TCS Daily

Drug Development Dilemma

By Roger Bate - May 22, 2003 12:00 AM

As I have pointed out in previous TCS columns, there has been a 33 percent reduction in development of AIDS drugs in the past five years. The causes may be varied, and no doubt include activist pressure on patents and prices, but even if the activists quit tomorrow, and the other problems miraculously disappeared, there is still a massive problem for drug development for diseases like AIDS - lack of effective demand.

It seems odd to say there is a lack of demand for AIDS drugs. There are 42 million people with AIDS around the world, and every day thousands of new people become victims of the worst plague since the Black Death killed a third of Europe over 600 years ago. But most AIDS cases occur in the poorest parts of the world and AIDS is falling in the affluent north (especially Europe, America and Japan). There used to be 60,000 to 80,000 new AIDS cases a year in the U.S., with a similar number in Europe. But today on both continents the number is below 45,000 and falling. This drop-off sends a message to drug companies that they are dealing with a disease that affects only a small number of affluent patients. It is ironic that the drug companies are perceived as heartless and driven purely by profit: if that were the case they would be spending as much money on AIDS as they would on some genetic disorder affecting less than 0.02 percent of Americans - which is to say not a lot.

Pressure from activist-driven media, as well as the desire to help, drives some of the ongoing research, but unless something significant changes, either increasing AIDS cases in rich countries or increasing wealth in poor countries, companies will not be able to continue to spend a lot of R&D time on AIDS. They are corporations with shareholders after all, not charities. The research they have done is far greater than is warranted, economically speaking, given the prominence of the disease in the U.S. AIDS will soon approach the status of malaria - a developing country disease. And while billions of dollars are spent every year on AIDS research, less than $100 million is spent on malaria research.

Assuming there is no miraculous improvement in the wealth of the poor, or increase in AIDS cases in America, is there hope for AIDS research? Probably. Harvard economist Jeffery Sachs thinks a possible solution would be the creation of viable markets for drugs for diseases like AIDS and malaria in poor countries by getting UN-backed funds to buy drugs. In essence this is what the Global Fund for AIDS Malaria and Tuberculosis (GFATM) is doing already. By buying drugs or vaccines from generics and research-based companies at guaranteed prices and distributing them to poor countries, GFATM (as well as the Gates Foundation and national government aid) has maintained a small and growing, but so far insufficient, market.

Mark McLellan, the Food and Drug Administration Commissioner, favors prizes for those companies that develop drugs for diseases of poverty. The idea is that a company that develops a new drug for malaria will receive a financial reward, as long as it licenses its drug for free to any drug producer. "We must give benefit for those who do good work," he said when I spoke with him last week. He is not a fan of general tax breaks for companies that develop these drugs, because the "benefits tend to be diffuse, when they should be targeted at specific actions."

Another possibility, which especially irks activists, is patent extensions. If a company developed a drug for malaria, it could be allowed a six month, one year or two year extension in a particular country on its best performing drug patent. This could be worth billions to the companies, is predictable, and is the most lucrative option for them, providing much needed incentives.

Most of the criticism of this approach is that it keeps generics out of western markets for longer, maintaining higher prices and thereby harming uninsured American patients, and insurers of everyone else. Tax breaks are the most benign to patients since they lower receipts of government revenue. Similarly using taxpayer funds to buy drugs (either by U.S. Government or through GFATM) does not harm poor patients, but it lowers productivity further than tax breaks because the money comes from taxes already collected.

Of course there is a problem with all of these approaches. Is it really likely that non-profit-motivated bureaucrats (at HHS or GFATM or even the World Health Organization) will be able to predict in advance exactly what diseases are worth fighting in ten years time, what prices drugs should be set at (if the procurement approach is tried) and which markets patent extensions should be promoted in (if that approach is tried)? It is possible that they could guess the diseases, but setting drug prices a decade in advance is laughable. Also, when would a prize or patent extension be granted; after drug discovery, after clinical trials, after the first few years of success? Supposing the drug develops major problems and harms users like thalidomide, does the prize giver assume liability along with the drug company?

Furthermore, it is questionable whether Geneva- and New York-based bureaucrats should be making the decisions on behalf of the poor countries. I suspect that the companies, the bureaucrats and all the lobbyists would end up playing the system to their best advantage, and not delivering what the poor want - much like most non-market financial transfers and aid.

But the international community, led by President Bush, wants to do something, and the AIDS pandemic certainly is worthy of drastic effort. None of the solutions to the lack of effective markets is a panacea, but all have some merit. To do nothing is no longer an option.

Dr. Roger Bate is a Director of Africa Fighting Malaria and a TCS columnist.

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