Two months ago, after heavy pressure (including non-violent street protest) from the Treatment Action Campaign (TAC), the South African government announced that it would provide antiretroviral treatment to 1.4 million people within the next five years. This massive victory for South Africans was followed by December’s announcement that two major pharmaceutical companies - GlaxoSmithKline (GSK) and Boehringer-Ingelheim (BI) - who own more than half of the world AIDS drug market, would allow production of three of their antiretrovirals by generic companies in South Africa. The licensing deal - which will substantially drop the price of drugs throughout sub-Saharan Africa - was a result of a settlement after TAC filed anti-trust complaints to the Competition Commission, a unique South African government body.

TAC’s complaint was more than generous, arguing that a “reasonable profit” for the two companies would be the average profit margin of the patent-based pharmaceutical industry. TAC calculated the “economic value” of each of the three drugs in question by adding the price of the lowest-priced generic equivalent (an estimate of production cost) to the cost of research and development, and adding to that number the average profit of the patent-based industry. Even when using this generous formula, TAC found that a 300mg pill of AZT was priced at 2.58 times its economic value and a 150mg pill of Lamivudine was priced at 4.01 times its economic value [1].

GSK and BI have monopoly patents on the drugs AZT, lamivudine and nevirapine; these patents would not have expired until 2005 (AZT) or 2010 (lamivudine and nevirapine). While all three drugs were produced through taxpayer funded- research at the National Institutes of Health (nevirapine and AZT) or Emory and Yale Universities (lamivudine), the NIH and universities gave the research to private entities for a 1 to 4% royalty, and the private companies sold the drugs at prices upwards of 173% of production cost without any form of competition to regulate prices [2].

The companies, in pursuing their own profit motives, were therefore smart to settle the case rather than allow it to go to the South African Competition Tribunal. Had the Tribunal heard the case, the two companies would have been forced to defend their pricing, and therefore would have had to reveal their true production costs (estimated to be below 98% of drug price in many cases) and their profit margins (which are nearly three times higher than the rest of the Fortune 500 industry when calculated as a percentage of revenue, making the industry the most profitable in the world) [3, 4]. The Tribunal’s hearing would have also affirmed the principles of the WTO’s “Doha Declaration on TRIPS and Public Health” (referring to the Trade-Related Aspects of Intellectual Property Rights agreement), which calls for patent rules to be subsumed in the case of public health needs (not only in emergency cases, as often wrongly stated) [5]. Thus, a precedent would have been created to allow for tighter regulation and increased competition to challenge the current global pharmaceutical monopoly. In settling the case with TAC, GSK and BI therefore agreed to some forms of regulation. The terms of the settlement required that:

1. GSK will grant licenses to four generic companies (including Aspen Pharmacare and Thembalami Pharmaceuticals) to produce and/or import, sell and distribute the antiretroviral medicines AZT and lamivudine. Before the agreement with GSK was concluded and signed, GSK had only granted a license to Aspen Pharmacare, which included a massive royalty to GSK (increasing the price of the generic version of the drug) and had required Aspen to market exclusively to NGOs and the public sector, which is inappropriate in any sub- Saharan African countries, where the lack of public infrastructure in the wake of neoliberalism means that even the poorest classes often see private providers.

2. BI will grant licenses to three generic companies to produce and/or import, sell and distribute the antiretroviral drug nevirapine. Before the agreement with BI was concluded and signed, BI had only granted a license to Aspen Pharmacare. This provision will produce competition between generics, likely lowering price.

3. The royalty fee on the licenses will be no more than 5% of net sales of the antiretroviral medicines. Before the agreements with GSK and BI were concluded and signed, the royalty fee that GSK requested was 30% and with BI it was 15%.

4. The licenses will be for both the private and public sectors. Before the agreements with GSK and BI were concluded and signed, the licenses granted by GSK and BI to Aspen were limited to the public sector only.

5. The agreements with GSK and BI will also allow licensees to export AZT, lamivudine and nevirapine that are manufactured in South Africa to all 47 sub- Saharan African countries. Before the agreements with GSK and BI were concluded and signed, exports to sub-Saharan African countries were not permitted.

6. The licensees will be able to manufacture AZT, lamivudine and/or nevirapine in combination with each other and/or any other medicines for which the licensees have contracts. This is critical because it will allow triple-drug fixed-dose combinations, currently manufactured by at least two generic producers, to come to the market, dramatically simplifying treatment protocols and reducing the number of pills that HIV+ persons have to take each week and the frequency of dosing.

These terms provide us with some insights about the power of threatening anti- trust litigation (if not actually using it in countries where such complaints are possible). But they also provide us with cautions about how such litigation must be constructed if it is to produce public health benefits. There are several terms of the South African settlement that are not ideal, giving evidence to the power of strong pharmaceutical company lawyers. As pointed out by James Love of the Consumer Project on Technology, we must wonder why the two companies still gain a royalty on taxpayer-funded research after gouging consumers in the context of a plague, and why the companies are allowed to choose their own competitors [6]. One of the most important generic companies - Cipla of India - has consistently operated under an “alternative” business model of producing near or below cost to provide several drugs as quickly and safely as possible to poor countries, but has been excluded from this arrangement, limiting the ability of countries to make use of Cipla’s excellent production capacities and to produce the sort of “free trade” that might actually benefit consumers.

Nevertheless, the settlement is clearly beneficial for those in need of AZT, lamivudine and nevirapine in sub-Saharan Africa. The irony is that the day after the settlement was announced, a major study of HIV therapies was published in The New England Journal of Medicine, revealing that the best combination of drugs to treat HIV infection for those persons not yet receiving treatment was AZT, lamivudine and efavirenz [7]. Efavirenz and nevirapine are members of the same class of drugs, but are unlikely to work in the same manner. Efavirenz is also produced by DuPont, and is not part of the South African settlement. Therefore, as pointed out by Rahul Rajkumar of the Yale Medical School, South African physicians and their patients will still not be able to make use of the latest research on HIV therapies; such research is only beginning to emerge, as large trials of different combination therapies have taken years to conduct and evaluate. Treatment decisions in South Africa and elsewhere will be guided by trade rules and a patchwork of litigation, not by best practices and new research [8].

The context of the settlement and of this limitation faced by South African physicians and patients parallels the sort of problems faced by public health advocates after the US Trade Representative (USTR) resisted the implementation of the Doha Declaration on TRIPS and Public Health. A year after signing the Doha Declaration, the USTR began a long process of adding stipulations to the agreement, which have excluded most countries from allowing generic drug competition into their markets, as I have described elsewhere [9, 10, 11]. The result was a stringent and complex series of rules requiring countries to demonstrate a public health need and then submit themselves to a WTO tribunal before regulating their own drug markets. And so both in the case of the Competition Commission settlement, and in the case of Doha, those persons attempting to lower the prices of pharmaceuticals - both for AIDS and for other diseases -will have to bend-over-backwards to enter into specific drug-by-drug litigation, or disease-by-disease WTO approval processes that are unlikely to succeed.

The lesson here is that anti-trust litigation is immensely helpful, as is reform of WTO processes; but both are limited currently because they are so specific to AIDS, or to individual AIDS drugs, that their specific rulings will limit the flexibility needed for appropriate system-wide health improvements. Therefore, an appropriate second step for AIDS activists, beyond the kind of litigation that TAC has been so successful at, is to examine more critically the new sets of trade rules that are being proposed through the free-trade agreements crafted by the USTR. Challenging these new agreements (some of which call for over three decades of patent protection for new pharmaceuticals) will require joining with already-mobilized forces working against the South African Customs Union (SACU) trade deal and its accompanying New Economic Partnership for African Development (NEPAD), as well as those currently working to expose and transform the Central American Free Trade Agreement (CAFTA), the Free Trade Area of the Americas (FTAA), and the Enterprise for ASEAN Initiative. I have reviewed the specifics of these agreements in a separate piece [10], and some student organisations have begun to join international NGOs to work on the issue (www.fightglobalaids.org, www.amsa.org/global).

Linking our work on drug prices to the larger scheme of trade-associated problems promoting the spread of infectious and non-infectious diseases (such as forced migration [12], factory-labour-associated illness [13], and the crash in primary commodity prices that precedes changes in food use and subsequent diabetes rates [14]) will likely take us to a new level of public health advocacy, one that will hopefully move beyond our behaviouristic and disease- specific leanings and onto effective system-wide critiques that can offer a good complement to the work of groups like TAC [15]. So while anti-trust litigation offers the precedent we need to push the line of acceptable outcomes, our activism on trade agreements can extend specific cases to larger themes and wider practices that currently limit the success of our interventions.

* Sanjay Basu is at the Yale University School of Medicine. http://omega.med.yale.edu/~sb493/

* This article was originally published on the website www.zmag.org and is reproduced here with permission of the author. Please send comments to editor@equinetafrica.org. Click on the link below for references.