E-DRUG: Wall Street Journal: treatment vs profits
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[an in-depth analysis of the interaction of government,
industry and activists in the USA from a very reliable
source. Seems the world's opinion is changing...
Crossposted from PHARM-POLICY with thanks. Copied as fair use.
http://interactive.wsj.com/articles/SB983487988418159849.htm
NN]
March 2, 2001
AIDS Epidemic Puts Drug Firms In a Vise: Treatment vs. Profits
By HELENE COOPER, RACHEL ZIMMERMAN and LAURIE MCGINLEY
Staff Reporters of THE WALL STREET JOURNAL
Can the pharmaceuticals industry inflict any more damage upon its ailing
public image? Well, how about suing Nelson Mandela?
That's how scores of international AIDS activists are portraying a lawsuit
by 40 drug makers that will be heard beginning Monday in a Pretoria
courthouse. The suit seeks to overturn a law that Mr. Mandela signed when he
was president of South Africa. Under the law, South Africa can import cheap,
generic versions of patented medicines -- including powerful new drugs for
treating AIDS -- without permission from the patent owner.
As the case heads for court, many drug-company executives privately say they
wish the lawsuit -- and the Scrooge-like picture it paints of their industry
-- would disappear. But publicly the companies say they're going forward
because the South African law strikes at the heart of their most precious
commodity: patents.
"It's never good to be embroiled in a suit with your customers," says Harvey
Bale, director general of the International Federation of Pharmaceutical
Manufacturers Association, a Geneva-based trade group. But despite the bad
press, he says, the industry must protect its patents, which he calls "the
foundation of research and development."
The pharmaceuticals industry is locked in a tightening international
public-policy vise. On one hand, drug companies want desperately to be seen
as helping fight the global AIDS crisis. Witness the unprecedented offer
last year by several companies to cut prices of many AIDS drugs in Africa.
But the companies also remain unwavering in their defense of patents, even
if it means suing poor nations that want to make or buy bootleg generics
because they can't afford brand-name drugs.
The stakes for the industry are far higher than the market for AIDS drugs in
Africa. Their fear: If the South African law is allowed to stand, other
countries will be emboldened to pursue similar legislation. "It is quite
likely to be a slippery slope," says Mark Groombridge, a research fellow at
the Cato Institute, a conservative think tank. "If the question is AIDS
today, why not heart disease and cancer drugs tomorrow?"
AIDS Drug Prices Offered in Africa (Per patient per year)
Drug/Maker Patented Generic*
Combivir/Glaxo $730 $635
3TC/Glaxo 232 190
Zerit/Bristol-Myers 252 70
Stocrin/Merck 1,110 N/A
Viramune/Boehringer 483 340
*These are the discounted prices being offered to some African nations by
brand-name drug makers and by Cipla Ltd., an Indian generic drug maker.
The patented product prices are about 80% less those charged in the U.S.
Sources: The companies; UNAIDS
Moreover, the U.S. companies fear that if poor countries are allowed to buy
low-priced drugs, American consumers will demand the same. Indeed, many of
the activists and lawmakers who support cheap generic drugs overseas are
also lobbying to drive down prices in the U.S. -- just as insurers and
employers are mounting their own crusade to cut skyrocketing drug prices.
Drug makers currently derive the lion's share of their annual profits from
the $126 billion U.S. market, where they have the greatest freedom to price
drugs at a premium.
Growing Alarm
The pressure is especially intense in Washington, where the drug industry
spent an unprecedented amount of money last year -- $80 million -- to help
elect President Bush and a Republican Congress. But the U.S. government is
no longer standing firmly behind the industry. Before the AIDS crisis, there
was never any doubt that the U.S. considered drug patents sacrosant. Now a
growing alarm about the spread of the disease, and a widening belief by
consumers that pharmaceuticals companies price their drugs too high, has
forced Washington to reconsider its unyielding support for the industry's
positions overseas.
For years, the drug industry had a staunch ally in the U.S. Trade
Representative's office. There, the industry's go-to guy for the past five
years has been Joseph Papovich, a 53-year-old assistant trade
representative. Mr. Papovich, a career bureaucrat, is responsible for
protecting the patent rights of American companies abroad. For example,
according to people present at a 1996 meeting between Mr. Papovich and AIDS
activists, when the activists complained that strict patent laws prevent
poor Africans from getting drugs, Mr. Papovich replied -- truthfully if
somewhat undiplomatically -- "I don't represent African consumers."
As Peter Scher, chief of staff at the trade office under President Clinton,
puts it: "Joe Papovich viewed his responsibility simply: Carry out the
agenda of U.S. companies."
Now that has changed. When the Pretoria High Court hears opening arguments
in the drug industry's case, the U.S. government, after years of complaining
about the South African statute, won't be at the industry's side.
The Clinton administration's decision to stop pressing South Africa to
change the law, reaffirmed by the Bush administration last week, says much
about the rapidly changing environment for American drug companies overseas.
The global AIDS crisis has prompted a widening circle of activists,
including nonprofit organizations such as Doctors Without Borders and Oxfam,
to attack the patents of American drug companies as a direct threat to the
health of the world's poor. These groups are encouraging Third World
countries to make or import generics, even if it means violating drug
company patents.
For the U.S. trade office, such debates are a far cry from their usual
agenda, which tends to revolve around the arcane details of treaties with
acronyms like TRIPS (Trade Related Aspects of Intellectual Property Rights).
Until a few years ago, the big worries at the trade office were about
protecting American compact discs from piracy in China, and protecting
Microsoft software from illegal copying in India.
So in early 1998, when a group of drug-industry representatives went to see
Mr. Papovich to complain about the new South African law, the trade office
approached it much like a routine patent complaint.
The South Africa law, which was passed in December 1997, authorizes two
controversial practices. One, called parallel importing -- a form of "gray
market" retailing -- allows importers to buy drugs from the cheapest sources
available, regardless of whether the patent holders give their approval. The
other practice, called compulsory licensing, permits the South African
government to license local companies to produce cheaper versions of drugs
whose patents are held by foreign companies.
Direct Assault
For the industry, these provisions were tantamount to a direct assault on
their livelihood. In February 1998, the consortium of 40 drug companies, led
by a South African pharmaceuticals trade group, filed suit. Its key legal
claim was that the statute, the Medicines and Related Substances Act of
1997, is unconstitutional because it gives sweeping power to South Africa's
health minister to ignore the country's patent laws.
The South African trade group, the Pharmaceutical Manufacturers' Association
of South Africa, also argued that the law could have negative economic
consequences for the country. "If we were to drop the case, the
multinational pharmaceutical industry would exit South Africa, and South
Africa would be the poorer for it," says Mirryena Deeb, the group's chief
executive.
In general, industry officials say that treating AIDS -- as well as malaria,
tuberculosis, malnutrition and other medical woes prevalent among the
world's poor -- is a global problem that can't be solved just by attacking
pharmaceuticals prices and profits. Drug-company executives claim that their
enormous business simply presents an easy target for activists, for whom
marshaling a world-wide crusade against poverty and disease would be a much
tougher task.
'Infrastructure' Issue
"There are issues associated with infrastructure, with providing proper care
and treatment, distribution systems have to be in place -- all these things
are needed to ensure access to medicines," says Greg Reaves, a spokesman for
Merck & Co., Whitehouse Station, N.J., one of the companies in the lawsuit.
For its part, the South African government says it will vigorously defend
the Medicines Act -- which hasn't been implemented because of the lawsuit.
Joanne Collinge, a spokeswoman for South Africa's Ministry of Health, says
the statute reflects the government's position that equal access to health
care is a constitutionally protected right. "We have a constitution that
says there will be accessible health care, and that means affordable
medicines," she says. "The problems in getting universal access are so deep
we need major structural intervention."
Several weeks after the South African law was passed, in early 1998, members
of a U.S. drug-industry lobbying group trooped across town to ask the trade
office to take action against South Africa. According to an official in the
trade office, the industry group framed the matter simply as a fight over
intellectual-property rights, and didn't even mention how it might affect
the treatment of AIDS.
For the next two years, Mr. Papovich and other U.S. officials took up the
industry's arguments in a series of letters, phone calls and meetings with
South African officials. According to U.S. trade officials, their South
African counterparts also didn't broach the subject of AIDS -- perhaps
because of the societal stigma. Rather, the U.S. officials say, the two
sides simply argued about whether the Medicines Act ran afoul of common
international trade practices.
'We Missed It'
"We all missed it," says Charlene Barshefsky, the U.S. Trade Representative
at the time. "I didn't appreciate at all the extent to which our
interpretation of South Africa's international property obligations were
draconian."
To pressure South Africa to amend its law, the U.S. in 1998 denied
Pretoria's request for additional benefits under the Generalized System of
Preferences, a trade scheme that allows poor countries to export products to
the U.S. at reduced duties. Then, a year later, Rep. Rodney Frelinghuysen, a
New Jersey Republican, speaking on behalf of drug companies with operations
in his state, attached an amendment to South African aid legislation,
holding up payments for a few months until the U.S. demonstrated it was
pressuring South Africa on the Medicines Act.
In April 1999, the U.S. trade office also cranked up the heat. In its annual
Watch List, published that month, it cited South Africa for the Medicines
Act, which the U.S. said could potentially "abrogate patent rights." The
list doesn't necessarily lead to U.S. trade sanctions, but it does send a
warning signal to international investors.
Avoiding the Issue
A month later, Mr. Papovich accompanied then-Vice President Al Gore to Cape
Town for meetings with their South African counterparts. The South Africans
complained to Mr. Papovich about the watch list but tiptoed around the AIDS
issue. When the group returned to the U.S., however, things changed.
On June 16, a group of activists disrupted Mr. Gore's carefully planned
speech in Carthage, Tenn., announcing his run for the presidency. Chanting
"Gore greed kills" and "medication for every nation," the activists waved
banners and hooted during Mr. Gore's talk. They repeated their actions at
successive campaign stops.
Meanwhile, back in Washington, activists met with Mr. Papovich and other
U.S. trade officials at an office building near the White House. Says Eric
Sawyer, a founder of the AIDS activist groups Act Up New York and the Health
Gap Coalition: "We were slamming on the table, accusing them of genocide."
The trade officials' response, Mr. Sawyer says, "was to look as though they
had been slapped across the face." The activists warned Mr. Papovich that
more disruption was to come.
They made good on their threats, pestering Mr. Gore at campaign stops across
the country. Finally, in July, Mr. Gore announced that the White House was
reversing its policy. Essentially, the trade office adopted a sort of "Don't
ask, don't tell" stance, under which the U.S. agreed to look the other way
if South Africa began to make or import generic AIDS drugs.
Not Enough
But that wasn't enough for the activists, who wanted the U.S. to expand the
new policy beyond South Africa. They continued to organize demonstrations.
In October, 500 Act Up activists marched down 17th Street in Washington to
the trade office, holding giant puppets depicting an evil-looking Ms.
Barshefsky. Mr. Papovich was in Bangkok when he received a panicked phone
call from trade staffers back in Washington that the building was under
siege. Traffic was tied up for about an hour, and trade officials stayed
locked inside the building until the activists eventually dispersed.
Two months later, Mr. Papovich was on hand to witness another demonstration.
A dozen activists managed to enter the trade office after one of them
tricked security guards by pretending to sprain an ankle. Mr. Papovich, on
his way to deliver a speech on Capitol Hill, passed the activists on the
stairs. From his taxi, he watched, horrified, as the activists unfurled a
huge banner from a second-floor window, reading: "Essential Drugs for All
Nations."
By then, a cosmic change was under way inside the trade office. Public
health and the AIDS crisis were starting to dominate discussions on how to
protect intellectual property. The arguments presented by the drug industry
started receiving an increasingly skeptical audience among trade officials.
For example, that fall several pharmaceuticals executives met with Ms.
Barshefsky and argued that the problem with AIDS in Africa wasn't
high-priced drugs, but a lack of computers and other components of
health-care infrastructure. According to people in the room, Ms. Barshefsky
was taken aback. "I don't think you're suggesting a lack of computers is
what's causing this pandemic?" she asked, these people said.
A few months later, during the disastrous December 1999 meeting of the WTO
in Seattle, the U.S. trade office issued a statement. The new South Africa
policy, it said, would be extended to all poor countries.
Drug companies were dismayed, but not surprised. By then it was clear that
the activists' power was surging, while their own influence appeared to be
waning. They bided their time. When President Bush took office, some drug
companies hoped their campaign efforts on behalf of the new president would
lead to a reversal of Mr. Papovich's new stance. They didn't overtly lobby,
however, knowing the potential for public-relations damage.
Last week, the trade office issued a statement saying it is "not considering
a change in the present flexible policy." Administration officials privately
say this was an easy decision to make, and it isn't likely to be reversed.
"The HIV/AIDS crisis is a terrible tragedy for countries, families and
individuals," said the statement, which was written by Mr. Papovich and
approved by the Bush administration. "Consistent with our overall effort to
protect America's investment in intellectual property, [the Bush
administration will] work with countries that develop serious programs to
prevent and treat this horrible disease."
-- Scott Hensley in New York contributed to this article.
Write to Helene Cooper at helene.cooper@wsj.com
Rachel Zimmerman at rachel.zimmerman@wsj.com
and Laurie McGinley at laurie.mcginley@wsj.com
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