Johann Hari: The hidden truth behind drug company profits

This is the story of one of the great unspoken scandals of our times. Today, the people across the world who most need life-saving medicine are being prevented from producing it. Here's the latest example: factories across the poor world are desperate to start producing their own cheaper Tamiflu to protect their populations – but they are being sternly told not to. Why? So rich drug companies can protect their patents – and profits. There is an alternative to this sick system, but we are choosing to ignore it.

To understand this tale, we have to start with an apparent mystery. The World Health Organisation (WHO) has been correctly warning for months that if swine flu spreads to the poorest parts of the world, it could cull hundreds of thousands of people – or more. Yet they have also been telling the governments of the poor world not to go ahead and produce as much Tamiflu – the only drug we have to reduce the symptoms, and potentially save lives – as they possibly can.

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In the answer to this whodunnit, there lies a much bigger story about how our world works today.

Our governments have chosen, over decades, to allow a strange system for developing medicines to build up. Most of the work carried out by scientists to bring a drug to your local pharmacist – and into your lungs, or stomach, or bowels – is done in government-funded university labs, paid for by your taxes.

Drug companies usually come in late in the process of development, and pay for part of the expensive, but largely uncreative final stages, like buying some of the chemicals and trials that are needed. In return, then they own the exclusive rights to manufacture and profit from the resulting medicine for years. Nobody else can make it.

Although it's not the goal of the individuals working within the system, the outcome is often deadly. The drug companies who owned the patent for Aids drugs went to court to stop the post-Apartheid government of South Africa producing generic copies of it – which are just as effective – for $100 a year to save their dying citizens. They wanted them to pay the full $10,000 a year to buy the branded version – or nothing. In the poor world, the patenting system every day puts medicines beyond the reach of sick people.

This is where the solution to the swine flu mystery comes in. Ordinary democratic citizens were so disgusted by the attempt to deprive South Africa of life-saving medicine that public pressure won a small concession in the global trading rules. It was agreed that, in an overwhelming public health emergency, poor countries would be allowed to produce generic drugs. They are the exact same product, but without the brand name – or the fat patent payments to drug companies in Switzerland or the Cayman Islands.

So under the new rules, the countries of the poor world should be entitled to start making as much generic Tamiflu as they want. There are companies across India and China who say they are raring to go. But Roche – the drug company that owns the patent – doesn't want the poor world making cheaper copies for themselves. They want people to buy the branded version, from which they receive profits. Although not obliged to, they have licensed a handful of companies in the developing world to make the treatment – but they have to pay for license, and they can't possibly meet the demand.

And the WHO seems to be backing Roche – against the rest of us. They are the ones best qualified to judge what constitutes an overwhelming emergency, justifying a breaching of the patent rules. And their message is: Don't use the loophole.

Professor Brook Baker, an expert on drug patenting, says: "Why do they behave like this? Because of direct or indirect pressure from the pharmaceutical companies. It's shocking."

What will be the end-result? James Love, director of Knowledge Economy International, which campaigns against the current patenting system, says: "Poor countries are not as prepared as they could have been. If there's a pandemic, the number of people who die will be much greater than it had to be. Much greater. It's horrible."

The argument in defence of this system offered by Big Pharma is simple, and sounds reasonable at first: we need to charge large sums for "our" drugs so we can develop more life-saving medicines. We want to develop as many treatments as we can, and we can only do that if we have revenue. A lot of the research we back doesn't result in a marketable drug, so it's an expensive process.

But a detailed study by Dr Marcia Angell, the former editor of the prestigious New England Journal of Medicine, says that only 14 per cent of their budgets go on developing drugs – usually at the uncreative final part of the drug-trail. The rest goes on marketing and profits. And even with that puny 14 per cent, drug companies squander a fortune developing "me-too" drugs – medicines that do exactly the same job as a drug that already exists, but has one molecule different, so they can take out a new patent, and receive another avalanche of profits.

As a result, the US Government Accountability Office says that far from being a font of innovation, the drug market has become "stagnant". They spend virtually nothing on the diseases that kill the most human beings, like malaria, because the victims are poor, so there's hardly any profit to be sucked out.

We all suffer as a result of this patent dysfunction. The European Union's competition commissioner, Neelie Kroes, recently concluded that Europeans pay 40 per cent more for their medicines than they should because of this "rotten" system – money that could be saving many lives if it was redirected towards real health care.

Why would we keep this system, if it is so bad? The drug companies have spent more than $3bn on lobbyists and political "contributions" over the past decade in the US alone. They have paid politicians to make the system work in their interests. If you doubt how deeply this influence goes, listen to a Republican congressman, Walter Burton, who admitted of the last big health care legislation passed in the US in 2003: "The pharmaceutical lobbyists wrote the bill."

There is a far better way to develop medicines, if only we will take it. It was first proposed by Joseph Stiglitz, the recent Nobel Prize winner for economics. He says: "Research needs money, but the current system results in limited funds being spent in the wrong way."

Stiglitz's plan is simple. The governments of the Western world should establish a multi-billion dollar prize fund that will give payments to scientists who develop cures or vaccines for diseases. The highest prizes would go to cures for diseases that kill millions of people, like malaria. Once the pay-out is made, the rights to use the treatment will be in the public domain. Anybody, anywhere in the world, could manufacture the drug and use it to save lives.

The financial incentive in this system for scientists remains exactly the same – but all humanity reaps the benefits, not a tiny private monopoly and those lucky few who can afford to pay their bloated prices. The irrationalities of the current system – spending a fortune on me-too drugs, and preventing sick people from making the medicines that would save them – would end.

It isn't cheap – it would cost 0.6 per cent of GDP – but in the medium-term it would save us all a fortune because our health care systems would no longer have to pay huge premiums to drug companies. Meanwhile, the cost of medicine would come crashing down for the poor – and tens of millions would be able to afford it for the first time.

Yet moves to change the current system are blocked by the drug companies and their armies of lobbyists. That's why the way we regulate the production of medicines across the world is still designed to serve the interests of the shareholders of the drug companies – not the health of humanity.

The idea of ring-fencing life-saving medical knowledge so a few people can profit from it is one of the great grotesqueries of our age. We have to tear down this sick system – so the sick can live. Only then we can globalise the spirit of Jonas Salk, the great scientist who invented the polio vaccine, but refused to patent it, saying simply: "It would be like patenting the sun."

j.hari@independent.co.uk

To read Johann's article about how swine flu may have been caused by our hunger for cheap meat, click here.

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