CAMBRIDGE: Debates over drug pricing and intellectual property rights are raging. Many life-saving drugs, notably those used to fight AIDS, are produced under patents mainly by US and European pharmaceutical companies. The patent-protected prices of these drugs often puts them out of reach of poor people in the poorest countries. Thus, while many AIDS patients in rich countries are kept alive by these drugs, millions of people in poor countries are dying before they should, leaving behind misery, millions of orphans, and economic devastation.
A typical AIDS drug regimen is priced at about $10,000 per patient, per year in rich countries. The costs of producing these drugs, however, are much less than the market price, perhaps as low as $350-$500 per year for some of the three-drug combinations used to treat AIDS. Some quality producers of generic drugs, such as Cipla of India, have offered to provide these drugs at prices near to the cost of production. In response to this offer (and to bad publicity), Merck, Abbott Laboratories, and Bristol Myers Squibb, three large patent-holding companies, announced that their willingness to supply the African market at "zero profit" – ie, at around $500 per patient per year for the AIDS drugs they produce.
The tragedy of millions of impoverished people dying of AIDS even when drugs exist to treat them raises deep questions about global intellectual property rights, because patent protection is creating a barrier to essential medicines reaching the world's poor. But how can the benefits of a global patent system that provides incentives for innovation and new discoveries be combined with an assurance that poor people gain access to the medical care that they desperately need?
One way is to set drug prices at different levels in rich and poor countries. In rich countries, patent protection should continue so that the pharmaceutical industry keeps innovating. This is particularly important in the case of AIDS, because the spread of drug resistant viruses and the unwanted side-effects of existing medicines, means that new anti-retroviral drugs will be needed to keep treatments effective. Thus drug companies must keep plowing their earnings back into research and development. To assure that, profits – protected by patents – are needed.
Yet poor countries – or donors acting on behalf of the poor – cannot pay the same prices paid by rich countries. America’s average annual income is over $35,000 per person; in much of Africa, annual income is less than $350 per person. Poor countries are, indeed, so poor that they cannot afford the drugs even at the production cost of around $350 per patient, per year, because even these reduced prices amount to a year's average income. Thus, few Africans can afford AIDS treatment even when supplied by generic drug producers.
Any viable solution requires that the following conditions be satisfied:
- drug companies – whether patent holders or generic drug producers – must provide drugs to poor countries at prices near to production costs;
- drug prices in rich countries must remain higher through patent protection to preserve incentives for innovation;
- rich and poor markets must be separated, so that cheap drugs from poor countries are not smuggled into rich countries (or are not allowed in legally through parallel-market imports);
- governments in rich countries must provide substantial assistance to poor countries, so that the poor – who are too poor to afford these drugs even at reduced prices – can make use of them.
Indeed, rich countries should create a “Global Health Fund” to help less fortunate countries buy drugs and medical services to fight killer diseases like AIDS, tuberculosis, and malaria. This fund would be aimed not only at poor countries, but at some middle income countries like South Africa where diseases like AIDS are so rampant that the volume of drugs needed to combat disease cannot be purchased even at reduced prices.
But rich-country voters may demand that drug prices for them should also fall. If politicians cave in here – say, by eliminating patent protection, imposing price controls, or allowing re-import of drugs from poor countries – innovation for new drugs will stall. Still, rich country drug purchasers, however, should not fear the worst: there is no reason to believe that the drug prices they pay would rise just because drug companies agree to lower prices in poor countries.
During the recent court fights over AIDS drugs in South Africa, patents received a black eye. But without them, the stream of new antiretroviral products used to fight AIDS would not have flowed, because the incentives for developing new drugs would be lacking. Some opponents of patents argue that government-sponsored research is enough to develop new drugs, but history shows that, although government-sponsored research is good at basic science, the profit-based private sector is best at developing and introducing new products. So, reform the international patent system to guarantee the poor access to essential medicines, but don’t kill the goose that lays the golden egg by undermining the patent system.