Pharmaceutical Companies Beaten! _ April 19th, 2001
The Pharmaceutical Manufacturers Association and all the pharmaceutical companies have unconditionally withdrawn their lawsuit in court against the South African Government and AIDS activists. They have conceded to public criticism and the legal arguments prepared by TAC and the South African government and world-wide outrage.


Treatment Action Campaign Statement
24 April 2001

An Explanation of the Medicines Act and the Implications of the Court Victory

The court case victory against the Pharmaceutical Manufacturers Association (PMA) is a critical step towards establishing a legal framework for ensuring that medicines in South Africa are affordable. It also represented an important victory of activists, poor people and people with HIV/AIDS over corporate abuse of power. This was only possible because of a superbly organised global effort and the dedication of thousands of volunteers. TAC thanks all our allies and supporters for their contributions.

There have been a number of misconceptions circulating regarding the practical implications of the Medicines and Related Substances Control Amendment Act No 90 of 1997 (Medicines Act). This statement aims to clear up these misconceptions. Some commentators have stated that the new law allows the South African government to immediately proceed with the importation and production of generic versions of essential medicines. On the other hand, others have implied that the law will have no effect on access to medicine. Both opinions are wrong.

What Does the Medicines Act Do?

The Medicines Act introduces three important measures, (1) generic substitution of off-patent medicines and medicines imported and produced under compulsory licenses, (2) parallel importation of patented medicines and (3) a transparent medicine pricing system through the establishment of a pricing committee.

Generic Substitution

The generic substitution measure compels pharmacists to prescribe a cheaper generic version of a medicine, if one exists, when presented with a prescription from a patient. For example, suppose a doctor prescribes Bactrim (approximately R95 for a pack of 20), the formerly patented brand-name of an essential medicine with the scientific name of cotrimoxozole, to a patient, who then goes to a pharmacy to obtain the medicine. The pharmacist will be obliged to prescribe a cheaper generic version, such as Purbac (approximately R16 for a pack of 20). If a doctor writes the words "No Substitution" on the prescription, then the pharmacist does not have to substitute a brand-name drug with a generic.

Although some ethical pharmacists already practice generic substitution, many do not, especially when dealing with a population that is generally unaware of price differences between generic and brand-name drugs.

Generic substitution does not apply to medicines under patent, unless a compulsory license has been granted for a generic. The Patent Act, a law which is undisputed and TRIPs compliant, contains provisions for obtaining compulsory licenses and it is this legislation, not the Medicines Act, which will have to be used in order to ensure substantial, sustainable price reductions of anti-retrovirals and other essential medicines under patent.

Parallel Importation

The parallel importation measure has perhaps been the source of most of the confusion surrounding the Medicines Act. Parallel importation refers to the purchasing of patented medicines from foreign countries. It is based on the principal that once a product is sold, the seller loses all ownership rights over it. Parallel importation does not refer to purchasing generic versions of patented drugs; a compulsory license is required to do that.

An example of a medicine that the government and private sector pharmacists would benefit from importing in parallel is Ciprobay, Bayer's patented brand-name version of ciprofloxacin, an essential antibiotic. The South African government purchases one 250mg capsule for R2.93. However, in India retail pharmacists usually sell this medicine for R0.65 per capsule. The reason for this price differential is that Ciprobay has to compete against generic equivalents in India.

Pricing Committee and International Tendering System

Another element of the Medicines Act is the introduction of a pricing committee that will set up transparent pricing mechanisms. Pharmaceutical companies will have to justify the prices they charge.

The pricing committee can recommend that the Health Minister make regulations on the introduction of a transparent pricing system for all medicines. Drug companies will be allowed to set a single exit price for any medicine, meaning that pharmacies will not be allowed to charge an amount higher than the exit price. Instead, the Pricing Committee will recommend a dispensing fee that pharmacists can charge instead of a markup.

Benefits of the New Measures

Generic substitution will ease pressure on medical aid costs and reduce the prices of medicines in the private sector. This will render the private sector accessible to more people and ease the disproportionate pressure on the public health-care system.

Parallel importation will reduce the prices of some patented medicines in both the public and private sectors. Although these reductions will not, in general, be sufficient, they will free up resources in the public sector and allow more people access to the private sector.

At a minimum The pricing committee should force pharmaceutical companies to justify the prices they charge. It will also reduce over-charging by pharmacists in the private sector.

Future Pharmaceutical Industry Issues

There will probably be many more legal disputes with the pharmaceutical industry over the next few years. TAC, and hopefully the government and generic manufacturers, will work toward obtaining compulsory licenses for essential patented medicines. Either the multinationals will have learnt from the public embarrassment they experienced over the last few weeks and they will grant voluntary licenses thereby avoiding litigation, or they will continue to contribute to delaying access to medicine, at the expense of their reputations.

A common misconception regarding compulsory licenses is that they do not result in profits for the patent-holders. Compulsory licenses are usually accompanied by royalty payments on sales by generic manufacturers. While multinational pharmaceutical companies will experience they will still receive income from generic sales.

The pharmaceutical companies must act in good faith and not hamper the implementation of the Medicines Act. They have asked for representation in issuing the pricing committee regulations, which is fair enough, but civil society, particularly TAC, health-care workers, labour and government must be represented and have greater influence.

Also, companies that have publicly announced price reductions must implement them immediately. Bristol-Myers Squibb (BMS) stated that the combined daily price of anti-retrovirals ddI and d4T would be reduced to US1$ per day and that their patents on these medicines would not be enforced in sub-Saharan Africa. They have made this offer in bad faith, because it has not been extended to the private sector, the only significant supplier of triple-drug anti-retroviral therapy in sub-Saharan Africa. In particular, they have spurned a request by a private company, AID for AIDS, to receive ddI and d4T at the new price. The court case, in particular an affidavit by James Love of the Consumer Project on Technology, has exposed BMS as arguably the world's worst patent abuser. This is a company that specialises in turning publicly funded research into private profit. TAC will increase the pressure against BMS over the next few months to drop its prices and to unequivocally relinquish its publicly funded patents, without compensation.

Government's Responsibilities

But it is the South African Government that now bears the primary responsibility for fighting the HIV epidemic in this country. There work is cut out for them. They must:

* Enact the Medicines Act immediately

* Begin realising the implementation of a country-wide mother-to-child transmission programme without further unnecessary delays

* Apply for voluntary licenses on essential generic medicines immediately

* Invest more money into AIDS prevention programmes and include treatment as part of the prevention message

* Develop a treatment plan by June 16, which will outline how treatment will be made accessible to all South Africans with HIV/AIDS, and will commit the government to increased health-care spending

An important lesson from the court case has been that global solidarity on social issues is immensely powerful. The South African government would not have won the court case so easily and quickly without global mobilisation. Issues that are of concern to all poor countries must be combated with a united front. Therefore the South African government must issue a statement of support for Brazil in its WTO dispute with the United States.

The South African government and TAC have had a mixed relationship over the last few months. This has been a result of government's, generally, poor handling of the epidemic. TAC will be government's firmest supporter when it does the right thing, such as introducing the Medicines Act, but we will be its sternest critic when it fails to meet its constitutional duties to protect life and dignity. Particularly concerning are the continual delays in implementing a country-wide mother-to-child transmission prevention programme and the lack of a treatment plan.

TAC's objectives are to get treatment for people with HIV/AIDS and to build a quality health-care service. We will use all means at our disposal to achieve these aims.


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