[Pharm-policy] Gardiner Harris: AIDS Gaffes in Africa Come Back to Haunt Drug Industry at home

[James Love]

The long analysis (below) in the WSJ is one of many that are being
written now about the consequences or impact of the Africa AIDS crisis.
Gardiner Harris is a very good reporter, but I would like to offer some
critical comments on his story.  First, at the center of his account is
the idea that UNAIDS was largely responsibile for the big pharma
initative to lower prices.   UNAIDS of course deserves credit for
noticing that almost no one was receiving  treatment in Africa, and
seeing the $15k type prices as a barrier.  However, it was the decision
by Brazil to pursue a generics strategy that created a generics market
for antiretrovial drugs, which they could do at the time because they
only changed the patent law in 1996, and the drugs before then were not
protected.  The Brazil purchases drove down the generics prices.  

Then, there were the various compulsory licensing efforts, beginning
really in Thailand in 1998, over ddI, and speeding up very much due to
the debate over the WHO revised drug strategy, and the March 1999
compulsory licensing meeting in Geneva.  These events were covered in
the European press somewhat, but not at all in the USA, until the US
Health Gap Coalition and their allies began direct action against the
Gore Vice Presidential campaign.  It is worth noting that even in the
beginning of the more visible direct action efforts, we could not even
get a majority of the democrats in the US Congress to support the AIDS
amendment on the Africa trade bill.  Things did change, and thanks of
course to Senators Finegold and Finestein and others,  and this
eventually became the basis for the March 2000 Clinton Executive
Order.   The Clinton Executive Order was itself a very strong policy
signal to big Pharma that they could not count on the big stick of the
US government to bully African countries, at least to the extent it had
in the past, making the CL campaign more credible. 

Fluconazole, the drug that Gardiner talks about in the context of the
Pfizer donation program, is only now becoming available here in South
Africa, and of course was the number one top priority for the compulsory
licensing campaign.  Not mentioned was that the donation was an attempt
by Pfizer to keep as much as the commerical market for fluconazole as it
could, for non-HIV related indications.  The prices in India and
Thailand for fluconazole are around $.25 per pill.  I just checked this
morning at the Irene Aptek/Pharmcy in South Africa, where I am today,
and they are charging a "cash discount" price of ZAR 99.86 for a single
dose, which is $12.25 a pill.  

The price descreases by Merck were direct results of compulsory
licensing efforts in South Africa and Brazil, and for both of the BMS
products
they faced a pending request, which has not been reported anywhere, that
the Bush Administration give the WHO or UNAIDS the right to use US
government funded patents in poor countries (an issue before the TACD
next week in Brussels).  

The CIPLA offer is was not well reported.  It is not true that the
generic suppliers cannot supply large markets.  The Brazil case
illustrates how the generics entered the market, but of course the
generics market is only getting stronger.  

Moreover, and not reported anywhere yet, is that CIPLA has now made an
offer to one private sector firm in South Africa to provide three drug
therapy to up to 20,000 employees, for $350 to $500 per cocktail,
depending upon the drugs, which is below the $600 price for governments
that has was reported earlier and is quoted in this story.  I am
reporting this new offer here for the first time (which will probably be
matched by other generics manufacturers).  It is quite significant, and
I believe may lead the biggest expansion of treatment of HIV patients in
Africa so far.  

Also, and worth reporting, is that the Glaxo and other big pharma press
release prices are generally not available to most people who are
actually in the market for products in Africa, and have so many strings
attached in some cases that one wonders why they receive so much
publicity, other than to illustrate where prices should go.  For
example, and as noted yesterday, the Glaxo prices for Combivir are much
higher for the private sector here in South Africa, and that is really
the only way anyone here can actually get the drugs.   

I would also have liked to see some more serious discussion of the
"TRIPS North/TRIPS South" idea that was raised in the Norway meeting, by
Bill Haddad and others.  Do we really expect a one size fits all system
to ever make sense given our differences in incomes?

  Jamie


Adverse Reaction: AIDS Gaffes in Africa Come Back to Haunt Drug 
Industry at Home---
Price Cuts Abroad Deepen Domestic Trouble as Firms Reveal `True' Cost 
of Pills---John le Carre's New Villain
By Gardiner Harris
Staff Reporter of The Wall Street Journal
 
04/23/2001
The Wall Street Journal
A1
 
 
In John le Carre's latest book, "The Constant Gardener," the bad guy 
isn't a Soviet spy master or a marauding terrorist but a sinister 
pharmaceuticals giant called KVH.

With his ear for the latest in popular villainy, Mr. le Carre joinsan 
extraordinary global trend. These days, the world-wide drug industry 
is reeling from an unprecedented wave of public scorn. Coming from so 
many corners and with such ferocity, the attacks have put the hugely 
profitable and politically influential industry on the defensive as 
never before. As a result, the drug makers' ability to conduct their 
business as usual -- by finding and patenting a few new drugs, 
pricing them high and marketing them aggressively -- may be at risk.
 
Last week's decision by the drug industry to drop its patent lawsuit 
against the South African government is only the latest in a string 
of business and public-relations setbacks. U.S. college campuses are 
organizing 1960s-style "teach-ins" to protest drug-company pricing 
and patent practices. States are threatening price-control 
legislation. Some of the industry's traditional business allies, most 
notably U.S. car makers, are organizing a first-ever campaign to seek 
breaks on drug prices. Federal prosecutors are investigating an 
alleged industry-widescheme to defraud Medicare and Medicaid. The 
Federal Trade Commission is probing whether the industry has engaged 
in anticompetitive practices by  blocking access to generic drugs.

And the industry's biggest fear has become a real possibility: Some 
in Congress are talking about new Medicare benefits that may contain 
pricing restrictions.

"I think we underestimated the capacity to be made villains, as 
people without answers look for excuses," says Rick Lane, president 
of Bristol-Myers Squibb Co.'s world-wide medicines group.

How did the pharmaceuticals industry become the pariah du jour?

The answer, people both inside and outside the industry agree, has 
much to do with the African AIDS crisis. In the last two years, the 
industry responded to international calls for lower AIDS-drug prices 
in poor nations with a series of gaffes that have tarnished its 
reputation, weakened its political positions and emboldened its 
adversaries in a host of battles in the U.S. and abroad.

Worst of all, the AIDS crisis has laid bare a secret the industry has 
steadfastly guarded for decades: how large a profit it makes on its 
medicines. By responding to intense pressure and lowering prices to 
the point of what they say is "no profit," several drug makers have 
revealed that some medicines are priced -- excluding research 
expenses -- at eight to 10 times their cost of manufacturing and 
distribution.

Merck & Co., for instance, after refusing for several years to lower 
the price for its protease inhibitor drug, Crixivan, finally agreed 
inearly March to sell the drug in poor nations for $600 a year 
perpatient, a figure it says represents "no profit" to the company. 
That compares with the $6,016 wholesale price it typically charges in 
theU.S. GlaxoSmithKline PLC is offering its AIDS drug Combivir for 
$730 inAfrica, compared with $6,289 in the U.S.

The revelations aren't going unnoticed by U.S. advocacy groups. "All 
you have to do is look at how much they're selling drugs for in othe 
countries to see how high they're jacking up prices in the U.S.," 
says Tim Fuller, executive director of the Gray Panthers, a seniors 
advocacy group that is pressing Washington to pass a 
prescription-drug benefitfor Medicare recipients. "Their greed is 
going to be their undoing."

Industry executives concede mistakes in their handling of the AIDS 
catastrophe in sub-Saharan Africa, where 25 million people are 
infectedwith HIV. "The challenge in the big company is to get it to 
do the right thing more quickly than inertia and momentum and 
bureaucracy allows,"says Peter Dolan, chief executive of 
Bristol-Myers. "You can make a strong case . . . that we should have 
gotten there sooner."

On the whole, though, drug makers defend their cautious approach.They 
argue that if demands for lower-priced drugs and reduced patent 
protection spread to diseases other than AIDS, the ripple effect 
could be disastrous. Drug companies say it would be impossible to 
sustain the profit growth demanded by Wall Street, not to mention 
undertake the sortof costly, high-risk research that leads to 
life-saving drugs. The companies poured $26.4 billion into research 
last year, according to the Pharmaceutical Research and Manufacturers 
of America, the industry'smajor trade group.

"Do you want us to give these drugs away for free?" asks Jean-Pierre 
Garnier, chairman and chief executive of Glaxo. "Then there won't be 
anymore drugs to treat AIDS or anything else. Isn't it ironic that 
thec ompanies that brought the drugs to market are the ones being 
criticized for people dying?"

The pharmaceuticals industry has suffered and survived previous hits 
to its public image, such as a price-fixing scandal and the 
thalidomide controversy in the 1960s. A decade ago, the industry was 
smarting from reports showing that its prices were rising well above 
the annual rate of inflation. And Bill Clinton effectively battered 
the drug makers inhis 1992 presidential campaign.

But for much of the 1980s and 1990s, the industry was on a roll. 
Drug-company share prices in the late 1990s rose more than twice as 
fastas the rest of the S&P 500, and profits soared above those of all 
other major industries. The main reason: An aging population was 
gobbling upmore -- and more expensive -- drugs.

But there was another reason: A federal law called the Hatch-Waxman 
Act, which passed in 1984, spurred drug companies to protect patents 
and prices more zealously than ever before. That's because the law, 
while it extended the patents of many drugs, also eased the entry of 
generics into the marketplace once those patents expired. The 
companies were essentially put on an innovation treadmill, constantly 
coming up withnew and better drugs and charging as much as the market 
would bear.

For years, this aggressive approach paid off. The only threats to the 
drug companies' business came from repeated Democratic proposals to 
have the U.S. government buy drugs at discounts and distribute them 
to seniors -- the industry's best customers. But with the help of 
generous campaign donations, the industry beat these challenges back.

Then came a startling development: In 1996, new combinations of 
retroviral drugs were shown to prolong the lives of AIDS patients. 
Pharmaceuticals companies were hailed as heroes. But the discovery 
would have unanticipated consequences.

By 1998, a newly-formed agency within the United Nations started 
asking the big pharmaceuticals companies for steep price reductions 
on the drug cocktails. Officials at the agency, called Unaids, 
determined that the potent drug combinations could double the 
life-expectancies of some poor people infected with HIV. But the 
price of the cocktails --between $10,000 and $15,000 a person per 
year -- had to be reduced by a factor of 10 before most Africans, 
their employers, aid agencies orgovernments could hope to buy them.

At first, the industry said no. Its rationale was that even if the 
prices were lowered, Africa's inadequate health and distribution 
infrastructures wouldn't be able to deliver medicines to people who 
needed them. Instead, the companies argued, money should be spent 
bolstering fragile health systems.

Inside the companies, however, there was another concern. Accordingto 
people familiar with the situation, executives were worried that 
slashing prices would reveal the industry's large profit margins. For 
example, after a series of orchestrated attacks by activists, Pfizer 
Inc. in December agreed to give away its antifungal drug Diflucan to 
certain AIDS patients in South Africa, rather than lower its price 
and reveal the scope of its profit. Pfizer's brand sells for $10 a 
daily dose, while generic versions produced in India and Thailand, 
where Pfizer's patent isn't recognized, sell for less than $1 a daily 
dose.

"If the company had lowered its price to what generic makers 
charged,it would have shown the world what its profits were," says 
Mark Heywood,a leader of Treatment Action Campaign, a South Africa 
activist group."People elsewhere might have started wondering why it 
has to charge somuch."

A Pfizer spokesman defends the Diflucan giveaways. "There is nobetter 
price than zero," he says. "For patients in sub-Saharan Africa,the 
difference between a medication that costs $5,000 and one that costs 
$500 a year is not material. Most Africans can't afford it at 
anyprice."

Meanwhile, pressure for widespread discounting intensified. Last 
May,the industry struck a landmark deal with the U.N. to sell AIDS 
drugs to poor countries at price breaks of as much as 80%. However, 
the industry imposed a series of caveats, such as limiting the offers 
to countries that could demonstrate they had an adequate health 
infrastructure. As a result, negotiations between countries and 
companies dragged on for months, and few people received the 
lower-priced medicines. Ultimately, drugs were delivered to fewer 
than 2,000 people in just three African countries: Rwanda, Senegal 
and Uganda.

"We were proceeding along the lines that you do in any market -- like 
contracting with a managed-care organization or with Wal-Mart," says 
Raymond Gilmartin, chairman of Merck. Such negotiations often take 
many months, Mr. Gilmartin says. "But it was creating the impression 
that our offer wasn't real and that there were too many strings 
attached."

In addition, several high-profile gaffes continued to make the 
drugmakers look hard-hearted. Late last year, Glaxo representatives 
sent a letter to an Indian generic-drug maker, Cipla Ltd., accusing 
it of violating Glaxo's patent by seeking to sell low-priced versions 
of Glaxo's drugs in Ghana. Glaxo later conceded it had no valid 
patent in Ghana. Glaxo has since said the letter and a similar one it 
sent to Cipla when Uganda began importing generics were the mistakes 
of an"overzealous" company official.

Two months ago, pressure on the industry further intensified. Cipla 
announced that it would sell AIDS drugs in Africa for 40% less than 
even the reduced prices called for in the U.N. deal. The Indian 
company conceded that it couldn't possibly supply even a fraction of 
the drugs needed in Africa. But Cipla's move reflected poorly on 
brand-name drugmakers, because it suggested that even the prices they 
agreed to under the U.N. deal would reap them profits.

In the hopes of finally squelching complaints, Merck in early March 
announced that it would sell its two AIDS drugs in Africa and other 
very poor nations at cost -- 90% below their U.S. prices. Within 
several weeks, Bristol-Myers and Abbott Laboratories followed with 
similar pledges.

Shortly thereafter, activists drew world media attention to the South 
African lawsuit, in which 39 drug makers were trying to block a 
nation allaw that eased the purchase of patented drugs from generic 
makers. In one of the industry's more visible public-relations 
stumbles, the lawsuit's named defendants included Nelson Mandela, the 
anti apartheid hero who was president of the country when the law was 
passed.

The industry's capitulation in the suit last week could further 
embolden countries such as India, Thailand and Brazil, whose lax 
intellectual property laws allow them to defy patents and turn out 
cheap knock-offs of expensive Western drugs. Even Cuban president 
Fidel Castro has promised to get into the act by pirating patented 
AIDS drugs.

For now, the industry's most urgent concerns are much closer to home. 
At least 40 state legislatures are debating measures to control drug 
costs, efforts that represent serious threats to the industry's 
profits. Some legislators are proposing price controls, which the 
industry will likely defeat through legal challenges.

The industry is also fighting state efforts to create regional 
drug-purchasing pools that could squeeze big discounts from 
companies. Currently, such pools are being debated in at least eight 
states,including Georgia, Maine and New Mexico.

Pharmaceuticals companies poured $80 million into last year's 
Congressional campaign -- a record for any industry. But with their 
credibility weakening in the public eye, the companies could face 
atougher time fending off a Medicare prescription-drug benefit that 
includes some type of government-mandated price controls.

Even a few months ago, the industry believed its opposition to such 
abenefit, backed by the Republicans it helped elect, was 
unassailable. Now, Democrats have become emboldened about a plan that 
the industry fears could eventually lead to price controls. President 
Bush's Medicare proposal, to provide grants to the states to help buy 
drugs for seniors,is all but dead. And there are other challenges for 
the drug industry on the federal front. For example, Republican Sen. 
John McCain of Arizona and Democratice Sen. Charles Schumer of New 
York have proposed a bill that would reform the Hatch-Waxman Act to 
make it even easier for generic drugs to enter the market.

Senate Finance Committee Chairman Charles Grassley, an Iowa 
Republican and longtime ally of the big drug makers, says the 
industry "is on the defense" on Capitol Hill. "They know they can no 
longer take for granted that their message is getting through," he 
says.
---
Laurie McGinley contributed to this article.
         
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