The Boys From Brazil

This article first appeared in the Wall Street Journal on February 25, 2002.

Johannesburg - It is a decision that will be hailed by many. Medecines Sans Frontiers, Treatment Action Campaign (TAC) and the Congress of South African Trade Unions have announced that they will break South African law to import generic versions of AIDS drugs to South Africa from Brazil.

A bold decision, certainly. But not a wise one. While the South African government is squabbling internally and dragging its feet about whether it should supply antiretrovirals to HIV-positive pregnant women and rape victims, TAC, the AIDS activist group known also for its crusades against property rights, is lauded for at least doing something.

While a lucky few will benefit from TAC's headline-grabbing move, the health of many will be compromised long into the future. MSF Brazil purchased the drugs from FarMaguinhos, the Brazilian government's drugs producer, at greatly reduced prices. FarMaguinhos manages to keep the prices rock bottom because they never had to bother with any of the expensive research and trials that went into making the various drugs -all they had to do was reverse engineer the final product and voila.

FarMaguinhos is supposed to be using the revenues from the MSF sale to fund research into AIDS and other developing-country diseases such as malaria. But the low prices at which these generics are sold should prompt skepticism about this claim.

A recent study by the Tufts Center for the Study of Drug Development estimates that a drug company typically spends over $800 million to bring a new medicine to market. One has to wonder how much meaningful research and actual drugs will be produced by the Brazilians from the sale of cut-price ripoffs to the NGO sector. But suppose FarMaguinhos did produce a magical new cure for malaria or dengue fever.

Do you suppose they would give it away for next to nothing, as they are doing now with others' discoveries? I would wager that they would instead change their stance on intellectual property rights. The prospect of the Indian generics producer Cipla, for example, reverse engineering the Brazilian innovation after years of expensive research would change their view faster than you can say patent office.

Even in the unlikely event that FarMaguinhos does give its future inventions away for free and I lose my bet, how would the company fund more research? I suppose it could always just copy and sell someone else's hard work to raise money for its next miracle. It is precisely this kind of double-morality -- a disdain for property rights in name of supposedly helping the sick -- that is discouraging innovation in this sector.

The patent-protection regimes in the developed world are a compromise between the need for innovation and the need for competition, providing a limited period of monopoly control over the intellectual property. The recent moves to undermine that compromise in South Africa and elsewhere are destroying the incentive to innovate in AIDS treatment.

According to Pharmaprojects, an independent research group, the number of antiretrovirals in development rose steadily from 1990 to 1998, but since the recent anti-pharma campaign has fallen back to 1990 levels. When drug companies develop a new cancer treatment, they are lauded as heroes, but when they devote millions to HIV research, they are accused by AIDS activists of having "blood on their hands."

No wonder, then, that while studies into other diseases are increasing, investments in HIV research are being cut. Cosatu, the trade-union congress, stands by the South African government and supports its view that patent rights should not be used to deny people access to drugs. This, despite research by Amir Attaran from the Harvard Center for International Development that demonstrates that in Africa, patents are not blocking access to drugs, but that the problem is poverty and lack of infrastructure.

Undeterred, Cosatu goes on to say, "the vested interests of multinational pharmaceutical manufacturers" must not be used to stop drug access. The trade unions seem to be fine with the vested interests of the Brazilian generics manufacturers being served, but can't find it within them to spare a thought for the companies that spent untold millions inventing the drug in the first place. TAC routinely calls for greater competition within drugs manufacturing so that the lowest possible prices can be achieved.

Competition is all well and good, but there are certain important rules that apply. Protecting private property in a competitive free market is one of the most fundamental; otherwise the TAC version of competition just becomes sanctioned theft. Since when is that competitive? No matter how much the activists and trade unions benefit from the innovative research done by the major drug companies, they have a great deal of difficulty in coping with the systems and institutions that made that research possible.

Inventors and innovators in developing countries understand it well. As Margalit Edelman showed in her study on intellectual property for the Hispanic American Centre for Economic Research, inventors from India, Egypt, Argentina and a range of other developing countries all chose to patent their inventions in the U.S. because of the strong degree of protection that they would be afforded there.

As poverty is the main problem in drug access, surely the best long-term way of dealing with the problem is to get rich. If countries could get rich from asset seizure and by abusing property rights then Zimbabwe and North Korea would be the place to be. Instead these countries offer their citizens little hope and have even less to offer the rest of the world.

The South African government is spending millions on Swedish jet fighters -- a move unlikely to serve the broad interests of the country, let alone those dying of AIDS. The activists are right to campaign against the government and to call for funding for AIDS treatment. While they are full of good intentions and will no doubt improve the lives of some people with their imported generics, good intentions do not create new drugs.

Future AIDS patients, seeking new, more effective treatment against evolving strains of the disease will look in vain for those drugs if they have to rely on the patent-breakers in Brazil. Mr. Tren is a director of the health NGO Africa Fighting Malaria based in South Africa.