Settlement Does Little Harm to Drug Firms

By dropping its lawsuit to prevent South Africa from importing cheaper AIDS drugs, the pharmaceutical industry ended a public relations nightmare. And although terms of Thursday’s settlement are still being hammered out, experts doubt they will cost drug companies anything of substance.

“It is largely symbolic,” said Amir Attaran, director of international health research at Harvard University’s Center for International Development.

The industry in the last month, under intense public pressure, slashed prices on its patented AIDS medications to a fraction of what they cost in the United States and other developed countries. Those actions have reduced the need for underdeveloped countries such as South Africa to seek alternative sources of antiretrovirals, which control but do not cure the fatal disease.

Beyond that, South Africa, in reaching its agreement with the 39 drug companies, said it would abide by international trade guidelines--a commitment that the pharmaceutical industry had been seeking all along. The Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPs, allows poor countries to make or import cheaper versions of patented drugs in cases of health emergencies.

But those trade rules are more restrictive than the 1997 South African law that was the subject of the lawsuit. That law gives country’s health minister wide latitude to decide when and how cheaper medications may be procured to protect the public health.

“If South Africa has agreed, in essence, to comply with TRIPs, that is good news for the pharmaceutical companies,” said Bill Hennessey, a patent expert and professor at Franklin Pierce Law Center in Concord, N.H.

Nonetheless, the agreement is expected to embolden other developing nations that might have feared retribution by big pharmaceutical companies. After being pressured to settle the South African suit by the United Nations and the European Union, the pharmaceutical industry is not likely to again challenge a developing nation’s efforts to procure cheaper AIDS drugs.

As the settlement was announced, the industry acknowledged that public sentiment had turned against it.

“When a powerful developing country takes a strong stand, that allows others to at least have more leverage to have a dialogue with large companies,” Hennessey said.

At the same time, many developing nations have weak intellectual property laws and do not recognize foreign pharmaceutical patents anyway, experts said. Most of the 53 nations in Africa recognize patents on no more than three of the 15 antiretrovirals used to treat AIDS, said Attaran. South Africa recognizes seven patents, more than any other sub-Saharan nation, he said.

With the exception of GlaxoSmithKline of Britain, he said, AIDS-drug makers haven’t made much effort to obtain patents on their medications in Africa, which accounts for 1.3% of industrywide sales annually.

Attaran said that in these countries, access to cheaper AIDS drugs has been hampered in part by a lack of technical know-how needed to produce them. And many of the countries are simply too poor to buy even low-cost generics and distribute them to AIDS sufferers. He estimated that at rock-bottom prices, a year’s worth of treatment with antiretrovirals and testing costs between $1,100 and $1,200. In South Africa, he said, the per-capita gross domestic product is $2,500.

More developed countries with a less serious AIDS problem than sub-Saharan African have exploited their weak intellectual property laws to produce cheap knockoffs of AIDS medications.

Brazil, which has a thriving generic drug industry, recently threatened to grant licenses to local manufacturers to produce drugs patented by Merck & Co. and Hoffman-La Roche. Merck agreed to a big price cut for two AIDS drugs to prevent one of them from being copied and is negotiating reduced-price deals outside Africa, where it is selling its drugs at no profit, it said.

South Africa has been far more cautious about knocking off patented drugs, in part because it does not want to do anything that would scare off foreign investors, experts said. The lawsuit, as it was being litigated, did not prevent it from making the drugs that were not patented in that country.

And, experts said, worries about foreign investment explain, at least in part, why South Africa has agreed to abide by international trade rules.

Such considerations make it less likely that any pharmaceutical patents would be copied. “They [drug makers] lost by pursuing this case, not ending it,” said Ron Bayer, a public health expert and professor at Columbia University. “It was a strategic blunder. Agreeing to pay South Africa’s court costs is an amazing kind of defeat,” he said, but only in terms of public relations.