Wednesday, October 05, 2005
NGOs on Drugs
...some governments and NGOs are using supranational bureaucracies to undermine private property rights, one of the pillars of the free society, global growth and prosperity.
One such campaign goes as follows: Millions of people throughout poor countries suffer and die from preventable or easily treated diseases; some of the medicines needed to treat those diseases are expensive; because medicines are essential, they should be sold at cost; if patentees will not lower their prices, governments should use "compulsory licenses" to break patents and authorize local production as "generics."
The latest battle concerns an antiretroviral (ARV) drug called Kaletra, produced by U.S.-based Abbott Laboratories, used to inhibit the spread of HIV. Although the highest price in the U.S. of around $4 per pill is more than three times the price in Brazil, the Brazilian government claims it is still too expensive. Egged on by activists and supported by the Pan American Health Organization and other U.N. agencies, BrasÃlia has threatened to produce the drug locally while circumventing the patent, claiming it can do so for $0.41 (with the rights-holder receiving a nominal royalty at most). Like many firms, Abbott uses price differentiation to sell its products more cheaply in poor countries than in rich ones. And while Brazil is a lot richer than the poorest countries in Africa, it pays only slightly more for this important ARV component.
Circumventing the patent would indeed provide even cheaper Kaletra in Brazil now -- though it would have a very limited impact on the overall cost of treating HIV/AIDS, since drugs account for only a quarter of those costs. But HIV quickly develops resistance to existing therapies, so where will the next line of ARVs come from? If companies are unable to reap some profits on new ARVs in countries outside Africa, where they are sold at cost or below, they will have no incentive to undertake risky research to develop new AIDS drugs, especially if those are likely to be appropriated. Pharmaceutical companies spend an average of $800 million to develop a new drug, take it through trials and gain regulatory approval for it. For every success, however, 12 candidates fall by the wayside.
Moreover, if patents should be breached when medicines are deemed essential to human life, why stop there? Food and shelter are essential too -- why should anyone turn a profit on these basics? And given the current high prices of oil, the same logic would suggest that governments should slap a compulsory license on, say, Venezuelan or Norwegian oil -- paying only the extraction costs, not additional royalties or the amortized investments that are also factored in.
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The profit motive, combined with a competitive market underpinned by the institutions of the free society -- property rights, contracts and the rule of law -- is the best driver of innovation. It has emancipated billions from poverty and servitude. The true friends of development acknowledge this and support the spread of these free institutions, not their abrogation.
One such campaign goes as follows: Millions of people throughout poor countries suffer and die from preventable or easily treated diseases; some of the medicines needed to treat those diseases are expensive; because medicines are essential, they should be sold at cost; if patentees will not lower their prices, governments should use "compulsory licenses" to break patents and authorize local production as "generics."
The latest battle concerns an antiretroviral (ARV) drug called Kaletra, produced by U.S.-based Abbott Laboratories, used to inhibit the spread of HIV. Although the highest price in the U.S. of around $4 per pill is more than three times the price in Brazil, the Brazilian government claims it is still too expensive. Egged on by activists and supported by the Pan American Health Organization and other U.N. agencies, BrasÃlia has threatened to produce the drug locally while circumventing the patent, claiming it can do so for $0.41 (with the rights-holder receiving a nominal royalty at most). Like many firms, Abbott uses price differentiation to sell its products more cheaply in poor countries than in rich ones. And while Brazil is a lot richer than the poorest countries in Africa, it pays only slightly more for this important ARV component.
Circumventing the patent would indeed provide even cheaper Kaletra in Brazil now -- though it would have a very limited impact on the overall cost of treating HIV/AIDS, since drugs account for only a quarter of those costs. But HIV quickly develops resistance to existing therapies, so where will the next line of ARVs come from? If companies are unable to reap some profits on new ARVs in countries outside Africa, where they are sold at cost or below, they will have no incentive to undertake risky research to develop new AIDS drugs, especially if those are likely to be appropriated. Pharmaceutical companies spend an average of $800 million to develop a new drug, take it through trials and gain regulatory approval for it. For every success, however, 12 candidates fall by the wayside.
Moreover, if patents should be breached when medicines are deemed essential to human life, why stop there? Food and shelter are essential too -- why should anyone turn a profit on these basics? And given the current high prices of oil, the same logic would suggest that governments should slap a compulsory license on, say, Venezuelan or Norwegian oil -- paying only the extraction costs, not additional royalties or the amortized investments that are also factored in.
*********
The profit motive, combined with a competitive market underpinned by the institutions of the free society -- property rights, contracts and the rule of law -- is the best driver of innovation. It has emancipated billions from poverty and servitude. The true friends of development acknowledge this and support the spread of these free institutions, not their abrogation.
