The African AIDS crisis also is casting a spotlight on what may be the drug industry's biggest public-image problem ever: More than 25 million adults and children in Africa are living with HIV or AIDS, yet most have limited, if any, access to the potent, expensive drug cocktails used to fight the virus. Now, the political pressure to help suffering and dying Africans is increasing rapidly.
INEXPENSIVE LICENSING. Drug companies are in a tough spot. But if they were smart, they would realize that sometimes protecting shareholder value has as much to do with doing the right thing as it does with protecting drug patents. In fact, prices of some AIDS drugs are falling across Africa as many drugmakers respond to an uproar over the high cost of these medicines, but even with the industry's latest pricing moves, few people will be able to afford or use the drugs properly without greater funding and education by the industry and other outside sources. The industry could go much further in tackling Africa's AIDS crisis by allowing widespread and inexpensive licensing of these drugs to responsible manufacturers.
Instead, the industry is taking the South African government to court, trying to block importation of cheap AIDS drugs in a country where the epidemic has spiraled out of control. Importing cheap and expensive versions of the same drug was legalized under a law passed by parliament in the closing months of the Mandela regime. The law hasn't been tested. But the case paints a harsh picture of the drug industry, which is trying to stop the importing of cheap generics on grounds of patent infringement. The trial began Mar. 5 in Pretoria High Court.
At issue is a tough question in the age of globalization: Is this vigilant protection of patented medicines essential to protecting profits in a world where generics are increasingly manufactured in developing countries, with no coherent set of regulations? The case has more to do with the developed world than with Africa. The South African government has reserved the right to buy cheap generics of patented drugs from pharmaceutical plants in Thailand and India. But the drug giants are petrified that the case will set a precedent. "This is a huge public-relations problem for these companies -- and one that has no easy solution," says Steven Slovick, senior vice-president for Cambridge Pharma Consultancy in Cambridge, England.
"SUSTAINABILITY OF CARE." While international humanitarian organizations such as Medecins Sans Frontieres and Oxfam International say increasing drug supplies and improving medical infrastructure can happen simultaneously, the drug companies have so far disagreed. "We can't just give these drugs away without proper testing or quality control or a support system to make sure these drugs are taken properly," says Mark Grayson of the Pharmaceutical Research & Manufacturers of America. "The whole health-care system [throughout much of Africa] has been neglected for 50 years since the end of colonialism. I'm not saying this as an excuse, but they need some infrastructure first, so doctors can monitor these patients so they know if the drugs are even working. There needs to be sustainability of care."
Certainly, drug companies should recognize they must bend in assisting poor nations that desperately need AIDS treatments. Instead, the South Africa trial carries the potential to fuel even greater sentiment against the industry and its fervent protection of international patents on drugs. The drugmakers' real worry is that anti-industry sentiment will pervade the markets that really matter to the companies' bottom line.
That's already happening in Brazil, a country with the world's eighth-largest economy and a history of defying the industry's wishes by making generic versions of patented drugs without the manufacturers' consent. This practice would be allowed if there's a public-health "emergency," according to the World Trade Organization's vaguely worded Agreement on Trade-Related Aspects on Intellectual Property, or TRIPS. But the definition of an emergency is left deliberately vague.
MATTER OF LAW? "The South African court case is really only one side of a bigger debate," says one independent consultant who works with the pharmaceutical industry. "This case turns on the question of constitutional law in South Africa, whereas the bigger debate is about the TRIPS provisions and how they will or will not be exercised on a global basis." Ultimately, the fear is that drug-industry profits will be undercut by proliferating generics, diminishing the capacity of the pharmaceutical industry to develop new and better drugs.
The worst nightmare for the drug companies is that the fight will eventually come back to the U.S., where poorer seniors are already crossing borders into Canada and Mexico to get cheaper imported versions of patented drugs. Eventually, the industry fears that there'll be a push to lower drug prices in the U.S., which still accounts for the overwhelming majority of the industry's profits. The drugmakers' high profit margins could be placed in jeopardy. Given that drug prices are such a hot-button issue in the U.S., the South African trial suddenly doesn't seem so far away.
How will drug companies handle the pressure? How can the industry balance the obligation to help Africa's AIDS victims with the need to protect its basic intellectual-property rights? There's no easy answer.
RESISTANT FORMS. What's clear is the industry believes free medicines carry little hope of defeating the epidemic in Africa without better education on preventing the spread of AIDS -- a valid point. What's more, the companies believe Africans lack an understanding of the strict adherence to difficult dosing regimens many of these drugs require. Otherwise, the drugs don't work, and the viral strains can mutate into more resistant forms.
But beyond these concerns, the navigation becomes treacherous. "The question is: Will these companies change their strategy of negotiating drug-by-drug, country-by-country, and vastly accelerate access to drugs for those who need them most? Certainly, there is room for movement if they want to do that," says Erica Barks Ruggles, an expert on the AIDS crisis for the Brookings Institution in Washington.
In dealing with AIDS, it's also clear that some companies are coping better than others. Merck, the maker of the AIDS drug Crixivan, has aligned itself with the Bill & Melinda Gates Foundation, promising to match the charity's recent $50 million donation with supplies of antiviral drugs and training on how to administer the powerful medicines.
HAGGLING BEFORE GENEROSITY. In contrast, Pfizer last year took widespread criticism for haggling over making available the powerful but extremely expensive antifungal drug Diflucan, which is very effective at treating a horrifying AIDS-related disease known as cryptococcal meningitis. This is one killer that conjures up images of patients dying painful deaths because they couldn't afford the drug. Bending to pressure in South Africa, Pfizer announced a plan last December to donate $50 million in Diflucan for treating cryptococcal meningitis and another condition, esophageal candidiasis, or thrush.
Such generosity following protracted negotiations with African governments sadly seems to be the norm -- but it doesn't have to be. Similarly, the South African trial is really a sideshow. Nobody expects a swift victory for either side, but the trial is showcasing the debate about how far companies can go -- or should go -- in fulfilling what some view as the industry's moral obligation, vs. its need to protect profits.
Sure, some companies are giving away limited quantities of drugs, and others are selling medicines at a huge discount. But these are piecemeal efforts that won't stop the epidemic. A more sustainable solution might be for the industry to negotiate across-the-board cheap licensing of AIDS drugs to manufacturers in the developing world -- resulting in faster treatment and an immediate slowdown in the number of deaths related to the disease.
As this trial unfolds in South Africa, drug companies might do well to remember the message of one of the industry's founding fathers, George W. Merck, whose words can be found on his company's Web site: "We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear." That's something for all drug companies to think about in the effort to protect shareholder value. Shook covers the pharmaceutical industry for BusinessWeek Online. Tzyh Ng also contributed to this report