Ed Note: On Tuesday, 10:00 a.m., the US Senate Subcommittee on Primary Health and Aging will hold a hearing on the high costs/prices for HIV/AIDs Drugs and the Prize Fund Alternative.  The hearing will be carried on CSPAN 3; view here.

With the costs of treating HIV/AIDS exploding from patents and anti-competitive drug pricing, there is a need for alternative means to support R&D while lowering the costs of treatment.  One alternative proposed by Senator Sanders is a Prize Fund.  Witnesses include Harvard Law’s Lawrence Lessig (see testimony here) as well as KEI Director James Love, Joseph Stiglitz and others.  Below are excerpts from the first half of prepared testimony of James Love. The full text with tables is available here (pdf).

The de-linkage of R&D costs and drug prices through the Prize Fund for HIV/AIDS will cost less, expand access, accelerate and improve innovation, and replace an incentive system that is expensive, inefficient and unsustainable

Testimony of James Packard Love

My name is James Packard Love. I am pleased to testify today in support of S.1138, the Prize Fund for HIV/AIDS.

I am the Director of Knowledge Ecology International (KEI), a non-profit organization that is concerned with the management of knowledge and human rights.    A significant part of our work focuses on the development of and access to new medicine technologies, including in particular new medicines, vaccines and diagnostic devices. . . .

Since 1994, I have worked on both domestic and international aspects of these issues.    Since 2000, I have been a consultant, advisor or expert for the World Bank, the United National Program on Development (UNDP), the World Health Organization (WHO), UNITAID, the UN Human Rights Council, the World Intellectual Property Organization (WIPO), the Global Fund for HIV/AID, Tuberculous and Malaria (TGF) , regional intergovernmental bodies including the European Parliament, the European Patent Office (EPO), the African Union (AU), and several national governments and NGOs.    I am the U.S. Co-chair of the Trans Atlantic Consumer Dialogue (TACD) Policy Committee on Intellectual Property, the Chairman of Essential Inventions, the Chairman of the Union for the Public Domain, and a member of a number of committees, and task forces, such as the 2.3(c) Committee (to implement paragraph 2.3c of the WHO Global Strategy on Public Health, Innovation and Intellectual Property). . .

The Current and Looming Crisis in the Market for New Drugs for HIV/AIDS

My earliest work on treatments for HIV/AIDS drugs was focused on the pricing of AIDS drugs in the United States, including cases where the United States government had played an important role in funding the research and development. One insight was that the pricing of drugs invented with extensive public support was at least as aggressive as the pricing of products developed without such support, and indeed, often the government supported inventions were more expensive.    Another insight was that the pricing of a product had almost no relationship to actual private sector outlays on research and development for that product, or to its costs of manufacturing.    In the absence of competition, typically due to some type of government enforced monopoly such as the exclusive rights associated with patents, orphan drug designations, pediatric testing, or regulatory test data reliance, prices were set according to the seller’s perception of the patient’s willingness to pay. . . . In the United States, after 1996, when effective three drug antiretroviral therapy (ART) was first introduced, the number of AIDS related deaths plummeted.    With fewer deaths and but thousands of new infections each year, there was a steady rise in the number of persons living with HIV, which today the Centers for Disease Control and Prevention (CDC) estimates to be more than 1.2 million persons in the United States.

[Table omitted]

At present, CDC estimates there are roughly 50 thousand new infections per year, many of them relatively young, and 16 thousand AIDS related deaths.    Depending upon assumptions regarding deaths from other causes, the number of persons living with HIV continues to grow by several thousand per year.

The Cost of Antiretroviral Drugs 

[continued]

Since 1987, the FDA has approved 25 new molecular entities in six classes of antiretroviral drugs, or roughly one new product per year. These drugs are normally taken in 3 or 4 drug combinations, according to the relevant treatment guidelines. Over time, patients may develop resistance or suffer from the side effects of a particular regime. Given the advantages of some of the newer drugs, and the continued monitoring of treatment, the standard of care is periodically revised.    Some of the older AIDS drugs have gone off patent, and are available from generic suppliers, but as the standard of care has evolved, there is a focus on the newer drugs that are still protected by patents or other intellectual property rights.
For US consumers, the cost of commonly used AIDS drug regimes has increased significantly. In 2000, the combination of d4T+3TC+NVP was available at just over $10,000 per year. Today the four recommended regimes for treatment naive patients range have an average wholesale price of $25 to $35 thousand per year, and “salvage” regimes for patents that have developed resistance to several drugs are often far more expensive.

[Figure omitted]

In the United States, the leading HIV drug Atripla (TDF/FTC/EFV) sells for more than $57 thousand dollars per formulated kilo of active pharmaceutical ingredient (API).    Pfizer and GSK’s sell Maraviroc in both 150 and 300 mg tables, for the same price. Depending upon the dose, the price ranges from $63 thousand to $126 thousand per kilo of API.    J&J’s drug rilpivirine is sold for $9,653 per year in the United States, or $1.058 million per formulated kilo of API. In contrast, outside of the United States, the best prices for the most commonly used generic AIDS drugs are between $212 and a $1,101 per kilo of API.2    If rilpivirine, a drug with a daily dose of only 25 mg per day, was available from competitive suppliers as a generic drug in large quantities, it would likely be available for less than $10 per year from manufacturers.

With efficient procurement and distribution, it would not be difficult to obtain generic supplies of many AIDS drugs from manufacturers for one to three percent of of the US prices, or less than $1,000 per formulated API.

[Table 2 omitted: US Wholesale price versus MSF best global generic price]

Lack of Price Competition in the US

Even with the extensive intellectual property rights protection in the United States for antiretroviral drugs, one might expect more price competition, particular for similar drugs within the same therapeutic class, available from eight different manufacturers. The US FDA has approved eight Nucleoside Reverse Transcriptase Inhibitors (NRTIs), eleven protease inhibitors (PIs), five Nonnucleoside Reverse Transcriptase Inhibitors (NNRTIs), and drugs in three new classes of drugs (fusion inhibitors, entry inhibitors – CCR5 co-receptor antagonists, and HIV integrase strand transfer inhibitors). Even though these products have medical differences, there is enough similarity and substitutability to expect some price competition, but prices are still quite high, and have increased over time, despite the growth of registered products and the expiration of patents for some older products. There are several explanations for the paucity of price competition among manufacturers, including the fact that end users are often insulated from price differences by third party reimbursement agents, and because the medical differences can be important for some patients, and it is unwise to frequently switch drug regimes, among and between classes of antiretroviral drugs. However, another reason is that there is a great deal of collusion between drug manufactures, both for AIDS drugs and treatments for other diseases. BMS, Gilead, Merck, Pfizer, J&J, GSK and Abbott all cross license products from each other. Pfizer and GSK recently combined their HIV products to be managed by ViiV Healthcare. For several products, global rights for the same drug are split among companies in different parts of the world. For example, BMS sells EFV in the US as a standalone product under the brand name Sustiva, and combines EVF with two other drugs in Atripla, a combination product sold by Gilead. Merck sells EFV outside of the United States under the brand name Stocrin. Roche sells Viracept in Europe, and ViiV sells the drug elsewhere, including in the United States. The fixed dose combination Complera includes rilpivirine, a J&J product, with the Gilead drugs TDF and FTC. GSK and Gilead have an agreement to commercialize TDF for chronic hepatitis B in several Asian countries. Abbott, Pfizer, GSK and Merck recently announced various collaborations to develop diagnostic tests for cancer. These are just a few of the cross licensing and marketing agreements between the companies that “compete” in the US antiretroviral market.

. . .

At present, the USA faces a growing crisis in treatment for HIV/AIDS, and it is directly associated with the intellectual property right system. What was once a relatively small population of persons with a “rare” disease is now a health condition for more than 1.2 million persons. As the population of persons living with HIV grows, and the prices for products rise, patient face increasing barriers to access, and society as a whole finds harder to bear the cost.    It is highly unlikely that the US will achieve adequate coverage of patients, at best standards of care, unless we try something radically different.

[Testimony continues with evaluation of The HIV/AIDS Prize Fund Approach

The HIV/AIDS Prize Fund Approach is a radical change from the existing system, and for HIV/AIDS, that is a good thing. By de-linking R&D costs from drug prices, the Prize Fund makes it possible to eliminate price sensitive drug formularies and other ADAP cost-containment measures, dramatically reduce the burden on employers and others who pay for AIDS drugs, and make the new “treatment as prevention” strategies feasible. The Prize Fund would also dramatically reform and improve the economic incentives for drug developers, including by providing new incentives to open source and share research on new treatments for AIDS. . . .

[Testimony continues with discussion of Prize Fund history, design and description]