Sunday April 22, 2001 The Observer
Fear drove the world's largest drug companies to abandon their legal action against South African laws aimed at getting cheaper medicines to the poor last week - fear of a lingering bully-boy public image and fear of abject defeat. More fundamentally, what senior executives of multinational pharmaceuticals feared was that the case would expose just how much money the 'pharmas' receive from governments around the world for the research and development of life-saving drugs.
Even worse, had they continued to pursue South Africa, where more than 4 million people have the virus that causes Aids, there was a real possibility that they would have had to disclose the true cost of researching drugs and their international pricing strategies.
The writing was on the wall three weeks ago, when a clutch of senior lawyers in London and New York representing Merck and GlaxoSmithKline saw for the first time the prosecution and defence documents previously confined to Pretoria.
They rapidly concluded that the legal basis for a successful prosecution on 'an away ground' was remote. At the same time, an uncomfortable international chorus of disapproval was getting louder.
Former President Nelson Mandela joined in last weekend, blasting the pharmaceutical companies for taking his country to court. Unsurprisingly, his criticisms made headlines around the world.
Some European Ministers had already pleaded with their respective pharmaceuticals to drop the case. Britain, which had sided with the drug companies, also changed tack. In last week's Observer, Chancellor of the Exchequer Gordon Brown urged pharmaceutical companies to 'accept their share of responsibility'.
A week ago South African campaigners got wind of a schism among the companies. The word was that GlaxoSmithKline and Merck were leading the retreat. This proved to be true. Executives from the two companies contacted the United Nations Secretary-General, Kofi Annan, and urged him to broker a compromise.
Last Sunday Annan did just that: he telephoned South African President Thabo Mbeki. Annan told Mbeki that the pharmaceuticals wanted the 1997 Medicines Act, the disputed law that gave South Africa the right to circumvent international patent law, to be amended. Mbeki refused.
Instead, the pharmas agreed to drop the case if a joint working party between the South African government and the industry drew up regulations governing the Act.
Vitally for the pharmas, South Africa agreed to abide by World Trade Organisation rules governing intellectual property - the notorious Trade-Related Aspects of Intellectual Property Rights (Trips) agreement. This was what the world's media described as a landmark victory for the developing world.
The case actually opened in the Pretoria High Court at the beginning of March after two years of on-off talks. But an affidavit by a loby group, Treatment Action Campaign, caused the case to be adjourned for six weeks at the request of the 39 pharmaceuticals.
For the pharmas, this affidavit was the straw that broke their case. In it, eminent industry researchers swore on oath that a third of all life-saving drugs developed in the United States received federal aid to the tune of hundreds of millions of dollars.
The evidence blew a hole in the argument that multinational pharmaceuticals relied on patent law to produce multimillion-pound profits, which were then siphoned off into expensive research and development.
'If the judge chose, he could have gone on to poke at the companies, asking them about overall pricing strategies across the world,' said one lawyer working on the case. 'We would have definitely encouraged that.'
Amid the widescale euphoria in South Africa last week, a South African news agency headline hit a sombre note: 'Drug court case over, Aids patients to wait'.
If you'd been reading the British press and watched the pictures of South African campaigners uncorking bubbly, you would have the impression that millions of Aids sufferers' lives were about to be saved.
But this is not the case. South Africa will now only be able to buy cheap drugs from countries, such as Thailand and India, where patents have expired. These are typically drugs used to treat malaria and tuberculosis. Combination Aids drug therapies, though, are new. Their patents have an average 14 years to run.
Developing countries, if they are to be Trips-compliant, will have no choice but to broker discount deals with the multinationals and hope these arrangements last for many, many years.They are still at the mercy of commerce - and there is no guarantee that even deep discounts by drug companies will put them within their means.
There is no doubt that the drug industry can afford largesse. Out of total global prescription sales of $354 billion in the last year, the market for Aids drugs was worth $4bn, just over 1 per cent. Africa, too, has been the least important market, accounting for 1 per cent of all world drug sales. Profits ran into tens of billions.
Last Friday Merck, the world's third largest prescription drug seller, posted an 11 per cent rise in first-quarter profits on a net income of £1.2bn. This week analysts expect GlaxoSmithKline pre-tax profits for the first quarter to total around £1.3bn.
Treatment Action Campaign is now determined to negotiate with drugs manufacturers. It says that even drugs sold at cost are virtually out of their financial reach and if no progress is made on sustainable Aids drug prices, it will take the industry to international courts.
It would be well timed. Attention is now shifting to how Trips may be amended to suit developing countries. Clare Short's Department of International Development is co-ordinating a cross-government 'commission' into Trips headed by John Barton, professor of law at Stanford University.
Trips can be circumvented if individual countries cite national emergency as a defence. Lawyers working for campaign groups and developing world governments are poring over it to define what constitutes a national emergency.
Brown's call for an advanced purchase fund of Aids drugs for African nations is also beginning to gain momentum. The only worry is about how long will such a fund last?
But the war on patent infringement by the pharmaceuticals goes on. Under pressure from Roche of Switzerland and Merck of the US, the United States has taken Brazil to the WTO Dispute Settlement Panel. Brazil is proud to be the most flagrant abuser of international patent law. It has just under4 million people infected with HIV. The panel is due to meet next month. Brazil faces trade embargos that would undermine any progress that the South African court case may have achieved.
To adopt such sanctions against what is the engine room of the Latin American economy would send out strong signals to India and China, which would like to adopt similar policies.
Defending themselves, drugs companies cite the lack of robust health care systems in developing countries. 'Even if South Africa manufactured tonnes and tonnes of drugs, they couldn't guarantee that they would reach the people who need them.' Poverty, indeed, kills people with Aids. Poor healthcare systems - and poor access to drugs.