Local production or manufacturing of generic versions of patented medicines is a key issue for many policy makers in Africa. Certainly the ability of a country to maintain local production of essentially needed medicines is a desired objective. However there are a number of considerations to be taken into account. The available technological, production and human resource capacities would be key factors in determining the domestic manufacturing capacity. Another important factor is the economic viability of such local production, particularly where such production is undertaken by private entrepreneurs as a commercial venture. Whether the production will be sustainable would depend on factors such as the size of the market and the demand for the produced medicine, as well as the ability to export such medicines.
Manufacture of Non patented Drugs
Any producer may manufacture a product that is not patented i.e. either no patent has been sought for the product or no patent has been granted, or where the patent on the product has expired.
Manufacture through Government Use
The government can assign to a government agency or ministry, or to a private company (as a contractor or subcontractor, the right to locally manufacture a patented product, without the patent holder’s permission. Such government use of a patent is allowed under Article 31 of the TRIPS Agreement, provided that such use is for public, non commercial purpose. This option is especially advantageous if it is part of national policy for the government to provide the medicines free or at a subsidized (thus non commercial) rate to patients. The government can also grant a compulsory license to a private company to locally manufacture the patented product. The TRIPS Agreement doesn’t restrict the grounds on which a compulsory licence may be issued, and the Doha Declaration on the TRIPS Agreement and Public Health further affirms the freedom of WTO Members to determine the grounds on which governments may grant compulsory licences. Local manufacturing under compulsory license can take place where the government of a country issues a compulsory license on the ground that the local “working” of the patent, in terms of local production may be granted to a foreign or local company, or to a non-governmental Organization. The use of compulsory licences to enable local manufacturing of patented medicines is an important component of ensuring access to medicines.
Compulsory Licence to Manufacture in Situation of Emergency or Extreme Urgency
Governments may also grant a compulsory licence in the case of a national emergency or circumstance of extreme urgency, to allow the local manufacturing/production of a patented product. The advantage here is that there is no need for prior negotiations with the patent holder for a voluntary licence, only a requirement to inform the patent holder as soon as reasonably practicable. The conditions however are that compensation should be paid to the patent holder by the compulsory license and there should be a determination, by relevant national authority that a national emergency or circumstance of extreme urgency exists, giving rise to the need for compulsory licence. The Doha Declaration makes it clear that it is the governments’s right to determine what constitutes a national emergency and a public health crisis including that related to HIV/AIDS, Tuberculosis, Malaria and other epidemics can represent a national emergency.
The African continent has a consumer market of between 4 to 5 billion tablets – capsules (tab – cap)/year considering only attendance to people with HIV/AIDS, Malaria and TB symptoms. This market is unevenly distributed among the countries making up the continent with only three (South Africa, Nigeria and Tanzania) having an individual demand (that is, more than 300 million tab-cap/year) enough to use the theoretical installed capacity of a pharmaceutical plant with a single production line for tablets and another one for capsules for HIV/AIDS, Malaria and TB medicines on a single shift. These three countries represent 36% of the African market. Other 5 countries (Ethiopia, Zimbabwe, Kenya, Democratic Republic of Congo and Mozambique) contribute another 27% of the market and the remaining 37% being shared among the rest of the 48 countries of the continent.
Although many countries in Africa are producing medicines locally, including antiretroviral (ARV), most of the pharmaceutical plants do not comply with GMP rules. Until March 2006 only Aspen Farmacare pharmaceutical plant, in South Africa, had been accredited by WHO.
Inputs Supply (Active Pharmaceutical Ingredient - API and Others)
The purchase of raw materials and medicines in general is done in a decentralized manner, thus reducing the buyer’s bargaining capacity. For local manufacture, the price of the purchase of raw materials, especially of the API is essential since in most of HIV/AIDS, Malaria and TB medicines the API price represents 50%, if not more, of the manufacturing cost. Besides, the fact that non-LDC developing countries are obliged to integrate TRIPs Agreement in their national patents legislation as of 2005 is another important factor in the supply of API as the main suppliers who do not hold patents, like China and India, are part of this group.
Revenues and Taxes
Legislation on revenues and taxes vary from one country to another. Some countries grant a special treatment to material intended for use in medicines and the medicines themselves, with the exemption of some tariffs, reducing taxes, etc, while others make no distinction between medicines and other products on the market
National Local Production
Although National Local Production has its advantages such as the retention of taxes, the increase in domestic industrial development, fewer difficulties in the use of TRIPS Agreement flexibilities, and in many cases a more economic distribution system due to its restriction to the producing country, the absence of a sufficient consumer market to absorb the production capacity of a pharmaceutical plant and generate purchase needs in big quantities make the establishment of local production at national level technically and economically not viable for most of the African countries.
Regional Local Production
Regional Local Production concentrates the demand of various countries thus generating the need for considerable quantities of raw materials, especially API, packing materials and others allowing for a better bargaining of prices with the suppliers. This is fundamental to ensure the sustainability of local production. In addition, concentrated demand allows for a better use of the installed capacity of the pharmaceutical plants, thus contributing to the reduction of the operational cost as the indirect costs (electricity, water, labour, analysis costs, etc.) are distributed through a bigger number of units produced. The negotiation with the suppliers and the reduction of the operating cost contribute significantly to the reduction of the medicines cost/manufacture. At the medium term, with a reduced cost/manufacture, it is possible to compete with international suppliers so as to attend to other regional or continental market.
In the medium and long terms, the region’s industrial development will also benefit as the pharmaceutical industry depends on the supply of many other materials, which can be produced regionally, including the production of API and other raw materials. Production in three to four regions minimizes the risk of interruption in the market supply due to any unforeseen event (damage to equipment, delay in the delivery of raw materials, API and others) at one of the pharmaceutical plants, as the plants from other regions may take over part of the production of the affected region. Local regional production minimizes the impact of the cost for the transportation of medicines from the place of manufacture to the consumption locations.
Besides, Regional Local Production does not eliminate the National Local Production especially to attend to the countries specific needs, just as it does not eliminate the need of importation of medicines. The main objective of regional local production is to obtain a reduction in the prices of the medicines with the economy of scale, and thus increase the access of the population most in need to essential drugs, especially the most expensive and in greater demand. However there is need to note that Regional Local Production may present some difficulties, prominent among them being the political agreement among the involved countries as to what should be produced, the purchase quantities, taxes and tariffs to be charged, medicines registration, and others.
Another difficulty will be in the use of TRIPS Agreement flexibilities since countries from a same region have different patents legislation and at the same time there are some classified as LDC, while others are not. Some Regional Economic Communities such as SADC and EAC have made significant progress in making efforts to develop regional strategies/plans of Action (SADC Pharmaceutical Plan) and EACs efforts to establish a regional Bioequivalence Center.
Considering, the establishment of a Continental Local production presents the same advantage of a regional local production, however the risk of interruption in the supply for any unforeseen event and the complexity in the distribution system, which may annul the competitive advantages obtained with scale production, discourage this kind of production.
Challenges/ Barriers for Local Production
The main barriers to local production of essential medicines in Africa include fragility of the National Regulatory Authority (NRA); lack of trained Human Resources; difficulties for the acquisition of the Active Pharmaceutical Ingredient (API) and use of the flexibilities of TRIPS Agreement.
The African Union Commission must lead the Local Production Project on the continent. The AU leadership role consists in obtaining the political commitment from all countries on the subject, to coordinate all the activities, to facilitate communication between the different areas (economic, financial, technical, legal, political, etc.) and regions, manage conflicts, receive instructions from the governments, collect and publish the results obtained, realign actions with the final objectives. The AU should be assisted by the international organizations as well as the different African Regional Organizations and Communities.
The strengthening of the NRA through the harmonization of medicines regulations, training in GMP, development of the Local GMP Certification are among the most important. They are essential for the improvement of quality in the local production. As the leader of the project AU should mobilise the required skilled personnel from the different activity groups working in this subject, share the existing information, update data and build the Local Production Project in Africa. There is need for the establishment of reference production prices and the purchase of drugs with the support of Research Institutions and establishment of mechanisms to give preference to acquisition of locally produced medicines as long as the offer prices are equal to, or less than the reference price, over a pre-determined period of time. For example purchase of 50% of the region needs from the Regional Manufacturing plant during five years. It will give trust to the pharmaceutical company in order for it to invest in the improvement of the plant.
There ought to be a review of legislations related to revenues and taxes, exempting the API from these and reducing the values for other items necessary for the pharmaceutical industry. The value of importation taxes for medicines, which are locally produced should be increased.
Excerpted from "Local Pharmaceutical Production in Africa" by the 4th Session of the AU Conference of Ministers of Health (Addis Ababa, Ethiopia)
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