Medicines and the Poor: What Role for Competition Law & Policy?

1. Medicines and the Poor: What Role for Competition Law & Policy? Mariana Tavares de Araujo Competition Department, Head SDE, Ministry of Justice, Brazil Cape Town, April 2006

2. Competition law enforcement as a successful tool to promote access to medicines in Brazil. • Two examples: • Generic Drug Cartel Case • Pharmacy Chains Predatory Pricing Claims

3. Generic Drugs' Cartel Case • February 1999: Enactment of Generic Drug Law (Law no. 9.787). • Despite its enactment, law did not result in immediate entry due to need for tests before approval by the Regulatory Agency. • July 1999: meeting of executives of the main Pharmaceutical companies (together controlled at least 47% of the market) who agreed to block entry of generic drugs in the country. • Tactics included: refusal to deal with distributors that sold generic drugs; a campaign towards doctors "respect my prescription and don't change it for other medicines"; and "quality program" against generic drugs. • September 1999: SDE received meeting’s minutes, started the investigation and issued a preliminary order preventing the firms from implementing those decisions . • November 1999, a congressional inquiry was initiated to investigate "successive and abusive price increases”.

4. Generic Drugs' Cartel Case • Complex market. • Common elements include: • information asymmetries • doctor-patient relationship • distribution is key • Competition in this markets is impaired. • 6 years after enactment of the Generics Law: although these are at least 30% less expensive than the branded drugs, entry has been extremely slow and market-shares significantly lower than branded drugs.

5. Generic Drugs' Cartel Case • Brazilian Authorities concluded that the agreement could have effectively blocked entry of generics. • Defendants argued that they were interested in developing generics in the country and this, according to them, would disqualify the claim against them. • Firms unable to rebut that their initiative would allow them to start selling generics in the country at a later moment and thus delay entry and competition in the market.

6. Generic Drugs' Cartel Case • CADE heard the case 6 months ago and imposed fines of 1% of the firms' turnover in 1998 (Janssen-Cilag's fine was higher - 2% - because there was evidence that it had organized the meeting). • Fines were not so high because their attempt failed. • Intervention guaranteed implementation of highly relevant government policy to promote access to medicines to the poor.

7. Predatory Pricing Claims against Pharmacy Chains • In 2005, SDE began investigation against two large Pharmacy chains that were supposedly selling below cost to drive their small competitors out of the market. • Consent agreement was celebrated in court by one of the Public Attorney's Office , preventing the firms from giving out discounts greater than 15% in the final price of the product. • largest chain had started to offer discounts that varied from 30% to 50% below the maximum reference price for the drugs and the other one followed suit.

8. Predatory Pricing Claims against Pharmacy Chains • SDE's investigation indicated that pricing difference was significant but not anticompetitive because: • non-concentrated market and none of the two chains had market power; • since 2002 there are price control mechanisms; • even if prices of some of the drugs sold by the pharmacies were indeed below those drugs costs’; and • no significant barriers to entry in this market. • SDE concluded that this was in fact a pro-competitive practice that should be encouraged, not forbidden.

9. Predatory Pricing Claims against Pharmacy Chains • Public Attorneys' Offices from different states sent numerous other similar complaints to the Regulatory Chamber. • In these cases, the investigative agencies contacted directly the Public Attorneys’ offices and were able to rescind these decrees in a large number of jurisdictions in Brazil. • This successful initiative strengthened competition and thus resulted in significant reduction of final prices of medicines. • It is a clear example of how effective enforcement and strong competition advocacy can positively impact the access of drugs to the poor.

10. Conclusion • Examples indicate • Benefits of a sound competition policy can indeed have obvious direct effects in the promotion of equity and poverty reduction; • Possible to harmonize competition policy with different public policies, but also state attributions - such as law enforcement and advocacy initiatives - with government policies.