Another life saved by Big (Bad) Pharma.

Researchers have reported what appears to be only the second case of a functional cure for HIV/AIDS. (The first case was a Berlin man - the "Berlin patient" - who was cured of HIV after a bone marrow transplant.)

While mother-to-infant transmission of HIV is rare in the U.S., thanks to near universal testing of pregnant women and aggressive treatment of those who are HIV-positive to prevent transmission of the virus to the infant, it still happens in rare cases - in this instance because the woman in question didn't have an HIV test until she was in the delivery room.

Thankfully, a quick thinking physician started aggressive HIV antiretroviral therapy shortly after delivery:

In this case, researchers believe that a doctor's decision to start an aggressive antiretroviral treatment within 31 hours of the infant's birth led to the cure. They theorize that the drugs prevented the formation of so-called viral reservoirs that harbor the virus. These reservoirs have been the key stumbling block to a cure because even though AIDS drugs stop HIV from replicating, the virus lurks in the reservoirs, ready to come surging back when treatment is stopped.

In this case, "the child got therapy and then went off therapy, and now there's no detectable virus," said Deborah Persaud, a pediatrician and AIDS researcher at Johns Hopkins Children's Center in Baltimore and lead author of a study reporting the cure. "That's really unheard of. If people go off therapy, most of them rebound...within a few weeks."

While antiretroviral drugs have been the standard of care for HIV treatment since the mid-1990s, researchers are still discovering new uses for the drugs. In 2011, for instance, researchers found that patients started on HIV therapy early in the course of the disease could prevent sexual transmission of virus - offering a tool to help halt infections in poor nations where the disease is closer to an epidemic.

If this case turns out to be an effective treatment option for infected children, the real benefits may accrue to patients in the developing world, where an estimated 500,000 children are infected with the disease every year. And a functional cure early on could spare the children from having to continue on drug cocktails for the rest of their lives.

For critics of the industry, this is what might be called a teaching-learning moment. This is a technology that is nearly twenty years old, and many HIV combinations are either generic or are made available at cost in poor countries. But enormous health gains from the medicines wouldn't be available without the large up-front investments - and yes, higher prices - that wealthier nations pay to companies developing new HIV treatments.

After HIV antivirals lose patent protection, of course they are cheap permanently, meaning that a relatively few years of high prices leads to enormous social gains down the road that aren't captured by the manufacturers. Indeed, in a 2005 NBER paper researchers at the University of Chicago estimated that manufacturers only capture about 5 percent of the social value of HIV medicines. The rest goes to patients, current and future, who benefit from the medicines.

The authors of the study, Philipson and Jena, also advance an interesting argument:

Despite the high prices of these drugs to patients and health plans, the low share of social surplus going to innovators raises concerns about advocating cost-effectiveness criteria that would further reduce this share, and hence further reduce incentives for innovation. In particular, popular technology assessment criteria in healthcare going under the rubric of "cost-effectiveness" often implicitly maximize consumer surplus, which is consistent with maximizing static efficiency after an innovation has been developed. Dynamic efficiency, however, aligns the social costs and benefits of R&D and is therefore determined by how much of the social surplus from a new technology is appropriated by producers.

In short, policymakers who advocate plans to lower drug prices now - through price controls or other strategies - ignore the dynamic effects of drug pricing on future innovations, and the enormous gains to future patients that accrue from innovation. Price controls assume a static stock of innovations, and push costs much closer to the actual marginal cost - the cost to manufacture each pill - of producing those medicines today.

Such policies are pennywise, but pound foolish. As today's announcement shows, gains from HIV antiretrovirals continue to accrue to patients decades after the original discovery. Medical innovation is dynamic, and as economists know well, very responsive to pricing signals. Price controls would diminish the number of future innovations, leaving us with fewer new medicines - and more lost lives.

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