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Compulsory social responsibility
Price controls are always justified by reference to an apparent crisis—but once the price-control genie is let out of its bottle, government bureaucrats are likely to find an emergency everywhere they look. There is no better example of this mentality than in efforts by middle-class nations like Brazil to piggy-back on low-cost or free AIDS drugs offered by pharmaceutical companies to poverty-stricken African nations. This development, however, threatens industry incentives to create the next generations of AIDS medicines.
In August, health ministers of 11 South American countries met in Buenos Aires with 24 drug and diagnostic companies. Their aim: to negotiate purchase prices for anti-retroviral (ARV) drugs to combat HIV/AIDS…Yet, our historical experience with price controls suggests, if the ministers prevail, the effect on access to medicines will be negative, not positive. …
Brazil's government, egged on by various activists and anti-globalization campaigners, has decided the price is too high of one such drug owned by the U.S. firm Abbott. So it has demanded ever lower prices from the company, backed by the threat of compulsory licensing.
At the moment, pharmaceutical companies use "differential pricing," meaning prices are lowest in the poorest African counties, such as Malawi, higher in Brazil and Argentina, and highest in the U.S. That the companies can make a little profit on ARVs in middle-income markets means they can sell them at marginal cost or even give them away in the poorest countries.
But price caps and threats of compulsory licenses already have a predictable effect on new medicines' supplies. Why would a company risk millions developing a new medicine if it is unable to recover its costs? Threats of the kind coming from Brazil's government make the whole AIDS medicine business far less appealing. Perhaps unsurprisingly, the number of AIDS drugs in development has been decreasing steadily in recent years.
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