“We do hope that our position is taken into consideration by the National Legislative Assembly before approving the Pharmaceuticals Law. A considerable part of the problem of the lack of access of the population to pharmaceuticals, due either to high commercialization prices or to quality deficiencies, is a consequence of circumstances that directly and significantly limit or restrict competition in the sector, or limit the access of new economic agents to the same. It is of the utmost importance to correct the existing problems to favor economic efficiency and

consumer welfare”,

asserted Francisco Diaz

Rodriguez, Chairman of

PRESS RELEASE C. 01-12 El Salvador, January 6th, 2012.

CS Reiterates its Position regarding Competition in

Pharmaceuticals Aware that in the following days the National Legislative Assembly will resume the discussion of the Pharmaceuticals Law draft, the CS seeks to heighten the debate by exposing its position with respect to sector´s competition conditions which was made public in November 2011.

The Board of Directors (BD) of the Competition Superintendence (CS) reiterated its position regarding pharmaceuticals, confirming the existence of entry barriers1 and regulation problems which increase the process of these products. The BD concluded that if measures such as price regulation, reference prices, or maximum prices in the pharmaceuticals sector are necessary to guarantee their access to the population, such measures can and must be adopted since said products are essential for the satisfaction of a specially protected constitutional right: health.

The BD´s position is technically based on several studies (4 national and 2 international), recommendations, and opinions (two issued by the CS to the Salvadoran Legislative Assembly) carried on, adopted, or issued between 2005 and 2011 regarding the pharmaceuticals sector.

The CS concluded that a considerable part of the problem of the lack of access of the population to pharmaceuticals, due either to high commercialization prices or to quality deficiencies, is a consequence of circumstances that directly and significantly limit or restrict competition in the sector, or limit the access of new economic agents to it.

The modification of said circumstances, favoring competition, can contribute to a price decrease, a quality improvement, and availability in the market.

I. Competition problems that have been identified in the pharmaceuticals sector

Amongst the main problems that have been detected, ten may become entry barriers to the sector and one relates to a regulatory issue.

1 Entry barriers: Factors that impede, limit, or difficult the entry of new economic agents to a sector or economic activity.

These entry barriers are principally associated to: prohibition of parallel imports; mandatory licenses that do not favor competition; lack of generics promotion; commercial practices contrary to medical ethics; conflicts of interests within the sector´s regulators; import control through visa bills; lack of quality standards in generics; the development of economies of scale; and finally, vertical price fixing. In addition, the drafts of laws currently under discussion in the National Legislative Assembly prohibit drugstores to import pharmaceuticals, prescribe them, carry out medical consults, and take lab tests within their establishments.

Another issue identified as an aspect to be improved in the pharmaceuticals sector is related to price regulation. The BD of the CS concluded that if measures such as price regulation, reference prices, or maximum prices in the pharmaceuticals sector are necessary to guarantee their access to the population, such measures can and must be adopted.

Having concluded the aforementioned, it is necessary to clarify that the measures to regulate prices due to their nature limit competition; hence, they must be adopted in exceptional cases, based on the nature and purpose of the good or service, proof of their need, and always limited to the indispensable. Thus, in any case, the decision to impose price regulation must consider the differential structure of the existing costs between brand-name drugs and generics, the competition conditions of the products, and to be adopted with respect to a pharmaceuticals list of special national interest.

II. Recommendations in favor of competition

A) In order to eliminate or avoid entry barriers to the pharmaceuticals sector and promote competition, the BD of the CS recommended the following:

1. Amend IP laws authorizing parallel imports; 2. Amend IP laws to regulate mandatory licenses in conditions more favorable to competition; 3. Amend the Regulations for Pharmaceutical Specialties (in Spanish, Reglamento de

Especialidades Farmacéuticas) eliminating the control attributions of the responsible professional of the pharmaceutical in the Salvadoran Public Health Council;

4. Avoid the inclusion of new entry barriers to new competitors, such as the prohibition to

drugstore owners and other pharmaceutical establishments to import pharmaceuticals directly; 5. Promote competition through the implementation of proactive policies in favor of the

substitution for generics, such as: the adoption of rules that promote the prescription and use of generics; the implementation of surveillance mechanisms the insure the efficiency and quality of generics; and, the execution of information campaigns to professionals and public in general;

6. Eliminate practices of labs and pharmaceutical companies such as; financing or granting

seminars, incentives, or other type of offerings to physicians; 7. Implement public policies based on quality international standards for the pharmaceuticals

sector, such as: financing the reconversion of industries to comply with international standards; including technological reconversion projects; promoting a culture of productivity and quality at a national level in order to position quality and productivity matters as priorities; and, improving the support infrastructure for good quality and productivity practices;

8. Avoid the prohibition to prescribe pharmaceuticals, carry on consults, or take lab samples

within pharmaceutical establishments;

9. Include in laws a prohibition regarding vertical price fixing and other supply conditions and

discounts by pharmaceutical companies towards retail distributors; 10. Amend the Salvadoran Public Health Council statute in order to inhabilitate professionals

related to the pharmaceuticals sector from participating in said council or give the control attributions over pharmaceuticals to an institution different from the aforementioned council.

B) In order to enforce the necessary measures regarding price regulation of pharmaceuticals, the BD

of the CS recommended to analyze its need based on the constitutional right they satisfy; proof of their need; the differential structure of the existing costs between brand-name drugs and generics; the competition conditions of the products; and, to be adopted with respect to a pharmaceuticals list of special national interest.

III. Technical basis

Competition studies and opinions with respect to the pharmaceuticals sector Since its first endeavors, the CS has investigated how the pharmaceuticals market operates from the competition perspective. Consequently the CS has, pursuant to its legal duty, carried out various studies of said market and issued opinions on several drafts of laws. Studies2:

a) “Characterization of the Pharmaceuticals Sector and its Competition Conditions”, executed from October 2005 until December 2007.

b) “Analysis from the Competition Defense View Point of the Market of Pharmaceuticals for the Treatment of Cardiovascular, Respiratory, and Gastrointestinal Diseases in El Salvador”, executed from November 2007 until August 2008.

c) “Regional Study of the Competition Conditions in the Wholesale and Retail Distribution Chain

of Pharmaceuticals in Central America and Panama”, Central American Competition Policy Group3, executed from June 2010 until February 2011.

Opinions issued to the National Legislative Assembly with respect to different drafts of pharmaceuticals laws:

a) SC-018-OP/PL/NR-2008, issued on August 26th, 2008, regarding the sobre following four drafts of laws: Generics and Access to Pharmaceuticals Law; General Access to Pharmaceuticals Law; Pharmaceuticals Law; and, Law for the Prescription of Generics; and,

b) SC-011-OP/PN/R-2010, issued on April 6th, 2010, with respect to the following six drafts of laws: Pharmaceuticals and Sanitary Products Law; Generics and Access to Pharmaceuticals Law;

2 The studies mentioned in letters a) and b) were executed thanks to the financing received from the Technical Assistance

Program to Strengthen Institutions and Capacities in Competition and Consumer Protection Policies (COMPAL II Program), established by the United Nations Conference on Trade and Development (UNCTAD), with the support of the Swiss Government.

3 The CS is part of said group.

General Access to Pharmaceuticals Law; Pharmaceuticals Law; Law for the Prescription of Generics; and, Law for the Implementation of Generics Names in Pharmaceuticals Prescriptions.

Furthermore, the BD of the CS considered the following studies:

a) “Availability and Price of Essential Pharmaceuticals in El Salvador during the Second Semester of 2006”, executed by the Universidad de El Salvador, published on September 2007.

b) “Characterization of the National Pharmaceuticals Sector. El Salvador 2009”, executed by the Universidad de El Salvador, published on October 2009.

c) “Regulation and Competition in the Pharmaceuticals Market: Relevant Experiences for Latin America”, executed by the Economic Commission for Latin America and the Caribbean, United Nations, published on November 2010.