Paying for AIDS.(costs of AIDS drugs)

On Jan. 11, just after London-based GlaxoSmithKline became the world's largest drug company, its new CEO, Jean-Pierre Garnier, spoke to the company's 100,000 employees via satellite. There was the predictable pat on the back for surviving a tough merger between Glaxo Wellcome and SmithKline Beecham, impressive statistics--every minute 1,100 people receive a prescription for a GSK product--and plenty of inside jokes. But tucked in just before Garnier's conclusion was a call to arms. "The pharmaceutical industry today sells 80 percent of its products to 20 percent of the world's population," said Garnier. "I don't want to be the CEO of a company that only caters to the rich... I want those medicines in the hands of many more people who need them."

Maybe Garnier, head of the world's largest maker of AIDS drugs, was feeling the heat from the street. A growing army of activists, charities and governments are attacking European and American pharmaceutical giants--Big Pharma--over the high cost of AIDS drugs in the developing world. Last week activists from Pretoria to Philadelphia protested the opening of a trial in South Africa, where 41 major drug companies are suing former president Nelson Mandela and other government officials over a law they say threatens their patents. Last month members of ACT UP stormed GSK's investor-relations offices in New York, hurling "blood money" and empty pill bottles, chanting, "GlaxoSmithKline! Global serial killer!" And radicals aren't the only ones upset. In Britain, money manager Friends Ivory & Sime, with about [pound]1 billion invested in GSK, and other institutional investors recently met to see whether the company do more to combat the AIDS crisis in Africa. "Dare to Lead," Oxfam's new report on GSK, warns that drug companies face "a major reputation risk" over the issue. Even John Le Carre is firing shots. His latest novel, "The Constant Gardener," puts drug executives in the villain roles once reserved for Soviet apparatchiks.

Big Pharma has a big problem. In the early 1990s companies created exotic and effective combinations of drugs to stall HIV, the virus that causes AIDS. But the better the "cocktail," the more expensive. As a result the developing world--home to more than 34 million HIV-infected people, 95 percent of the global total--was shut out. Big Pharma always said poor countries didn't have the doctors to administer the complicated drug regimes and, besides, profits from selling patented drugs provide the seed money to develop new ones. But as AIDS ravaged the planet, outrage focused on Big Pharma as never before. The companies had to do something.

Last week they did. Besieged by increasing condemnation--as well as competition from the makers of generic AIDS drugs--U.S.-based Merck & Co. announced it was slashing prices on two protease inhibitors, potent cocktail components, to one tenth of their U.S. prices. The offer was soon undercut by Hetero International, an Indian generics producer, which said it would sell generic versions of the same drugs for $347 a year. Similarly, when five major companies joined a U.N. initiative to increase access last May, Garnier slashed the price of Combivir, GSK's combination AIDS drug, to $2 a day for the developing world. Then Cipla, another Indian generic firm, offered a cocktail for $600 a year. "For now, GSK's price is sustainable," says company spokesman Philip Thomson. "But it might not stick."

It is not a position Big Pharma is used to. The massive multinationals, especially the five largest firms (GSK, Merck, Pfizer, Novartis and Bristol-Myers Squibb), basically control the world's drug supply. The industry giant, GSK, has revenues of $26.3 billion a year and the largest arsenal of AIDS drugs. The challenge, as Garnier noted in his address, is to find a business model that will allow companies to increase access, make a profit and invest millions in R&D.

Technically, GSK and others can afford to write off their sales to the Third World. Africa constitutes a tiny sliver, about 1 percent, of global drug sales. But the company fears "parallel trade," drugs sold cheaply to the developing world that make their way back to higher- priced markets through back channels. It also worries that Westerners will want lower prices, too. "The developed world must be willing to pay reasonable prices for medicines in order to cover costs for developing countries," Garnier wrote Romano Prodi, president of the European Commission, last fall. "Essentially we must be allowed to generate revenue for R&D in Europe, the United States and Japan, while transferring the benefit of this research, basically for free, to the developing world."

Last week's price cuts show Big Pharma is moving--to a point. The South African lawsuit suggests that GSK and its allies are keen to protect their patents, even at the risk of looking like Scrooge. At issue: South Africa's 1997 Medicines Act. Designed to increase access to cheap drugs, the law would allow parallel importing--global comparison- shopping for drugs--and compulsory licensing, which lets companies make a drug without the patentholder's consent. South Africa's Pharmaceutical ...