For more than ten years, the German development cooperation has supported local pharmaceutical manufacturing as a systemic approach to improve access to medicines in Sub-Saharan Africa. According to a recent evidence brief having a local pharmaceutical industry can be a strong pillar of a country‘s health system. Local manufacturers could potentially deliver faster, adapt medicines to local needs and guarantee an emergency capacity in case of outbreaks or stockouts of essential supplies. Moreover, buying locally will support industrialisation efforts and create much needed quality jobs. Yet, doubts remain among the public health community if local manufacturers would ever be able to compete with low-cost large volume imports from India or China, which have captured a large market share in many African countries.
Unfortunately, data needed to settle this debate remains very patchy. This is why the Netherlands-based NGO Health Action International (HAI) developed a new methodology together with WHO to compare locally produced and imported medicines, based on the joint WHO/HAI methodology for measuring price and availability of essential medicines. First applied in a WHO-commissioned study in 2012 in Tanzania and Ethiopia, results were mixed: The Ethiopian government paid more for local products, but in Tanzania local products appeared to be cheaper. With respect to availability in facilities, locally produced medicines were more available than imports in Ethiopia, whereas the picture was reversed in Tanzania.
Six years later, a lot has happened in the world of local pharmaceutical manufacturing. In Kenya specifically, the German development cooperation has supported manufacturers and the government to improve the industry‘s competitiveness and business environment through many different channels. First signs of success have already become visible: Investors show interest in acquiring stakes in local companies, the Global Fund and other international buyers are negotiating with local suppliers and Kenyan companies report growing business with domestic procurement agencies. All this made Kenya a perfect case study to apply the methodology again.
Kenyan-made products have a price advantage – but it does not reach the patient
The study, which was funded by GIZ’s ‘Access to medicines’-programme, looked at a sample of 31 essential medicines and confirmed the optimism of local manufacturers. Both in the public as well as in the mission sector, procurement of local products exceeded that of imports. Procurement bodies tend to be guided by prices rather than by patriotism and this was the case here, too: Procurement prices for Kenyan-made medicines were on average 30 percent lower than for imported medicines at the Kenya Medical Supplies Agency (KEMSA), which supplies the public sector, and 25 percent lower at the Mission for Essential Drugs and Supplies (MEDS), which supplies faith-based facilities; and this is in spite of a local preference policy, according to which public sector facilities are allowed to pay up to 15 percent more for locally manufactured medicines.
Yet, the prices paid by procurement bodies differ quite substantially from those patients have had to pay in public sector pharmacies, hospitals and health centres. It was surprising that median mark-ups (i.e. the profit margin added to the KEMSA price at the point of a product’s sale to the patient) were considerably higher for locally produced products (177 percent) than for imports (35 percent), with wide variation for individual brands. These retail mark-ups do not just offset the local medicines’ actual price advantage, they also push the prices patients have to pay for them over the international reference price.
In the mission sector the mark-ups also inflated prices substantially, but imported products were still 33 percent more expensive than locally produced medicines. The same pattern holds true in the private sector where patients were paying 48 percent more for imported products than for locally produced products.
Local medicines are more broadly available than imported products
Not only do local manufacturers seem to be competitive with respect to price. Compared to imported products, the mean availability of locally produced medicines was considerably greater in the public sector and about the same in the mission and private sector:
Availability here means whether the medicine was in the outlet on the day of data collection. In the public sector, the availability gap between imported and locally made medicines was for some products, namely paracetamol or metformin, even more pronounced (over 80 percent for local products, ten percent or less for imports). These results could indicate that local manufacturers can ensure a more reliable or flexible supply-chain that may help to avoid stock-outs although a much larger data set would be needed to confirm this.
Medicines made in Kenya seem to have a solid foothold in their home market. Overall, about 55 percent of the products found in the stores had been produced locally with the remainder mainly coming from India, China and South Africa. Of course, the study only looked at those product types that are manufactured in Kenya and the total market share of Kenyan manufacturers is closer to 30 percent. Yet, it shows that in the categories where Kenyan manufacturers can deliver, they are able to outcompete imports.
Kenya’s pharma industry has come a long way – but it must address remaining challenges
However, the study brought about worrying results with regards to patient prices and availability that had initially not even been the focus of the research: Irrespective of the origin of a product, the observed gap between procurement and patient prices in Kenya appears immense. While median procurement prices for both KEMSA and MEDS were lower than international reference prices, the median patient prices were between 1.5 times (public sector) and four times (imported products in the mission sector) higher than the international reference prices. A cost driver here are mark-ups of intermediaries as well as duties and taxes. At the same time, the study found that many essential medicines were not in stock in many outlets visited. This confirms that such stock-outs remain a great challenge for access to medicines in Kenya.
All in all, the results could sooth some worries about the competitiveness of local pharmaceutical manufacturing. Kenya’s industry is on the way to be an important building block for its national and potentially also regional health system. However, access to medicines is a multidimensional challenge. The Kenyan government, industry, distributors and their partners need to find solutions for skyrocketing mark-ups and continuous supply-chain problems. Otherwise, potential health benefits of local production may never reach the patients.