Transcript COMPETITION AND CONVERGENCE IN TELECOMMUNICATIONS

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
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
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
million cumulative AIDS deaths are anticipated
by 2010.
 The epidemic could cost SA in as much as 17%
in GDP growth by 2010.
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.
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.
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:
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”.
LEGISLATIVE FRAMEWOK (cont.)
As regards International laws, SA has an obligation
to interpret and implement its laws under the
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 be
interpreted in manner conducive to promoting
affordable access to medicines.
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”.
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.
COMPETITION POLICY AND THE
PRACTICE OF INTELLECUTAL PROPERTY
Competition Policy Perspective:
Competition policy and IPR idyllically share
the same goal of economic development
and consumer welfare through innovation:
 firms are more likely to innovate if they are at least
protected against free riding through IPR
 firms are however also more likely to innovate if they
face intense competition.
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 is
under a patent, the patent holder has market power on
the drug for up to 20 years and may charge whatever
price to maximize profit.
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.
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.
COMPETITION POLICY AND THE
PRACTICE OF INTELLECUTAL PROPERTY
 These findings undoubtedly reinforce the view that
an important 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.
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:
COMPETITION COMMISSION
INVESTIGATIONS
1. 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.
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.
COMPETITION COMMISSION
INVESTIGATIONS (cont.)
2) 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.
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.
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.
EVALUATION OF AFFORDABILITY
AND ACCESSIBILITY OF ART IN SA
(cont.)
Patented Companies
Generic Companies
 Glaxco Smith Kline
 Aspen
 Boehringer Ingelheim
 Cipla-Medpro
 Bristol-Myers Squibb
 Ranbaxy SA
 Abbott Laboratories
 Adcock Ingram
 Merck Sharp & Dohme
 Roche
 Gilead
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.
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.
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.
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.
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.
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.
EVALUATION OF AFFORDABILITY
AND ACCESSIBILITY OF ART IN SA
(cont.)
R 1,000.00
R 900.00
R 800.00
R 700.00
R 600.00
R 500.00
R 400.00
R 300.00
R 200.00
R 100.00
R 0.00
AZT (300m g)
AZT solution
(200m l)
Lam ivudine
(150m g)
Lam ivudine
AZT/Lam ivudine
solution (240m l)
300m g/150m g
(Com bivir)
Price of patented product at time complaint lodged (2002/2003)
Price of patented product in 2006
Price of cheapest available generic equivalent in 2006
Nevirapine
(200m g)
EVALUATION OF AFFORDABILITY
AND ACCESSIBILITY OF ART IN SA
(cont.)
Particulars of ARV
% Decrease for
price of patent
drugs in 2003
and 2006
52%
% Decrease
between price of
patent in 2003
and generic
drugs in 2006
65%
% Difference
between the current
(2006) price of the
panted and generic
version
29%
AZT (300mg)
AZT solution (200ml)
47%
58%
20%
Lamivudine (150mg)
85%
88%
24%
Lamivudine solution
(240ml)
70%
AZT/Lamivudine
300mg/150mg
(Combivir)
60%
Nevirapine (200mg)
0%
21%
77%
68%
19%
61%
61%
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 ART was 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.
EXISTING BARRIERS TO
SUSTAINABLE ACCESS TO ART
 Despite the significant developments over the past
few years, access to a sustainable supply of ART
has 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:
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.
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.
EXISTING BARRIERS TO
SUSTAINABLE ACCESS TO ART
(cont.)
3)
Differentials
prices:
between
public/private
sector
 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.
EXISTING BARRIERS TO
SUSTAINABLE ACCESS TO ART
(cont.)
Private Sector
Price
Public
Sector Price
%Difference
R 228.91
R 77.52
66%
AZT
solution
(200ml)
Lamivudine
(150mg)
R66.78
R 25.59
R85.51
R 33.95
Lamivudine
solution
(240ml)
Nevirapine
(200mg)
R62.89
R 24.48
R159.60
R 41.61
ARV
AZT
(300mg)
62%
60%
61%
74%
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.
 However SA treatment guidelines require that 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).
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.
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.
CONCLUSION
 In conclusion:
 HIV/AIDS remains a serious threat to
development of the South African economy.
the
 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.