfairly influences the market prices of future "true generics."

According to Paul Miller, managing director of South Africa for Mylan, the trend is ultimately detrimental for patients. "A lot of innovative companies are introducing pseudo generics to circumvent any future competition. Ultimately, the patients are not benefiting from this reduced competition."

Laura Engelbrecht Joubert, general manager for Abbott South Africa and Africa, maintains that a peaceful co-existence between generics and innovative medicine should be possible. "There is definitely an increased understanding that in most countries the generic and researched-based companies can co-exist to the ultimate benefit of the patient," she says.

"The same holds true in South Africa. Some companies are further down the road to understanding this than others, but I do believe that ultimately we will have to find a way to co-exist in order for us to have a successful pharmaceutical industry going forward. The two models are not and cannot be mutually exclusive," Joubert says.

Omar Ehsan, general manager of IMS Health Africa

What will happen in South Africa remains to be seen, according to Symon Vokes, senior manager, supplier relations, at IMS. "Worldwide, we have noticed that business models are transitioning to hybrid players, but to what extent are we seeing this happening in South Africa? Do local generic players have the capacity to go and patent products and ensure a pipeline? And on the other hand, are local players interesting targets for the innovative industry?"

For now, when it comes to the future business model in South Africa post-blockbuster, like in so many other countries today, many questions remain.

THE POWER OF BRANDS IN A GENERIC MARKET

Generics have overtaken branded pharmaceuticals in terms of market volume and this trend is expected to continue, taking into account that the demand for cheaper essential drugs, including antiretroviral drugs (ARV), is set to grow. The trend in the generic penetration follows the global trend, and today South Africa has a very high usage of generics, 60% in volume, 31% in value.

In fact, in 2011, the top two companies leading the pharmaceutical market in South Africa were locally-based, generic companies, with Aspen Pharmacare leading the way, and Adcock Ingram in second place.

Dr Guni Goolab, marketing company president of AstraZeneca South Africa

Stephen Saad, co-founder and group chief executive of Aspen, says, "This is one of the few countries in which two local companies are ranked first and second in terms of market share by value and where multinationals do not dominate this position."

Aspen is present in 100 countries and is the leading supplier of generic medicines across Africa and continues to grow. It completed the acquisition of the pharmaceutical division of Australian Sigma in January 2011. Today, the company represents 17% of the South African market, meaning that one out of every five scripts dispensed at a pharmacy is an Aspen script.

Saad attributes Aspen's success to strong brand awareness. "In the South African market, it is very hard to get acceptance around generics and generic substitution. We have been successful in marketing, and in investment in manufacturing and manufacturing facilities, to create the credibility and brand awareness that Aspen enjoys today."

Another South African-based company, Pharma Dynamics, also focuses on branded generics. Paul Anley, managing director of Pharma Dynamics, explains, "We have always had a great faith in the generic philosophy and we have always believed that generics would capture a significant part of the marketplace. In 2005, I remember telling Focus Reports how the South African pharmaceutical market was a branded generic market. It still is. Hence, we focus on calling on prescribing doctors, but we of course still call on retail, as well," Anley says.

It's a strategy that has also proven successful for Pharma Dynamics. The fastest growing pharmaceutical company in the country, it has grown more than 30% per year since its founding.

Vicki St Quintin, chief operating officer of the Pharmaceutical Industry Association of South Africa, says, "The generic penetration in South Africa is a growing phenomenon. For instance, for 2011, as of August, generics grew by 8% in volume, versus 0% for original products."

Despite this growth potential, some companies have false expectations, St Quintin warns. "Some see South Africa as if it were a developing market, out of which you could get massive growth; this is not the case, as South Africa has been a well-established market for years."

Ian Ross-Marsh, ­managing director of Teva South Africa

Nonetheless, Nihar Patnaik, country manager for Dr. Reddy's Laboratories, Ltd., an Indian generics producer, sees great opportunity for the company in South Africa. He says, "The growth potential is immense and directly proportional to the number of products introduced. We have plans to introduce a good number of products, based on the dossiers we have been filing. The growth chances are enormous."

A GATEWAY TO AFRICA

For the first time, Africa played host to the Annual International Generic Pharmaceutical Alliance (IGPA) Conference. Organized by the National Association of Pharmaceutical Manufacturers of South Africa (NAPM), the 14th International Conference took place in Cape Town, South Africa, November 1-3, 2011.

Opened by South Africa's Director General of the National Department of Health, Dr. Malebona Precious Matsoso, the two-day event gave delegates the opportunity to hear prominent local and international industry personalities and government authorities discuss current topics pertinent to the global pharmaceutical and healthcare sector.

Figure 2: Previous period growth % in value - IMS data

With representatives from institutions such as the Organization for Economic Co-operation and Development (OECD), the European Generic Association (EGA), as well as the World Health Organization (WHO), the conference gathered high-level international stakeholders.

Under the theme of "Breaking Barriers to Medicine Access," speakers discussed the sustainability of the current generic business model, regulatory developments affecting the industry, globalization and HIV/AIDS treatments, the impact of the diminishing innovator pipeline, competitive strategies involving intellectual property and patents, and the role of super generics and pseudo generics.

Figure 3: top 25 players in the total pharmaceutical market IMS data

With India as the IGPA's 2010 host and Japan to host the conference this year, the selection of South Africa to host this prestigious international event has great value. It reflects both the potential in South Africa and the confidence in the country's capacity to lead a pharmaceutical model for the entire continent.

Mohammad Bodhania, chairman of the National Association of Pharmaceutical Manufacturers (NAPM), says, "Although we would have liked more African delegates, I think this conference showed that South Africa and the world community understand the challenges the continent is facing."

Many industry leaders see South Africa as the springboard for conducting business in Africa. "South Africa is definitely a gateway to the African markets," says Dr. Timmy Kedijang, general manager of southern Africa for Novo Nordisk. "In terms of its economic strength, level of development, and information technology, South Africa is way ahead of most other African markets."

Novo Nordisk’s Changing Diabetes Bus

As Luciano Marques, CEO and country president of Novartis South Africa, puts it, "It is clear that South Africa is well positioned not only as an economic gateway but also as a healthcare hub for the rest of Africa." He adds, "The decision to explore potential business opportunities in Africa is a strategic one. It is not about expanding the size of the market, but about the long-term benefits of the role Novartis could play in Africa in the future. It is therefore critical that Novartis gains a deep understanding of developments in African markets," Marques says.

Novartis has established plants in Africa to discover drugs for subtropical diseases, showing the company's commitment to fighting diseases affecting the continent. In 2011, Novartis spent around $1.7 billion to support corporate social responsibility programs globally. South Africa also benefits from these initiatives, which include patient access programs that provide medicines for leprosy, malaria, tuberculosis and some forms of cancer.

Dr. Timmy Kedijang, general manager of Novo Nordisk South Africa

AstraZeneca decided almost four years ago to use South Africa as its springboard to sub-Saharan Africa. Since then, the company has dramatically expanded its presence in sub-Saharan Africa, having registered and launched AstraZeneca products across nineteen countries in West, East, and Southern Africa. It has led the company to triple its turnover across these markets between 2008 and today.

"South Africa's BRICS membership is clearly connected to its strong positioning in sub-Saharan Africa, not only in healthcare and pharmaceuticals, but across most other sectors, as well," explains Guni Goolab, marketing company president of AstraZeneca. "The entrance of Wal-Mart to the South African market is a good example; it was not just about South Africa but about the positioning of the company in sub-Saharan Africa."

Africa offers growing business opportunities and South Africa has the skills that international companies from Wal-Mart to the world's top pharmaceutical manufacturers are looking for to expand into sub-Saharan Africa. Companies take every opportunity to have their teams exchange views and harmonize technology platforms.

Brian Daniel, CEO and country manager of Pfizer South Africa

However, investors have to be mindful of the various cultures and the way of doing business across Africa. Omar Ehsan, IMS general manager of Africa, says, "The most widely spoken language in Africa is Arabic. As a result, being Africa-centric implies focusing on four different business cultures with various levels of healthcare provision for the population. Sub-Sahara and Central Africa currently still depend upon foreign direct investment and donor organizations that serve the healthcare needs of the population, while in North Africa, expansion of social insurance to improve access to healthcare is becoming the norm."

Ian Ross-Marsh, managing director of Teva Pharmaceutical, Ltd., says that it is important to recognize regional differences in Africa. Marsh says, "South Africa is considered by African countries as very much being the trend setter of what is available, especially if you are looking at the English-speaking parts of Africa. This is not the case in French-speaking countries, such as Senegal, which are still very much dominated by French distribution channels. However, strategically with regards to English-speaking Africa, especially in the south from the equator downwards and also West Africa, South Africa is going to have a very strong role to play in that market."

Merck: Transforming with South Africa

South Africa is expected to continue to become a leading player in Africa for the next three to five years. Consequently, the implementation of new national legislation, such as the National Health Insurance (NHI) system, will be observed very carefully by other African economies.

Some industry leaders are already looking ahead to the future potential in other African countries. "There are some very dynamic healthcare economies that are getting a lot of emphasis in Africa, namely Algeria, Kenya, and Nigeria," Ehsan says. "By 2015, Algeria is forecasted to reach $4.1 billion in pharmaceutical sales. It has a population similar to the size of South Africa and growth is fuelled mainly from income derived from oil and gas exports. As South Africa growth rates slow down over the next five years, healthcare economies like Algeria, Nigeria, and Kenya will experience strong high single-digit growth rates."

Dr. Iain Barton, CEO of RTT

MEETING AND EXCEEDING DIVERSITY REQUIREMENTS

The Broad-Based Black Economic Empowerment (BBBEE) is a national initiative meant to empower black individuals in South African society. According to the Department of Trade and Industry's website, "The fundamental objective of the Act is to advance economic transformation and enhance the economic participation of black people in the South African economy."

Passed into law in 2003, the Codes of Good Practice on BBBEE and compliance requirements were published in 2007. A BBBEE scorecard based on seven pillars, each with a relative weighting, was established to evaluate company compliance. This scorecard counts towards companies for tender purposes.

For some international companies, meeting the BBBEE requirements can be challenging. "Clearly, BBBEE is top of our agenda. However, for multinationals such as Abbott, it is not easy because we will never give up ownership. BBBEE is a challenge for us, but we need to find innovative ways to comply and improve our score constantly," says Laura Engelbrecht Joubert, general manager for Abbott South Africa and Africa.

Ian Ross-Marsh, managing director at Teva Pharmaceuticals, says that it is important to incorporate the principle at every level of operations. "The ways that we can become compliant are by our discretionary purchases, our social responsibilities, our whole office sales force, regulatory management, finance components, and by having a broad spectrum of people." On the discretionary side, Teva South Africa tries to purchase from companies that are BBBEE compliant as much as possible.

Umsinsi: Putting Employees at the Heart of Business

Dr. Timmy Kedijang, general manager of Novo Nordisk South Africa, is proud of a strong BBBEE scorecard. "We support the notion of transformation in general for the country by being aligned with the country's objectives of employment equity in terms of our staff. For example, we have recently increased our staff by 14%, and 75% of the newly recruited staff came from a previously disadvantaged background. On top of that, the company sources and procures goods and services from small to medium black-owned companies, last year reaching 45% of local procurement from black-owned companies."

Rob Botha, vice president UTi Pharma Africa

Pfizer has also made significant headway toward reaching BBBEE objectives. Brian Daniel, chief executive officer and country manager of Pfizer in South Africa, explains, "As soon as we finalized the merger with Wyeth, we decided to put together a plan of action in order to achieve an improved position as part of the BBBEE scorecard. We have just designated R1.6 million (or about 202,000 USD) for internal training program and for the on-boarding of several learners (mobile and disabled learners) as part of a credible learner-ship program, to be implemented over the next 12 months."

"This journey is a process, which can only strengthen our business resolve and furthermore, we see our commitment to a process of transformation as a moral obligation. As an American company, we are privileged to be here and do business and therefore we need to play a meaningful role in the development of both people and country," Daniel says.

DISTRIBUTORS GEAR UP FOR NEW REGULATION

In 2011, the Department of Health Care released a draft of new legislation that would make South Africa the first country in the world to introduce a maximum logistics fee. As distributors await its implementation, questions arise about how it might impact business going forward.

"As we are moving into 2012, what are the upcoming logistics fees and regulations going to do to compromise small to medium players in the wholesale channel?" says Dr. Iain Barton, CEO of RTT, a logistics services group specializing in the delivery of essential medicines to developing markets.

"We are now moving into a phase where the wholesalers become the big risks. Have they got the financial wherewithal and the economy of scale to survive regulated logistic fees? In our opinion, a lot of them do not," Barton says.

South Africa's distributors have faced a number of challenges in the past few years. Perhaps one of the biggest has been delivering needed essential medicines from city hubs to remote, isolated areas in short timeframes. Great progress has been made in this domain, mostly thanks to the inroads that specialized distributors made in the country.

South African-based pharmaceutical distributor UTi Pharma Africa prides itself on its far-reaching and timely service. Rob Botha, vice president of UTi Pharma Africa, says, "Our footprint, both through our own network and through the extended network of the broader UTi, is sufficient to make sure we can cover every location within the country's borders. We can service over 97% of our customers with a next day delivery, while the balance is serviced within 48 hours.

In recent years, another major challenge distributors have had to face has been the Single Exit Price (SEP). Part of the country's national drug policy, the SEP sets the selling price for all medicines registered for sale in the private sector. It's the price that leaves the manufacturers site until it reaches the pharmacy or prescribing physician.

Botha explains that although UTi Pharma has not been affected, the SEP can present challenges to distributors. He says, "The current concern with SEP is how annual increases are calculated, using the exchange rate as one of the elements. Quite frankly, from our perspective, operating within the borders of South Africa, the exchange rate is irrelevant, although I do believe that the government will entertain alternative ways of calculating the logistics fee portion to satisfy our local cost drivers."

As is the case in other parts of the South African pharmaceutical industry, distributors have to adapt to the SEP and any eventual fluctuations. SEP increases, although rare, have a significant impact on the distribution industry. "Obviously, a lot of our growth comes through the SEP increases of the manufacturers," Botha says. "Nonetheless, for distributors as well as elsewhere across the South African pharmaceutical value chain, the often-heard complaint is that the SEP increases are determined through fluctuations in the exchange rate."

Some say that the SEP limits the space where pharmaceutical companies can develop a competitive edge. "If one looks at the manufacturer and takes the classic 'Four P's Model' (Product, Price, Position and Promotion), in a world of generics medicines, which the South African market is more and more, everyone has the same product," Barton explains.

"Therefore, product is not a differentiator. In a world of SEP regulation, price is not a differentiator, and with the section 18A of the Medicines and Related Substances Control Amendment Act, which says you may not promote, promotion cannot be a differentiator either."

The South African government passed the aforementioned bill in 1997 in an effort to improve access to essential medicines in the country. According to Section 18A, "No person shall supply any medicine according to a bonus system, rebate system or any other incentive scheme." Some industry actors find such laws challenging when it comes to business development.

For distributors, this environment has driven them to focus on position, channel management, and integration with the front end in order to assist with the demand generation and fulfillment. For this reason, RTT's last acquisition was 3D Marketing, a sales and merchandising business and key account management organization that assists with demand creation on a contract basis.

Beyond that, RTT developed its consumer health business, which led it to win the GSK consumer health account. Today, the company is the biggest specialized service provider in over-the-counter products. RTT follows its clients into East and West Africa, as it believes in steep demand increases across the continent. "There is a bourgeoning private market. As the GDP of the country grows, as the percentage of healthcare expenditures of GDP grows, and as the emerging middle class moves into discretionary spend, the healthcare demand expands," Barton explains. "The most important thing that we have focused on is extending the service set, so that we provide an 'end-to-end' solutions set for the client base."

In terms of the company's growth strategy in South Africa and beyond, Barton says, "South Africa is a market of fast followers. We are fast leaders in some respect, as RTT, but we are also fast followers. We are leading the market in providing infrastructure capacity but we are following the market expansion that we are seeing through the client base as well."

UTi Pharma in turn is going forward by building an R530 million (or about $67 million) warehouse and distribution center four times larger than their current facility, with the ability to expand to five and a half times its size. Part of the rationale behind the flexible expansion is the uncertainty about the influence of National Health Insurance (NHI) on the business. "We believe that a successful National Health Insurance (NHI) will require close partnership between private and public infrastructure, and this should be good for our new facility, although obviously there is still a bit of uncertainty as to what type of impact NHI will have on our business, and by when," Botha explains. Construction is scheduled for completion in 2013.

UTi Pharma has experience working with the government and hopes to continue collaboration with the government as NHI is implemented. Botha says, "We have tried and tested supply chains, and we are probably one of the largest suppliers of pharmaceuticals direct to the government, so we understand how to operate with them and we understand the challenges they face. We have already entered into a partnership with the Western Cape government, whereby we are responsible for the direct supply of chronic medicines to hospitals and patients in that province."

South African distributors have had to be reactive to what has been an evolving national drug policy. From new legislation on logistics fees to the implementation of the NHI program, ongoing changes mean that industry leaders must stay alert and ready to adapt to remain successful in South Africa's healthcare environment.