Makers of AIDS Drugs Agree to Slash Prices in Third World

see also their recent RECANT __
in Slashing Prices in Third World

The Wall Street Journal -- May 11, 2000
Michael Waldholz, Staff Reporter

In a landmark response to the AIDS crisis in Africa, five of the world's largest pharmaceutical companies offered to slash the prices of HIV drugs for people living in poor nations.

The companies' unprecedented joint agreement, which was announced by the United Nations Thursday, should make it possible for considerably more people in the devastated continent to gain access to the life-saving but extremely costly drugs that have revolutionized treatment in the U.S. and Europe.

Following delicate discussions with U.N. officials on ways to mount a broad attack on AIDS in developing lands, several companies pledged to sell their drugs there for as little as pennies above manufacturing costs. Some are considering prices as much as 85% or 90% below the prices Americans pay, or about one-fifth of the already-discounted prices now charged in some African nations.

"It's the first time the companies are collectively willing to discuss a truly significant decline in prices," says Peter Piot, director of the United Nations AIDS Program, who has been negotiating the agreement since early April. "It is something many of us have long hoped for."

"Lowering the price of medicines, however, is only one critical factor in what must become a much broader and more urgent effort to help people living with HIV and AIDS lead healthier and more productive lives," Mr. Piot said.

Groundbreaking as the agreement is, it falls far short of a solution to the AIDS catastrophe in Africa, and it contains problems of its own. The pact may make it possible for tens of thousands of Africans, and someday maybe hundreds of thousands, to afford the drugs, yet the continent has an estimated 23 million people infected with HIV, the virus that causes AIDS. For most, even the new prices will remain too high.

Moreover, Africa has nowhere near enough of the trained medical people needed for the complex drug regimen, a failing the agreement says must be remedied. The AIDS therapy is a taxing program that must be followed to the letter; lapses risk not only a worsening of the disease in individual cases, but also the development of AIDS strains resistant to the drugs, with potentially deadly consequences for the whole world.

'Long Overdue'

"The companies' initiative is an excellent idea, long overdue," says Jose Zuniga, executive director of the International Association of Physicians In AIDS Care. But he adds: "If the offer isn't well thought-out and combined with funding to educate people about how to use the drugs or build health services to provide and monitor their use, the drugs' availability in Africa could be disastrous. These are potentially dangerous medicines."

For the companies, the initiative holds big risks. Cutting prices so deeply will expose closely guarded secrets about manufacturing costs and profit margins. This is likely to feed a clamor in the U.S. for curbs on drug prices. At the same time, companies fear that if they don't sharply cut prices for poor nations, those nations will turn en masse to generic AIDS drugs that are being produced in several countries in violation of corporate patents. Finally, the initiative holds the risk of spurring a black market in AIDS drugs.

The participants in the breakthrough drug-cost agreement are Bristol-Myers Squibb Co., Glaxo Wellcome PLC, Merck & Co., Boehringer Ingelheim GmbH and Roche Holding AG. Mindful of antitrust law, they haven't discussed specific prices among themselves but only in individual negotiations with U.N. officials.

"The companies are offering, individually, to improve significantly access to, and availability of, a range of medicines," the U.N. said in a prepared statement. "Other pharmaceutical companies have also expressed interest in cooperating in this endeavor."

Broad Effort Sought

Exact prices aren't likely to be settled upon for several more weeks. But Glaxo, for instance, has made clear it is willing to offer its Combivir for $2 a day. The company currently sells the drug in the U.S. for $16.50 a day. Combivir is a mixture of AZT and 3TC, two drugs that form the backbone of AIDS therapy. Two dollars is about one-third of Combivir's current daily cost in Uganda and one-fifth of its price in the U.S. People close to the negotiators say the company might be willing to go even lower in price. Long-term AIDS therapy often requires the addition of at least one other drug, such as a protease inhibitor, which could drive the price up to between $5 and $7 a day.

A "joint statement of intent" released by the U.N. Thursday makes clear that pricing is only one piece of the puzzle. It calls as well for new efforts in prevention, health-care infrastructure, international funding and political commitment by afflicted nations. A major obstacle to combating AIDS in sub-Saharan Africa is that many nations have been slow to acknowledge the extent of the epidemic, which has left millions of children orphaned, slashed life expectancies, swamped health-care services and crippled already-enfeebled economies.

As things stand, only the fortunate few in many developing countries have had access to modern AIDS therapy. Richard Constant Okou, 36 years old and infected since 1988, has been able to keep working at a bank in Uganda, and thereby keep paying for his children's education, because he takes daily doses of three anti-HIV medicines. "I can't afford the drugs," he says, noting his monthly salary of about $500.

Mr. Okou, who wears loose-fitting sandals because one of the drugs produces a painful nerve condition in his feet, says he regularly receives a "care package" of the drugs from a doctor in Europe he once met. Several weeks ago, he had just enough drugs on hand to last a few more days. "I just got an e-mail saying a friend will be bringing me more drugs soon," he says. "It's not very reliable."

Mindful of the tremendous need, the U.N.'s Dr. Piot and others have implored the drug industry for more than three years to cut prices. Responses before today have been spotty and individual. Pfizer Inc. recently agreed to give away Diflucan, its costly drug for AIDS-related fungal infections, in South Africa.

Bristol-Myers Squibb last year said it would donate $100 million over five years to bolster health-care services in Africa. Other drug makers have made somewhat similar commitments, but the companies haven't previously worked together on the acute affordability problem.

On Thursday, Bristol-Myers Squibb said it was ready to expand access to its antiretroviral medicines Videx and Zerit. Although it didn't announce any specific commitments, the company also said it would expand access to Megace and Fungizone, which are used to treat infections related to the disease.

What sparked Thursday's five-company response was an impassioned plea by U.N. Secretary General Kofi Annan at a special session on AIDS in December. At the meeting, Glaxo Chairman Sir Richard Sykes said his company was committed to a policy of offering "preferential" prices to poorer nations. Afterward, Bristol-Myers Vice Chairman Kenneth Weg suggested that he and Sir Richard encourage a trade group to convene a series of private talks with executives from their companies plus Merck, Roche and Boehringer Ingelheim. Following a meeting in London in early March, the five agreed on a new system of preferential pricing, and on April 3, Mr. Weg presented the idea to Dr. Piot.

Even with the new prices, the combination of three or more drugs needed to quell the virus will cost perhaps $150 or $200 a month. That's far below the $800 or so a month the combo now costs in Africa (or $1,000 a month in the U.S.). But per-capita income in Africa is less than $50 a month, and few African countries or employers pay for any health care. Even much cheaper drugs for ills such as malaria, tuberculosis and sexually transmitted diseases other than AIDS aren't widely available outside Africa's urban areas.

The Patent Issue

Many in Africa will surely see the drug companies' proposal as laudable but late and insufficient. Skeptics, especially some African governments long antagonistic to multinational corporations, are sure to view it as a cynical public-relations effort to mute the thunder of criticism in the U.S. and in poor nations over high drug prices. The action comes two months before the World AIDS Conference in Durban, South Africa, where activists have been planning noisy demonstrations to demand drug-company concessions.

One of their demands is that companies allow wider use of generic copies of their AIDS drugs. Over the past year, several African governments have threatened to buy these inexpensive generic versions, which are being produced in Brazil, Thailand and India without regard to company patents. In one dramatic example, a day's supply of AZT that sells for $10 in the U.S. is sold by generics makers in Brazil for $1.08.

One indication of the rising generic threat: The Clinton administration Wednesday reiterated a trade policy5 that would allow African nations facing health emergencies to authorize companies to make generic AIDS drugs, regardless of U.S. patents.

Enforcing patents, even in desperately poor nations, is an important component in the five companies' agreement. Several say they agreed to take part only after the director-general of the World Health Organization, Gro Harlem Brundtland, gave a January speech in which she, too, appealed to the drug companies. In an effort to "inspire" an industry response, she says, she pointedly stated that to "stimulate innovation," WHO believes drug makers'
"intellectual property rights" should be protected.

"We saw her statement as a call to action," says Per Wold-Olsen, president of Merck's Europe, Middle East and Asia operations. The joint agreement contains the same sort of promise to protect intellectual property. Mr. Wold-Olsen has declined so far to tell the U.N. or WHO exactly how much Merck will cut prices. "We have signaled that we will be flexible," he says. "We will be very flexible."

Profit Margins

The companies are reluctant to say they will price drugs at cost because doing so would reveal a coveted industry secret: that profit for these and other drugs, once research costs have been covered, can equal 90% of the prices charged. The drug makers already fear that pressure for price controls would rise with certain legislative proposals to have Medicare pay for outpatient prescription drugs. Offering much lower prices in other countries could also increase U.S. price-control pressures, they worry.

Within Africa, deep price cuts could set off a wave of other changes in health care. "With the prices so high, there was little incentive for the governments to build the health infrastructure to provide care," says James Wolfensohn, president of the World Bank, which is part of the new agreement. "The companies' offer may now stimulate that effort and inspire wealthy nations to help fund it." The World Bank has tentatively agreed to provide added grants and loans to help educate health providers and buy the medicines.

Mr. Wolfensohn says one of the biggest obstacles in Africa is that less than 5% of its HIV-infected people know their status. "How can you treat people who aren't aware they are infected?" he says. Lowering prices "is a good step forward, but it doesn't solve the problem, not by any means."

Other concerns about an influx of somewhat-more-affordable AIDS drugs in developing countries are that this could tempt corruption among government employees or produce civil protest among those unable to get the medicines. And if the low-priced drugs fell into the wrong hands, the result could be black-market AIDS medicines showing up in developed nations where prices are much higher.

Pilot Program

The companies' price pledge is likely to startle many Africans battling AIDS. Just two weeks ago, Peter Mugenyi, who runs an AIDS clinic in Kampala, Uganda, went to Geneva to press Dr. Piot to organize an international effort to lower prices and improve services. "Can you even begin to imagine," Dr. Mugenyi says, "how a doctor feels when he knows there is treatment for a merciless disease but no way to get it to your patients simply because of its cost?"

Dr. Mugenyi has been involved in a pilot program set up by UNAIDS --which is linked to both the U.N. and WHO -- to promote drug affordability. It is an effort by a small team of UNAIDS staffers who have struggled since 1997 to wrest significant price cuts from drug makers and prove that lower prices could blunt the African AIDS epidemic. Many believe this effort, led by a physician named Joseph Saba, helped lay the groundwork for the price promises now being made.

The idea actually came from a former Glaxo executive, Peter Young, who in 1996 was looking for a way to get Glaxo's AZT and 3TC into developing nations. He approached the U.N. in 1996 with a proposal: If it would make sure the drugs were used properly, Glaxo would offer them at reduced prices. Mr. Young sold the idea to his bosses at Glaxo by arguing that unless it cut prices, Africans would eventually buy large quantities of AIDS drugs from illegal generic producers, and then those patent violators, fattened by profits, might extend their sales to developed nations. That would threaten products generating about $1 billion a year in revenue for Glaxo.

A U.N. group under Dr. Saba created test programs in Uganda and the Ivory Coast. Setting up a nonprofit company and wangling funding from drug makers, Dr. Saba began bargaining for discounts on HIV drugs in return for making sure they didn't fall into black-market hands. The nonprofit company agreed to sell the drugs only to patients treated by doctors or clinics that could prove they knew how to use them.

Glitches Arise

Right off, the plan ran into problems. Doctors were flooded with requests for the drugs after UNAIDS announced the project at a news conference in Kampala in 1997. Doing so "was a very big mistake," says Dr. Mugenyi. "People came here saying they wanted the new medicines they'd read about in the papers and heard about on the radio. But we didn't have the medicines yet, and of course people didn't even understand how expensive they'd still be or that the drugs were going to have to be taken daily for the rest of their life."

It wasn't until mid-1998 that the nonprofit company got its first shipment of discounted AIDS drugs from Bristol-Myers, Glaxo, Roche and several other companies. And then, the price discounts were wiped out when Uganda devalued its currency by almost half. As a result, a three-drug combination needed to keep AIDS at bay still costs $800 to $1,000 a month in Uganda. In a country where 1.5 million people are infected, fewer than a thousand are buying the drugs from the nonprofit.

However, research by Axios, a Dublin-based drug-marketing consultant that helped Dr. Saba, suggests that thousands more could afford the combination therapy if its price fell to $100 or so a month. It's a critical point, because Dr. Saba's pilot program has come under intense criticism from international public-health providers, who argue that focusing so much effort on the enormously costly medicines is an impractical, wealthy-nation response to a poor-nation problem.

Far more Africans would benefit, this argument goes, if the continent's limited resources were used to buy low-priced drugs for sexually transmitted diseases or malaria, to improve water sanitation and nutrition and to educate people in how to avoid HIV infection. This, the critics say, could be accomplished with an influx of money supporting local healers, religious groups or the thousands of grass-roots nongovernment organizations that provide much of the social and health-care service on the continent.

"I understand that argument," says Dr. Saba, a Lebanese-born, French-trained physician who once worked for WHO in Rwanda. "But why should those who could use the drugs suffer because the drugs aren't the solution for most everyone else?"

Subsidies Sought

The companies and the U.N. hope that with drugs' prices brought somewhat closer to affordability, subsidies to help pay for them may be forthcoming from employers, African governments and donor organizations such as the World Bank or U.S. and European governments. The argument that Axios, the marketing consultant, makes to drug companies is that by lowering prices dramatically, they can spur a market for their products where one doesn't now exist.

"We've been advising the drug companies they need to do two things," says the head of Axios, Brian Elliott. "Drop the price and provide some funding to underwrite the cost of expanding health services, such as HIV testing or counseling programs, that will assure the drugs are used correctly."

Before the creation of the UNAIDS program, the few hundred people receiving HIV therapy in Uganda were those well-off enough to buy the drug abroad or people such as Mr. Okou using a wide number of creative techniques. What the UNAIDS program provides, at least in Kampala, is "reliability in access and price," says Sowedi Muyingo, who was hired by UNAIDS to be the general manager of the nonprofit company, Medical Access Ltd. "Even though the prices here are still too high for most people, the doctors who treat HIV patients know when they prescribe the drugs that we have a steady and secure supply at prices they can count on."

Indeed, the U.N. is using the Uganda project as an example of what can be done in Africa when the government, foreign-aid organizations and drug makers cooperate on a grass-roots level. And the drug companies make clear they won't offer the deeply discounted prices without assurances of a secure distribution system. To speed things along, the pharmaceutical coalition has hired McKinsey & Co. to design these types of programs for other African countries.

Mr. Muyingo -- a 30-year-old with an M.B.A., an entrepreneurial instinct and a salesman's cunning -- has turned UNAIDS' Uganda nonprofit company into an efficient, two-person operation that negotiates prices with the drug makers, imports the drugs and keeps track of every physician who prescribes and every patient who uses the medicines. He does all this out of a tiny one-room office on the second floor of a medical-supplies warehouse. One floor below, the country's entire cache of AIDS drugs sits in bins in a specially locked floor-to-ceiling steel-caged closet, its contents literally worth their weight in gold at the prices predating the coalition's new offer.

Skimping on the Drugs

One person who already is benefiting from the UNAIDS drug-access program is a shy 20-year-old called Prudence. She believes she became HIV-positive through rape two years ago by a fellow student, her only sexual encounter. In November, she learned she was infected after she began feeling weak and developed a severe rash. Prudence visited Gideon Rukundo, a 27-year-old physician at the publicly funded Mulago Hospital who only recently learned how to administer HIV drugs.

Dr. Rukundo says he would like to study in the U.S. some day to become better adept at helping his patients. Right now he treats about 21 patients with the drugs, buying directly from Medical Access, but only with cash given to him each month by his patients. Prudence began taking a three-drug combination in December, but her mother, who pays for the therapy out of her salary and savings, has said she is having trouble keeping up the payments.

"I don't want to be a burden to my mother, but I don't want to get sick," Prudence says.

Already, she has cut back to two medicines from three, reducing her mother's monthly bill by half to about $300. To stretch out the drugs, Prudence says she often takes the drugs every other day instead of daily, behavior that concerns Dr. Rukundo because it could cause the virus inside her to mutate into a dangerous, drug-resistant form. "If my patients can afford the three drugs, that's what I give them, but I have to believe two drugs are better than none," he says.

So far, the drugs Prudence takes are keeping her infection in remission, but Dr. Rukundo frets that she can't pay for a $150 test to detect if the virus is re-emerging. "Without the test, it's impossible for me to tell if the drugs are still working," Dr. Rukundo says.

write to Michael Waldholz at michael.waldholz@wsj.com_The Wall Street Journal

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Makers of AIDS Drugs RECANT in Slashing Prices in Third World _5- 21-2000



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