Tamar Kahn, Science And Education Correspondent
20 September 2002
Johannesburg — Complaint to commission may leave drug companies open to public scrutiny
PHARMACEUTICAL companies can hardly say they come in for good press. Accused of profiteering from the misfortunes of the ill, they have consistently come under fire from consumers who believe that the multinationals charge excessive prices for their life-enhancing drugs.
The companies have historically defended their pricing structures by pointing out that they invest considerable amounts of money in the high risk business of developing new medicines, but have traditionally remained tight-lipped on the specifics of the profit margins they attain.
That could be about to change, because of a complaint of excessive pricing and abuse of dominant market position lodged with the Competition Commission against two of SA's best known manufacturers of AIDS drugs Glaxo Smith Kline and Boehringer Ingelheim.
The commission has strong investigative powers and the two companies could well find the details of their businesses opened up to uncomfortable public scrutiny. Alternatively, they might be pressured into revealing hitherto hidden aspects of their business practices in a bid to counter the allegations made against them.
At issue is the price charged by the pharmaceutical companies in the private sector for four patented AIDS drugs: Glaxo's AZT (sold under the brand name Retrovir), Lamivudine (3TC), and a combination of the two (Combivir), and Boehringer's nevirapine, which it manufactures under the brand name Viramune.
The complaint, brought by AIDS activists, trade unionists, health care professionals and individuals living with HIV/AIDS, alleges that Glaxo and Boehringer are currently charging prices in excess of the economic value of their drugs.
In papers lodged with the commission, the complainants compare the prices of the four patented medicines with the generic prices available in other countries. They argue that the prices of the patented medicines are far in excess of the generic prices, even when allowance is made for research and development, higher profits, licensing fees and the incentive to develop new drugs.
The complaint calculates an economic value for the four medicines, defined as the sum of the lowest priced generic, the cost of research and development, and the average profit of the pharmaceutical industry.
For each product the lowest priced generic version approved by the World Health Organisation is assumed to be the cost of manufacturing the drug. TAC spokesman Nathan Geffen said that since generic companies also make a profit, this was an overestimate of the manufacturing cost and the calculation was consequently generous to the pharmaceutical companies.
Comparing this economic value to the price at which the drugs are sold by Glaxo and Boehringer in the SA private sector makes compelling reading.
According to the complainants, a 300mg pill of AZT costs 2,58 times the economic value, a 150mg pill of Lamivudine is 4,01 times the economic value, combined pill with 300mg AZT and 150mg Lamivudine is 2,24 times the economic value, and a 200mg nevirapine pill is 1,7 times the economic value.
The syrup form of AZT (used for treating children) is 2,27 times the economic value, and the syrup form of Lamivudine is 1,97 times the economic value.
The analysis submitted by the complainants also includes comparisons of the prices charged in the SA private sector for these branded drugs, and the prices of their generic equivalents in other parts of the world.
Generic antiretroviral medicines are currently not sold in SA because of the protection afforded to pharmaceutical companies by patent law. Glaxo has issued a conditional licence to Aspen Pharmacare for the manufacture of generic AIDS drugs, but under the terms of the licence they can only be sold to the public sector.
The complainants argue that patent protection does not entitle a firm to charge a price which bears no reasonable relation to the economic value of the product concerned. They also argue that because antiretroviral medicines cannot generally be substituted for each other, patent protection means that each antiretroviral constitutes its own market. As a result, each company holds dominance for its patented medicines, regardless of market share.
As a result of this dominant position, the complainants allege that the prices charged by Glaxo and Boehringer are "excessive to the detriment of consumers" within the meaning of section 8(a) of the Competition Act.
Affidavits accompanying the complaint say that high drug prices often result in substandard or limited treatment options and limit the overall cover available to medical scheme members, which in turn result in an increased burden on the ailing public healthcare system. ,
The Competition Commission has a year to investigate the complaint brought against the two pharmaceutical companies before it decides whether to refer the matter to the Competition Tribunal, which would, in turn, decide whether to grant the relief being sought by the complainants.
That relief includes an order that the companies reduce their drug prices and pay a penalty amounting to 10% of their annual turnover in SA.
But even if the matter does not get that far, the two companies look set to bear the price that accompanies public scrutiny.
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