South African Competition Commission announces stunning victory for access to cheaper drugs, holds GlaxoSmithKline and Boehringer Ingelheim responsible for excessive pricing and other anti-competitive practices

Health GAP, 17 October 2003
Contact: Brook K. Baker, 617-373-3217

Health GAP and AIDS activists worldwide celebrate a significant victory in the struggle for access to affordable medicines. Today, the South African Competition Commission issued a finding upholding a complaint by the Treatment Action Campaign and others against two pharmaceutical giants, GlaxoSmithKline South Africa and Boehringer Ingelheim, holding that both companies had charged excessive prices for their patent-protected anti-retroviral medicines and that they had unlawfully refused to issue voluntary licenses to generic competitors and unreasonably restricted production of fixed-dose combination medicines.

"After this historic decision, drug companies will no longer have carte blanche to set monopoly prices. Big Pharma's so-called 'discount prices are a public relations sham," stated Health GAP's Brook K. Baker, Health GAP member and a law professor at Northeastern University.

Professor Baker described the legal significant of the precedent setting decision, which represents the first good faith application of the historic Doha Declaration on the TRIPS Agreement and Public Health, a 2001 WTO agreement that prioritizes public health over absolutist patent protection. "First, the decision validates three important competition theories. It clarifies: (a) that drug companies' monopoly prices, even when partially discounted, can unnecessarily impede access to medicines; (b) that the refusal of drug companies to issue voluntary licenses to generic competitors can abusively impede competition; and (c) that the refusal to grant licenses can prevent manufacture of fixed-dose combination medicines, thereby complicating patient adherence to multi-pill treatment regimes."

"Second, the decision sets the stage not only for administrative penalties, it also permits the grant of compulsory license that would permit production of ARVs both for the internal South African market and for export to other developing countries. Eligible importers would include countries where the medicines are unpatented and those where the importing nation has issued its own compulsory license for import. Because the South African license would remedy anti-competitive practices, it would not be subject to the WTO domestic-use rule nor would it be subject to the red-tape procedural loopholes of the August 30 WTO Agreement on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health.

"Finally, the decision indicates that the South Africa is no longer going to suffer the fraudulent price reduction offers from big pharma, especially to the private sector. GlaxoSmithKline, for example, has historically set its private sector price in South Africa several times higher than its public sector price. The difference is such that four people could be treated generically for each patient treated at the private sector price."

Although the findings have now been referred to the Competition Tribunal for further adjudication, GlaxoSmithKline is already reacting to the precedent-setting decision and to the imminent threat of even greater price competition from generic manufacturers. Accordingly, it has further discounted its public sector not-for-profit price in South Africa by 32%. Moreover, Glaxo has expanded its previous voluntary license with Aspen Pharmacare, permitting sale not just in the public sector but now in the private sector as well and extending the geographical reach of the license from South Africa and Zimbabwe only to the entire Sub-Saharan African region. Nonetheless, Glaxo has resisted dropping its own insistence on segmenting the private and public sectors and thus its private sector price is still as excessive as it was at the beginning of the case.

Menzi Simelane, Commission at the Competition Commission, says in the Commission's media release that "Our investigation revealed that each of the firms has refused to license their patents to generic manufacturers in return for a reasonable royalty. We believe that this is feasible and that consumers will benefit from cheaper generic versions of the drugs concerned. We will request the Tribunal to make an order authorising any person to exploit the patents to market generic versions of the respondents patented medicines or fixed dose combinations that require these patents, in return for the payment of a reasonable royalty. In addition, we will recommend a penalty of 10% of the annual turnover of the respondents' ARVs in South Africa for each year that they are found to have violated the Act.

Asia Russell, director of international issues for Health GAP summarized the impact of this decision. "Excessive pricing and refusal to license have contributed to the premature, predicable and avoidable deaths of thousands people living with HIV/AIDS. It's about time that decision-makers acknowledge the importance of generic competition and that drug companies pay for the impact of their relentless pursuit of profits."

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