Monopoly and Market Power: Who Sets the Price, and What Does It Cost?

You wake before dawn on a Tuesday in October 2001. You are the Minister of Health for a country in sub-Saharan Africa, and the report on your desk contains a number you have been dreading: 2.3 million of your citizens are living with HIV/AIDS. Roughly 1,500 of them will die today. Another 1,500 will die tomorrow.

There is a drug that can keep them alive. Merck's antiretroviral combination therapy, brand name Stocrin, works. Clinical trials are unambiguous. The problem is not science. The problem is a single number printed on the licensing agreement sitting next to your coffee: $10,000 per patient per year.

Your government's entire health budget amounts to roughly $15 per person per year. The arithmetic is not complicated. At Merck's price, treating every infected citizen would cost more than your country's entire gross domestic product. You could treat a few thousand patients, perhaps, while millions continue to die.

But there is another number. An Indian generic manufacturer called Cipla has written to health ministries across Africa offering to produce the same antiretroviral combination for $350 per patient per year, and in some formulations as low as $0.45 per pill. Cipla's chairman, Yusuf Hamied, made the offer public at a conference in Brussels in February 2001, and the pharmaceutical industry reacted with fury. The drugs are still under patent. Producing them without a license violates the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights, known as TRIPS, which came into force in 1995. Merck and other patent holders have already filed lawsuits in South Africa to block generic imports.

You have two options. You can pay the patent holder's price and watch most of your citizens die because you cannot afford to treat them. Or you can invoke emergency provisions in international law, license generic production domestically, and almost certainly face legal retaliation from one of the world's largest pharmaceutical companies and pressure from the United States government, which has already threatened trade sanctions against countries that override drug patents.

Which do you choose?