An HIV Balm in Gilead

HIV patients in Tanzania are as hooked on the World Cup as the rest of the continent. My companion in front of a restaurant television, 35-year-old electrician Abasi Mkapa, was impressed by the German performance against Australia and had views on who might win the Cup. All very normal except that without modern drugs, and the largesse of U.S. and European taxpayers, Mr. Mkapa and two million other HIV-positive Africans would not be well enough to shout at their televisions for each missed goal opportunity.

Antiretroviral HIV drugs are still relatively expensive and most African patients very poor. The recession has added budgetary pressure to assistance programs, so fewer people will be treated this year and next than previously predicted. There are still disputes between drugmakers, and tensions between governments and donors. But by and large the situation has improved markedly.

The hope of today is a far cry from the despair of a decade ago, when GlaxoSmithKline (the world's second largest drug firm) and 41 other Western companies making HIV drugs sued the South African government for importing patent-breaking copies of their products from India. Fewer than 10,000 people were being treated on the continent at the time, and the pharmaceutical giants' corporate lawsuit was ill-advised--a public-relations disaster ensued. But the plaintiffs did have a point in that many of the drugs being produced in India were of sub-standard quality.

Today the HIV drugs coming out of India not only pass the required quality controls set by agencies like the U.S. Food and Drug Administration, but are often nearly identical to originator brands.

Improvements are due in part to the innovative licensing agreements arising between some Western and Indian drug companies. These agreements have held even though the governments of India, Thailand, and Brazil continue to threaten Western drug companies with loss of patent protection if they do not lower their prices. The best producers have found a way of moving beyond this confrontation, and are increasing access to good quality medicines regardless of myopic governmental failures.

The phenomenon is well-illustrated with the example set by Gilead Sciences, a biopharmaceutical company based in Foster City, California. Gilead's drug Viread, known generically as Tenofovir Disoproxil Fumarate (TDF), is arguably the best HIV drug available, and has become the standard of care worldwide.

Indian producers of generic drugs have historically struggled to maintain consistent, high-quality production standards, which are vital to winning the large pharmaceutical contracts for Africa from donors like the U.S. government and the Global Fund.

When Gilead was originally denied a patent in India in 2008, it nonetheless continued negotiating deals with over a dozen Indian companies to make TDF. The model is simple: Gilead retains its innovator patent rights in rich countries, but helps Indian companies make TDF to sell in the poorest countries, in return for a 5% royalty payment. Gilead's most successful partner is Matrix Laboratories of Secunderabad, in the central Indian state of Andhra Pradesh. In 2009, Matrix sold more TDF than Gilead, producing treatments for over 420,000 patients in 35 countries, mostly in Africa--a staggering outcome that would have been unthinkable just five years ago. Matrix's production costs are about half those of Gilead, which allows the company to make a profit at a far lower price--around $7 (€5.66) per month per patient, compared with Gilead's $16.

One may wonder why Matrix pays royalties (totalling nearly $2 million dollars in 2009) to Gilead, since the company has no patent protection in India. But as we have seen, Indian producers of generic drugs have historically struggled to maintain consistent, high-quality production standards, which are vital to winning the large pharmaceutical contracts for Africa from donors like the U.S. government and the Global Fund. With this licensing agreement comes Gilead's promise of technology transfer. Matrix was therefore able to achieve a tentative U.S. Food and Drug Administration approval for its TDF within five months, and its product was also cheaper than companies that had not signed with Gilead. Vitally, Matrix will benefit from any new development of Viread made by Gilead, so it continues to pay royalties happily.

Gilead's approach does not resolve all pharmaceutical disputes between the U.S. and India, but it certainly increases Third World access to medicines; that's the stated aim of many Western companies, but few have actually achieved it. The arrangement also provides Gilead with a small sustainable profit from developing-country markets, and this profit is expected to increase over the next decade as these economies and drug markets grow.

For Matrix, working with innovators has increased sustainable profits and opened new markets. Other manufacturers based in India, such as Hetero Drugs, Ranbaxy and Aurobindo Pharma are following suit. Elsewhere, licensing agreements between GlaxoSmithKline and the South African-based generics firm Aspen Pharmacare are also having some success; one hopes the trend accelerates. After all, making new drugs is not enough; we also need new ways of licensing those products for private benefit and the public good. The advantages are clear--especially for patients like Mr. Mkapa who can now worry about whether an African team will win the World Cup, rather than worrying if he will live to see it.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

Photo Credit: Tom Grill/Corbis.

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