|
|
| Divisional
Review –
PHARMACEUTICALS |
| |
| Objectives
achieved for 2006 |
| • |
Integration
of acquisitions – Donmed,
vita-thion |
| • |
Continued
delivery of innovation pipeline
–
19 new products registered and
launched |
| • |
Strong organic
volume-driven growth in core
brands and major therapeutic
categories |
| • |
Launch of
Unite 4 Health and the Heart
of Soweto research project |
| • |
Market leader
position in South Africa in
healthcare maintained |
|
| |
| |
| |
| Objectives
for 2007 |
| • |
Continued
strong organic growth
in public
and private sectors |
| • |
Launch
of ARV portfolio |
| • |
Delivery
of innovation pipeline |
| • |
Transformation |
|
|
|
| |
|
|
|
| |
| Regulatory changes |
The South African Healthcare Regulatory
environment remains a challenge and will impact on the
Healthcare business in the coming years.
The core regulatory issues include: |
| |
| Price increases |
| Guidelines have recently been issued
regarding the implementation of price increases and
restriction of price increases to a maximum of 5,2%
in terms of Section 8 of the Regulations. It is doubtful
whether most of the Pharmaceutical business’s
chronic medicines category or hospital business will
be able to implement price increases due to the prevailing
competitive set. OTCs and branded products may benefit.
This will be the first price increase that has been
taken in three years. |
| |
| International Benchmarking |
Draft legislation concerning the
International Benchmarking of registered healthcare
products has been communicated by the Department of
Health in November 2006. In the first instance, products
of original research will be benchmarked against the
lowest price of the proposed reference countries –
Australia, New Zealand, Canada and Spain. Following
the establishment of prices for these products, generic
equivalents, where available, will be referenced priced
at a minimum of 40% below the originator. This legislation
is expected to have a minor affect on Adcock’s
business as most of our products of original research
are long past patent expiry and our generic range is
well-priced versus the competitive set and usually 30
to 60% below the price of the originator.
The Draft Legislation also refers to benchmarking branded
combination drugs against their constituent parts which
could affect brands like Syndol, Myprodol and other
combination analgesics which form a significant part
of Adcock’s portfolio. In addition, products produced
from the same factory with the same constituents should
be sold at the lowest price of those products in the
market, which would have implications for the OTC portfolio
of multi-branded analgesic and cough and cold remedies.
As with the implementation of Single Exit Pricing in
2004, it is expected that there will be extensive dialogue
between Government and the healthcare industry before
a final position is reached. |
| |
| New manufacturing standards |
Adcock Ingram has indicated its intent
to invest in a new manufacturing facility, for which
board approval for approximately R400 million has been
granted. This facility will comply with new exacting
PIC (Pharmaceutical Inspectorate Convention) standards
and facilitate the businesses’ ability to explore
export markets further.
The new regulatory standards are expected to create
further cost push in the business in 2007 and 2008.
Adcock Ingram is committed to the provision of affordable
healthcare for all South Africans and is entirely aligned
with Government’s stated objectives of improving
equity, affordability and access to medicines and healthcare
services. |
| |
| |
| “OTC is well placed due to
its portfolio of strong brand names such as Corenza
C, Syndol, Alcophyllex and Adco-Dol.” |
| |
| |
| Adcock Ingram Prescription Business |
Cost increases in active pharmaceutical
ingredients, fuel, labour and the adverse effect of
the rand/ dollar exchange rate, coupled with the inability
to take price increases in scheduled medicines, has
reduced margins in the overall Pharmaceutical business.
This trend is expected to continue, particularly as
pressure from medical funders continues.
The prior year’s acquisition and ongoing integration
of the Organon (Donmed) business was a highlight of
the year. This business has grown satisfactorily, positioning
Adcock Ingram strongly in the central nervous system
and feminine health categories, where it had not been
a major participant.
The Prescription category’s competence in the
Cardiovascular market continues to grow, and the business
is now the leader in private market unit sales. This
follows a focus on generating prescriptions and a successful
Adco branding campaign directed at healthcare professionals
and consumers.
Raising product awareness among doctors has been markedly
successful, with Adcock Ingram increasing market share
in the number of prescriptions written by doctors from
18,6% in 2004 to 20,3% in the review period, entrenching
its leading position. This is a valuable endorsement
by medical doctors across South Africa. Notably, Adco-Simvastatin
now generates almost the same number of prescriptions
for cholesterol treatment in the South African market
as the world’s largest selling cholesterol-reducing
drug.
The expiry of the Myprodol patent has prompted the entry
of several generics which compete with this brand on
price. The strength and continued support of the Myprodol
brand has meant that sales have been substantially less
affected than would usually be the case with new generics.
Market share and sales have been affected by low stock
levels due to capacity constraints in the factories.
Sales revenues have also suffered in a deflationary
environment, countered to some extent by strong volume
growth.
There are fewer products coming off patent in 2007 and
the focus will be on maximising the sales of products
launched over the last two years. The launch of a range
of antiretrovirals is also expected to increase sales.
There are still several therapeutic categories where
Adcock Ingram has no significant exposure and this will
provide scope for future innovative growth – markets
worth over R3 billion in annual sales. With an increased
focus on key account management (supported by related
skills within the Tiger group) and managed healthcare,
the Prescription business is well positioned for the
future. |
| |
| |
 |
|
| Product
innovation |
| Notably,
Adco-Simvastatin now generates
almost the same number of prescriptions
for cholesterol treatment in the South
African market as the world’s
largest selling cholesterol-reducing
drug. |
|
|
|
| |
| |
| “Following a substantial investment
in the in-house development of antiretroviral medicines,
Adcock Ingram is poised to enter this market in the
new financial year.” |
| |
| |
| Over-the-Counter (OTC) |
The OTC business (comprising Schedule
0 through 2 drugs marketed through the pharmacy and
FMCG channels) performed well during the year, and the
introduction of Vita-thion has provided an opportunity
to deepen our understanding of the Energy Tonics market.
In pharmacy, the focus was on promoting key brands in
“cold & flu” and analgesics, using traditional
retailing principles for fast-moving consumer goods
to support market share growth. Although the restriction
on advertising Schedule 2 products directly to the consumer
is a challenge, Adcock’s OTC portfolio is better
placed than that of its competitors due to its basket
of strong brand names such as Corenza C, Syndol, Alcophyllex
and Adco-Dol. The company’s OTC Pharmacy Academy
has grown since being established, and continues to
add value to pharmacists and assistants.
During the year, the business has rationalised some
smaller, lagging brands to increase focus and realise
cost-efficiencies. These benefits should materialise
in 2007. In addition, the business has been restructured
to focus on therapeutic classes where the group is currently
a small player. The restructure should facilitate the
implementation of strategies and increase portfolio
focus.
Panado was awarded the Sunday Times/Markinor top OTC
brand in its category in 2006, underscoring the strategy
to support existing core brands. |
| |
| Drug management and development |
During the year, Adcock Ingram’s
drug management and development function concentrated
on expanding the business pipeline to boost prospects.
Several licence and supply agreements for ethical, generic
and OTC products with principals in Europe, the USA
and India were concluded.
Agreements for new chemical entities from multinational
companies, such as Novartis and medium-sized companies
in the field of female health, were also signed.
Bringing products to market efficiently has been a key
objective. Despite fewer council meetings at the Medicines
Control Council (MCC), more dossiers were registered
in the review period compared to the prior year, and
registration timelines for most of our dossiers improved.
The antiretroviral pipeline is a business highlight,
with our MCC-accredited research unit, the first of
its kind in Africa, on track to complete the development
of all selected first-line antiretroviral generics.
The antiretroviral dossiers have been submitted to the
MCC and registration is imminent.
Including antiretrovirals, more than 75 dossiers are
in the MCC registration process. These dossiers cover
all major therapeutic areas: diabetes, cardiovascular
disease, dyslipidaemia, chronic respiratory disease,
tuberculosis and mental disorders.
At the beginning of 2006, we invested in a phase 1 research
unit. This ensures faster time to market since it eliminates
a major bottleneck in product development, namely bioequivalence
data collection. |
| |
| |
 |
|
 |
| |
Panado was
awarded the Sunday Times/Markinor top OTC brand
in its category in 2006, underscoring the strategy
to support existing core brands. |
|
| |
| |
| Public Sector Tender category |
The Tender category, which represents
both the prescription and OTC product mix in the public
sector, has shown good growth. Sales have grown over
38%, driven by a 30% volume increase.
The structure dedicated to servicing stakeholders in
the public sector has made sound progress in adding
value beyond the supply of medicines. Particular attention
has been paid to developing a more efficient supply
chain arrangement, which is expected to deliver benefits
in the 2007 financial year.
The category is well positioned to further develop its
business in the public sector. In the near term, the
category looks forward to the opportunity of launching
the antiretroviral portfolio in this market segment.
Additional growth is anticipated in 2007 through the
award of more tenders to Adcock Ingram. |
| |
| HIV/Aids |
Following a substantial investment
in the in-house development of antiretroviral medicines,
Adcock Ingram is poised to enter this market in the
new financial year. Dossiers are currently at the regulatory
authority and registration is imminent via the MCC’s
fast-track registration process.
The Adcock Ingram antiretroviral portfolio has been
developed to meet the requirements of the South African
government and the World Health Organisation (WHO).
The product range will include all first-line WHO treatment
regimen molecules, namely Zidovudine, Lamivudine, Nevirapine
Stavudine, Didanosine and Efavirenz for children and
adults. The next phase of development work will focus
on second-generation molecules.
Adcock Ingram aims to be a key participant in the next
South African tender for antiretrovirals in the fourth
quarter of the 2007 financial year. In addition, the
company will focus on attempting to have these products
available to the rest of the African continent. It is
anticipated that the introduction of the ARV products
will only begin to positively impact on the financial
results in the 2008 financial year.
In addition to antiretroviral medicines, the company
also has a range of medicines to treat opportunistic
infections in its portfolio. |
|
