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GUJHS. 2006 March; Vol. 3, No. 1
Jessica Lynn Ellis
At a time when 37.8 million people are living with HIV/AIDS, 25 million have already died of the virus (Lancet, 2005) and 14,000 more are infected each day (UNAIDS, 2004), the pharmaceutical industry is making 18% return on revenues, propelling it to the top of Fortune 500’s most profitable industries (Fortune 500, 2002). Ninety-five percent of people living with HIV/AIDS (PWAs) are living in developing countries (UNAIDS, 2004) and less than 4% of these people with AIDS are receiving the necessary antiretroviral drugs (ARVs); one third of the other 5% of PWAs, those who live in high income countries, receive the medical attention that AIDS requires.
Why is there such a discrepancy between pharmaceutical industry profits and the distribution of drugs in the face of a global epidemic? The pharmaceutical industry professes that high costs of research and development (R&D) drive up prices, but this is an insufficient explanation for the exorbitant cost of life-saving drugs in countries whose GDP is a fraction of pharmaceutical industry profits. (Usdin, 2003) Where the annual income is less than a dollar each day – the plight of more than 1.1 billion people (Sachs, 2005) – the cost of treatment is $140 annually. (Lancet, 2005) That the right to be alive depends on the ability to pay for such a right is one of the greatest ethical dilemmas of this century.
Global capitalism, the impetus for development and advancement, undeniably depends on the ability of industries to make a profit. However, the pharmaceutical industry profits, making an unreasonable profit on the sale of essential drugs during a state of emergency, by selling medicine for ten times the price needed to make a profit (James, 1999) as well as by manipulating international trade agreements to prevent other drug companies from producing generics and other nations from importing these less expensive, generic versions. Such corporate profiteering off of a global epidemic has disastrous universal implications.
The most disturbing manifestation of pharmaceutical profiteering is in the sales of ARVs, life-saving HIV/AIDS drugs, which accounted for $3 billion (U.S.) worth of sales in 2000 (Usdin, 2003). Developing countries, which are in greatest need for ARVs, account for only 10% of the global pharmaceutical market (James, 1999). This is because it is more profitable for pharmaceutical companies to develop Vicodin and Viagra for the chronic or hypochondriac aliments of the developed world than it is to produce ARVs for those who can hardly afford food. The former head of Merck explains this situation, stating that “a corporation with stockholders can’t stick up a laboratory that will focus on Third World diseases because it would go broke.” (Usdin, 2003)
The pharmaceutical industry, however, denies profiteering, instead claiming a right to intellectual capital and property rights that are protected under international WTO agreements. At a conference in Geneva in March of 1999, a pharmaceutical industry representative claimed that complaints about drug pricing from AIDS activists discouraged R&D on AIDS drugs. The Journal of Business Ethics went so far as to accuse AIDS activists of “social blackmail”. The article claims that by reducing the profit motive, AIDS activists discourage corporate innovation and entrepreneurship, thereby reducing social welfare in the long run (Miles, Munilla, Covin 2002). The rationale behind the concept of reduced welfare due to “social blackmail” is that “greed is a basic requirement for the success of a market economy. Competition, encouraged by greed, leads to more and better marketing mixes through entrepreneurship and innovation. In economies where profit is discouraged, there is less for everyone.” (Miles, Munilla, Covin 2002) Thus, pharmaceutical industry giants maintain that high drug costs, the product of high R&D costs, are not only inevitable, but should be protected by government mandated trade agreements.
The first argument, that the price of R&D justifies the high cost of drugs, is fallacious for two reasons. The first is that pharmaceutical companies spend more than twice as much on marketing than on R&D, and therefore, lowering prices would affect corporate profits, marketing and compensation, but not R&D (Usdin, 2003). Secondly, because the US federal government funds 38% of health care research, the private sector does not bear the burden of much of the costs for R&D (Usdin, 2003).
The second argument, that international trade agreements validate the pharmaceutical industry’s inflated profit margins, is based on a selective interpretation of World Trade Organization agreements, specifically the Trade Related Aspects of International Property Rights (TRIPS) Agreement. The TRIPS Agreement contains the strategically overlooked Doha Declaration, which states that individual countries have a right to claim a state of emergency, necessitating compulsory licensing and parallel importation (WTO). Compulsory licensing is the government issuing of a license to produce a patented product for primarily domestic use without the permission of the original patent holder (WTO). Parallel importation is the importation of medicines from countries other than that of the manufacture for lower prices (WTO). Both practices make life saving drugs for AIDS more affordable, but, the industries contend, are a violation of their intellectual property rights and are therefore a source of lawsuits and threats of government sanctions.
The United States government is a strong proponent of sanctions based on contentions over compulsory licensing and parallel importation. The pharmaceutical lobby in the US is one of the most prolific and well-funded lobbies. There is one pharmaceutical industry lobbyist for every two members of congress and the lobby spends about $75 million (U.S.) each year to pressure Congress and the President to support their cause (Usdin, 2003). Therefore, the United States government, “has sided completely with the large pharmaceutical companies, and used its economic powers and diplomatic influence to coerce countries around the world to prohibit even the limited relief allowed by international treaties.” (James, 1999) With the support of the United States government, pharmaceutical industries are able to price gouge despite reasonable pricing clauses and prevent the production of generics despite the Doha Declaration.
By the late 1990’s the competing interests of the pharmaceutical industry backed by United States political power and of developing nations with large populations of AIDS victims created international tensions. For example, in 1998, following the Southwest Asian monetary crisis that left Thailand financially crippled, the United States threatened to increase tariffs on Thai wood and jewelry imports when Thailand used compulsory licensing to produce a generic of the antiviral drug dd1 (Usdin, 2003). The United States involved itself on behalf of the pharmaceutical industry again in 1999 when extensive talks over trade sanctions with South Africa resulted in a repeal of the 1997 amendment to South Africa’s Medicines and Related Substance act of 1965 which had allowed compulsory licensing and parallel importation (James, 1999). The New York Times documented this dispute, saying, “A coalition of American, European and other pharmaceutical companies have challenged the law in South African courts, saying it infringed on their pharmaceutical patents. The most contentious parts of the law involved two provisions to lower the price of AIDS drugs…parallel importing [and] compulsory licensing. The World Trade Organization allows both practices under certain conditions, but the pharmaceutical companies, backed by the Administration, opposed them.” (Myers, 1999) The result of the pharmaceutical industry’s financial and political leverage is a dearth of life saving ARVs where they are needed most.
Recently, countries ravaged by the AIDS epidemic and restricted by the economic inequalities advantaging pharmaceutical industries and sanctioned by first-world governments, are fighting back. For example, the Indian pharmaceutical manufacturer, Cipla, produces generics for $1.74 (U.S.), thereby forcing Glaxo, the patent holder, to reduce its price from $16 to $2 (U.S.). By insisting on parallel importation, Brazil spent $300 million (U.S.) on ARVs for its PWAs, thus saving $670 million (U.S.) over three years by reducing hospital stays, decreasing transmission rates and maintaining its workforce. (Flynn, 2002)
These data imply that enabling compulsory licensing and parallel importation as sanctioned by the Doha Declaration would alleviate much of the economic stress of the AIDS virus and circumvent the moral inequalities that arise. Not only would less stringent international drug laws alleviate the moral burden of AIDS, but they would also lessen the economic hardships AIDS poses. The AIDS epidemic is a financial drain on already struggling third world economies as countries contend with health care costs and the challenge of a declining work force.
Moreover, the treatment of AIDS is a moral imperative that should transcend economic divisions. Edwin Cameron, an HIV positive constitutional court judge in South Africa articulates this, asking, “why should I have the privilege…when 34 million people in the resource poor world are falling ill, feeling sick to death, and are dying. That to me…seems a moral inequity of such fundamental proportions that no one can look at it and fail to be spurred to thought and action about it…it is something that the developed world also cannot accept.”(Usdin, 2003) The assistance necessitated by third-world poverty and disease is the most divisive and imminent challenge of a world driven by profit and one that merits not only further debate, but more importantly, action.
Doug Blackburn, World Vision Canada Global Education Department, http://www.worldvision.ca/home/media/temp/HIVAIDSTopicPages.pdf, accessed 4/26/ 05
Flynn M, ‘Cocktails and Carnival’, New Internationalist No 346, June 2002.
Fortune 500. http://www.fortune.com/fortune/500archive, accessed 4/26/05
James, J. S. ‘New Frontier of AIDS Activism: International Trade Rules and Global Access to Medicines, Interview with Eric Sawyer, HIV/AIDS human rights project’. AIDS Treatment News Issue #317, 1999.
The Lancet, ‘Health and poverty: a new Marshall plan?’ Editorial comment. Volume 365, page 267, 2005.
Miles M.P, Munilla L.S., Covin J.G. ‘The Constant Gardener Revisited: The Effect of Social Blackmail on the Marketing Concept, Innovation, and Entrepreneurship’. Journal of Business Ethics Vol. 41, no. 3 pp. 287-295. December 2002.
Myers, S. L. ‘South Africa and U.S. End Dispute Over Drugs’, The New York Times, September 18, 1999.
Sachs, JD. The End Of Poverty. Penguin Press. New York 2005, p. 20.
UNAIDS. 2004 Report on the Global AIDS Epidemic, July 2004.
Usdin S. The No-Nonsense Guide to HIV/AIDS. Pg. 86-111, 2003.