The Thistle Volume 13, Number 4: June/July, 2001.

Punting Patents: Drug Smuggling and the War over Generic Medicines

by Sanjay Basu

The orange gourd that presided on Christopher Moraka’s nightstand stretched its dried feelers, curling them around imaginary placeholders as if searching for something that floated midair in the hot atmosphere of his Cape Town home. Christopher’s wasted arms, awkwardly folded across his sweaty chest, appeared to mimic the twists of his bedside vegetable. In this exhausted state, he his chalky meal in chunks, wincing twice for each spoonful. The pain, physicians had told him, came from a fungus that would grow out of his tongue and spread downwards to consume his chest and pelvis.

After Christopher died of systemic thrush, the infection that conquered him because of acute HIV disease, his colleagues held his departure as perverse, unanswerable. Thrush was by all means a treatable infection, suppressed by the drug fluconazole. But after obtaining his prescription for the drug, Christopher had reached the disturbing awareness that he would be unable to afford the treatment.

His friends, many of whom were members of the South African Treatment Action Campaign (TAC), decided to construct a memorial. They held a proper funeral for Christopher. They organized a spontaneous march in his honor. And then they led a drug-smuggling operation.

Members of TAC, unified in mutual bitterness over their friend’s death, decided to smuggle generic fluconazole into South Africa and distribute it to the country’s poor. Importation of generics had been banned after their country’s entrance into the World Trade Organization (WTO), under the premise that these cheap alternative drugs violated the intellectual property rights of pharmaceutical companies.

Profit before treatment

Fluconazole had been sold in South Africa for years, through Pfizer, a U.S. pharmaceutical company that priced its patented pill at R28.57 (about USD$4) per 200mg capsule in South Africa’s public sector and R80.24 (USD$11) in private clinics. In Thailand, where WTO rules had not yet been enforced, equivalent pills were selling for R1.78 (USD$0.28) each.

“There is clear evidence that it is possible to manufacture and sell fluconazole at a price which would make it affordable to a significant number of South Africans,” said Mazibuko Jara, a member of TAC. “It is only Pfizer’s pricing policy which keeps the drug out of patients’ reach.”

Jara and two TAC colleagues had already asked Pfizer to either lower the price of fluconazole to R4.00 (twice the price of generic equivalents), or grant a voluntary license to TAC to register generic versions of the drug from local and foreign producers. In exchange, TAC would ensure that Pfizer received a 5% royalty on the generic product.

But in rejecting TAC’s conditions, Pfizer announced that it would make a free short-term trial-offer of the drug to a few South Africans who were described as “indigent patients.” No further price-reduction negotiations would take place.

In his anger, TAC member Zackie Achmat changed the TAC effort from a price negotiation strategy to a campaign with all the resonant themes of guerilla warfare. He named the effort the “Christopher Moraka Defiance Campaign Against Patent Abuse and AIDS Profiteering by Drug Companies.” Weeks later, TAC printed a press release declaring that Achmat had illegally smuggled 5000 Biozole (generic fluconazole) capsules from Thailand and would distribute it to a network of colluding doctors and pharmacists.

“The choice is clear,” said Achmat, awaiting arrest after herding himself through a crowd and into a Cape Town police station. “The right to life and access to health care are non-negotiable. Profiteering, at the expense of life, even when protected by law, is not a right.”

It was only shortly after the announcement that mixed statements of praise and condemnation came from all sectors of the Cape Town community. Ironically, Pfizer didn’t appear as an outspoken critic Achmat’s smuggling. Instead, a group of local generic drug manufacturers assumed that role.

“Emotions aside, when anyone illegally imports generic drugs without the go-ahead of the Medicines Controls Council, the consequences can be tragic,” said Generix International CEO Iqbal Moosa. Moosa’s company distributed generic medicines, not including fluconazole, under license. “These actions are illegal. How could any doctor in good faith use drugs which have entered a country illegally? The potential for breaking the Hippocratic Oath and ignoring the proviso to ‘first do no harm’ is enormous.”

His colleague, Raymond Mallach of Generix, told reporters that “challenging a company with a turnover in excess of the GDP of South Africa that relies almost solely on research and patents for its livelihood means that either you’re searching for ongoing publicity, or that you honestly believe Pfizer will ignore the issue, which is extremely unlikely.”

Patents inflate prices

After hearing Mallach’s criticism, one wonders whether eliminating a patent really threatens the livelihood of a company like Pfizer. Are patents a necessity to drug manufacturers—their existence crucial to producing “profit incentive” for drug research and development (R&D)?

Moosa, despite his condemnation of TAC’s smuggling operation, agreed with Achmat’s declaration that the patents preserve “obscenely high” prices, which offer more than a simple retribution for research and development costs. “There are some interesting statistics indicating that the prices charged for these drugs are in fact artificially high,” he said. “South African drug sales contribute one percent towards the turnover of the multinational drug manufacturers, but a far higher percentage of profit...This is evidence of where the priorities of the multinationals lie.”

In a recent Pfizer company newsletter, MIT Professor Rebecca Henderson concurred, explaining that R&D costs are rarely paid for by private corporate profits. “Research has been, in general, largely funded by the American taxpayer, and in the past has resulted in products that have revolutionized medicine,” she said.

Henderson noted that most drugs are developed using public tax money distributed through grants to university labs that conduct research and publish their work in academic journals. Pharmaceutical companies then take the published research and mass-produce drugs that result from it. Professor Richard Laing of Boston University also pointed out that for most drugs, and in particular for high priced drugs, price reductions in Africa’s market wouldn’t generate much profit loss for drug companies.

“1.4% [of the global market is] going to the whole of Africa,” said Laing. “The whole of South-East Asia and China is only 5%. So these countries are only a very small part of the global pharmaceutical market[Western] markets are so large that they could easily accept to cure Africa and South-East Asia” by reducing prices in needy markets and allowing higher prices in larger markets to compensate for marginal profit losses.

But companies are far from waiting in line to dispose of their patent rights or slash their prices. And with this acknowledgement comes the question of whether alternative strategies for drug procurement are available, apart from illegal smuggling.

Alternatives to death and profit

Laing and others have pointed to two alternatives. The first is “parallel importing”, a strategy not altogether different from that originally suggested by TAC activists. Parallel importing calls for a government to grant someone other than the authorized distributor permission to import a product because of differences in national prices. An American organization, for example, might be given rights to import cheap drugs from Canada into the United States. Alan Holmer, CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry lobby group, argued that such strategies would violate international trade obligations. “Despite the progress, our industry continues to face serious intellectual property challenges in many parts of the world - hindering our ability to bring to patients the benefits of innovative medicines,” he said. “We hope the [U.S. Trade Representative] will increase the pressure on countries that fail to live up to their international trade obligations.”

Economist James Love of the Center for Study of Responsible Law in Washington, D.C., disagreed, saying that parallel importing would be permissible under current WTO laws, particularly the Trade-Related Aspects of Intellectual Property Rights agreement, or TRIPS. Several European countries have, in fact, instituted parallel importing strategies for their citizenry. A less contentious alternative, however, has been proposed by those who support a “compulsory licensing” strategy, under which governments permit third parties to manufacture products without the permission of patent owners. Even these agreements are allowed by TRIPS and the WTO, as long as the participating country abides by “safeguards” that call for a small royalty of sales revenue to be paid to the patent holder. Compulsory licensing might reduce prices of some drugs by as much as 95 percent.

Laing explained that “if there was compulsory licensing affecting these [impoverished] parts [of the world], it would probably not affect the profitability of the pharmaceutical industry in any way.” Poorer countries hardly offer any profit to companies to begin with, given that few people there can purchase expensive drugs.

A recent PhRMA report on the topic argued otherwise, claiming that “although some have advocated the use of compulsory licensing or parallel trade as a solution to the AIDS crisis in the developing world, these mechanisms would do little to improve access to health care services or HIV medicines…The absence of infrastructure remains the major obstacle to treatment.”

The argument, said Love, is an often-heard rebuttal from the pharmaceutical industry. “Drug companies are quick to point out that drug prices are not the only barrier for HIV/AIDS patients,” he commented. “Certain treatment regimes require significant medical infrastructure[but] in any event, HIV/AIDS patients will die without access to drugs.”

“Compulsory licensing is ultimately a compromise on the issue of R&D,” he argued. “Patents are recognized and patent owners are paid, giving rise to incentives for R&D. But the amount of the incentive is limited by the government, in order to ensure that the public health needs are met.” South African ministers have attempted to create policies to bring generics to the country, through laws like the South African Medicines Act. But such measures were, until very recently, blocked by U.S. trade ministers and others representing pharmaceutical interests. A new series of laws, the Medicines and Related Substances Control Act Amendments, have passed and will allow for parallel importing if implemented.

For Zackie Achmat and others who remember Christopher Moraka, laws that allow compulsory licensing or parallel imports may be the only purveyors of hope. Until then, TAC defiance campaigns and illegal importing from Thailand may continue, sending pleas for help to those capable of bringing relief to Africa’s AIDS crisis.


The Thistle Volume 13, Number 4: June/July, 2001.