Manhattan Institute for Policy Research.
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MI Conference Series
No. 10 June 10, 2004

The Campaign to Fight AIDS: Ensuring Access to the Best Medicines

Patents and the Availability of Medicines in the Third World

We have removed Dr. Attaran's remarks at his request. The paper on which his talk was based, "How Do Patents and Economic Policies Affect Access to Essential Medicines in Developing Countries?" can be found in the May/June 2004 issue of Health Affairs. This paper is available for free download at

Drugs and Vaccines Against Global Diseases: The Next Generation

DR. ROBERT GOLDBERG: We've addressed one set of challenges to ensure that the next generation of medicines are available to patients in the developing world. We're now going to talk about other sets of challenges, and one of them, of course, is scientific.

We sometimes forget that there are formidable technical, biological, and chemical challenges to overcome before we can successfully design new drugs to combat emerging pathogens. The reality is that our stock of drugs for dealing with infectious diseases is sometimes diminishing not only in the developing world, but here as well. So we are very fortunate today to have with us Dr. Karen Bush, who is a Distinguished Research Fellow and Biology Team Leader for Antimicrobial Agents Drug Discovery at Johnson & Johnson Pharmaceutical Research & Development. She is also a fellow of the American Academy of Microbiology. Her recent work has included drug discovery efforts to identify new drugs to treat multi-drug-resistant gram-positive bacteria, which includes not only cephalosporins, but a wide range of other agents as well. She received her B.A. at Monmouth College and her Ph.D. in chemistry from Indiana University.

DR. KAREN BUSH: My talk today will be focused on anti-infective drugs in general, primarily with regard to small molecules. In the HIV area, that would include the major HIV drugs that are currently being used throughout the world.

To begin, why or when does industry develop anti-infective drugs? (Here I'm including antivirals, as well as antibacterials and antifungals.) Unmet medical needs are one driving force, and we've heard a lot today about how AIDS and HIV present us with a number of unmet medical needs. There is also a responsibility to address certain public health issues that include large numbers of infectious patients. Also, if there is a limited number of drugs available to treat a certain indication, that would be a reason for us to look for new agents. Resistance is another major contributing factor. And one might develop new drugs if there are unacceptable risks with current available therapies.

Frankly, we can't ignore the fact that pharmaceutical companies also have legitimate commercial interests. There has to be some interest commercially in new products, although not every project or every product has to generate significant revenue. This is true in the area of HIV research and TB research. We are seeing pharmaceutical activity in these areas, and it's not only for commercial interests. Research in these areas is being driven by the fact that we have a social responsibility to address these unmet medical needs.

Resistance is the major driving force for developing new anti-infective agents. My career has primarily been focused on discovering new agents for resistant bacteria, but I also think that resistance drives the development of drugs in all anti-infective areas.

There are multiple approaches to drug development. One is to look at older agents that may be used in combinations. We just heard that some drug companies need to be more proactive in developing drug combinations. We also can look for novel structures in known classes. If we have a fluoroquinolone that we know has some activity against tuberculosis, we may want to develop a quinolone that we know will have very high specificity in the area of tuberculosis.

If we have new drug targets, a wide range of possibilities is opened so that we can develop new agents that have new mechanisms of action. Historically, we developed drugs starting with antibiotics from naturally occurring classes, from natural products-for instance, the original penicillium mold that kills Staphylococcus aureus. In the past, we relied heavily on natural sources for new drugs. We looked at soil samples, plants, tropical rain forests, and marine organisms, and then we used synthetic chemistry to improve their properties.

In the twenty-first century, there is very little work being done in the natural product area. It's an area where many people think we have exploited all the good drugs at this point. What we have done is to move to genomics. We've looked for target identification for essential genes in bacteria, fungi, and viruses. We've used genetic and microarray analyses to identify genes that are required for growth, both in vitro and in animal models where we know that in some cases an essential gene, or a gene that is required for the bacteria to cause disease, may be expressed only if it's in a mammalian host.

We also look at novel targets. We try to identify drug targets that perhaps have not been used before to develop drugs. This is one way of circumventing resistance that may already be present for a known class of drugs. We then go to HTS (High Throughput Screening) assays. These are assays in which we test hundreds of thousands of compounds. There are compound libraries in some companies that contain millions of compounds for screening. At Johnson & Johnson, we are looking at assays in which we can test 384 compounds simultaneously in about two minutes. So there are many possibilities for finding new agents. We will use hits from our compound libraries to set up directed chemistry synthesis programs. We can also use molecular modeling studies and crystal structures to look at the way that compounds bind to a new target and try to identify ways to achieve tighter interactions with the new target that we're looking at.

If we look at the process of going from discovery through development, in the first series of discovery experiments we will identify a target, do HTS, do cell free assays, optimize the inhibitor, and then study the compounds in animal models. From this we get a lead series of compounds and go into a process at Johnson & Johnson that we call Drug Evaluation.

In the Drug Evaluation progression, we go through essentially the same process for every drug in every therapeutic class. We have to synthesize large amounts of material to be able to do toxicology studies at much larger concentrations-much larger doses of drugs than we normally use in a therapeutic setting. We want to find out the potential for toxicity in several animal species. We also want to see how a drug may be metabolized, how it may be broken down by a living system.

In our Drug Evaluation process at J&J, we go into Phase I clinical studies, in which we look at the way healthy human beings handle a drug. Do they excrete the drug in the urine? Does it get metabolized to something that is not closely related to the parent drug? How long does the drug remain in the body in its active form? A number of basic studies like these are done in Phase I.

If a compound at that point looks as though it has good safety and has good pharmacokinetics (the ability to stay in the body long enough to be therapeutically useful), we move toward the commercialization of the product. We must develop formulations that may be commercially acceptable. We then conduct Phase II and Phase III studies in infected patients and apply for worldwide approval in a number of countries. But as mentioned by Dr. Attaran, we do not try to get the drugs approved in every country, because that becomes cost-prohibitive.

If we look at the time frame involved and look at this in terms of the old way that we did things when we started from natural products, we begin with a soil sample, identify an active compound, look at it in our in microassays, our petri dish assays, and see if it protected animals from infection. Those processes probably took two to three years. (However, when I was at Squibb, we developed the antibacterial drug aztreonam from a natural product, where we identified the natural product in April of one year and had the semi-synthetic compound in humans by the end of the next year. So it's possible to do this within a year if everything works well.)

Preparing large batches of drugs sometimes takes a very long time, depending on the difficulties of the synthesis (at least six months). We need to show safety in animals and then do our Phase I studies. In the earlier days of anti-infective drug discovery, we could do Phase I in approximately 50 to 75 patients. We could then go into our Phase II and III studies with 1,000-2,000 patients and then obtain regulatory approval.

In the past, under optimal conditions with a new anti-infective agent we could take an agent from lab to market in anywhere from four to eight years. If we now look at enzyme inhibitors as a starting point, we find that it takes a bit longer. We have to identify a target; then we have to identify and develop an assay for the enzyme. Rather than killing a whole organism as our first step in the process, we've added another few years to the whole process.

If we look at the total development time, the other places where we've added time to the current process are in our Phase II and Phase III studies. In a number of these studies, we're now seeing patient studies with 4,000 patients, and, in some cases, 8,000. There was an antibacterial drug, Ketek, which was recently approved, that required a Phase III study of 24,000 patients. This is because regulatory expectations for approval are becoming more difficult to satisfy. Overall costs for developing a new drug, as estimated by the Tufts Center for the Study of Drug Development, are around $900 million. Of these costs, about $500 million is related to clinical costs for an anti-infective agent.

However, if we look the anti-infective agents in terms of their success in the drug discovery and drug development process, we see that anti-infectives actually have a high success rate compared with compounds that are developed in other therapeutic areas. Through the Phase I, II, and III studies, we see better approval rates for anti-infectives than we see for central-nervous-system, cardiovascular, or anti-cancer drugs.

Some of the reasons for this suggest that the anti-infective area has developed very good predictive tests in the early drug discovery process. We have good activity that is predictive in terms of in vitro testing and in our animal models. We have safety issues that are relatively well defined. In many cases, we're looking at drugs in classes that have already been developed and we have some idea as to what kind of safety problems to look for in our testing. We also have very well defined pharmacokinetic and pharmacodynamic models, in which we have a good idea as to how to select an appropriate dose very early in the process.

Hurdles can arise, however, if we are looking at novel agents in new drug classes and we don't know if we have specificity for particular targets. We may have nanomolar inhibitors, that is, very tight binding inhibitors, but these inhibitors may also be binding to other mammalian proteins. They may be responsible for toxicities that we didn't anticipate, or they may be broken down (metabolized) by the body in ways that we didn't expect. Dosing regimens for new compounds may be very different from what we had expected. Resistance, again, can develop to any agent. Many people don't realize that there is no agent for treatment of an anti-infective infection that will not at some point see resistant organisms.

Especially if we're looking at drugs that do not give us a lot of return on our dollar, relative development costs may be very expensive. We also have an evolving regulatory environment. Fortunately, in the AIDS area you are not seeing some of the hurdles that we face as we develop treatments for other conditions. But in other anti-infective areas and in other areas of therapeutics, we are seeing greater difficulties in satisfying the regulatory requirements. Often, regulators have zero tolerance for side effects and are focused on risk-benefit analysis.

In summation, we know that resistance has driven drug development. We may identify new agents from various sources, but they in turn may generate new toxicities. And the drug discovery process can go anywhere from five to 12 years at costs that may exceed a billion dollars, especially if you're outside the anti-infective area. However, anti-infective agents do have advantages over other therapeutic areas in terms of development costs. The bottom line is that we will continue to need new agents. We can't just sit here with the ones that we have, because resistance is going to become more and more important with any drug that is introduced in any population.

DR. ROBERT GOLDBERG: Our next speaker, Dr. Emilio Emini, is currently the senior vice president and head of Vaccine Development at the International AIDS Vaccine Initiative, where he is dedicating his efforts to develop a vaccine to stop AIDS. Before he held that position, he was at Merck, working on the same heroic effort.

DR. EMILIO EMINI: Why are we focusing so much effort on creating an AIDS vaccine? I'm sure that everyone here today knows the numbers, but I want to emphasize once again that this epidemic is absolutely frightening. As of December 2003, it was estimated by UNAIDS that 40 million people worldwide are living with HIV and AIDS, 2.5 million of whom are children. In 2003 alone, there were approximately 5 million newly infected individuals and 3 million deaths worldwide from AIDS. The distribution of the infection is obviously well known to all of you. It is particularly striking in countries of sub-Saharan Africa, but with growing epidemics and growing incidence and prevalence in some other populations, including the Indian subcontinent, Southeast Asia, and China. There is no part of the globe that is untouched by this disease. This is an issue that affects the human population worldwide; by definition, therefore, none of us is free from the risk of potential HIV infection.

The most important statistic is that there are an estimated 14,000 new AIDS infections that occur in the world every day. Between the time you got up this morning and the time you will go to bed this evening, 10,000 to 14,000 individuals will have been newly infected with the virus. And in spite of all of the talk that we heard this morning about the importance of antiretroviral therapy, the only way to stop this epidemic, as has been the case with every infectious disease in human history, is the development of a successful vaccine. Unfortunately, the development of a vaccine for HIV infection has not been an easy task and will not become an easy task anytime soon. Vaccine development will require not just extraordinary scientific resources but also substantial social and political will.

To summarize the last 20 years of research in this field: When a viral particle infects a cell, the cell undergoes a series of biochemical reactions and in the end produces new viral particles that then go on to establish a new infection elsewhere in the body.

In the context of an adaptive immune response, a typical immune response against any viral infection, there are essentially two arms to that immune response. There is an antibody component, which typically binds to viral particles and neutralizes them and prevents them from infecting uninfected cells. And there is what is referred to as the "cellular immune response," is a complex interplay of immune system cells that are essentially responsible for eliminating infected cells. Normally, this is a very potent immunological reaction whereby viral particles are neutralized and infected cells are eliminated, cutting off the cycle of viral infection at its root. This is what occurs with most acute viral infections, such as an influenza virus infection. But in the case of HIV infection, the immunological reaction is sabotaged: once an individual is infected with the virus, the infection essentially becomes a long-term persistent infection.

There are a number of reasons for this, because the immune system is still, to a certain extent, functional during the course of the infection. One of the primary reasons is that neutralizing antibodies against the virus are very poorly effective. The virus has evolved to thwart the antibody response, and it has done so by a number of different means, which I won't go through in detail. But a substantial part of it has to do with the surface proteins on the virus, called "glycoproteins."

These proteins are like little knobs on the virus's surface and represent the primary structures that the virus uses to bind to new host cells and establish infection. Typically, antibodies would bind to these knobs and neutralize the virus, but the virus has modified these structures in such a way as to largely-not totally, but for the most part-defeat the antibody response. There are some potent neutralizing antibodies that have been isolated against the virus, but they are not consistently produced in the context of a virus infection. This is a tremendous hurdle, so most of the effort over the last six years has focused on the cellular immune response.

The importance of the cellular immune response in controlling HIV infection has become, over the last six years, much better appreciated than at any time previously, partly because of the development of novel technologies that have permitted a better quantitative assessment of the cellular immune response and a better understanding of how the cellular immune response actually interacts with the virus and infected cells in the context of the infection.

The degree and extent that the cellular immune response can have substantial long-term consequences. When HIV first infects an individual, the infection is usually characterized by a period of very high viremia. Viremia refers to the numbers of virus particles circulating within the infected host. But this acute phase of the infection usually resolves (in the vast majority of cases) into a persistent infection, which is characterized by a much lower level of circulating virus. This lower-level infection can persist for a long period of time, and gradually increases as the infection progresses over the subsequent months and years.

The important thing is that the acute phase does resolve. It is now well understood that one of the primary reasons, if not the primary reason, for the resolution of the acute phase of infection is the cellular immune response directed against the virus. This is a sort of victory, but in the absence of an effective neutralizing antibody response, it is very difficult to actually clear the virus from the host. Still, the viral infection can be kept under control by the cellular immune response for some time.

The interplay between the immune system, particularly the cellular immune response, and HIV infection is established very early on during this acute phase. And that interplay between the virus that is infecting the host-and indeed, infecting the immune system itself-and the desire of the immune system (so to speak) to eliminate the viral infection influences how rapidly the initial viremia in the acute phase resolves and also substantially influences the level of virus that is expressed during the persistent phase of the infection.

It's well known that the level or degree of virus replication during the persistent phase of the infection directly influences the progression to actual clinical disease, which is why, for instance, antiretroviral therapy works so well. When it is used effectively, antiretroviral therapy restricts virus replication during the persistent phase and therefore lengthens the time to progression of clinical disease.

Based on what we now know about the relationship between the immune response and persistent HIV infection, the objective of vaccine development is focused on the elicitation of a cellular immune response in such a way so as to alter the balance that is established during acute viremia primarily in the favor of the cellular immune response. This won't necessarily prevent infection, but what it might do is to substantially lower the amount of virus that is present during the acute phase, resulting in a much more rapid resolution of the acute phase, and at the same time result in a much lower virus load and in a much lower level of virus replication during the persistent phase. This would, for all practical purposes, duplicate the effects of antiretroviral therapy by producing a prolonged period prior to the actual development of clinical disease.

This may sound like a draw, but it isn't. Because even more important than delaying clinical expression of disease is disrupting the epidemiology of the virus. That is, by significantly lowering the initial viremia, we can prevent individual transmission even after initial infection. There is a growing body of convincing evidence that most of the transmission that occurs from host to host actually occurs primarily during the acute phase of the infection. And there is a clear relationship between the amount of virus that is present within the infected individual and the actual probability that a subsequent infection will occur. By substantially lowering the amount of virus that is present during acute phase and restricting the period of this acute phase, we should (at least in theory) have a substantial positive effect in lessening the likelihood of transmission within a highly endemic population.

To reiterate, the objective with a vaccine is to provide an advantage to the immune system during the early, acute struggle with the virus. This will, we hope, allow for long-term suppression of virus replication, certainly with beneficial individual consequences, but also beneficial epidemiological consequences. If we can inhibit the amount of circulating virus during the acute phase, we can lessen the likelihood of transmission from host to host.

Establishing a cellular immune response is not a straightforward matter. What one needs to do is deliver genes from the HIV virus to certain specialized cells of the immune system, called "antigen-presenting" cells. To do this, one has to use what is called a "vector-delivery system." Novel vectors (taxis for the immune system, if you will) are used in which genes expressing HIV proteins of interest are stitched in by molecular means; those vectors are then inoculated into an individual. Once inoculated, the vectors deliver these genes to the appropriate antigen-presenting cells.

Vaccine development is an effort that has taken on quite a large commitment from a number of academic, government, private-sector, and nongovernmental organizations. There is a very large number of vaccine  vector-delivery systems. These range from what is known as naked DNA, which is simply DNA without any covering, to various poxvirus delivery systems, to so-called alphavirus replicons. Several of these are undergoing either early- or late-stage clinical trials. Replication-defective adenovirus is a particularly effective delivery system. Adeno-associated viruses are another interesting vector-delivery system that is currently in study, and a whole series of others are being studied pre-clinically.

The nature of vaccine research is such that one can learn only so much pre-clinically. In the end, it is only through human clinical study, looking primarily for safety and for immunogenicity, that we can define whether any of these vector-delivery systems holds any promise. It's a very long process, and it requires a great deal of expense and commitment to makes one's way through all these iterative processes, but we are doing it.

Will such a vaccine-elicited cellular immune response work? A study that was published several years ago was one of the first studies that actually indicated that elicitation of such a cellular immune response could be effective (this was a monkey model of immunodeficiency virus infection). In that study, the monkeys that weren't immunized expressed very high virus-load levels that subsequently resolved. A number of these monkeys go on to die a number of days subsequent to infection. On the other hand, of the three animals that were immunized (in this case, with a replication-defective adenovirus vector that expressed an appropriate immunodeficiency virus gene), a good cellular immune response was established prior to the challenge with infectious virus. After infection, the animals' immune systems established a favored balance between the immune system and the virus. This was manifested by a much lower virus load and viremia, as well as a much lower virus load during the persistent phase of the infection.

It has now been four years since these animals were infected. The immunized animals all remain healthy. They're still infected, of course, but virus loads were substantially lower during the acute phase, and virus loads have remained lower during the persistent phase of the infection.

So there is some hope, but we are still far from actually determining whether this hope is going to translate into an effective vaccine in the context of HIV infection in humans. At the moment, the vaccines-at least, those that are focused on cellular immune responses-are not likely to prevent infection, but they can have some potential beneficial effects. But the primary question is, how effective will they be in mitigating this initial virus infection in the humans? Also, how long will this mitigated infection be maintained? If they're found to be reasonably effective, can a vector-delivery system be developed for widespread use in the developing world, where HIV infection is the most significant? Will the genetic diversity of the circulating virus thwart the vaccine's effectiveness?

These are important issues that are not addressed in any of the pre-clinical studies simply because they cannot be. The genetic diversity of circulating HIV is very substantial. By definition, a vaccine is always going to be genetically restricted relative to the genetic diversity of the circulating virus population. Very careful clinical studies are ultimately going to have to be designed to address this question. There is also the problem of whether the vaccine will actually drive genetic escape, which is a hallmark of HIV infection.

So this is our research agenda for the remainder of the decade, because that is how long this effort is going to take. There are a number of ongoing studies, but there's a lot of work that still needs to be done to render them practical should the whole concept work. I would argue that current efforts in this regard are certainly inadequate.

A critically important aspect of what needs to be done between now and the time that a large-scale efficacy trial is conducted is that efficacy trial sites have to be prepared in which the molecular epidemiology of the circulating virus is very well understood. Again, efforts in this regard to date have been inadequate. This is going to be needed in order to properly interpret the results of trials that are based on uses of genetically simple vaccines, which by definition will always be simple relative to the virus that's circulating.

It's critical that the field focus on the effort to understand the interplay between the virus and the immune system so that those earliest events, which we're attempting to influence with the vaccine, are better understood so that we can then ultimately design better vaccines. It's critical that the field enhance and focus the effort to design immunogens that will consistently elicit potent virus-neutralizing antibodies, because in the end, unless this latter goal is accomplished, I suspect that we're not going to produce a vaccine able to prevent infection. Preventing infection is not an impossible goal, but it's a very hard one that's going to continue to require a lot of time and effort by researchers in the field.

So what's our human challenge or policy challenge? The process of scientific discovery, as we all know, is inherently individual. But the magnitude and difficulty of this problem goes well beyond any individual person or any institution or, for that matter, any individual country. Coordination, focus, and cooperation-particularly, scientific cooperation-are absolutely essential. If we continue to say, as many people do, that such cooperative scientific endeavors can't happen, then they won't happen.

It is very important not to have that attitude and instead to say that, yes, it is not an impossible task and we will proceed; cooperative scientific endeavors are critical, and they have to happen. What we do in the next several years, given the magnitude of the problem, will determine whether a vaccine becomes available in the next ten years or whether this is a problem that we will have to leave to the next generation. If we fail for reasons other than the purely scientific, then history will not-indeed, should not-be a kind judge.

DR. ROBERT GOLDBERG: Our next speaker is Professor Frank Lichtenberg, the Courtney Brown Professor of Business at Columbia University. Professor Lichtenberg is one of the world's leading experts on the role that new pharmaceuticals have on lengthening and improving human life and the underlying factors required to encourage investment in medical innovation.

PROFESSOR FRANK  LICHTENBERG: The previous two presentations were about science; mine is focused on social science. The U.S. government and American pharmaceutical companies have embarked upon a new plan to rapidly develop and distribute a low-cost and convenient combination pill to treat HIV in the developing world. The goal is to provide people in poor countries with the same quality medicines available to Americans at a much lower cost. I'd like to discuss the economics and a bit of the politics that this project entails.

As you are no doubt aware, the pharmaceutical industry is perhaps the quintessential knowledge-intensive industry. There are others, such as software and entertainment, but what all these industries have in common is that they are characterized by extremely high fixed costs and very low marginal costs. In other words, it's very, very expensive to get the first pill on the market; we can easily assume a cost of about 800 million or a billion dollars to develop the new drug, shepherd it through clinical trials, and finally get it approved by the FDA.

This process is mind-bogglingly expensive, but once you've manufactured and marketed the first pill, the cost of producing the second through the millionth pill is quite low. The industry is characterized by very low marginal costs and very high fixed costs. That creates fundamental economic issues that distinguish it from other kinds of commodities, such as pork bellies or timber. It also raises issues about pricing.

Let me suggest two possible kinds of pricing: uniform pricing; and nonuniform pricing, or price discrimination. Uniform pricing is quantity pricing: if you go to McDonald's and buy ten Big Macs, it will cost you ten times as much as if you buy one Big Mac. The total expenditure is proportional to the number of units that you buy. Suppose that there were uniform pricing for HIV medications: everyone is going to pay the same price for HIV medication. Then the question is, under uniform pricing, are we going to have a very low price-perhaps a price equal to marginal cost, the manufacturing cost of the drug and maybe a bit more-or are we going to have a high price? A low price, one roughly equal to the cost of production, does allow broad access to the drug, but it does not allow firms to recover their development costs. If, in fact, it only costs a dollar per pill to manufacture, but the company had to spend a billion dollars to develop the drug in the first place, if the price is only a dollar then firms will not recover their development cost.

In the long run, this pricing will undermine the development of new drugs. Firms are not going to want to develop drugs if they cannot recover their development costs. My research has shown that development of new drugs has large social benefits, including longer life, higher productivity, and reduction of other medical costs such as hospitalization bills. So it would be unfortunate if firms exited from the development of new drugs because of inability to recoup development costs.

The other option would be not having a price equal to marginal cost. What if we have a higher price-a price well above marginal cost? The good news is that it allows firms to recover their development costs; however, it inhibits broad access to the drug. If it only costs a dollar to manufacture a pill but we're going to charge $100 per pill, then some people are going to be denied access; that's inefficient as well as very unfortunate for those individuals.

Under uniform pricing, there is an inevitable trade-off between innovation and access. You could have a very low price that is good for access but decreases incentives to innovate, or you could have a higher price, which produces good incentives but less access.

The question is, can we have our cake and eat it, too? Is there any way that we could enable broad access and encourage innovation at the same time? Since I'm an economist-and we all know that economics is the dismal science-you probably think that I'm going to say no, we can't have our cake and eat it, too. But I'm an optimistic economist. So I'm going to say yes, in theory we might be able to have it both ways. We can encourage broad access and still promote innovation. The way that we can do that is to have price discrimination.

The basic idea of price discrimination is that we're going to charge a low price to consumers with a low ability to pay, such as people in sub-Saharan Africa, and a higher price to consumers with a higher ability to pay, such as Americans and people in other industrialized nations. By charging different prices to different populations, we can in principle have both broad access and innovation.

It's useful to think about there being at least three stakeholders here. One stakeholder is consumers in low-income countries in Africa. A second stakeholder is consumers in high-income countries such as America. And the third stakeholder is the manufacturer, the pharmaceutical industry. In fact, there is a fourth stakeholder we ought to consider, and that is future generations of patients. We should think not only about the needs of today's consumers but also about future consumers.

But for the moment, let's just think about the three stakeholders: low-income consumers, high-income consumers, and manufacturers. It turns out that one can show that price discrimination can be win/win/win. That is, all three stakeholders can be made better off than they would be in a world in which price discrimination was impossible, that is, if manufacturers were forbidden from charging a higher price in the United States than in Africa. In that case, it might be that pharmaceutical firms would not find it profitable to develop HIV drugs at all, and that would harm consumers in low- as well as high-income countries, and it wouldn't be so good for the industry, either. So while it is not always true that price discrimination will benefit everyone, it is certainly possible. Examples exist in which everyone can improve by the market's ability to offer price discrimination.

The fly in the ointment, of course, is that high-income consumers may resent paying a higher price than low-income consumers. If I see that a drug is selling for $5 in Africa and I'm an American AIDS patient paying $5,000 for ART, that could very well strike me as annoying and unfair, even though perhaps it is the essence of fairness, since I have a greater ability to pay than people in Africa. However, people may resent these price differentials and may demand the same prices that people in much less affluent countries receive.

The problem with attempts to eliminate price differentials, if they are successful, is that they hurt the fourth stakeholders I mentioned earlier: future generations. Uniformly low pricing today may undermine innovation tomorrow. If everyone tries to get the low price now, making price discrimination impossible, the whole win/win scenario unravels.

One could interpret the current American debate on drug reimportation as a rebellion against price differentials. American consumers see that prices are much lower in Canada than they are in the United States. They say that we want those low prices, too, and it is becoming increasingly difficult to maintain international price differentials. If it becomes impossible for the industry to charge different prices in different markets, that could unfortunately have the effect of reducing future investment in research and development.

But as Karen Bush said earlier, we need to develop new drug agents. We can't rest on our laurels now, because the pathogens aren't going to stop evolving or developing resistance. We're not done yet because we face too many challenges. We must continue to innovate, and if price controls strangle innovation it would be a great tragedy.

So to engage in price discrimination, which may be in everyone's best interest, there are several prerequisites that have to be met. One is that manufacturers have to be able to distinguish between consumers with a low ability to pay and a high ability to pay. In this case, that's not much of a problem. It is fairly obvious that people in Africa have a much lower ability to pay than Americans do. But there's a second condition required for price discrimination: the absence of what economists call "arbitrage." Arbitrage is the ability of some people-for example, middlemen-to buy AIDS drugs cheaply in Africa and resell those drugs at a higher price in America or Europe. If reimporters have that ability, it will undercut the manufacturers' ability to engage in price discrimination. Essentially, for price discrimination to be successful, companies must be able to prevent the resale of commodities from low-price markets to high-price markets. Last, but far from least, intellectual-property protection is important for enabling price discrimination to occur. Obviously, if a generic company can violate a patent and sell a patented drug for significantly less than the developer, it will also prevent price discrimination.

If our program is to develop rapidly and distribute a low-cost and convenient combination AIDS drug—which clearly has the potential to benefit the current generation of citizens in developing countries—we can do that without jeopardizing the interests of future generations in low- and high-income countries. But that requires us to continuously remind the public that price discrimination is not a corporate crime. In reality, it is good economics and good medicine.

Luncheon Address

DR. ROBERT GOLDBERG: Our final speaker this afternoon is Dr. Mark Dybul, who is currently on detail from the Department of Health and Human Services as the Deputy Chief Medical Officer for President Bush's Emergency Plan for AIDS Relief. At HHS, he is the Assistant Director for Medical Affairs, National Institute for Allergy and Infectious Diseases. He is the co-Executive Secretary of the HHS HIV Therapy Guidelines for Adults and Adolescents and has taken the lead for HHS for President Bush's initiative to prevent mother-to-child transmission of HIV in Africa and the Caribbean.

He is a former member of the World Health Organization's writing committee to develop global HIV therapy guidelines, the principal investigator for clinical and basic research for U.S. and international protocols with an emphasis on HIV therapy. He received his B.A. and M.D. from Georgetown University, completed a residency at the University of Chicago, and a fellowship in infectious diseases at the National Institute of Allergies and Infectious Diseases. He's here to speak about the President's Emergency Relief Plan for HIV in the developing world. We're very honored and pleased to have him as our speaker. Please help me in welcoming in Dr. Mark Dybul.

DR. MARK DYBUL: I'd like to thank the Manhattan Institute for having me here today. It's a great privilege to represent Ambassador Randall Tobias, the U.S. Global AIDS Coordinator, and to represent the President's Emergency Plan.

President Bush has embodied the leadership, compassion, and commitment of Americans in two international HIV/AIDS initiatives. In less than two weeks, it will be the second anniversary of the announcement of President Bush's international mother-and-child HIV prevention initiative. This was a five-year, $500 million initiative. The goal was to reach 1 million pregnant women annually in 14 focused countries in Africa and the Caribbean and to reduce mother-to-child transmission of HIV by 40 percent.

The 14 countries that are targeted as focus countries represent 50 percent of global HIV infections and 70 percent of infections in Africa and the Caribbean. As we reach women and protect babies, a fundamental pillar of the president's initiative is to build capacity so that we can move from short-course Nevirapine treatment to full therapy for mothers, children, and fathers; to protect the entire family unit and to prevent a generation of orphans.

We are moving quickly with this initiative. We will soon have the report from the first piece of the initiative, which represents $133 million since October 2002. The results will be out next week, and we believe that we have done a good job of beginning. We are on the move and are developing more successful programs.

The leadership, compassion, and commitment of the United States were demonstrated through the creation of this initiative. We had to act in the face of 2,000 new HIV-infected babies born every day. But not only are women, children, and their parents and their immediate families suffering; each day, 8,000 deaths occur because of HIV/AIDS, and there are 14,000 new infections. In the words of President Bush, "Global treatment of HIV is rooted in the simplest of moral duties. When we see this kind of preventable suffering, when we see a plague leaving graves and orphans across a continent, we must act." Therefore President Bush launched his Emergency Plan for AIDS Relief in his State of the Union address in 2003. This initiative demonstrates leadership by compassion and action. It is the largest initiative in history dedicated to a single disease. It budgets $15 billion over five years, $10 billion in new funds.

These are staggering amounts. In 2003, before the first appropriation for the President's Emergency Plan, the United States, representing the compassion of U.S. citizens, was already providing half of the global donor aid for HIV/AIDS. In 2004, as a result of the President's Emergency Plan, the United States will provide twice as much as the rest of the world donor community put together. The United States is committed to turning the tide against HIV. But these dollar amounts, as impressive as they are, are not enough. Action and results are necessary, not commitment of dollars. What the dollars represent are the goals that the president outlined in his State of the Union address: to prevent 7 million new infections; to care for 10 million HIV-infected persons and those who are affected by AIDS, including orphans and vulnerable children; and to treat 2 million HIV-infected persons.

This initiative builds on the mother-and-child initiative that we just discussed. It is focused on the same 14 countries, with a 15th country to be identified. It's a pleasure to be in the room with representatives from two of those countries, Kenya and Botswana, who spoke this morning. This initiative has moved at an incredibly rapid pace. As I mentioned, the mother-and-child results will be available next week. Within days of the first appropriation for the President's Emergency Plan, we were actually treating people in rural Uganda by motor scooter-getting out to their homes by motor vehicles to deliver therapy in their homes.

Within weeks, we had opened and started to deliver treatment in multiple sites in several countries, whether it be for a faith-based site in a slum in Uganda, or in a site in rural Kenya. We had already begun treating people weeks after the appropriation. In May and June of this year, we finished plans for many more treatment sites. Drugs have been ordered. In the first year of the president's initiative, we expect to provide therapy for 170,000 people, doubling the number of people on therapy and almost doubling the number of people on therapy in Africa.

An important thing that we are doing now is ensuring access to high-quality therapies. Several weeks ago, Secretary of Health and Human Services Tommy Thompson, along with Ambassador Randall Tobias, announced the U.S. government strategy allowing drug companies to come in through the Food and Drug Administration to receive full or tentative approval for drugs through a rapid approval process, within two to six weeks of an application being received by the U.S. government.

We are taking as many steps as we can, in many different directions, to ensure the success of the initiative. We are acting with the international community, which is necessary if we are to fight this disease. Part of the President's Emergency Plan is a billion-dollar pledge for additional resources for the Global Fund, bringing the total pledge from the United States to $1.6 billion. The U.S. government was the first donor to the fund. It was the first donor to give the second gift to the fund. We remain by far the largest contributor to the fund, contributing 40 percent of resources available to the fund.

As you know, Secretary Thompson is chairman of the fund, demonstrating the clear commitment of the U.S. government to the success of the fund. Under Ambassador Tobias, we are working at the headquarters and at country levels to ensure that we are collaborating with our international colleagues. We work with the WHO, UNAIDS, the World Bank, and UNICEF.

I understand that there are high-level representatives here today from the World Health Organization, UNAIDS, and other international communities, and we're delighted to be partners with you. We're working closely with the WHO to expand therapy for HIV and tuberculosis. We were one of the sponsors several weeks ago in Washington of the UNAIDS-initiated proposal for "three ones"—one national strategy, one coordinating mechanism, and one mechanism for monitoring and evaluation. We are taking the lead in ensuring that we have one uniform monitoring and evaluation procedure so that we're not burdening our partners and other countries with having too many people to respond to for accounting purposes. This is a very important step.

We continue to work with our partners and are proud to be a member of the international community fighting this global disease. More important, as we coordinate globally we are focusing our efforts on localities. Local efforts are critical to our success. We must develop-and the president says this every time he speaks-a sustainable program. If we reach all our planned goals in five years but do not develop local medical capacities to respond to HIV in the countries where we offer aid, we will have failed.

In our focus countries, our HIV/AIDS teams for the U.S. government are building on 20 years of active partnerships. The United States government has been on the ground through USAID, through the Centers for Disease Control and Prevention, through the Department of Defense, and through the Department of Labor for up to 20 years in the focus countries. The reason that the focus countries were selected was because we were already on the ground there. These were places where we could move quickly because of the relationships we had developed with our important partners in those countries, beginning with the ministries-the Ministry of Health, the host government, as well as our other partners on the ground. We have now, under Ambassador Tobias, brought together all those pieces of the U.S. government under the U.S. ambassador in a coordinated fashion to ensure that we can coordinate our efforts as we interact with our partners on the ground.

We must recognize that we are fundamentally guests in the host countries in which we work. As we move along, we will coordinate our strategies with those countries to develop sustainable programs. Drugs alone will not solve this problem; expanded health-care capacity is necessary. As with the mother-and-child initiative, capacity is one of the most important pillars of our initiative.

We will serve the local governments in whatever ways that we are able, within the limits of our legislation, to help develop capacity in ways that are important. This includes training at extensive levels, twinning where you have institutions in the United States or Brazil, in the case of Mozambique or other places, funded by the U.S. government to help develop capacity so that we can remove ourselves from the actual performance of care. Volunteers in the early going may be important to help with training. We do not envision American volunteers doing the work in Africa and the Caribbean. This is fundamentally an African disease and a Caribbean disease, not a U.S. government disease. So we are working to ensure that we help develop the hands and train the hands on the ground to perform the work. We have instituted, with our first round of contracts, contractual requirements that all our partners develop indigenous capacity. If they do not do so-even if they achieve their prevention, care, and treatment goals-we will reduce their funding.

We are moving very quickly: within four weeks of receiving an appropriation, we put $350 million into the hands of providers. We have submitted to Congress our intent to expand the additional $500 million that is available for the focus countries, bringing the total to $850 million available to service providers by September 30 of this year. There will be a total of $2.4 billion around the world where the emergency plan is active. We are very proud of that, but we need to work together to move with our international partners and-most important-with our local partners to ensure that the job is done. As Americans, we should be very proud of the bold leadership of President Bush and Congress on behalf of the citizens of the United States in this compassionate effort. We now look to the world to work with us. We are doing our part. We call on others to join in our efforts, to work together, to work compassionately, and to help the host nations turn the tide against HIV/AIDS.


Center for Medical Progress.


MICS 10 PDF (435 kb)

How can wealthy nations best help save lives in developing countries, particularly those nations struggling with widespread HIV/AIDS infections? The U.S. government has embarked on a new plan to rapidly approve and help distribute low-cost combination anti-retroviral therapy (ART) pills to treat HIV in developing nations. Speakers at this conference concluded that controlling HIV/AIDS in developing nations requires balancing access to less expensive treatments with financial incentives for companies to invest in new medicines; giving assurance to developing nations that generic medicines are as safe and effective as patented drugs sold in wealthy countries; and expanding healthcare infrastructure in poor nations to deliver new treatments and monitor patient health.

How to Make Quality Drugs Available


Robert Goldberg, Ph.D., Senior Fellow and Director, Center for Medical Progress at the Manhattan Institute


Dr. Scott Gottlieb, Senior Adviser to the Administrator, Centers for Medicaid and Medicare Services

Jerry Norris, Adjunct Fellow, Hudson Institute

Dr. Robert Orina Nyarango, Head Pharmacist, ARV Programme, Gertrude’s Garden Children’s Hospital, Nairobi, Kenya

Dr. Segolame Ramotlhwa, Director of Pharmacy, Botswana Government HIV Program

Patents and the Availability of Medicines in the Third World

Dr. Amir Attaran, Associate Professor, University of Ottawa

Drugs and Vaccines Against Global Diseases: The Next Generation


Robert Goldberg, Ph.D., Senior Fellow and Director, Center for Medical Progress at the Manhattan Institute


Karen Bush, Vice President, Anti-Bacterial Research, Johnson & Johnson

Dr. Emilio Emini, Senior Vice President, Vaccine Development, International AIDS Vaccine Initiative

Professor Frank Lichtenberg, Courtney C. Brown Professor, Columbia University School of Business Administration

Luncheon Address

Dr. Mark Dybul, Office of Global AIDS Coordinator, U.S. Department of State

Co-sponsored by: Institute for Policy Innovation, Center for Medical Progress, International Policy Network


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