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

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

Generic Drugs' Cartel Case February 1999: Enactment of Generic Drug Law (Law no ). Despite its enactment, law did not result in immediate entry due to need for tests before approval by the Regulatory Agency. 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. 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”.

Generic Drugs' Cartel Case Complex market. Common elements include: information asymmetries information asymmetries doctor-patient relationship doctor-patient relationship distribution is key 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.

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.

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.

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. 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.

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; non-concentrated market and none of the two chains had market power; since 2002 there are price control mechanisms; 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 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. 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.

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.

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