You are using an older browser version. Please use a supported version for the best MSN experience.

Government still keen to push on with its Ketlaphela pharmaceutical company

Daily Maverick logo Daily Maverick 2020-06-08 Catherine Tomlinson for Spotlight
a close up of a toy © Copyright (c) Daily Maverick , All Rights Reserved

The rapid spread of Covid-19 has drawn attention to the vulnerabilities of global medicine supply chains and the heavy worldwide reliance on China for the critical active pharmaceutical ingredients (APIs) that make medicines effective.

Lawmakers in India, the United States and the United Kingdom have announced steps to reduce their dependence on China for APIs.

This begs the question, what can and should be done in South Africa? And what happened to Ketlaphela, the state-owned pharmaceutical manufacturer announced in 2012 to develop API manufacturing capacity in the country?

Vulnerability of medicine supply chains

Covid-19 supply shocks have highlighted deep vulnerabilities in South Africa’s medicine supply chain. Almost all APIs used in the production of medicine in the country are imported, with the vast majority coming from China and India. Pharmaceutical manufacturers in India are also largely dependent on imported APIs, sourcing over two-thirds of APIs by value from China, according to an April 2020 report by the Confederation of Indian Industries and KPMG.

In March, the National Department of Health’s Khadija Jamaloodien told Spotlight “if the situation persists, medicine shortages are a foregone conclusion” with regard to Covid-19-related manufacturing interruptions in China and associated medicine export restrictions in India.

Fortunately, China has now resumed the manufacturing and export of APIs, yet the vulnerabilities of our medicine supply chain remain exposed.

 Countries are making alternative plans

Covid-19 supply shocks have led India, the US, the UK and other countries to re-evaluate their reliance on China for APIs.

In March 2020, India set aside over $1-billion to finance projects to boost its domestic API production capacity and reduce reliance on China. In the US, a bipartisan group of lawmakers are promoting a bill to reduce the country’s reliance on China for medicines and their ingredients. In the US, Prime Minister Boris Johnson has called on civil servants to develop plans to reduce the country’s dependency on China, under the code name “Project Defend”

The backstory in SA

Since South Africa’s 1994 transition to democracy, the ANC has routinely expressed its commitment to local pharmaceutical production, state pharmaceutical production and API production to improve medicine availability, supply security and national self-sufficiency.

While these goals are generally viewed as complementary, it is important to pay careful attention to language, as there are important distinctions.

Government efforts to promote local pharmaceutical production typically refers to the use of incentives and protections to promote private local companies.

Government commitments to state production may refer to the establishment of fully state-controlled manufacturing capacity or, as with Ketlaphela, a public-private partnership between a state entity and a private partner.

Finally, government commitments to promote API production refers to the production of medicine ingredients. This requires different capabilities, inputs and facilities than those necessary for the production of finished pharmaceutical products, such as pills, tablets or capsules.

Manufacturing APIs is complex

David Walwyn, a professor of engineering and technology management at the University of Pretoria, explains there are no chemical reactions involved in formulating finished pharmaceutical products.

“You’re assembling multiple components, you are putting them together in a big mixer and then you are pressing pills, so the technology is mixing and pill pressing.” He adds that companies developing finished pharmaceutical products must show good manufacturing practices to ensure the quality and consistency of finished products and register products for sale with the South African Health Products Regulatory Authority (SAHPRA).

Walwyn notes that the production of APIs is more complex, requiring different technology and a different level of skills than needed for the production of finished pharmaceutical products.

“You start with raw materials and then you actually have to do multiple chemical reaction steps under carefully controlled operating conditions to produce APIs,” he explains.

“The chemicals are mostly very dangerous to handle and can have severe environmental impacts,” says Walwyn. “You just need one chemical spillage and you’ve got a disaster on your hands, so ensuring health and safety and environmental protection is critical for API production.”

Policies and resolutions

South Africa’s 1996 National Drug Policy, which was adopted as part of the ANC’s efforts to address inherited health inequities and ensure medicines access, called for the use of policy instruments to stimulate the domestic pharmaceutical sector to ensure “national self-sufficiency” in the production of essential medicines. 

According to the former Pharmaceuticals Director at the Department of Trade and Industry (DTI), Andre Kudlinski, the DTI, with the Department of Science and Technology, began exploring the viability of establishing a state-controlled pharmaceutical company and domestic API production as early as 1999 and subsequently commissioned a series of related feasibility studies.

In 2007, a resolution was taken at the ANC’s Polokwane Conference to “explore the possibility of a state-owned pharmaceutical company that will respond to and intervene in the curbing of medicine prices”. In the same year, the Department of Trade and Industry identified antiretroviral production as a strategic industry in its Industrial Policy Action Plan.

Five years later, in 2012, then Minister of Science and Technology Dr Naledi Pandor announced the establishment of a state-owned pharmaceutical company named Ketlaphela to produce APIs for antiretroviral medicines. She explained that the name Ketlaphela is a Sesotho word meaning “I will live or survive”.

More announcements about the project would follow. Former president Jacob Zuma announced the establishment of Ketlaphela to supply antiretroviral medicines to the Department of Health in both his 2015 and 2016 State of the Nation Addresses. The 2019 report from Cyril Ramaphosa’s Presidential Health Summit called once again for the establishment of a competitive state pharmaceutical company to “de-commodify essential medicines supply”.

Yet, despite this long history, Ketlaphela has to date not produced any medicines or APIs.

So, what happened to Ketlaphela?

Despite its repeated failure to launch, Ketlaphela’s moniker “I will survive” has proved apt as the company continues to endure and pursue new strategies to reach its goal of API production.

When the company was introduced in 2012, it was announced that it would be developed as a joint venture between the state entity Pelchem and the Swiss company Lonza. Pelchem and Lonza would have jointly constructed a facility to manufacture APIs for antiretrovirals.

The Lonza partnership, however, turned out to be unsustainable both in terms of projected domestic costs and the Swiss company’s appetite to absorb the project’s inherent risks. In March 2013 it was reported that Lonza had pulled out and in May 2013 Cabinet approved Ketlaphela’s search for a new private partner.

Ketlaphela is fully owned by the Nuclear Energy Corporation of South Africa (NECSA) subsidiary Pelchem, which is near the Hartbeespoort Dam in Pelindaba, North West. The selection of Pelchem as a site for API production was reportedly informed by the company’s existing fluorine manufacturing capacity. Fluorine is a chemical widely used in the development of pharmaceutical APIs. 

Kudlinski explains that Pelchem was selected because the Pelindaba plant is a leading global manufacturer of fluorine chemicals. “Fluorination is a key process used in the manufacture of a number of APIs including efavirenz, dolutegravir and emtricitabine.”

He adds that Pelindaba has sufficient land and utilities, including heating and extreme cooling, available to meet Ketlaphela’s requirements

Walwyn takes a more cynical view regarding the selection of Pelchem as a site for state-production of APIs.

“The Pelindaba plant was set up as a nuclear facility for the processing of nuclear fuel, so when the country stopped processing nuclear fuel the state had stranded assets that they had to use. They were losing over R10-million per year, so when fluorine-containing efavirenz came along, it seemed like a logical thing to do,” he explains.

He argues that the government’s decision to locate Ketlaphela in Pelindaba has impeded efforts to establish domestic API manufacturing capacity, as it is difficult to attract a partner and highly skilled individuals to work in the area.

“Pelindaba is a backwater, remote from centres of employment, supplier networks and logistics companies,” he notes.

In search of a new partner

From 2013 to 2018, Ketlaphela advertised several expressions of interest inviting bids from potential financial and technical partners and engaged several international and domestic pharmaceutical companies for potential partnerships.

Pelchem’s managing director and chairperson of Ketlaphela’s board, Ivan Radebe, says that in seeking to secure a partner, Ketlaphela’s strategy was rejigged to pivot the company to start in the short term with formulation and packaging pharmaceutical products to generate revenues and raise funding for the building of the API production facilities.

Walwyn explains that this strategy is called “backward integration”. He adds that in pursuing a strategy of backward integration Ketlaphela can “start to get market share on the basis of importing substances and then over time can replace imports with locally manufactured APIs”.

“Although the production of finished pharmaceutical products and APIs are two very different businesses and how easily they sit together has always been a question.”

Radebe says that Ketlaphela’s most recent efforts to secure a private partner were successful and the company has now secured a partnership with an international pharmaceutical company. He adds that Pelchem/NECSA has been busy securing necessary ministerial and legislative approvals for the project and, according to Radebe, an announcement by the government regarding the partnership will be forthcoming.

When will we see Ketlaphela branded medicines on the shelves?

Ketlaphela’s 2018 selection criteria for a private partner required that the company had existing registered dossiers for essential medicines in South Africa and the African region, as well as dossiers approved by the World Health Organisation and US Food and Drug Administration, which it would transfer to Ketlaphela.

Radebe says that Ketlaphela is in the process of transferring dossiers for registration from its partner to Ketlaphela and that “it is expected that finished products, starting with ARVs, will be supplied as soon as approvals from SAHPRA and other permitting processes are concluded”.

“Typically, it takes three to six months after all approvals for formulated products to be delivered to customers,” he adds.

Radebe says while Ketlaphela will initially focus on producing ARVs, over time it will seek to respond more fully to the country’s health needs, producing medicines for TB, malaria, diabetes, mental health and other conditions.

At this stage it remains undetermined where Ketlaphela branded products will be formulated and packaged. Radebe explains that there is excess formulating capacity among private pharmaceutical companies in South Africa and so the company may outsource the formulation of products, but adds that Ketlaphela’s “sister company” NTP Radioisotopes has the required good manufacturing practice (GMP) facility approvals for medicine formulation, and experience that Ketlaphela can tap into.

“Ketlaphela does not intend to burden the state,” Radebe insists, “and will not seek any additional commercial incentives or protections from government beyond those already available to domestic private companies as its business model is to be a fully commercially vibrant pharmaceutical company serving the needs of the country.” He adds that Ketlaphela is currently producing and selling hand sanitiser to generate cash flows to support the registration and marketing of its pharmaceuticals. It has also secured a partnership with the state-entity Mintek to begin manufacturing and commercialising medical diagnostics. 

Who will put up the money for API production in SA?

While there are many challenges to establishing API production in South Africa — including the limited availability of necessary skills and supporting industries and infrastructure in the country — financing high initial capital costs and ongoing operations costs remains a key challenge.

According to a 2017 presentation by Glaudina Loots, Director of Health Innovation at the Department of Science and Technology “high cost of investment, manufacturing costs and lack of skills” are the main hurdles to attracting large API manufacturers to invest in South Africa.

Despite strong commitments from international bodies including the WHO, Global Fund and UNAIDS to support local pharmaceutical production and self-sufficiency in Africa, the availability and affordability of financing remain a major barrier to strengthening the sector.

A report from the June 2019 Africa Pharma Conference explains that a “lack of access to affordable, long-term financing is a significant barrier facing pharmaceutical companies in Africa seeking to strengthen and grow their operations”.

“High interest rates in Africa make accessing credit on the continent extremely expensive. This challenge is exacerbated by currency fluctuations against dollar-denominated debt that can drive up the cost of debt servicing,” the report states.

Radebe notes that Ketlaphela will start locally in seeking to secure funding for the construction of API manufacturing facilities. He adds that Ketlaphela will continue to work closely with its primary funders, such as the Industrial Development Corporation, which have been very supportive to date and have funded Pelchem previously. Besides local funders, Radebe notes that Ketlaphela is investigating options to access financing from the New Development Bank established by BRICS states, among other sources.

While many will welcome that Ketlaphela is seeking to self-fund and avoid the traps of taxpayer reliance and bloated debt endemic among other state-owned enterprises, it is unclear whether its goals of API production are achievable without significant public financing contributions. And that’s where things may get complicated. Is it conceivable that the government won’t step in to rescue the company should it land in financial trouble after breaking ground on an API manufacturing facility?

 Can Ketlaphela compete on price?

Another key barrier facing Ketlaphela is its ability to compete with low-cost APIs coming from India and China, which have enabled massive price reductions for antiretroviral therapy over the past decade.

The policy questions are complex. If Ketlaphela cannot compete with international prices, should South Africa pay a premium for APIs today to ensure their availability tomorrow? Can we afford to do this given the fiscal challenges currently facing the country?

On the other hand, can we afford not to make such investments, given that millions of people living in the country require secure, lifelong access to antiretroviral treatment? There are currently around five million people on lifelong antiretroviral treatment in South Africa.

Stavros Nicolaou, CEO of local generic pharmaceutical company Aspen Pharmacare, argues that establishing domestic API production in the country will need government support. He suggests that the government should select 10 APIs to manufacture locally that are critical for public health and pay a premium for their procurement.

The way forward

The Covid-19 pandemic has renewed the urgency of questions around local production by highlighting South Africa’s dependence on China and India for medicine APIs.

In this vein, the United Nations Conference on Trade and Development’s James Zhan and Christoph Spennemann recently called on low- and middle-income countries to urgently boost local manufacturing capacity so that “they don’t get left behind” in the global scramble for Covid-19 treatments and vaccines once they become available. This is already widely reported to be the case for diagnostics and personal protective equipment.

Kudlinski, a long proponent of domestic API production who was closely involved in Ketlaphela’s establishment, however, believes South Africa may already have missed a critical opportunity to develop its API sector and that the timing is no longer right for this project.

“Both India and the US are planning to significantly boost their domestic API capacity to make them less dependent on imports from China,” he explains. This, he says, will create surplus API capacity in the existing plants in China, “which means that one can expect rock-bottom prices to sell the extra volumes”. 

Walwyn argues that establishing API manufacturing capacity remains vital for the country.

“If we have another ‘Covid’ next year and another one the year after, manufacturing capacity in the world is either going to be diverted or is not going to be available, so APIs will disappear,” he says. “There is no logic in being dependent on international suppliers for HIV, TB and malaria medicines and their ingredients; if you ever have an interruption of those medicines then your public health system will collapse.” DM/MC

*Some of the quotes provided in this article have been edited for clarity and brevity. Where this was done the amended quotes were checked by the source.

This article was produced by Spotlight– health journalism in the public interest.

South Africa in lockdown (Supplied by MSN) 

Sign upfor our newsletter and stay informed.

More From Daily Maverick

Daily Maverick
Daily Maverick
image beaconimage beaconimage beacon