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THE DEVELOPMENT DIMENSION OF COMPETITION LAW AND POLICY: ECONOMIC PERSPECTIVES

THE DEVELOPMENT DIMENSION OF COMPETITION LAW AND POLICY: ECONOMIC PERSPECTIVES. SOUTH AFRICA 2 MAY 2006 “THE ACCESS IBILITY AND AFFORDABILIT Y OF ANTIRETROVIRAL TREATMENT IN SOUTH AFRICA” What role for Competition Law and Policy? Mapato Rakhudu Competition Commission South Africa.

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THE DEVELOPMENT DIMENSION OF COMPETITION LAW AND POLICY: ECONOMIC PERSPECTIVES

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  1. THE DEVELOPMENT DIMENSION OF COMPETITION LAW AND POLICY: ECONOMIC PERSPECTIVES SOUTH AFRICA 2 MAY 2006 “THE ACCESS IBILITY AND AFFORDABILIT Y OF ANTIRETROVIRAL TREATMENT IN SOUTH AFRICA” What role for Competition Law and Policy? Mapato Rakhudu Competition Commission South Africa

  2. OUTLINE • INTRODUCTION • LEGISLATIVE FRAMEWORK • COMPETITION POLICY & THE PRACTICE OF INTELLECTUAL PROPERTY RIGHTS IN MEDICINES • INVESTIGATIONS BY THE COMPETITION COMMISSION • EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SOUTH AFRICA • EXISTING BARRIERS TO SUSTAINABLE ACCESS • CONCLUSION

  3. INTRODUCTION HIV/AIDS CRISIS IN SOUTH AFRICA: • According to the UNAIDS and the World Bank: • SA has the highest number of people with HIV/AIDS in the world, with an estimated 5-6 million infected individuals. • Without effective prevention and treatment, 5-7 millioncumulative AIDS deaths are anticipated by 2010. • The epidemic could cost SA in as much as 17% in GDP growth by 2010.

  4. INTRODUCTION (cont.) • ART IN SOUTH AFRICA: • ART is the main type of treatment available for HIV/AIDS. • Though not a cure, it has been proven effective in combating the impact of HIV/AIDS. • Despite its availability, accessibility remains the biggest challenge in SA. • Out of an estimated 500 000 infected patients eligible for ART, only about 150 000 have access.

  5. INTRODUCTION (cont.) • Several factors have been cited in this regard, however affordability of ART remains the key factor. • The prices of ART have been for the most part excessive and unaffordable. • The cost of diagnositc and clinical assesment of HIV/AIDS, vital for efficacy of ART, are also unaffordable.

  6. LEGISLATIVE FRAMEWORK Section 1(2) of the Competition Act provides that the Act must be interpreted: • in a manner that is consistent with the Constitution, and gives effect to the purposes of the Act; and • is in compliance with the international law obligations of the Republic. Therefore in respect of access to affordable healthcare the following should apply:

  7. LEGISLATIVE FRAMEWOK (cont.) • In terms of Section 27(1) of the Constitution “everyone has the right to have access to healthcare services”. • In terms of Section 2 of the Competition Act: the purpose of the Act is to promote and maintain competition in the Republic in order to: “provide consumer with competitive prices and product choices” “promote the social and economic welfare of South Africans”.

  8. LEGISLATIVE FRAMEWOK (cont.) As regards International laws, SA has an obligation to interpret and implement its lawsunderthe following: • Article 12 of International Covenant on Economic, Social and Cultural Rights. • Article 1 of the World Health Organisation Constitution. • World Trade Organisation agreement on Trade Related Aspects of Intellectual Property Rights of 2001. All of these articulate the right of everyone to have access to affrodable healthcare. Competition Law and Policy in SA must therefore beinterpreted in manner conducive to promoting affordable access tomedicines.

  9. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY • Practice of Intellectual Property Rights specifically patents in medicines has been blamed for in accessible and unaffordable medicines, particularly for developing nations. • Patents in medicines are granted nationally but have international protection under the TRIPS agreement of the WTO. • The TRIPS agreement provides that that all inventions can be protected by a patent for “20 years”.

  10. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY Rationale for the use patents in medicines: • To foster innovation and sustainable economic growth. • To bar entry of generic products for the term of the patent. • To provide the innovator firm with an opportunity to price above marginal cost and thereby recoup R&D expense. • To preserve incentives for future R&D.

  11. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY Competition Policy Perspective: Competition policy and IPR idyllically share the samegoal of economic development and consumer welfare through innovation: • firms are more likely to innovate if they are at least protected againstfree riding through IPR • firms are however also more likely toinnovate if they face intense competition.

  12. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY • The problem with the use of patents arises when the use of patents restricts competition, whereby patents confer market power for the duration of the patent term. • This results in patent holders having control over the production, supply, distribution and the price of the product. • These might then raise abuse of dominance concerns such as excessive pricing. Example: when a particular antiretroviral (“ARV”) drug isunder a patent, the patentholder has market power on the drug for up to 20 years and may charge whatever price to maximize profit.

  13. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY • Patents may further: • maintain an uneven direction of product R&D, by limiting the type of drug therapies available to treat the disease. • reduce the capacity for other firms to exploit the knowledge on a competitive basis. • The patent monopolist would further have weaker incentives than a would-be entry firm to initiate an R&D program that would produce substitutes products.

  14. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY Evidence: • There is ample evidence that the introduction of generic competition has brought about substantial decreases in prices of ART. • Since 2000, the injection of generic competition into the global ART market has brought about significant decreases in drug prices.

  15. COMPETITION POLICY AND THE PRACTICE OF INTELLECUTAL PROPERTY • These findings undoubtedly reinforce the view that animportant determinant of price, and accessibility of ART, is competition from generic medicines. • Therefore the practice of patents prevents the entry of generic drugs, and the competition they entail, in so for as creating monopolies that keep drugs inaccessible and unaffordable.

  16. COMPETITION COMMISSION INVESTIGATIONS • Competition Policy has as one of its chief objectives: • the prohibition of any anticompetitive practices that prevent sustainable access to affordable treatment; • the restriction of any monopolistic abuses related to the exercise of patents in medicines. • In this respect the Commission has to date investigated a number of healthcare matters. • However, as regards the HIV/AIDS pandemic the following cases are noteworthy:

  17. COMPETITION COMMISSION INVESTIGATIONS • Hazel Tau & others vs. GlaxoSmithKline & Boehringer Ingelheim • In 2002 the Commission investigated an abuse of dominance complaint against two pharmaceutical companies GlaxoSmithKline (“GSK”) and Boehringer Ingelheim (“BI”). • At the time of the investigation GSK held patents on AZT,3TC, and Combivir whilst BI held patents on Nevirapine. • The firms were found to have abused their dominant positions in their respective ART markets, by denying a competitor access to an essential facility, excessive pricing and exclusionary act, to the detriment of the consumer.

  18. COMPETITION COMMISSION INVESTIGATIONS (cont.) • In December 2003, the Commission however concluded a settlement agreement with pharmaceutical firms wherein the firms undertook certain commitments to make ART accessible and affordable. • In particular the pharmaceutical firms undertook to grant voluntary licences for the manufacture, import and export of generic versions of their patented ARVs.

  19. COMPETITION COMMISSION INVESTIGATIONS (cont.) • Competition Commission vs. National Pathology Group • The Commission is currently anticompetitive practices against National Pathology Group an association of pathologists in the private sector. • It is alleged that the private pathologists are: • abusing dominant positions and charging excessive prices in contravention of Section 8. • engaged in restrictive horizontal practices for purposes of restricting competition and fixing prices in contravention of Section 4.

  20. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA ART Market in SA: • ART is the main type of treatment for HIV and AIDS. • It can prevent infected individuals from becoming ill, in that it can reverse the immune decline of patients, • It can also improve the quality of life and productivity of the infected individuals.

  21. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA • In South Africa two ART drug regimes are recommended: • first line regimen: • stavudine (d4T), lamivudine (3TC) and efavirenz (regimen 1A), or • d4T, 3TC and nevirapine for women who are not using a contraceptive method (regimen 1B). • second line regimen: • zidovudine (AZT), didanosine (ddI) and lopinavir/ritonovir (Kaletra). • There are additionally other patented and generic versions of ARVs registered with the South African Medical Control Council.

  22. Patented Companies Glaxco Smith Kline Boehringer Ingelheim Bristol-Myers Squibb Abbott Laboratories Merck Sharp & Dohme Roche Gilead Generic Companies Aspen Cipla-Medpro Ranbaxy SA Adcock Ingram EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA (cont.)

  23. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.) • ART is currently supplied from the pharmaceutical companies to both the private and the public sector : • Private Sector : ± 70 000 patients. • Medical schemes: Most Medical aid schemes provide ART often through a “Disease Management Programme”. • Workplace schemes: Some of the large companies in South Africa have started providing ART to their employees as part of broader HIV/AIDS prevention and care programmes. • NGO services: ART is also available to patients without medical aid through a small number of privately funded organisations.

  24. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA Public Sector: ± 85 000 patients • Public sector facilities:There are 199 public health facilities that now provide HIV and AIDS related services, including antiretroviral drugs. These facilities are found in all the country's 53 districts and cover at least 62% of local municipalities.

  25. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.) 1) Licence Agreements: • In December 2003, the Commission concluded settlement agreements with GSK and BI, wherein the pharmaceutical firms undertook certain commitments to make their respective ARV drugs accessible and affordable. • In particular the pharmaceutical firms undertook to grant voluntary licences for the manufacture, import and export of generic versions of their patented ARVs.

  26. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.) • In total GSK has concluded 8 licence agreements: • 6 directly relate to the South African market. • 2 relate to other African countries. This is in excess of what was stipulated in the settlement agreement, which required GSK to grant up to 4 licences. • BI has on the other hand concluded in total 3 licence agreements for nevirapine. This is in compliance with conditions of the settlement agreement.

  27. Other achievements: • Patent companies other than GSK and BI have also concluded licence agreements with generic manufacturers. These include Gilead, Merck Sharp & Dohme and Bristol Myers Squibb. • There is a trend towards minimal or royalty free licence agreements in the ART market. • All the licence agreements granted by GSK and BI been concluded at reasonable royalty fees and some agreements contain royaltee free requirements.

  28. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.) 2) The cost of ART in SA • At the time of the complaint, GSK and BI were found to have violated the Act by pricing their respective ARVs in a manner that "bears no reasonable relationship to the economic value of the good" to the detriment of consumers. • The prices charged by the GSK and BI were at the time 10 to 15 times higher than the best global generic prices. • The price charged by GSK and BI were also deemed unaffordable based on the comparison between the prices of ARVs and the disposable per capita income of South African patients.

  29. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.)

  30. Particulars of ARV % Decrease for price of patent drugs in 2003 and 2006 % Decrease between price of patent in 2003 and generic drugs in 2006 % Difference between the current (2006) price of the panted and generic version AZT (300mg) 52% 65% 29% AZT solution (200ml) 47% 58% 20% Lamivudine (150mg) 85% 88% 24% Lamivudine solution (240ml) 70% 77% 21% AZT/Lamivudine 300mg/150mg (Combivir) 60% 68% 19% Nevirapine (200mg) 0% 61% 61% EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.)

  31. EVALUATION OF AFFORDABILITY AND ACCESSIBILITY OF ART IN SA(cont.) 3) Total number of people having access: • The injection of generic competition and the subsequent reduced prices have certainly broadened access to ART in South Africa. • At the time of the Hazel Tau investigation ARTwas not being provided in the public sector, and only about 20 000 had access in the private sector. • Today, however, ART is accessible through both the public (±85 000) and private sector (±70 000) at much lower prices.

  32. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART • Despite the significant developments over the past few years, access to a sustainable supply of ARThas yet to be achieved in SA. • The current statistics that indicate that out of the 500 000 HIV positive individuals eligible for treatment, only about 150 000 are on treatment, is a clear indication that a number of barriers still exist. • The following barriers are noteworthy:

  33. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.) 1)  Price of some drugs still prohibitive • There are still some drugs, which are prohibitive and thus inaccessible. • Changing from the first line to the second line regime can be a costly option as most drugs in the second line regime are still new and under patents. • Few alternatives in SA if first-line therapy fails.

  34. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.) 2. Cost of diagnostic tests unaffordable • Cost of diagnostic and clinical tests are excessive and add significantly to the total cost of ART. • Providers of pathology tests have market power and are allegedly abusing that power by charging excessive prices. • The high cost of HIV/AIDS diagnostic support therefore contributes substantially to the overall cost of ART, which then creates a considerable barrier for sustainable access to ART.

  35. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.) 3) Differentials between public/private sector prices: • It has been noted that there are significant differentials between the public sector prices and the private sector generic prices. • Private sector prices still seem excessive, although substantially cheaper than before the complaint was lodged.

  36. ARV  Private Sector Price Public Sector Price %Difference AZT (300mg) R 228.91 R 77.52 66% AZT solution (200ml) R66.78 R 25.59 62% Lamivudine (150mg) R85.51 R 33.95 60% Lamivudine solution (240ml) R62.89 R 24.48 61% Nevirapine (200mg) R159.60 R 41.61 74% EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.)

  37. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.) The price differentials are a concern in that: • Access to ART in the public sector is still very limited. • WHO recommendations for commencement of ART: CD4 of below 350. • HoweverSA treatment guidelines requirethat ART be commenced at a CD4 of below 200. • Thus a person needing ART but does not fall within the government’s requirements for initiation of ART, will have as the only option access to treatment through the private sector. • The other concern is that most medical aids schemes that provide ART in the private sector have a cap on how much HIV/AIDS-related treatment they will cover. • This means that people who have exhausted their funds will have to pay out of pocket (or once again fall back to the public sector).

  38. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.) 4) Bungled and delayed licence agreements Failed licence agreements: • Ranbaxy and Adcock Ingram entered into a joint venture, namely Thembalami Pharmaceuticals, which was granted licences by GSK and BI. • Thembalami was unfortunately forced to exit the market after Ranbaxy experienced certain problems with its products which were removed from WHO list. • The withdrawal of Ranbaxy and Thembalami suggests the removal of essential players, which has unfortunately left a gap in the ART market that is already pressured by increasing demand.

  39. EXISTING BARRIERS TO SUSTAINABLE ACCESS TO ART(cont.) Delay in licencing other products: • The other factor delaying the supply of generic ARVs is the need for licences to be granted by patent holders on certain drugs to produce generics. • Patent holders have been slow in granting licences for these drugs, which has prevented or delayed competition from generic drugs. • Unfortunately this means that, the only alternative is to use branded versions, which are prohibitive. • There are no generic drugs to compete with new patented medicines, thus prices of such drugs will continue to remain excessive which adversely affects the patients' access to ART.

  40. CONCLUSION • In conclusion: • HIV/AIDS remains a serious threat to the development of the South African economy. • There is a critical urgency to make affordable ART accessible. • It is therefore crucial that the role of the Competition Law and Policy in South Africa be interpreted in context of promoting the right of all South Africans to obtain access to affordable health care and essential medicines.

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