[Ip-health] TAC press release on complaint to Competition Commission Over Merck's refusal to license efavirenz patents

[Mike Palmedo]

TAC complains to the Competition Commission about the anti-competitive
conduct of the world's largest pharmaceutical company

7 November 2007

* TAC lodges complaint against MSD and Merck over failure to license key
antiretroviral drug, efavirenz, on reasonable terms.

* Full complaint is available at:
http://www.tac.org.za/documents/TACvMSDFinalCompCompapersFinalOf041107.zip

Summary

64 cents in every rand of the South African government=92s first line
regimen for the treatment of HIV/AIDS is spent on one drug, efavirenz.
It is made by the world=92s largest drug company Merck.

The refusal by Merck =96and its South African subsidiary, MSD=96 to allow
sufficient generic competition contributes significantly to the high
price of the drug. The AIDS Law Project (ALP) acting on behalf of the
Treatment Action Campaign (TAC) has asked the Competition Commission to
investigate. MSD holds a twenty-year patent on efavirenz that expires in
2013. TAC expects the Competition Commission to recommend that Merck and
MSD be compelled to issue multiple licences on reasonable terms.

TAC is doing this to ensure that the government and ordinary people have
access to the lowest priced efavirenz products of proven quality, safety
and efficacy. We also wish to ensure that patients have access to a
wider range of medicines containing efavirenz and a regular,
uninterrupted supply of this essential life-saving medicine.

Access to efavirenz is essential to save lives. Lower efavirenz prices
will mean that the government can treat substantially more people.
Compelling Merck and MSD to give an adequate number of licences on
reasonable terms will give effect to the rights to dignity, life,
equality and access to health services.

The TAC will mobilize a local and international campaign to support the
appropriate licensing of generic efavirenz and our complaint at the
Competition Commission.

***

A special thanks to Jonathan Berger of the AIDS Law Project for his
persistent and diligent work on this matter. Geoff Budlender, Gregg
Gonsalves, Nathan Geffen, Fatima Hassan, Nonkosi Khumalo, Doron Isaacs,
Nick Friedman, Sean Flynn, Brian Honerman and Alison Dyer did great work
on this.

Once again, thanks to Adila Hassim and her team at the ALP.

***

Background to complaint

Nearly 400,000 people with HIV are on life-saving highly active
antiretroviral therapy (HAART) in South Africa in the public and private
sectors. HAART means having to take at least three antiretroviral
medicines daily. Two thirds of people initiating HAART take efavirenz.
Yet it costs both the state far more than the combined price of the
other two drugs. Even though several companies across the world
manufacture cheaper and a wider range of efavirenz than produced by MSD
and Merck, these are not available in South Africa. Furthermore, there
have been at least three stockouts of efavirenz in Southern Africa.

The main reason for these three problems is that one company, the
world's largest pharmaceutical manufacturer Merck, effectively has a
monopoly on the sale of efavirenz in South Africa. Merck and its South
African subsidiary, MSD, have refused licenses to at least two generic
manufacturers. Licenses have been given to two local companies, but the
terms of the licenses are unreasonable and neither company has to date
been able to bring generic efavirenz products to market. The two
companies who have been refused licenses have registered generic
efavirenz with the Medicines Control Council and could bring their
medicines to market immediately if licensed.

Therefore, acting on behalf of the Treatment Action Campaign (TAC), the
AIDS Law Project (ALP) filed a complaint at the Competition Commission
of South Africa on Tuesday, 6 November 2007. The complaint alleges that
MSD and Merck are violating the Competition Act 89 of 1998. The
complaint argues that their refusal to license efavirenz to a sufficient
number of generic companies on reasonable terms threatens access to
comprehensive treatment for HIV/AIDS by

* preventing cheaper generic efavirenz products from being brought to
market;

* preventing co-formulated and co-packaged antiretroviral products
containing efavirenz and at least one other antiretroviral medicine from
being brought to market; and

* placing the sustainability of supply of efavirenz products in South
Africa under threat because of the risk of stockouts.

TAC's action is aimed at helping to implement the The HIV & AIDS and
STIs Strategic Plan for South Africa 2007-2011 (National Strategic
Plan), which states:

=93The cost implications of the NSP are large, in some options exceeding
20% of the health budget without considering the costs arising from the
effect of the epidemic on hospital and primary care services. In
attempting to increase the feasibility of this plan =85 [a]ttention should
be placed on increasing the affordability of medicines.=94 [our emphasis]

This is the not the first time that the TAC has approached the
Competition Commission. In addition to a July 2000 submission regarding
the proposed merger between pharmaceutical companies Glaxo Wellcome and
SmithKline Beecham =96 which subsequently formed the company
GlaxoSmithKline (GSK) =96 the TAC has submitted two complaints: the first
in 2002 regarding allegations of excessively priced antiretroviral
medicines marketed and sold by GSK and Boehringer Ingelheim (BI); and
the second in 2004 primarily regarding allegations of price-fixing by
members of the National Pathology Group (NPG).

The latter complaint resulted in significant changes in the way the
NPG=92s members conduct their businesses, as well as a further complaint
instituted by the Commissioner into various practices in the pathology
sector. The Commission=92s investigation into the pricing of key
antiretroviral medicines (zidovudine, lamivudine and nevirapine) sold by
GSK and BI revealed that the two companies had indeed abused their
dominant positions in the relevant markets. The matter was settled
between the parties, thus obviating any need for a Competition Tribunal
hearing.

What is efavirenz?

Like nevirapine, efavirenz belongs to the class of antiretroviral
medicines known as non-nucleoside reverse transcriptase inhibitors
(NNRTIs). All antiretroviral medicines target either a particular step
in the life cycle of HIV or its interaction with host cells. As NNRTIs,
both nevirapine and efavirenz inhibit a key viral enzyme =96 reverse
transcriptase =96 required for the completion of the early stages of HIV
replication.

Reverse transcription is a process whereby single strands of viral RNA
are converted into double-stranded DNA by the reverse transcriptase
enzyme. This enables HIV genetic material to combine with the host
cell=92s DNA, a process central to the replication of HIV. NNRTIs work by
binding directly to the reverse transcriptase enzyme thereby interfering
with its ability to function.

Why is access to efavirenz important?

Efavirenz is one of a limited number of antiretroviral medicines that
are provided as part of HAART in the public sector. All adults
initiating HAART in the public sector are prescribed a treatment regimen
containing stavudine, lamivudine and either efavirenz or nevirapine
(depending on a number of medical and other factors). Currently the
majority of people are using efavirenz instead of nevirapine. All
children on treatment will need to have access to efavirenz or
nevirapine, either as part of an initial (first-line) or a second-line
regimen.

Efavirenz is also one of the most widely prescribed antiretroviral
medicines in the private sector, accounting (for the six month period of
January to June 2007) for over 80% of all NNRTI sales (in terms of
volume). In the USA, for example, the most widely prescribed standard
treatment regimen for the initiation of HAART =96 and recommended by the
relevant antiretroviral treatment guidelines =96 is Atripla, a combination
of the antiretroviral medicines tenofovir disoproxil fumarate,
emtricitabine (better known as FTC) and efavirenz. Patients taking
Atripla only have to swallow a single pill once a day. While Atripla is
not yet registered for use in South Africa, the combination of tenofovir
and FTC (known as Truvada) is available, as is efavirenz.

So what is the complaint trying to achieve?

In essence, the complaint is trying to ensure access to a sustainable
supply of a range of affordable efavirenz products, including:

* Stand-alone efavirenz in a range of strengths (50mg for children;
200mg and 600mg for adults);

* Co-formulated products (combinations in a single pill) such as
tenofovir/FTC/efavirenz and
tenofovir/lamivudine/efavirenz; and

* Co-packaged products (combinations in a blister pack) such as
stavudine/lamivudine+ efavirenz, stavudine+ lamivudine + efavirenz,
tenofovir/FTC + efavirenz, tenofovir/lamivudine + efavirenz and
tenfovovir + lamivudine + efavirenz.

Affordability and sustainability of supply are clearly linked, with the
best way to ensure both being to license a sufficient number of generic
companies to manufacture and import efavirenz products. The evidence
shows that real competition =96 necessary to drive prices down as far as
is reasonably possible =96 is only reached when there are at least five
competitors: the original patent holder (in this case Merck) and four
generic competitors.

At the moment, there are theoretically two generic competitors in
respect of stand-alone efavirenz products. But while one of them has
only recently managed to gets its 600mg tablet registered by the
Medicines Control Council (MCC), neither has brought efavirenz products
to market. Two generic companies that have managed to get their 600mg
tablets registered could bring their products to market today, but for
the fact that they have not been licensed by MSD to do so.

Further, there will be no competitors in respect of the combination
tenofovir/FTC/efavirenz, given that the two licences already granted are
only in respect of stand-alone products. In addition, none of the other
combinations or co-packaged products discussed above can ever come to
market in the absence of generic companies being licensed. This is
because MSD is not able to bring any product containing lamivudine to
market (as it does not hold the patent and has not been licensed to
bring lamivudine products to market).

Could government not have taken action against MSD?

According to section 4 of the Patents Act 57 of 1978, a Minister of
State (in this case the Minister of Health or the Minister of Trade and
Industry) may =96

"use an invention for public purposes on such conditions as may be
agreed upon with the patentee, or in default of agreement on such
conditions as are determined by the commissioner [of patents] on
application by or on behalf of such Minister and after hearing the
patentee."

In a constitutional democracy that recognises a right to have access to
medicines (an integral part of the right to have access to health care
services), the concept of a =93public purpose=94 clearly includes ensuring
access to a sustainable supply of a range of affordable efavirenz
products, particularly when such products are necessary for implementing
existing government policy regarding the treatment of HIV infection.
Unfortunately, neither Minister has seen fit to use this crucial public
power, despite being urged to do so. In the result, an organisation such
as TAC has had to assume the responsibility itself. To its credit,
government has provided TAC with the legal space within which to
operate, primarily by enacting the Competition Act and establishing and
resourcing the Competition Commission.

What happens now?

The Competition Commission has up to a year to conduct and conclude its
investigation into the complaint. If it agrees with the TAC that MSD
and/or Merck have violated the Competition Act, it must refer the matter
to the Competition Tribunal within the year for adjudication and
prosecute it on behalf of the TAC and the broader public. If it does not
refer the matter, the TAC is free to refer the matter itself. If it
agrees with the TAC that the matter requires a more speedy
investigation, it may approach the Competition Tribunal much earlier, as
the year period is only an upper limit.

During the investigation, the Competition Commission will seek a
response from MSD and Merck to the TAC=92s papers. We have also asked the
Competition Commission to afford TAC an opportunity to comment on this
response. The Competition Commission is also entitled to use powers of
search, seizure and/or subpoena to obtain relevant information and/or
documents, should the relevant parties not cooperate. In addition, it
may speak to any experts that it deems appropriate, and may receive
relevant information from other stakeholders and/or interested parties.

What relief does TAC seek?

TAC has asked the Competition Commission to compel Merck to issue
licences on reasonable terms for producing and/or importing generic
efavirenz products, including co-packaged and co-formulated ones, to any
company that is able to satisfy certain objective and reasonable criteria.

Has TAC tried to negotiate with MSD?

Acting on behalf of the TAC, the ALP has been in discussions with MSD
for almost six years regarding the need for it to grant multiple
licences =96 on reasonable and non-discriminatory terms =96 for the local
production and/or importation of a range of generic efavirenz products.
Progress over the years was agonizingly slow:


* MSD first licensed Thembalami Pharmaceuticals to produce stand-alone
efavirenz products in April 2004. Thembalami, a joint venture between
South Africa=92s Adcock Ingram and the South African subsidiary of India=92=
s
Ranbaxy Laboratories, did not survive long enough to bring any efavirenz
products to market.

* Some time after Thembalami=92s collapse, MSD licensed Aspen Pharmacare =
=96
in July 2005 =96 on substantially similar terms. To date, Aspen has not
managed to have any efavirenz products registered by the MCC, meaning
its generic efavirenz products are not yet on the shelves

* In late August 2007, three months after the ALP sent a final letter of
demand to MSD (dated 21 May 2007), a second generic company =96 Adcock
Ingram =96 was licensed. While this move was welcomed by the TAC, it did
not address all of its concerns, necessitating the filing of the complaint.

However, the TAC remains open to further discussions with MSD. It has no
interest in protracted litigation and would prefer for the parties to
negotiate a settlement in the public interest. If such a settlement
could be reached, as was the case in 2003 with GSK and BI, the TAC would
be prepared to withdraw its complaint.

For further information contact:

ALP: Jonathan Berger =96 011 356 4112 or 083 419 5779 or bergerj@alp.org.za

TAC: Nathan Geffen =96 021 788 3507 or 084 542 6322 or nathan@tac.org.za

[END OF STATEMENT]


--
Mike Palmedo
Research Coordinator
Program on Information Justice and Intellectual Property
American University, Washington College of Law
4910 Massachutsetts Ave., NW Washington, DC 20016
T - 202-274-4442 | F 202-274-0659
mpalmedo@wcl.american.edu