Wall Street Journal - April 20, 2001

Yesterday's banner headline in the Guardian proclaimed, "Shamed and humiliated -- the drug firms back down" -- a pretty standard sample of the lefty London paper's journalistic objectivity. Ostensibly, the decision of 39 companies this week to drop their suit to invalidate South Africa's Medicines and Related Substances Act is a victory for righteousness. The 1997 law allows the health ministry to license cheap generic knock-offs of patented drugs like antiretroviral AIDS "cocktails." Hence millions of emaciated HIV-positive Africans have prevailed over callous pharmaceutical ogres who only care about their dirty old profits.

Yet in indulging this cartoon, drug companies may pay a price for their expedience. As for South Africa, this is one case that its government may end up wishing it had lost.

True, for the companies, the suit was turning into a real P-R shiner. By defending their patents, big, well-heeled corporations appeared to price their life-extending therapies out of poor Africans' reach, while blocking access to affordable remedies, and look like killers. And suing over a law signed by Nelson Mandela -- now, that's uncool.

The EU, which firmly opposed South Africa's Medicines Act at first, has done a complete 180. Worse, the U.S. also turned tail. The Clinton administration backed off its support for the suit when it turned into a thorny election campaign issue. The Bush administration has no formal objection to the South African law.

Meanwhile, drug companies' heartless, avaricious image has unsettled investor confidence, so they've been slashing prices of AIDS drugs for Africa as if at an after-Christmas sale. Glaxo has cut the price of Combivir by 90%. Merck has discounted two anti-AIDS drugs by 45% and 55%. Abbott Labs will sell its two AIDS drugs and its HIV diagnostic test at "no profit"; Bristol-Myers is selling two drugs below cost. These companies claim they are now either making no profit or taking a loss. Patented AIDS cocktails cost Africans 10% the price for Americans, or about $1000 per year.

"I don't expect to get any credit," says Merck's CEO, Raymond Gilmartin. Indeed, activists won't be satisfied until airplanes drop antiretrovirals on Cape Town-like leaflets.

Yet let's not lose track of a few first principles. Private companies are not charities. Though activists deride the filthy business of making money, that is what keeps companies alive. The reasoning that people are dying, so the drugs to save them should be free, or virtually so, is emotive. Still, no profit? No company. No company? No drugs. In fact, without the pharmaceutical giants that AIDS activists demonize, many of these companies' detractors would be dead. Protection of intellectual property in an era of easy duplication is crucial to motivate continued innovation. AIDS drugs are cheap to copy, but costly to develop. With no promise of reward, industries have no reason to throw billions of dollars into R&D.

Patent erosion is also a slippery slope. As Mark Groombridge at the Cato Institute has asked, "AIDS today, why not heart disease and cancer drugs tomorrow?" The same emotive "Star Trek" reasoning applies -- We're talking about human lives , Jim! And why stop at drugs? If profiting from life-sustaining products is immoral, then so is commercial farming.

The drug consortium's folding in Pretoria will likely embolden Brazil, soon to be dragged before the World Trade Organization for its homebrewed versions of patented AIDS drugs. Poor but not nearly as destitute as sub-Saharan Africa, Brazil represents a sizable market, and drug companies are likely to fight that corner more fiercely. By contrast, the small potential market in Africa must have played a part in this week's climb-down. Many African governments spend less than $10 per year per capita on health care, and private health care is rare.

Pretoria spends about $100 per year per capita on health. Yet even the bargain-basement generic AIDS regime from India's Cipla Ltd. costs $635 per year. One out of nine South Africans is HIV-positive, or 4.5 million people. Do a little arithmetic, and you start to suspect that President Thabo Mbeki's bizarre challenge of HIV's connection to AIDS and his dismissal of antiretrovirals as "poisons" last year might be motivated less by scientific ignorance than financial horror. Now that the heat is off drug companies, it's sure to turn on Pretoria to cough up treatments that even at-cost the country can ill afford.

The hard truth is that the complex, expensive antiretroviral regime is simply not the answer to Africa's AIDS pandemic. There aren't enough doctors and clinics to administer the many medicines. The population is poorly educated and distrustful of Western nostrums, prone to take pills all at once or sell them on the street. And with the region's deep cultural reluctance to use condoms, the last thing South Africans need is any public signal that there's now a "cure" for AIDS and they can spurn safe sex with abandon. For now, an ounce of prevention is worth a pound of patent infringement.

-- From The Wall Street Journal Europe

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