TCS Daily

An AIDS Mirage

By Roger Bate - April 30, 2003 12:00 AM

In the fight to help the victims of AIDS, Brazil's treatment program is seen by many as a beacon of hope. And while there is much to learn from Brazil, the lessons are not what most of its supporters believe.

Brazil is the darling of the political left, with its Cuban-style antagonism to capitalism. Its new President, Luis Inacio Lula da Silva, is a proud, if pragmatic, communist, and like so many communists, is known affectionately by just one name - ' Lula'. Brazil's conservative challenger in the recent presidential election was the former Health Minister, Jose Serra. But to be conservative in Brazil is not necessarily to be in favor of property rights. As Health Minister, Dr. Serra enraptured the anti-patent activists by standing up to American 'bullying' over pharmaceutical patent protection and drug pricing. He held firm against U.S. government litigation threats and U.S. pharmaceutical company complaints.

But regardless of Dr. Serra's actions - or his support by activists around the world - Brazil's approach to AIDS treatment is not sustainable. And worse, it is seen, albeit implicitly, as a model for the rest of the developing world, and in particular Africa. Any African country contemplating copying its approach should think twice because the Brazilian model is a mirage.

The AIDS Pandemic

Of the 42 million people with AIDS around the world, less than 300,000 are receiving proper treatment (either for free or on insurance) and 100,000 of those are Brazilian. Brazil has seen a significant annual reduction in AIDS deaths from 11,024 in 1998 to 4,136 in 2002. Dr Paolo Teixeira, coordinator of Brazil's anti-AIDS initiative, claims that it has saved over 90,000 lives and $400 million dollars in medical expenses. It is obvious that Brazil is doing something right, and AIDS activists think they know the reason.

Brazil's program keeps costs down by ignoring patents from western companies prior to 1997, producing generic copies of those patented drugs. In 1997 Brazil agreed to respect western patents, and is now the most compliant Latin American country with respect to World Trade Organization intellectual property rules. According to IMS, the pharmaceutical news report, at the end of 2002 there were no patent-breaking copies of erectile dysfunction drug Viagra in Brazil, compared with 17 copies in Colombia, 8 copies in Argentina, 8 copies in Central America, 6 copies in Chile, 5 copies in Uruguay and 7 copies in Peru. Generics companies like Genfar of Colombia and Recalcine of Peru flourish in these less patent-compliant countries. Their local sales forces are far larger than the likes of Pfizer, the world's largest pharmaceutical company.

But in the past two years, urged on by activists, Brazil has threatened to strip patents on newer drugs pressuring companies like Roche and Merck to lower their prices by over 70%. And although Brazil is protecting intellectual property rights on existing treatments, it is registering very few new drugs, flouting the spirit of the law, if not the letter. This 'go-slow' approach has lead to public complaints by American, Swiss and British drug companies, and encouraged generic companies like Genfar and Recalcine to enter the Brazilian market to supply over the counter patent-breaking copies of drugs that are not even registered yet..

Confronting the developers of anti-AIDS drugs is heralded as the way forward by many academics and activists from the west , and politicians from the most politically active developing countries. The U.S. government even withdrew a World Trade Organization complaint (for breaching patents) against Brazil a couple of years ago, which furthered the latter country's reputation among activists and poor country politicians. And there is little doubt that Brazilian threats have awoken the western drug companies up to the damage that apparent overpricing might do to their reputation. These companies have realised that for the poorest countries they can lower prices and still make money in their major markets.

The Brazilian success story even contributed to the World Trade Organization's Doha Declaration. This declaration, agreed by WTO members in November 2001, allows the poorest countries to ignore patents on AIDS drugs and buy from generic producers, such as in Brazil. Former President Bill Clinton added fuel to the generics fire when he told the 2002 Barcelona AIDS conference to 'make deals with the [western] drug companies. If the deals are unsatisfactory, go to Brazil or India'. Somewhat ironically, Brazil's success has even led to a considerable backlash across Latin America, with many poor countries demanding to know why Brazil doesn't export its cheap generics.

Compulsory Licensing Threats

But up to the end of 2002 only a handful of countries, including the despotic Zimbabwe, and corrupt Nigeria, had threatened to enact the provisions of the Doha Declaration. And in Nigeria's case it had to buy the drugs from India because, as Dr. Teixeira explains; "Brazil does not have the capacity to produce drugs on a large scale" and will only help by exchanging technical information and providing drugs for pilot programmes.

Brazil's government does have some capacity to step up drug production, although it would have to lower production of other drugs, such as antibiotics, to substantially increase the manufacture of AIDS drugs. Furthermore, it is heavily subsidizing its own pharmaceutical company, Far-Manguinhos, and is not about to spend Brazilian taxpayers' money on producing drugs for Africa . This revelation may shed doubt on the vaunted $400 million healthcare saving in Brazil, which may be far lower if one counts the level of generic product subsidization.

The subsidy is partly because the Brazilian government admirably wants to develop new drugs, not just reverse engineer existing products of the research-based industry. "Far-Manguinhos already produces 8 of the 15 medicines used in the anti-retroviral cocktail treatment offered in Brazil" says Eloan Pinheiro, the company's Director. "Three other drugs are being developed" and the outstanding aspect of the programme is the fact that the accumulated know-how is leading to innovations, he said. Apparently "two new families of molecules" that could improve treatment (especially in resistant viruses) were created and are under trial. Dr Pinheiro explained in a press briefing last year that if they are found to be effective, the patents will be public in nature and drug industries in any country will be able to freely produce them. This largesse is impressive, but, of course, it will take at least five years before we know whether any of the Brazilian breakthroughs pass muster.

It is possible that the Brazilians will deliver the goods, and they should, for now, be given the benefit of the doubt. But many in the research-based industry are sceptical. One insider, who did not want to be named said: "It's always about what Brazil will deliver in the future; their drug research and development is a fig leaf to cover up Brazil's free riding, and make it seem respectable."

Wealth is the Key

Dr. Teixeira wants to help the poorest countries of Africa, but he claims that Brazil is doing all it can given its level of wealth: "In many cases it's up to the governments of developing countries to do more" he complains. And he is correct because for many African countries it appears that their governments could care less about the suffering of their people. Countries such as Nigeria still tax AIDS drugs at 20% when they enter the country, and South Africa was in denial about the disease for the whole of 1990s. While this type of domestic folly is a major problem, Dr. Teixeira, and most opinion formers, ultimately believe the responsibility lies with developed countries like Japan, the U.S. and the nations of Europe. "That's who is going to pay the cost or not," he says.

President Bush recently announced a $15 billion AIDS plan for Africa and it will undoubtedly help the situation there. But even if European politicians follow his lead it is unlikely that we will see Brazil's success repeated in Africa. Why? Regardless of activists' pronouncements to the contrary, patents and the cost of drugs are of relatively low importance to treatment of AIDS patients. Lower drug prices are always useful - $400 per person per year is always preferable to $4,000. But drug price is a small factor, at least for the poorest African countries, by comparison with wealth and health infrastructure and a low level of corruption. After all the price of a drug cocktail makes little difference if there are no doctors to administer it.

Brazil v. Africa

Africa is by far the poorest continent, and most of its countries have per capita incomes not much more than a tenth of Brazil's. Although South Africa's per capita income is roughly the same as Brazil's, it is in a far worse situation (and the rest of Africa is far worse off than South Africa). Half of South Africa's population is in poverty, compared with 17.4% in Brazil. Unemployment is 30% in South Africa and 7% in Brazil. And most importantly, there are 127 doctors per 100,000 people in Brazil, yet only 56 in South Africa (and fewer than 20 in Zimbabwe, Zambia and most other African countries). It is therefore unsurprising that life expectancy in Brazil is over 63 years whereas in South Africa it is under 49 years, and fewer than 1% of Brazilians and over 20% of South Africans have AIDS.

Of all the African countries, however, South Africa has by far the highest level of technical competence to produce drugs and maintain a substantial health programme to combat a disease like AIDS. And it is the one country in Africa where it may even have a comparative advantage in producing drugs. Given their economic conditions, probably no other country in Africa should bother to produce AIDS drugs domestically, at least for the foreseeable future. There are already enough white elephant economic projects in Africa that building drug plants - as so many African Commerce Ministers want - is a waste of scarce taxpayer, corporate and aid agency dollars.

There are probably economic cases to produce low complexity chemicals in some African countries (especially Egypt and South Africa), but most AIDS drugs are simply too complex to produce. The recently approved AIDS inhibitor drug Fuzeon, from Roche AG, has over 100 chemical steps - there are probably only a handful of laboratories in the world that could currently produce it. The cost of building the complex chemical works required to produce the most effective anti-retrovirals can be as much as $50 million, which is more than the entire annual Kenyan health budget. It is also worth noting that even Brazil imports some chemical ingredients from India since it does not have the expertise to undertake all anti-retroviral chemical synthesis.

It is ironic and tragic that while South Africa has shown little political will to combat the disease, it is the one country that could do a great deal. After all, it has learned from Brazil to threaten to import generic drugs and has, like Brazil, managed to get much lower prices for AIDS drugs. So although it is unlikely to do so, it could even copy the Brazilian model.

Confrontation or Negotiation?

But are threats the best way to go? The western drug companies have been trying to give away AIDS drugs in the poorest countries for the past few years, and they have been unable to deliver most of them because of a lack of health infrastructure. Merck's experience in Botswana is instructive. According to Public Affairs Director Jeffery Kemprecos, Merck has only managed to give away half its intended funding and drugs because there is simply not the capacity to deliver them. It stands committed to deliver the drugs but there are not enough doctors to train as "hundreds of doctors and nurses have left for better pay in Europe in the past few years" he said. And medical staffers are paid more in Botswana than in any other African country. But at least there are 4,400 Botswanans receiving high quality treatment. Compare this to the less than 1,000 Nigerians receiving treatment, and remember that the Nigerian population is 100 times larger than that of Botswana, with at least 7 million AIDS victims.

In general, where the companies are not in free delivery partnerships they have lowered their prices dramatically. But in these relationships the research drug companies are the ones that mainly determine when they reduce price and to whom they give drugs away for free. What the activists and developing country politicians like about the Brazil model is that the buyer, not the seller, has the power.

But what they tend to forget is that a major value of research-based industry drug provision, as has been explained to me by doctors in Africa, is in the support and technical advice that they get from these companies. The generic copiers provide none of this, which means that the government has to provide the support - and many African countries can't or won't. So if a country doesn't have much of a medical infrastructure and it wants to do what is best for its patients, it is often better to buy the more expensive brand name drug (for any disease and not just AIDS), because this comes with all the bonuses of education, training and logistical support.

Furthermore, notwithstanding recent claims of original research, if the (current) Brazilian model were to be replicated it might well harm long term drug development. This is because a significant part of its success comes from copying drugs without undertaking much of the R&D to develop new solutions and threatening the existing patent holders with confiscation if they don't lower prices.

Western drug companies are in a difficult position when it comes to AIDS drugs development. They have produced nearly every successful therapeutic treatment, yet their patents are regularly threatened and often attenuated. The incentive to produce the next generation of treatments is low and falling.

Negotiation with the research-based industry, as is happening in Botswana and other African countries, is likely to be the way forward. Confrontation - as in the Brazilian approach - is likely to just remind the drug companies that there is far more money to be made combating baldness and hypertension than in fighting AIDS.

Brazil is flavour of the month at the moment, and its efforts to spend money on this killer plague are to be commended, as is its domestic compliance with WTO patent rules. However, we may look back to see its success through confrontation as a mirage for other countries. For while Brazil has political will, technical competence and a comparative advantage in copying drugs, all of Africa, with the possible exception of South Africa does not. It is not a replicable model for Africa.

Dr Roger Bate is a Director of Africa Fighting Malaria, a fellow at the International Policy Network and a TCS columnist.

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