by Leah J. Rosin

In the news and around the water cooler, people are talking about the price of health care and prescription drugs. In October 2003, industry leaders, scholars, lawyers, and students gathered at Santa Clara University in Santa Clara, CA, to discuss those topics at the conference, “The Future of Pharmaceuticals: Legal and Ethical Challenges.” The conference was cosponsored by the Santa Clara University School of Law’s High Tech Law Institute and the Markkula Center for Applied Ethics.

Large pharmaceutical companies are often criticized by those concerned about poverty and disease in developing countries. The debate centers on pharmaceutical pricing and impediments to patient access to therapeutics. At the conference, the ethics of pricing and distribution of drugs was the focus of many questions from audience members and speakers.

Ethical pricing
Dr. Manuel Valasquez, professor of business ethics at the Santa Clara University Leavy School of Business, presented the idea that three ethical values should be dealt with in a conversation about pharmaceutical pricing: utilitarian values, the idea of justice, and the concept of rights.

Utilitarian values now drive the drug companies, argued Valasquez. Under current practice, patent protection is used to secure higher prices to garner revenue for future development. Valasquez asked whether it would be possible for drug companies to shift revenue from marketing and profits and put more into research and development. He pointed out that the profitability of the ten largest drug companies in the world in 2001 was eight times the median of all Fortune 500 companies (1). With such huge profits, he argued, couldn’t some of it be shifted into research and development so the price of drugs could be lowered for greater access and distribution?

The Idea of Justice: Valasquez also examined the percentage of revenue spent on marketing pharmaceutical products. By reducing the amount spent on marketing, companies would have more to spend on research and development, and less would need to be charged to consumers to compensate for development costs. Currently, pharmaceutical companies devote up to 30% of revenues into marketing, and only 17–20% of revenue dollars go to research and development. He asked whether this system is just and argued that those numbers could be flipped, requiring less money to be charged to consumers to fund future research and development efforts.

The Concept of Rights: Under the current economic system in developed countries, drug companies are reaping large profits, and patients are being stuck with the bill. However, in developing countries many potential patients do not have access to therapeutics at all and are suffering from disease without reprieve. Valasquez asked, Is this just? Are the human rights of those people being respected? Are the world’s resources being shared equally, and are the benefits and burdens being shared by all? He argued that human rights should outweigh property rights. We have created the concept of patents and the associated rights, said Valasquez. But human rights are not an invention.

Another problem, said Valasquez, is that US and European drug companies have sued companies in developing nations to stop them from manufacturing drugs that are covered by patents. He cited the example of a drug (Combivir) used to fight AIDS that was sold for US$10,000 per dose in the United States by GlaxoSmithKline (GSK, www.gsk.com). Cipla (www.cipla.com), an Indian pharmaceutical company, produced the drug and sold it for $197 per dose in South Africa. GSK filed a lawsuit against the South African government charging that it was infringing GSK’s patent by purchasing Cipla’s copy of the drug. That suit was decided in favor of South Africa in April 2001. GSK lowered its South African market price for the disputed drug to $273 per dose in October 2003.

Valasquez argued that the Indian company was never competing with the European manufacturer because no market for a $10,000 per dose drug exists in South Africa. Seven Africans die every minute from AIDS, and the privileged populations of the world cannot afford to say that property rights or profits are forcing them to stand by idly and watch it happen.

Big pharma’s perspective
Dorothy Ouchida, western regional senior manager of alliance development for Pfizer Inc., presented a pharmaceutical company perspective on the same issues. Ouchida agreed that the pharmaceutical industry has great social value. However, she said, company decisions are driven by the movement of the industry and economic considerations. Ouchida argued that researchers in the pharmaceutical industry don’t have a higher obligation to help people than those who research other things such as plastics, combustion engines, or wood products. With the high risks they face in research and development and markets, Ouchida said drug manufacturers need to charge high prices to return a profit to their investors. Also, she pointed out, patent protection does not last as long as drug companies would like because of the time required for FDA approval.

The cost of manufacturing drugs has risen dramatically during the past 10 years. The average cost of bringing a new drug to market is now between $800 million and $1 billion. Ouchida argued that if a company puts that much money into developing a drug and then a generic company produces it without owning any of the up-front costs, the innovator company loses out. Companies have no incentive to develop new drugs, she said, if it is impossible to make a return on their investment.

Other problems with incentives were presented by Leighton Read, general partner at Alloy Ventures, who pointed out that many companies simply aren’t willing to invest in drugs to fight malaria, tuberculosis, and AIDS because they know they won’t be able to get a return on their investment. “If we lower the profit margins, we’re going to get less innovation,” said Read. “Big companies aren’t going to invest in biodefense unless there’s a market.”

Many conference attendees agreed that incentives have to exist for companies to develop new drugs. The problem is distributing the drugs to everyone in need of them within the current market system.

Fixing the system
The current system is controlled by the amount of time (10–15 years on average) and the associated costs needed to get a drug to market. This is largely due to the lengthy and intense FDA approval process. Daniel Klein, professor of economics at Santa Clara University, has researched the FDA and created a website to explore the review process and its effect on the pricing of pharmaceuticals. Klein argues that the FDA is too restrictive and that thousands of people have died because drugs weren’t approved expediently. Klein cites the example of beta-blockers, which were approved for use in Europe almost 10 years before their approval in the United States. The FDA errs on the side of caution, said Klein, protecting US consumers from side effects and potential harm but also postponing effective treatments from becoming available to those who need them.

The FDA isn’t the only part of the system that needs fixing, according to a panel discussion at the conference. Patent laws were also a contentious issue. Cathryn Campbell, an attorney with McDermot, Will & Emery, spoke about the importance of patents to protect intellectual property, but she also pointed out flaws with the antiquated patent system in the United States. Campbell argued that patent laws were not created for the drug manufacturing industry but for inventions such as the bicycle and the automobile. Campbell discussed problems with biotech patents and what is actually being patented. In biotech, most patents relate to innovative technologies, not the products themselves. That kind of patent protection was not part of the initial intention or design of patent law, but the law hasn’t changed to reflect new needs and technologies.

If the FDA and the patent system are slowing access to potentially lifesaving drugs, what can be done? Read suggested that the FDA not be able to affect the ability of a person in a developing country to have access to a drug. “People in sub-Saharan Africa should be able to get drugs that have not yet been approved by the FDA but that have been proven in trials to treat the disease,” said Read. “We should let the individual countries analyze the risk to their own people.”

A single solution?
Participants at the conference discussed several solutions to problems of pricing and access, including the Bill and Melinda Gates Foundation’s purchase of $1 million worth of malaria drugs to distribute in developing countries. The Foundation was able to pay the manufacturer a fair price, and the drugs were distributed to people who otherwise would not have had access to them.

With that example in mind, audience members at the conference suggested that a charitable organization, or possibly the US government, could buy the patents for certain drugs with life-saving potential at a fair price to the manufacturer and then allow any capable company to manufacture the drug, including the original developer. That would provide incentive for the researching company but also provide the competition necessary to bring a life-saving drug to those who need it at the lowest possible cost.

Bob Armitage, vice president and general counsel at Eli Lilly, said that the problem must be shared by everyone. No individual company or industry is responsible for the welfare of the entire world population. But if we are individually outraged, we should use that to find solutions rather than point fingers.

Continuing the conversation
The conference is over, but organizers hope the conversation will continue. Human suffering continues in developing nations around the world, and that suffering must be addressed. In the afternoon session of the conference, the Markkula Center for Applied Ethics produced a video: a case study that examines the tensions between intellectual property protections afforded the pharmaceutical industry and the ethical responsibilities of the industry in the face of epidemics in the developing world such as HIV/AIDS and SARS.

The video is being distributed to other colleges and universities so that other students may join the conversation and become educated about the problem. There is no simple solution, but no one can afford to ignore the problem. Justice and human rights must be — and can be — addressed. Bob Armitage encouraged audience members to ask themselves: What can I do? It’s a question worth considering.

References
1 Public Citizen. Pharmaceuticals Rank as Most Profitable Industry, Again. Public Citizen’s Congress Watch. 17 April 2001.

Leah J. Rosin is assistant editor of BioProcess International.