At the Annual Retrovirus Conference, which ended its twelfth get-together last Friday in Boston, there is always an air of optimism, as new drug discoveries are revealed, and researchers report steady progress in battling HIV, the virus that causes AIDS. But this year's mood was bleaker, amid reports of the rising prevalence of virus strains resistant to some or all of our best medicines. It is now clear that the virus, which mutates rapidly to evade our best drugs, may be gaining an advantage over the research community that's trying to fight it.

While there is ample private research into new AIDS medicines, and there are promising therapies in the pipeline, many of the biggest drug companies have scaled back the investments they once made, in lieu of other unmet medical needs with equal or better payoffs and less political risk--such as cancer, Alzheimer's and heart disease. In fact, much of the highly novel work on AIDS is coming out of the biotech industry, which is more able to take outsized risks and less prone to predatory politics. But the collective work of biotechs, however, is still no substitute for the deep resources of the big drug-makers.

Novel work is going to take on increasing importance in the coming years, and policymakers who have shown reckless regard for the costly nature of drug research had better take notice. Nearly 18 years after the first HIV drug hit the market, all of the 20 distinct medicines we have address the same three targets on the same two HIV genes. In fact, 11 of the 20 drugs target proteins that are coded for the same exact gene in HIV, called pol, making it easy for the virus to alter a single gene in its genetic code and to evade most of our best medicines.

The good news: There are nine HIV genes in all, and only one--pol--has been thoroughly picked over. Two of the other nine genes, gag and eng, have been worked on some, but the other seven remain un-drugged, giving researchers plenty of completely new turf on which to work. These include the regulatory genes named tat, rev, nef and vpr, which are all thought to regulate the speed by which HIV is able to replicate itself, and the "accessory" genes vif and vpu, which are less well understood, but believed to control its ability to infect people. Most of this novel development work is going on inside a few dozen small biotech companies with hardly household names, such as Progenics Pharmaceuticals, Tanox, and Panacos Pharmaceuticals.

Over the last few decades, in most fields of drug science, our biotech and big pharmaceutical industries have evolved a familiar symbiosis. New targets, new fields of medicine, and new development strategies are pioneered first by biotech companies. Then, after these more nimble, less risk adverse companies light the way, big drug makers follow suit with similar research efforts, or in some cases, simply swallow up successful biotech outfits. With their deep pockets and broad expertise, the big drug makers are able to finish the work that the biotechs start.

The evolution of drug development in HIV is taking a different, reverse evolution, however. The big drug makers were the first to enter the fray, and lit the way with richly funded and aggressive research efforts in the 1980s. But as some of these drug makers scaled back their operations, biotech companies stepped in and made some of the most significant achievements in recent years. While a number of big drug makers are still working on new targets as well as better versions of drugs that are aimed at the same parts of HIV as our current crop of medicines, surveys of the 28 HIV drugs in development that are aimed against completely new targets inside the virus find that small biotech companies discovered or are developing 23 of them. (See adjacent chart). The reasons for this reverse evolution in the market for new HIV drugs are manifold, but the contribution of predatory policy making cannot be ignored.

In recent years, international health groups, such as the World Health Organization (WHO), and health officials in European and African nations have sought to appropriate the patent rights to AIDS medicines, allowing generic-drug makers, such as India-based Cipla, carte blanche to flout international patent laws and produce knockoff versions of many drugs. The public health goals are noble--to make effective drugs available to impoverished people stricken with AIDS. But there are better ways to subsidize access without arbitrary threats of property seizure. Amid these challenges, being in the industry of producing new medicines for HIV has become fraught with some unusual business risks.

While most drug-makers have stepped in to make their HIV treatments available to developing countries at no-profit prices, they have not been willing to sign on to schemes that put at risk profits in first-world markets that should have the ability to fund the expensive R&D enterprise that produces these drugs. This has often put drug-makers at odds with international groups, like the WHO, which have been eager to give away today's medicines with scarce regard to what it does to the incentives that keep investment capital flowing into new development.

Biotech companies and the investors that back them already embrace outsized bets on risky markets and very early-stage science fraught with uncertainty. For these investors, political risks are a smaller measure. But for the big drug-makers, who take closer stock of the business climate, politics weighs more heavily.

While there is still plenty of profit to be made from better HIV drugs, not to mention a powerful public health mission, political risk is one more calculation considered when big companies allocate increasingly stretched R&D budgets across different diseases. And for those who believe government-funded research will fill the gap, our own National Institutes has a comparatively slim track record to the private sector, given the enormous sums it, too, has spent.

There is a model for what happens when politics invades business practices. European nations chased their big drug industry to our shores through decades of predatory policies just like those being aimed at makers of AIDS drugs. Having realized what they wrought, the Europeans are now bending over backward to coddle the burgeoning biotech companies that are growing up in the void.

For Europe, it may be too little too late. The robust life-sciences sector they squandered may be gone for good. If present policies continue around the globe, the same may soon be true for HIV drug development in the world of big pharma.

Scott Gottlieb is a resident fellow at AEI.  Dr. Gottlieb is a former senior official at the U.S. Food and Drug Administration and Medicare program, and is an editor of the Forbes/Gottlieb Medical Technology Investor.