TCS Daily


Goldilocks Pricing

By Richard Tren & Roger Bate - February 27, 2006 12:00 AM

For many years, AIDS activist groups have campaigned for cheaper drugs, wider access to treatment and against the stigma of AIDS. In many respects, their campaigns have been successful; the prices of AIDS drugs have fallen dramatically and more and more people are now receiving life-saving AIDS treatment. Much of that success however has been due to the private sector, donors and charities finding solutions on the ground that work. Some of the activist activity has been ideological in nature and more concerned with bashing the research-based drugs industry than finding real solutions that work.

Last year at the World Health Assembly in Geneva, I reported for TCS on a meeting held by the Third World Network, an activist NGO. Martin Khor of TWN had explained how countries should follow Zimbabwe's example and issue compulsory licenses for patented AIDS medicines. Yet when I asked him how successful that had been and how many Zimbabweans had accessed medicines as a result, he didn't know. It was clear that his primary interest was in undermining drug patents, rather than actually ensuring that more people access medicines in a sustainable way.

Now Medicines Sans Frontiers, another NGO that has pushed for cheaper medicine prices, has demonstrated some of the same skewed priorities. The Financial Times recently reported that "MSF accused Gilead of offering a deliberately low nominal price for tenofovir to deter generic rival manufacturers from producing copies." So MSF, which for years has campaigned for cheaper medicines, is now complaining that they are too cheap! It would certainly suit generic manufacturers to have more fat in their prices, but it isn't clear how this helps the poor that are trying to access cheap, safe and effective medicines.

MSF also complained that Gilead had not applied for the registration of its drug in South Africa, which has one of the highest HIV prevalence rates in the world. Perhaps Gilead should have submitted its application earlier; however it is notable that MSF doesn't credit Gilead's investment in research and development that created the drug in the first place.

Furthermore MSF would be wise to campaign for reforms to the Medicines Control Council in South Africa, which is notoriously slow and inefficient. Privately, drug companies complain that their letters and telephone calls go unanswered and that on several occasions highly sensitive and confidential documents have disappeared completely from the MCC offices. Given such shoddy treatment why should any company go through the slow and expensive ordeal of trying to sell their product in South Africa?

Meanwhile, President Bush's Emergency Plan for AIDS Relief (PEPFAR) has just submitted a large and lengthy report on its progress to date. PEPFAR was set up two years ago with the promise of $15 billion and with the aims of providing AIDS treatment to 2 million people and preventing 7 million new infections over 5 years. There seems to have been some significant successes, but the progress has been patchy, with much of the success or failure dependent on the countries, governments and societies in question.

Fortunately, in December, the World Trade Organization reached an agreement which may put an end the arguments about intellectual property (IP) rights and access to medicine. The WTO ministers approved changes to the TRIPS regulations which essentially made permanent the temporary agreement which was struck at the Doha Ministerial meeting in 2001. In reality, intellectual property was never really a barrier to drug access as the vast majority (more than 95%) of essential medicines are off-patent anyway. So while many commentators have welcomed this deal as an important step forward, the greatest benefit is in the fact that negotiations are now over and countries can move forward with other more important trade issues.

Despite the fact that the flexibilities in TRIPS, however pointless, have been in place for some time, no country has actually gone as far as issuing a compulsory license -- since it would probably disrupt negotiations with important partners. One country that has come closest has been Brazil. But the Bazilians have used their power and their domestic drug production capacity to threaten IP as part of a negotiating tactic. Perhaps most poor countries correctly recognize that issuing compulsory licenses is not necessarily the way to go, especially if they recognize the long term advantages of investment in research and development.

Voluntary agreements seem to be a more constructive way of producing low cost, good quality drugs. Bristol Myers Squibb just announced agreements with South African and Indian generic drug producers to manufacture their ARV atazanavir. The voluntary transfer of technology to South Africa and India is probably a far better way of improving manufacturing capacity than compelling a company to hand it over. It is notable however, that the BMS deal requires no royalty payment, which may be good for South Africa and India, but one has to wonder why BMS doesn't at least get some return from the agreement.

BMS's response is that they must continue to make money from the wealthier markets of the US, EU as well as Brazil, Mexico and other mid-income markets. But these countries may now be tempted to pressure prices lower in response to BMS' largesse to the poorest nations. The activist community is already pushing in that direction; Ellen t'Hoen of MSF recently lamented the fact that BMS's efforts are only focused on the poorest countries, while leaving out other low and middle income countries. Furthermore, while little money can be made from most Africans and Indians in the short run (ignoring the small number of very wealthy players in each market), this will not be the case forever -- a point that BMS likely understands, even if many aid givers don't.

The worry is that HIV/AIDS is increasingly seen as a charity disease and only worthy of corporate social responsibility programs. Ensuring that there are profits to be made from HIV/AIDS is probably the best way to keep companies investing and researching, for without that, the prospects for the development of the next generation of AIDS medicines look increasingly bleak.

So while activists may grab headlines by either complaining that drug prices too high or too low, they would be of more use if they figured out how BMS, Gilead and all the other research-based companies out there can make a profit from AIDS and sell their products more easily to those who need them.

Richard Tren is a director of the health advocacy group, Africa Fighting Malaria and Bate is a resident fellow at the American Enterprise Institute.

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