Patents, Prices, and AIDS in Africa: A Case StudyThe Crisis: IntroductionTreatment of HIV/AIDSIn the United States, the cost of a year’s worth of triple-combination anti-retroviral therapy is roughly $10,439 (as of May 2003). Medicaid covers the cost of care for indigent AIDS patients in the U.S., although many believe the government could do more to help low-income individuals gain access to the treatment. In Western Europe, anti-retroviral treatment is provided free of charge to anyone who needs it. Universal coverage for ARV therapy is also provided by Argentina, Brazil, Chile, Cuba, Mexico and Uruguay. However, in sub-Saharan Africa only 12% of those needing ARV therapy receive it. Although no longer facing developed country prices for ARV therapy, the cost of providing treatment to so many people is still a major hindrance to increasing coverage.The Economics of Pharmaceuticals:Supply, Demand and Market Structure in the Developed WorldDeveloping and testing a new drugPricing of drugs and market structurePrice discriminationPrices for anti-retroviral treatment in less developed countriesPatentsOn April 18, 2001, the pharmaceutical companies dropped their suit against the South African government. Whether they did so on humanitarian grounds or to end the negative publicity that threatens patent protections is unclear. Nonetheless, the November 2001 WTO meeting in Doha, Qatar produced a declaration that provided a 15-year grace period to the least developed countries for implementing the TRIPS agreement and also confirmed the rights of developing countries to use compulsory licensing to address public health issues. The key to gaining agreement at the Doha WTO meeting appeared to be the decision by Canada to break Bayer’s patent on Cipro (the one antibiotic proven effective against anthrax) and the pressure used by the U.S. government to get Bayer to lower the price of Cipro in the United States.CountryBotswanaSouth AfricaKenyaUgandaZimbabweUnited StatesPatents, Prices, and AIDS in Africa: A Case StudyAmy McCormick Diduch, Ph.D.Department of EconomicsMary Baldwin CollegeStaunton, Virginia [email protected] Crisis: IntroductionImagine a health care crisis so large that it is routinely compared to the Black Deathof the Middle Ages.Imagine a plague that threatens to drastically reduce life expectancy, reduce labor productivity, decrease national income, erode human capital and savings, and create millions of orphans. Imagine that there is treatment available to slow the spread of the plague and prolong life. Imagine that neither you, nor your family, nor your friends, nor anyone in your entire village has access to it. The scale of the AIDS epidemic in Africa is staggering. At the end of 2003, an estimated 37.8 million people worldwide were living with HIV. Approximately two-thirdsof these individuals live in sub-Saharan Africa, where 7.5% of the population is infected with HIV.1 Only the Caribbean has an HIV/AIDS prevalence rate anywhere near that of sub-Saharan Africa (at 2.3% of the adult population). North America, by comparison has an HIV/AIDS prevalence rate of 0.6%. Worldwide, almost half of all infected people between the ages of 15 and 49 are women. Life expectancy is more threatened in some countries than others. In Botswana, Zimbabwe, Lesotho, Swaziland and South Africa, more than 21% of adults are infected with HIV. In at least 10 African countries the HIV prevalence rate exceeds 10%2. In Swaziland, Zambia and Zimbabwe, average life expectancy is predicted to drop below 35years in the absence of widespread use of anti-retroviral therapy. The issues involved in containing the crisis are equally mind-boggling. HIV transmission in sub-Saharan Africa is primarily through heterosexual sexual contact. Although rates of risky sexual behavior appear to be similar to those of rich, industrialized nations, poverty, malnutrition, the status of women and poor health care combine to make heterosexual transmission of HIV more likely. Prevention requires education, better nutrition, and better health care in addition to changes in social norms. Prevention programs implemented so far appear to be successful at increasing condom 1 Data in this paragraph and the one that follows are from the 2004 Report on the Global AIDS Epidemic, available from the UNAIDS web site, www.unaids.org. UNAIDS is the United Nations program of advocacy for global action on the AIDS epidemic.2 See Appendix 1 for HIV/AIDS prevalence rates for sub-Saharan Africa as a whole.1use and reducing the annual incidence of new infections.3 Little attention to date has beengiven to the issues of poverty, nutrition, and general health care. In 2000, The UN estimated the cost of implementing a large-scale prevention campaign (including awareness, HIV counseling and testing, and promotion and supply of condoms) in Africa to be approximately $1.5 billion per year. An additional $1.5 billion per year would be needed to provide care for orphans and pain-relief for some people living with HIV/AIDS. Adding anti-retroviral therapy would cost several billion dollars more. At the end of 2003, approximately 400,000 people in low and middle income countries were receiving anti-retroviral therapy. UNAIDS predicts that an additional 5 to 6 million individuals will die in 2004 and 2005 unless they, too, receive ARV therapy. The benefits of a prevention and treatment campaign may be harder to measure but are still very large. The World Bank identifies HIV/AIDS as a development crisis.4 It is straining the social safety net due to the need to care for orphans, widows, and AIDS patients. Once a household member becomes ill with AIDS, household income is divertedtowards medical expenses and eventually funeral expenses. Moreover, when AIDS affectsa primary earner, the household loses income. Children in such households are less likely to attend school. The teaching profession is being decimated by AIDS – partly due to deaths of teachers, partly due to the need of teachers to care for family members, and partly due to the unwillingness of teachers to go to rural areas. Agriculture, the largest sector in most African economies, is losing its skilled labor force. The impact of this loss may be seen in the increase in subsistence farming and reduced investment in capital improvements. HIV is affecting industries by increasing labor costs (through greater absenteeism, turnover, recruitment and training costs), and reducing the