Wall Street Journal - June 13, 2001
Michael M. Phillips, Staff Reporter

Yale University economist Jenny Lanjouw's plan -- in which pharmaceutical companies would surrender patent rights for any new AIDS drugs in poor countries but enforce them in rich ones -- is creating a stir at the World Bank and United Nations agencies. Executives at Merck & Co., the drug giant, are reviewing it, and the Treasury Department held a seminar on it last week.

"What we're all looking for is to get prices down in developing countries for basic medicines, while recognizing that you need an incentive to actually create new medicines," said Nick Stern, the World Bank's chief economist. The Lanjouw plan is "extremely interesting" because it balances those interests, he said.

While the proposal, to be published by the Brookings Institution this week, is far from being implemented, it is attracting attention from policy makers eager to find a way to address the AIDS epidemic, particularly in sub-Saharan Africa.

1Glaxo Unveils Another Price Cut for AIDS Drugs to Poor Countries (June 11)

2Pfizer to Offer Diflucan Free for Patients With AIDS in Least-Developed Countries (June 6)

3U.N.'s Annan Calls on Corporate America to Step Up Efforts to Fight AIDS Globally (June 4)

4AIDS Gaffes in Africa Come Back to Haunt Drug Industry in the U.S. (April 23)

Prodded by the U.N., the U.S., Europe and other wealthy public and private donors are assembling a huge global health fund to combat infectious diseases in developing nations, including AIDS, malaria and tuberculosis. Some of that money will buy life-extending AIDS drugs. Offers of bargain generic AIDS medicines from Indian drug makers have prompted price cuts by Western companies as well, but prices are still too steep for most Africans.

The key to Ms. Lanjouw's proposal is that it would create two different markets for new drugs for such diseases as AIDS and cancer. In poor countries, unfettered competition would keep prices low, while in rich countries, drug companies, protected by patents, would earn the profits they require to finance new research.

The plan, she writes, could be implemented unilaterally by the U.S. with small changes to existing patent law. Currently, drug companies that carry out their research in the U.S. must first apply for a U.S. patent. Then, to obtain patent protection in other countries, inventors must apply for a routine foreign-filing license from the Patent and Trademark Office.

Ms. Lanjouw proposes that, in exchange for that license, the federal government would require drug companies to choose between enforcing patent protection in the rich countries or in the poor ones. The proposal would be more of a boon to sufferers of global diseases such as AIDS than those with diseases specific to the developing world such as malaria. That is because a company with a new malaria drug might choose to enforce patents in the developing world, since that is where most patients are. But a company with a new AIDS or cancer treatment would prefer patent rights in the U.S. and Europe, since that is where the most money can be made.

Indian or other generic-drug makers could then produce the AIDS drug and sell it throughout developing nations at rock-bottom prices. Should the U.S. company try to enforce its patent in the poor countries, it would violate its agreement with the U.S. patent office, thereby rendering its U.S. patent unenforceable. Without a U.S. patent, the company would lose its lucrative American monopoly -- a huge incentive for drug companies to play by Ms. Lanjouw's rules. Should foreign companies try to market generic versions of that AIDS drug in the U.S., however, the American company could sue to enforce its patent.

It remains to be seen whether the idea will prove acceptable to pharmaceutical companies, which worry, among other things, that cheap drugs in developing nations will inevitably leak into the U.S. and Europe, cutting into the markets that are supposed to provide the companies' profits. There is also the issue of whether poor AIDS patients in the U.S. might object to paying more for drugs than their counterparts in the developing world. Merck executives have discussed the proposal among themselves, but haven't yet decided on a response.

But in policy-making circles, the proposal is seen as a starting point for discussing how the developing world can get cheaper drugs without gutting drug research.

Write to Michael M. Phillips at michael.phillips@wsj.com
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