Cheap Tricks

by Carol Adelman and Jeremiah Norris 
June 2, 2003
The Hudson Institute
Original Source: http://www.hudson.org/index.cfm?fuseaction=publication_details&id=3452
Decisions made by the World Trade Organization (WTO) and the U.S. government on how to treat AIDS in the Third World will soon have life-or-death consequences for the forty-two million people infected with the virus worldwide. The scientific and industrial infrastructure that has developed AIDS drugs and is now racing to discover medicines and a vaccine for Severe Acute Respiratory Syndrome (SARS) is made possible by patents. While the world anxiously waits these cures, the system that can best create them is coming under attack. 
Third World activists and First World pundits alike argue that patents on AIDS drugs - and, for that matter, all drugs - are a major obstacle to treating poor people in developing countries. The chief economist of the World Bank, Nicholas Stern, for example, argues that patent rules adopted by the WTO will limit the ability of poor countries from getting affordable drugs. His solution is to expropriate intellectual property rights from the pharmaceutical industry in developed countries, so that poor countries can produce their own generic medicines at lower cost. The anti-patent critics agree that the poorest countries in Africa cannot manufacture their own drugs, but they want them to be able to import cheap generics from countries that can make drugs, such as India, Brazil, and China. This, they argue, would allow more poor people to get these drugs and become healthier. 
Their logic further dictates that those who finance drugs for AIDS and other diseases, such as tuberculosis and malaria, should purchase the cheapest generic drugs made in developing countries. This view could even become part of official U.S. policy. Anthony Fauci, director of the U.S. National Institutes of Allergy and Infectious Diseases, recently announced that the United States will purchase generic drugs from India, for less than $1 per patient per day, as part of America's new $15 billion commitment to fight global AIDS, announced by President Bush in January 2003. 
It is understandable that U.S. government policymakers such as Dr. Fauci want to make the taxpayer's dollar go further. But it is misguided to think that buying the cheapest generics from countries with underdeveloped drug regulatory authorities is the best value for patients. It is right to care about sick people in developing countries who can't afford essential medicines, as the World Bank's Dr. Stern does. But it is wrong to think that patents are the cause of this problem, that they don't matter to developing countries, and that anti-market trade policies can fix endemic health problems of the Third World. 
We know, of course, that patents matter to wealthy countries, particularly the United States. So much so that the first article of the Constitution reads: The Congress shall have the power to promote the progress of science and useful arts, by securing for limited times to authors and inventors, the exclusive right to their respective writings and discoveries. Abraham Lincoln, a patent holder himself, wrote that patents and copyrights added the fuel of interest to the fire of genius, in the discovery and production of new things. 
But do patents matter for poor countries? If you listen to the global health babble, you'll probably think not. But they do. Patents are the reason there are new drugs in poor countries for diseases like HIV/AIDS and will be developed to fight SARS and future unknown epidemics. Millions of people in developing countries are now being treated for tuberculosis, malaria, and leprosy with lower-priced generics that were developed years ago through patented research and development. Research shows that developing one new drug takes an average of fourteen years, and meeting safety and efficacy requirements costs pharmaceutical companies up to $800 million per drug. Moreover, developing countries with patent protection - such as Mexico, Brazil, and Jordan - have attracted greater foreign investment and technology, the long-lasting solution to underdevelopment. 
Scapegoating Patents 
Patents have little to do with the barriers to treating HIV/AIDS and other infectious diseases in Africa today. In a Harvard study of fifty-three African countries, published in the Journal of American Medical Association (JAMA), the authors concluded that patents were not a major impediment to getting treatment (Do Patents for Antiretroviral Drugs Constrain Access to AIDS Treatment in Africa? JAMA, October 17, 2001.) This is because most AIDS medicines are not even patented in the poorest countries. In fact, most of the drugs on the World Health Organization's (WHO) list of essential medicines for Africa are already off-patent and easily supplied from low-cost generic producers. If patents were such a barrier to improved health care in Africa, tuberculosis and other infectious diseases should have been treated and cured with these available low-cost generic drugs long ago. But they haven't been. As we shall see, the problem lies with the misguided policies of many developing countries and international institutions. 
Even though most AIDS drugs are still under patent, the WHO has encouraged the formulation of generic substitutes, and research-and-development-based companies - mostly in the United States - are not enforcing their patents in poor countries. The United States, European Union, Switzerland, and Hungary have placed moratoria on bringing any WTO action based on patents for AIDS treatment. Thus, needy patients in Africa are now guaranteed that patents will not prevent compulsory licensing. Some companies are even granting licenses to Third World companies to produce generic versions of patented drugs. Boehringer Ingelheim, for instance, gave a South African company the right to produce and sell nevirapine, an anti-AIDS drug. Pharmacia and Bristol-Myers Squibb have also ceded patent rights on AIDS medicines. 
In addition, virtually all the major drug companies have offered AIDS and other drugs to African countries either free of charge or at greatly reduced prices. When you examine price lists for developing countries, generics are cheaper only about half the time, and then not by much. Merck's price for one of its AIDS drugs, Stocrin, is even lower than Indian generic companies. 
In fact, the oft-repeated charge that the WTO agreement on intellectual property, known as TRIPS (Trade Related Aspects of Intellectual Property), works against better health for the world's poor is just wrong. First, the least developed countries are exempt from honoring any patents until 2016. The more advanced developing countries, such as India and Brazil, don't have to comply until 2006. Moreover, compliance means merely that the developing countries must enforce laws for those drugs patented after 2006 or 2016, not any drugs patented before those dates. Second, the treaty already allows those developing countries that are capable of copying patented American drugs to export the copies to countries whose populations are currently being ravaged by the AIDS, tuberculosis, and malaria pandemics. 
The U.S. government has drawn the line, however, at adopting a policy to allow developing countries to expropriate U.S. companies' intellectual property for any disease conveniently defined as an emergency. This therapeutic creep is the latest demand by health activists, the United Nations, and developing countries at the WTO talks. Third World countries such as Egypt were quick to see the potential benefit from this, claiming that erectile dysfunction in Egypt was a national emergency, thus exempting them from their international treaty obligations to honor patents on Viagra. Sydney Taurel, the chairman, president, and CEO of Eli Lilly and Company, explains the pharmaceutical industry's concern: Despite the way this issue has been featured in the press, the drug companies aren't worried about a poor country overriding patents to meet an internal public health emergency. The concern is over the potential to legalize intellectual property theft in places like India and Brazil, where low-cost manufacturers would exploit wide latitude to produce knock-off drugs for export. 
The United States, as the world's major innovator in medicines - eight out of the ten bestselling drugs on the market today were developed by U.S. companies - has to be vigilant about preserving its constitutional guarantees concerning intellectual property, the important fuel of interest to the fire of genius. Europe and Canada have long abandoned research and development, as government price controls have strangled their pharmaceutical industries. If developing countries, including the more advanced nations that will copy and sell U.S.-patented products everywhere, are excluded from their treaty obligations for all classes of medicines, it will seriously hinder the ability of U.S. companies to recoup the hundreds of millions of dollars they spend to create the miracle drugs the entire world enjoys today. 
This threat to innovation is even more onerous to the poor people in developing countries who cannot afford the most essential drugs. If not the United States, then where will the cures for future epidemics come from? Who will develop new AIDS drugs to treat the constantly mutating strains of that virus? Lower profits and attacks by international health activists have already led to a slowdown in the development of AIDS drugs. Although development of new drugs has increased overall, the creation of new AIDS medicines has declined by almost one-third. Abbot Labs has stopped developing three AIDS drugs. Writing in the San Francisco Examiner, Dr. Roger Bate observed, It is ironic that activists have scared drug companies into action that will harm AIDS patients in the long run. For while governments and activists blame capitalism, the drug giants, and profiteering, it is the drug industry itself [that is] developing solutions, instead of just talking about them. 
Low Standards 
International activists - and now, even top U.S. officials - who want U.S.-taxpayer dollars to pay for cheap generic drugs from countries such as India neglect the fact that many underdeveloped countries have underdeveloped safety and quality standards along with poor medical supply systems. Emphasizing price to the exclusion of other factors is therefore ill-advised and potentially dangerous. 
Generic drugs are fine if they come from countries that have high manufacturing standards and qualified drug regulatory systems, and there are indeed some high-quality products produced in developing countries. A study in Lancet, however, found that approximately half of sampled drugs in Nigeria were substandard, as were more than one-third of tablets from shops in various parts of Southeast Asia - in some cases, there was no drug in the tablets at all (Too much, too little, or none at all: dealing with substandard and fake drugs, Lancet, June 16, 2001). The scientists found that this was most probably due to the absence of adequate quality assurance during manufacture. They also expressed concern that substandard drugs sold in less-developed countries would contribute to global microbial resistance and treatment failure. Dr. Roger Williams, chief executive of U.S. Pharmacopeia, America's national quality and safety-standards setting body for medicines, warns, There are likely to be few faster ways to induce resistance to current AIDS drugs than by treating patients with counterfeit substandard products. 
A meeting at the WHO in October 2002 considered the quality of medicines in developing countries. Here's what was reported: 
Substandard and counterfeit drugs are common in many countries - over half are antibiotics, anti-malarials, and other anti-infectives. Of the 325 substandard drug reports, 60 percent had no active ingredient, while the remaining had incorrect amounts or other problems. In a six-country study on TB drugs, 13 percent of single-drug and 21 percent of fixed dose combination samples were substandard. 
Drugs made in the United States, Europe, and Japan meet high standards; thus, the substandard drugs are being made in developing countries or being imported into them. The Indian business publication Pharmabiz wrote, India leads all countries producing counterfeit drugs with as much as 35 percent of the world production originating from this country (Pharmabiz website, February, 2002). Since 1998, the Office of the U.S. Trade Representative has placed India on a Priority Watch List, primarily for violations of intellectual property rights. 
Another fact that Dr. Fauci, Dr. Stern, and others fail to appreciate is that although the prices of some Indian generics may be lower than those of some discounted U.S. drugs in developing countries, the prices of Indian generics exclude many of the standard features included in the prices of patented drugs, such as shipping and in-country distribution. A researcher from the Centre for Evidence-Based Pharmacotherapy, warned, Price should not be the only basis by which a supplier is chosen (Lancet, Too much, too little, or none at all: dealing with substandard and fake drugs, June 16, 2001). Proven safety, quality, good packaging, instructions in the local language, liability for adverse effects, physician education, distribution systems, and follow-up on health outcomes are all factors that raise the price of both high-quality generic and patented drugs. In that respect, drugs are no different from any other product: consumers want the best value, not necessarily just the best price. Lower prices alone, confirmed Wharton School professor Patricia Danzon, do not demonstrate that consumers are better off (Study on International Drug Price Comparison, The Wharton School of Business, Patricia M. Danzon, 1993). None of this would be of much concern if we were talking about most other products, but with medicines, factors such as safety, quality, proper instructions, and monitoring for adverse reactions are life-or-death matters. 
The international health community must always make sure to follow the Hippocratic Oath and, as it states, first do no harm. Good intentions are not good enough. The United States is the largest bilateral funder of HIV/AIDS programs, and is also the largest donor to the United Nations' Global Fund. At a minimum, the U.S. government, WHO, and World Bank have a moral obligation to undertake independent and continuous testing of any drugs purchased from countries with underdeveloped regulatory systems. 
Donors financing these drug purchases should be ready to take full responsibility for adverse effects of any cheap generic drugs they purchase. This is the opposite, however, of what the WHO is doing now. When the WHO pre-qualified products for the Global Fund, it approved generic companies in India that make copycat U.S. patented drugs. In doing so, the WHO issued a disclaimer stating, Inclusion in the list does not constitute an endorsement, or warranty of the fitness, of any product for a particular purpose, including in regard of its safety and/or efficacy in the treatment of HIV/AIDS. The organization refused to say exactly who, besides the poor African patient, does hold the liability for whether these cheap generic copies, untested in any clinical trials, don't work. Or worse yet, if they evoke resistant strains of the virus. 
Poor Medical Systems, Endemic Corruption 
If patents are not the problem for AIDS and other rampant infectious diseases, and if low-cost essential drugs have long been available to treat poor people in developing countries, then what are the obstacles to getting essential drugs to poor people in developing countries? 
An important reason that less than 1 percent of Africans are being treated for HIV/AIDS now is that, up until last year, African governments and the donor community simply refused to spend money on treatment. For years, they paid only for measures dedicated to prevention of HIV/AIDS, which included testing, counseling, and condoms. Ten tragic years too late, however, they learned that without the possibility of treatment, people had no incentive to come in for testing, counseling, and condoms. This anti-treatment bias among the international health community has cost millions of lives. The head of the UN AIDS program for South Asia, Swarup Sarkar, put it most poignantly: We had very few cases for years. It was possible to do something, and all we did was watch. . . .We have told ourselves so many lies. Even when companies were offering free drugs in the early stages of the pandemic and trying to work with U.S. and international health agencies to start tests and demonstration projects, those organizations rejected such treatment options. 
The second, and most important, reason why so many poor people in developing countries cannot get essential medicines is the poorly developed health-care infrastructure in those nations. Although many committed and well-trained medical personnel in Africa are trying desperately to help their patients, the low budgets, corruption, and lack of secure medical distribution systems make their jobs extremely difficult. To effect a solution, African governments must reorganize their government priorities and put more money into the epidemics devastating their populations. Currently, these nations spend an average of only 3 percent of their Gross National Product (GNP) on health care. This compares to over 14 percent in the United States. World Bank data show that most of these countries spend more of their GNP on military forces than on their peoples' health. South Africa, with more than 20 percent of its adult population estimated as HIV-positive, announced arms purchases of over $7 billion in 1999. 
This suggested change in emphasis will require Africans to clean up their governments so that donated drugs are not diverted into black markets or to Europe for resale, as has been the case with some donated AIDS drugs. Last year, for instance, eighteen million euros worth of highly discounted AIDS drugs produced by GlaxoSmithKline for West Africa were stolen and diverted so that they could be sold for higher prices in Europe. The rise in illegal diversions of cheap medicines intended to save lives in Africa has already resulted in recommendations for stricter regulations in the European Union. In-country theft and mismanagement is common. A World Bank study found that inefficiencies in the procurement, storage, prescribing, and use of drugs are so extensive, for example, that consumers in some countries get the benefits of only $12 worth of drugs for each $100 spent on drugs by the public sector (Better Health in Africa: Experience and Lessons Learned, World Bank, Washington, D.C., 1994). 
In April 2001, Nigerian President Obasanjo announced that he was buying $3.5 million worth of generic AIDS drugs from CIPLA, an Indian company that manufactures generic versions developed by U.S. companies. The plan was to treat 15,000 Nigerians by the end of 2001. Two years later, only eight hundred people are being treated, and most of the drugs have been stolen or have expired. The CEO of CIPLA said on March 18, 2003, I am disappointed with the acceptance of my dirt-cheap triple cocktail for developing countries. It is ironic that AIDS and other opportunistic infections in India are climbing faster than in most countries, despite the many generic companies producing low-cost drugs there. 
Poor clinical practices in Africa are also to blame. A survey of twenty-one hospitals in developing countries, including Ethiopia, Tanzania, and Uganda, found that more than three-quarters of the children being treated were inadequately assessed, treated, and monitored (Quality of Hospital Care for Seriously Ill Children in Less Developed Countries, Lancet, 357, (9250), 2001). One study, cited by the WHO, found that of all injections given to children in some developing countries, most were unnecessary and over 50 percent were unsafe (Rational Drug Use by Health Professionals, WHO, EDM Website, May 15, 2002). 
These tragic stories illustrate how little price and patents have to do with the problem of treating poor people in developing countries. The current focus on patents and prices, however well-intentioned, ignores the real barriers to treating infectious diseases in poor countries - corruption, life-threatening quality control problems, and insufficient health-care infrastructure. The answer is not to blame patent laws; it is to provide the best supply of medicines for treating sick people in the safest and most cost-effective manner, not just the cheapest one. 
This article appears in the upcoming summer issue of American Outlook published by the Hudson Institute. Carol Adelman is a senior fellow at Hudson Institute. She served as a career foreign service officer for ten years and as an assistant administration from 1988-1993 at the Agency for International Development. Jeremiah Norris is an Adjunct Fellow with Hudson Institute. 

This article appeared on Techcentralstation.com on June 2, 2003.
Carol Adelman is a senior fellow and director of Hudson Institute's Center for Science in Public Policy. She served as a career foreign service officer for ten years and as an assistant administration from 1988-1993 at the Agency for International Development (USAID).
Jeremiah Norris is a senior fellow with Hudson Institute.