Many Aids sufferers in Africa cannot afford drugs
Aspen Pharmacare has been given the patents to generically produce and supply anti-retroviral drugs to the government health service and to non-profit making anti-Aids charities.
Under the agreement, the South African company is not allowed to profit from the sale of the drugs, AZT, 3TC and Combivir, or export them to any other African country.
An estimated 4.7 million South Africans are HIV-positive, about 11% of the population.
Africa has been hardest hit by HIV, with an estimated 25 million infected people, equivalent to two-thirds of the world's cases, UN figures claim.
Little progress
The concession by GlaxoSmithKline (GSK) comes six month after the firm and 38 other drugs companies dropped legal action to stop South Africa from producing or importing cheap medicines.
But there had been little progress since in improving the availability of the drugs to Africans.
Under the Aspen deal, expected to be announced in South Africa on Monday, the British pharmaceutical company will waive royalties.
The South Africa generic manufacturer would be expected to pay a 30% fee on sales to non-governmental agencies.
Price to pay
Before the deal, GSK was already offering Combivir, a combination of 3TC and AZT, to South Africa's public health system for about $2 per patient per day.
But the South African government said that even this reduced price would bankrupt the country's health department.
Industry sources estimate Aspen's generic Combivir would cost about $1.80 per patient per day, with AZT priced at $1.60 and 3TC at just over 60 US cents, which is still above the cost of generics being offered by Indian drug makers at $1 per day.
Drug companies do not want to jeopardise their profitable premium markets in North America and Europe by cutting prices in Africa.
In the US, the world's biggest drugs market, combination therapy can cost $15,000 a year.
GSK dominates the global trade in anti-Aids drugs, a market which is valued at about $4bn a year but could be as high as $10bn once treatments for associated infections are included.