The move comes six months after 39 pharmaceutical companies backed down in a landmark court battle with the South African government, since when there has been little progress in improving the flow of live-saving drugs to millions infected with HIV.

Drug companies, under fire for not doing more to help poor countries, are trying to perform a balancing act by cutting prices in Africa while not jeopardising their profitable premium markets in North America and Europe.

Aspen Pharmacare, South Africa's largest generic company, has been granted a voluntary licence on patents to GSK's antiretroviral drugs AZT and 3TC, and a third pill -- Combivir -- which combines the two.

GSK and another British firm, Shire Pharmaceuticals Group Plc , which licenses 3TC to GSK, will waive their rights to royalties on sales. In exchange, Aspen will pay 30 percent of net sales to one or more non-governmental organisations (NGOs) fighting HIV-AIDS in South Africa. Industry sources said Aspen's generic Combivir would cost around $1.80 per patient a day, with AZT priced at $1.60 and 3TC at just over 60 U.S. cents. That is still a premium to the $1-a-day some Indian generic drugmakers are offering for AIDS combination therapy in Africa.

Aspen's locally made versions of the drugs will be distributed to the government, NGOs and charities, with GSK continuing to supply other markets. Aspen Chief Executive Stephen Saad, whose company already has licences on two AIDS drugs from Bristol-Myers Squibb Co (NYSE:BMY - news), said the South African health service would now have access to range of affordable antiretroviral drugs.

GOVERNMENT HOLDS KEY

But the success of the scheme will hinge on the response of the government -- in particular, whether or not the health ministry decides to offer up a state tender for Aspen's generic product.

There was no immediate reaction from Pretoria, which has slammed companies in the past for trying to restrict access to cheap supplies of AIDS drugs, leading to this year's court case over the right of poor countries to import cut-price medicines.

South Africa's government -- faced with the largest number of HIV-AIDS cases of any country in the world -- has pursued a controversial policy on the disease. President Thabo Mbeki touched off a storm of protest by questioning the causal link between HIV and AIDS and the efficacy of antiretrovirals such as AZT. His ministers have resisted the use of antiretroviral drugs in the state health sector on cost and safety grounds, despite the country having close to five million people living with the deadly virus.

The Treatment Action Campaign pressure group, which was a key ally in the earlier court cases against the drug industry, threatened in August to take the government to court for denying HIV-positive pregnant women drugs that cut the risk of transmission to their newborns.

The global market for AIDS drugs, which is dominated by GSK, is estimated at around $4 billion a year. Adding in associated infections takes the total nearer $10 billion -- with most of the money to be made in the world's biggest drugs market, the United States, where combination therapy can cost $15,000 a year.

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