Local factories are heading for devastation if the government doesn’t raise the price-increase threshold for medicines, says Adcock Ingram, as local pharmaceutical manufacturers struggle to keep up with soaring imported ingredient costs.
Adcock Ingram CEO Andrew Hall told News24 that if the local industry did not receive permission to pass on reasonable price increases, it could ultimately lead to SA becoming mainly an importer of prescription medication, which would destroy local innovation and factory jobs.
“We have three factories in South Africa and shareholders want a return… Factories must operate at a certain minimum capacity, depending on their overhead structure and generate a certain amount of product. If we have products that become unprofitable, we would have to stop making those products and then eventually close factories.”
This would result in job losses, and everything being imported from India, he added, “which is not a good model”.
Local factories rely on imports of active ingredients, priced in dollars or euros, from other markets.
Industry at risk
Adcock, which sells household names like Panado and Corenza-C, reported that the low single exit price (SEP) adjustment of 3.28% granted to the local pharmaceutical industry was “disappointing” and would not compensate for the “abnormal” cost increases in certain raw materials and packaging, as well as the weak currency and above inflation increases in wages and utilities.
The SEP is the maximum price medicines can be charged in SA.
Hall said price increases should be aligned with SA’s consumer price index.
“To give the industry less than inflation increases when utilities costs are rising in double digits, wage increases are above inflation and the rand is depreciating by more than inflation, just doesn’t make sense if you want to sustain the local African manufacturing industry.”
Adcock was mitigating the risks of the low SEP rate by increasing its proportion of “non-price regulated products,” expanding more into homecare, personal care, healthcare and baby categories, where the company can pass on selling price increases.
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