Special Report

Stealing Drugs, Hurting the Poor

Thailand and Brazil have taken to seizing American made-drugs, with the approval of the likes of Rep. Henry Waxman. At this rate, who will research and develop the drugs they might want to seize in the future?

By 8.16.07

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Among the most obvious benefits of modern technology is improved health care. Some of the greatest medical advances have been new pharmaceuticals.

But medicines don't magically appear. They will not be produced if prices don't reflect research costs.

Unfortunately, some foreign governments, such as Thailand, don't care about what medicines patients will need tomorrow. Bizarrely, a gaggle of Democratic congressmen has endorsed Thailand's plan to steal American-made drugs. Several non-governmental groups supposedly concerned about patient health also are pushing policies which will discourage future pharmaceutical research.

HIV/AIDS stopped being a death sentence only because of the development of a variety of pharmaceuticals, beginning with AZT. But many AIDS sufferers in the developing world are not receiving antiretroviral (ARV) drugs. With the number of AIDS patients expected to hit almost ten million by 2010, the need for additional drugs will only grow.

Of course the poor should be treated. But the question is how? Policymakers have to decide whether the drugmakers be enlisted as allies or treated as enemies. Should governments simply steal from companies medications developed at great cost?

Last year America's drug and biotech firms devoted $55.2 billion to pharmaceutical development. The Tufts Center for the Study of Drug Development estimates that on average every drug takes 10 to 15 years to reach the market, at a cost of $800 million. Unfortunately, companies discover far more dry holes than blockbuster drugs, so the prices charged for the few successful medicines must cover the entire research and development bill.

The expense can be high for Third World nations, but pharmaceutical costs are not the primary barrier to AIDS treatment. Note Jeremiah Norris of the Hudson Institute and Philip Stevens of the International Policy Network, "Even second- line drug prices are small change compared to the cost of the medical infrastructure required to administer these complicated medicines." Moreover, governments routinely impose tariffs and taxes on life-saving pharmaceuticals and create burdensome regulatory barriers to their production and distribution.

Nevertheless, politicians rarely consider the impact of their policies on drug availability. Even middle-income countries have increasingly been demanding confiscatory price cuts and issuing compulsory licences, effectively stealing patented products.

Most recently, Thailand refused to honor the patent for Kaletra, an AIDS drug marketed by Abbott, and Plavix, a blood- thinner co-marketed by Sanofi-Adventis and Bristol-Myers-Squibb. Last November Bangkok seized Merck's patent for Stocrin, another ARV. The military junta then threatened to break several more patents and, in late July, announced plans to confiscate foreign drugs for additional diseases and health care programs.

"We want lower prices," declared Mongkol Na Songkhla, Public Health Minister in Southeast Asia's second largest economy. But the issue is not inability to pay. Observes Paul Howard of the Manhattan Institute, "While the government cries penury, its defense budget has increased by over 30 percent." Moreover, Thailand has imposed a range of duties, tariffs, and taxes on medicines.

UNFORTUNATELY, OTHER NATIONS HAVE ENGAGED in the same practice, and not just for ARVs. Brazil, an even wealthier middle-income nation which possesses the globe's 10th largest economy, has followed Thailand in seizing Abbott's Kaletra patent and Merck's Stocrin patent. Again, the ability to afford drugs is not the issue: Brazil has spent lavishly on wasteful state enterprises, dabbled in nuclear weapons, and launched a space program.

Although India has implemented new patent legislation protecting intellectual property, the anti-cancer drug Gleevec has fallen into an exception. A court rejected Novartis's legal challenge in early August. Activists are pushing South Korea, an Asian "tiger" with one of the world's top economies, to break Novartis' patent for Gleevec.

In all of these cases, governments of prosperous states are seeking to win political points by demonizing the companies which produce the products which offer their peoples hope. The motto seems to be: Why pay for what you can steal?

Some activists plead human rights. Alicia Ely Yamin of Harvard wrote: "Human rights law not only offers an alternative paradigm for understanding issues relating to the availability and distribution of medications, it also provides a workable framework for influencing the way in which adjudicative and legislative bodies, as well as other actors, make decisions that affect access to medications."

Thus, someone must provide drugs to those who need them because patients have a right to life, health, an adequate standard of living, and the benefits of scientific progress. Moreover, someone must provide medicines since failing to do so would have a disproportionate effect on children and discriminate against the poor and vulnerable. To defend property rights is to favor "patent protection and profit over saving lives."

Yamin emphasizes that governments have a responsibility to meet these alleged international obligations, including by acting "to deliberately block intellectual property reform," that is, to steal patented pharmaceuticals. Other activists emphasize the duty of companies to essentially give away their products, irrespective of R&D costs. After Abbott, which has reduced prices on its medicines in middle- as well as low-income countries, announced that it was no longer going to market drugs in Thailand -- which was expropriating one of its products -- AIDS Access director Nimitr Tien-udom declared: "Now they have pulled off the mask, we can see how greedy they are."

YET PATENTS ARE NOT THE CHIEF BARRIER to treatment of the poor. The vast majority of medicines on the World Health Organization's "Essential Medicines" list have not been patented in any poor nation. Moreover, many companies discount and even donate their drugs in poorer states. Some work with NGOs and governments to create a workable health infrastructure and distribute ARVs and other pharmaceuticals.

Unfortunately, attacks on drugmakers -- whether seizing patented products or imposing price controls -- discourage the creation and distribution of the very medicines which are most needed. Patents enable firms to earn back the money spent to develop their products as well as to invest in further R&D efforts. Governments can only steal drugs already on the market or in the pipeline: doing so inevitably will discourage companies from producing new medicines in the future.

Nowhere would the human cost of discouraging R&D be greater than in treating AIDS. Some 80 anti-AIDS drugs are currently being developed, including almost 20 vaccines.

Attacking the research drug industry in industrialized states also will discourage development of a research industry in developing states. Note several analysts in a study for the Campaign for Fighting Diseases (CFD):

Weak [intellectual property] laws enable the emergence of copycat industries at the expense of innovator industries -- with negative consequences for economic growth because the added value of the copycat industries is typically lower than that of innovator industries. In addition, innovator companies based in countries with strong IP protection will be less likely to engage in joint knowledge-oriented projects with firms in countries with weak intellectual property protection.

Stronger IP protection also will spur additional investment, foreign and local, in local firms to research diseases that disproportionately afflict the local population. India has adjusted its law to improve IP protection. Reports CFD: India currently has the largest number of FDA approved pharmaceutical manufacturing companies outside the U.S., and has increased spending on R&D from 4 percent, five years ago, to 8 percent today."

WHAT TO DO? THERE IS A MORAL IMPERATIVE to distribute life- saving products in impoverished states, but the duty of doing so falls on all of us -- including activists who raise money by attacking the drugmakers. It would be far better if industry critics, such as Oxfam and Medecins Sans Frontieres, raised money to purchase needed drugs for patients in poor nations.

In contrast, prosperous but stingy countries like Thailand and Brazil should be held accountable for their misbehavior. If sweet reason doesn't change their behavior, drugmakers, like Abbott in Thailand, should refuse to market any of their goods in offending nations.

Moreover, Washington should insist on IP protection in negotiating trade liberalization agreements. The U.S. Trade Representative has asked Thailand to reconsider its decision, but the U.S. government must be prepared to penalize states that violate patent rights by filing complaints under U.S. and international law. The USTR could be empowered to suspend patents issued by countries that do not respect IP and end any special trade benefits (both Brazil and Thailand enjoy lower tariffs under the Generalized System of Preferences).

America's task has been made harder by the World Health Organization's refusal to defend production of the drugs it seeks to distribute around the world. Moreover, nearly two score congressmen, led by Rep. Henry Waxman (D-Calif.), have endorsed Thailand's theft of the drug patents.

Protection of American intellectual property is a vital economic and health issue. Pharmaceuticals save lives. Stealing patents is really stealing the health future of Americans -- who pay a disproportionate share of the globe's pharmaceutical R&D -- and disadvantaged peoples around the world.

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About the Author
Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).