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Can drug giants swallow this bitter pill?

Time:2018-04-30 15:05Turbochargers information Click:

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The world's biggest pharmaceutical companies could face a double crisis over the future of Aids treatments in the wake of the Brazilian government's decision to break an HIV drug patent.

Last week, the Brazilian health minister, Jose Serra, ended six months of price negotiations with Roche by announcing plans to produce its own version of the Swiss company's patented Viracept drug.

Although Roche was offering to sell the Aids drugs at less than half the prices it charges in the US, the discount was not enough. Brazil has issued patent-breaching threats during past negotiations with Roche, Merck and GlaxoSmithKline, but this represents the first time it has carried them through. The government's programme for fighting Aids has so far been a great success, but the funding coffers are running low and the public is beginning to fear that the drive will soon run out of steam.

Now industry analysts are worried that the Brazilian government's strong stance could spark a revival of the big Aids drugs debate that bubbled over earlier this year when a group of 39 pharmaceutical companies tried to sue the government of South Africa. That situation eventually blew over, but severe problems are still there.

What causes investors particular concern is that the Brazilian government justified the patent breach by declaring the country's Aids crisis a national emergency. Although other countries, including South Africa, have so far steered clear of this route, it could now be only a matter of time before other governments in Africa and Latin America follow suit. Many African countries could justify calling a state of national emergency as HIV continues to sweep the continent. Nomura pharmaceuticals analyst Richard Jarvis said: "The danger with lots of countries breaking patents is not so much the immediate hit to sales – GSK and Roche both know that most of the money is made in the US, Europe and Japan – but the loss of market control."

The move by Brazil raises the spectre of one or more countries copying drugs efficiently enough to start selling the duplicates elsewhere around the world. Although such sales to developing countries would hurt the pharmaceutical companies, even more alarming is the prospect that products could reach developed countries and be sold through grey or black markets. Most analysts identify India as presenting the biggest threat of commercial-scale copying operations.

On this front, both Roche and Britain's GlaxoSmithKline are heavily exposed. As leaders in the field of Aids inhibitor drugs – Glaxo has six on the market – both companies have spent more than £2bn each bringing treatments to commercial maturity. To make the research pay for itself and then bring in profits, the groups have to rely on carefully made sales projections. "As soon as these start being eroded, the companies face serious difficulties," said Mr Jarvis.

The financing of Aids research has become one of the drugs companies' big stumbling blocks. Because the killer disease creates such an obvious division between wealthy nations that can afford treatment and poor ones that can't, people have begun attacking the whole idea of intellectual property rights where Aids is concerned. If pharmaceutical companies cannot fully profit from their research, it makes the whole process of research seem redundant. Brazil's decision "is not going to be conducive to future research in HIV", said Robert Hazlett, an analyst for Robertson Stephens.

Although the South African legal wrangle severely tarnished public opinion on the drugs companies, the likes of Glaxo and Roche insist that their concerns are more than just financial.

"The use of combination HIV/Aids treatments in developing countries is a massive challenge," said a Glaxo spokesman. "We have to recognise that the virus can become resistant to these medicines if the treatment regimen is not strictly followed. If we are to combat HIV/Aids successfully we have to make sure that our medicines are provided to patients in conditions where they can be appropriately treated."

Governments such as Brazil's and South Africa's run the added risk of raising public hopes too far. By taking a globally high-profile stand against the drugs companies, those administrations create the hope of a reduction in the Aids problem that drugs alone cannot achieve.

The big pharmaceutical companies are now desperate to work out a way to profit from their Aids drugs without setting off more political mines. Analysts believe the companies are likely to abandon their "one drug, one price" strategy.

As one analyst explained: "The industry is just going to have to get its head around the idea of companies charging a range of different prices around the world."

Can drug giants swallow this bitter pill?

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