[Pharm-policy] WSJ: Price War over AIDS drugs

[James Love]

This is a long story in the WSJ today.   I have pulled out what I think
should have been the lead graph..  Jamie

"Now a second Indian manufacturer, Hetero Drugs Ltd. has just announced
it will sell the same cocktail of drugs for $347 a year. Hetero's entry
into the AIDS pricing fray is being hailed by AIDS activists, partly
because they say it will bring more pressure on all drug companies,
generic or patent-based. The Indian company has already entered an
agreement with a large South African generics firm, Aspen Pharmacare
Ltd., to distribute Hetero's drugs -- if the South African government
wins its lawsuit with the pharmaceuticals companies and allows for the
importation of generic drugs."


http://interactive.wsj.com/articles/SB983915787153550680.htm

 March 7, 2001

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Price War Breaks Out Over AIDS Drugs
In Africa as Generics Present Challenge
By MARK SCHOOFS and MICHAEL WALDHOLZ
Staff Reporters of THE WALL STREET JOURNAL


An extraordinary price war is breaking out in the market for AIDS drugs
in poor countries, as pharmaceuticals giants seek to blunt a growing
threat from generic-drug companies and recoup some moral high ground
amid the crippling epidemic.

Merck & Co. Tuesday confirmed it is slashing the prices for two of its
important AIDS-fighting drugs in Africa by 40% to 55%, on top of sharp
reductions the company already pledged last year. In a significant
development, it also plans to offer the reduced prices to other poor
countries beyond Africa.

Bristol-Myers Squibb Co. and GlaxoSmithKline PLC also plan to implement
a new round of sharp cuts, people familiar with the matter said. They
come at a time when two generic companies based in India are now
fighting with each other to claim the low-cost mantle.

"This is extraordinary news," says David Nabarro, a high-ranking World
Health Organization official who was alerted to the move Tuesday. "This
is part of a trend we hope will increase availability."

Despite the fast-dropping prices, it is still unclear how many people
can benefit in Africa, where an estimated 25 million people are infected
with HIV, the virus that causes AIDS. Highly publicized price cuts by
the major pharmaceuticals makers last May haven't had much impact on the
epidemic, because the cost was still too high and the negotiating
process to implement them has been cumbersome. And even at the new lower
prices, few will be able to pay for the drugs without a major infusion
of funds from abroad.

The latest pricing moves reflect increasing concern by pharmaceuticals
executives that generic competitors are winning a public-relations
battle that could eventually undermine international patents -- their
most precious asset.

AIDS Fighters Win Skirmish in South African Legal Fight

Just this week, 39 pharmaceuticals makers went to court in a lawsuit
designed to block South Africa from importing or manufacturing generic
copies of the big companies' drugs. But the court case is provoking a
public pummeling by AIDS activists, who argue the patents are keeping
life-sustaining drugs from the grasp of millions of people.

Pharmaceuticals executives worry that the vilification of the industry
will become so widespread that governments will become emboldened to
take away drug-company patents, not just in poor nations, but even in
wealthier ones, as well. In the U.S., for instance, politicians and
health advocates have complained strenuously about the high cost of
medicines.

"If we don't solve the drug access problem, then our intellectual
property is at risk," says Raymond Gilmartin, Merck's chairman and chief
executive. He adds that the companies "need to demonstrate that
intellectual property is not an obstacle" to access in developing
countries.

The current pricing free-for-all was triggered last month when Cipla
Ltd., a leading generic drug maker in India, promised to sell a
combination of three AIDS drugs to Africa at $600 per patient per year,
about 40% below the discounted price of a similar regimen offered by the
giant drug makers.

A New Entrant

Now a second Indian manufacturer, Hetero Drugs Ltd. has just announced
it will sell the same cocktail of drugs for $347 a year. Hetero's entry
into the AIDS pricing fray is being hailed by AIDS activists, partly
because they say it will bring more pressure on all drug companies,
generic or patent-based. The Indian company has already entered an
agreement with a large South African generics firm, Aspen Pharmacare
Ltd., to distribute Hetero's drugs -- if the South African government
wins its lawsuit with the pharmaceuticals companies and allows for the
importation of generic drugs.

 Price War
The most recent prices for AIDS drugs per patient per year in the U.S.
and Africa offered by large drug makers and two Indian generic drug
companies.

Drug
(Company)  U.S. Price  Cipla  Hetero  Latest Company
Offer in Africa
Zerit
(Bristol-Myers)  $3,589  $70  $47  $252
3TC
(Glaxo)  3,271  190  98  232
Crixivan
(Merck)  6,016  N.A.  2,300  600
Combivir*
(Glaxo)  7,093  635  293  730
Stocrin
(Merck)  4,730  N.A.  1,179  500
Viramune
(Boehringer)  3,508  340  202  483

*AZT and 3TC
N.A.=not available

Sources: The companies,WSJ research


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"These connections between Indian and South African firms are the future
of AIDS treatment in South Africa," says Toby Kasper, a member of
Doctors without Borders. "I hope that the government will ensure that
these offers can be taken up as soon as possible."

The Indian generic companies face many hurdles. They can produce and
sell patent-protected drugs in India because that country doesn't
recognize international patent laws. In order to sell the drugs to
Africa, the Indian companies must somehow get around patent laws -- even
those with weak protections -- in Africa. Moreover, the Indian companies
must get each of their medicines approved by local regulatory agencies,
something that already has been accomplished by the big drug companies.

Merck, on the other hand, says its new offer is available immediately to
any government, charitable organization, or employer in poor nations.

Executives say this round of price cuts will be different from last
May's, in which Merck drew criticism by declining to make its prices
widely known. Back then, it also restricted the offer to Africa, and
insisted that the U.N. help oversee the process. Now, it plans to roll
out the offer to poor nations beyond Africa, although it hasn't yet
specified which ones. Merck's only demand is that it receive guarantees
that their drugs won't be re-exported to any other nation.

Merck says it will abandon country-by-country negotiations that have
dragged on slowly since last summer and led to such a small number of
pricing agreements. To date, only three African countries -- Senegal,
Rwanda and Uganda -- have agreed to take the companies up on last year's
price reductions.

"We were not making the type of progress we wanted," says Per
Wold-Olsen, who runs Merck's Middle East and Africa operations. So, he
says, the company decided to simplify the process by coming up with one
price that it considers to be the lowest it can go.

Specifically, Merck is now offering to sell its powerful protease
inhibitor drug, Crixivan, for $600 per patient per year, 43% lower than
its previous discounted price of $1,044. In addition, it also will
charge $500 a year for another AIDS drug, Stocrin, which is 55% below
the price it offered in May. Both drugs are critical components to the
AIDS cocktail therapy, which has lowered the HIV death rate throughout
the industrialized world.

Each of these drugs is often included in a daily regimen with Glaxo's
Combivir, a combination of two drugs, AZT and 3TC, to produce the
powerful AIDS cocktail. As a result of the new price offering, either of
these two regimens would cost less than $1,330 a year, far below $10,800
and $11,800 a year in the U.S.

In fact, Merck's new price for Crixivan undercuts generic copies of the
drug made by India's Hetero, which is offering to sell the drug for
$2,300 a year. Merck says in order to meet expected demand it is
rearranging manufacturing facilities to triple production capacity for
Crixivan. Merck says its new prices for Crixivan and Stocrin give it no
profit, though it isn't possible to verify that from independent sources
because the company's production costs aren't known.

Peter Piot, executive director of the Joint United Nations Program on
AIDS, or Unaids, says he is especially pleased that Merck has ended its
previous policy of allowing its price to be known only to countries that
participate in Unaids-sponsored negotiations. Making the price public
"is crucial to helping governments in the hardest-hit regions plan
sustainable HIV care programs," Dr. Piot says. "As prices fall as close
to costs as we can get them, it means that we can concentrate on the
other issues: building and strengthening health systems, raising
finance, and ensuring that a wider care agenda is delivered."

Pilot Program

A little less than three years ago, at the 1998 world AIDS conference in
Geneva, the United Nations first announced a pilot program to provide
HIV drugs at cut-rate prices to several developing nations. Merck was
one of the largest AIDS drug manufacturers to refuse to participate.

Executives insisted the price of AIDS drugs wasn't the prime barrier to
improving the lot of HIV-infected people in Africa. Instead, the company
argued that what was most needed was so-called infrastructure, health
services and patient and doctor education. To buttress its case, Merck
pointed to its successful giveaway of a drug sold in the U.S. for
treating animals but which can prevent river blindness in people. Merck
said the key to its river-blindness program was the years it spent
building health-service networks to provide the drug.

Instead of joining the U.N. pilot program, Merck pledged $5 million to a
Harvard AIDS Institute program to develop new ways of providing care in
Africa. Activists at the AIDS conference weren't appeased. Blowing
whistles and shouting through bullhorns, they trashed Merck's booth,
kicking down display stands and spray-painting slogans over its colorful
Crixivan ads.

Two years later, however, Merck changed its tune. While maintaining that
price discounts alone won't solve the AIDS crisis for most of Africa,
the company decided that by lowering prices the number of people
treated, while still low, would greatly expand. In addition, the company
says it was heartened by statements by WHO Director General Gro Harlem
Brundtland saying that any effort to increase access to drug-company
medicines must also include agreements honoring the drug makers'
patents.

"She deserves tremendous credit," says Merck's Mr. Wold-Olsen. "She's
been severely criticized by her own people and governments in the
developing world for her willingness to partner with industry." As a
result of Dr. Brundtland's assurances, and because of intensifying
public pressure, last May Merck joined with Bristol-Myers, Glaxo,
Boehringer-Ingelheim GmbH and Roche Holding Ltd., in announcing the
then-unprecedented 80% to 90% price reductions. Merck also pledged $50
million plus free drugs for a program to develop comprehensive AIDS care
in Botswana. The program is cosponsored by the Harvard AIDS Institute
and the Bill and Melinda Gates Foundation.

Now the company says it realizes it must go further.

In January, Merck's chairman, Mr. Gilmartin, met in Davos, Switzerland,
at the World Economic Forum with WHO's Dr. Brundtland and with Unaids's
Dr. Piot. Both explained to Mr. Gilmartin that the companies' price
discount in May wasn't producing much of an increase in access to the
AIDS drugs. In particular, the health leaders and others told Mr.
Gilmartin that even at last year's reduced price, the cost of the AIDS
drugs was still too high.

'Gaining Experience'

In a series of internal discussions in recent weeks, company officials
say they decided that one way to stimulate large-scale involvement by
the U.S., the European community and other major funding groups was to
provide the new pricing scheme in which the company would be selling its
products at about what it costs to manufacture the drugs. Mr. Gilmartin
says the companies' evolving stances, in which it initially refused to
discount prices, then made its first price reductions last year, to its
new position now are simply a result of Merck "gaining experience."

Still, Merck officials continue to fret that lowering prices for poor
nations will be used by health advocates to demand lower prices for AIDS
drugs in the U.S. "We're making a big assumption here," says Mr.
Gilmartin, "that the American people and Congress will look at our
discussions in Africa and recognize that they should not be a part of
the debate about prices in other parts of the world."

Meanwhile, several other major drug makers, also discouraged by the
small numbers of Africans who have benefited from the first round of
price cuts, say they are seriously considering new reductions similar to
Merck's. Glaxo had previously reduced its Combivir drug by 90% to $2 a
day, a price that was available only to governments. But Jean-Pierre
Garnier, Glaxo's chief executive, says the company is now offering the
same price to "clinics, employers -- essentially centers in contact with
thousands of AIDS patients in Africa."

For example, the company is negotiating with the South African mining
company Anglo American Corp. in Johannesburg to provide AIDS drugs at
the discounted price. Moreover, Mr. Garnier says he hopes that as
private charitable agencies and African governments "endorse our offer,
our volume will increase and we will be in a position to realize
economies of scale and therefore pass further cost savings on to the
patients -- the ultimate beneficiaries of this approach."

Moreover, three other major AIDS drug providers, Roche, Bristol-Myers
and Boehringer-Ingelheim, are all considering their own new set of
reduced prices. Kellie McLaughlin, a spokesperson for Roche, says within
the past 10 days the Swiss drug-maker told Unaids the company plans to
lower the price of Viracept and Fortovase, two protease inhibitors it
sells. Although the company won't say how much it expects to reduce the
prices, it acknowledges the price cuts are the first for these products
since late 1998.

And while Bristol-Myers won't say if it will reduce prices below what it
offered in May, people familiar with the company's plans say the drug
maker expects to offer its own round of sharp discounts sometime soon.

All the companies maintain the new drug charges are about as low as they
can go without huge volume buying. Still, AIDS activists, who have
become skeptical of drug-company statements over the past few years, are
likely to say the companies can discount further. Expecting that, Mr.
Gilmartin says the price "will never be low enough" to satisfy
activists. "I don't expect to get any credit," he says. "But we will
make a difference."

-- Daniel Pearl and Rachel Zimmerman contributed to this article.

Write to Mark Schoofs at mark.schoofs@wsj.com and Michael Waldholz at
michael.waldholz@wsj.com