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Monday, August 14, 2006

AIDS And Big Pharma: Merck and Bristol-Myers

Stocks: (MRK)(BMY)(GILD)

A recent study by India’s census bureau estimated that 11 million people could die of AIDS between now and 2026. At the large conference on AIDS held in Toronto, statistics released claim that AIDS has already killed 25 million people worldwide and the 40 million are living with HIV, according to CTV Canada.

Obviously drugs to slow the spread of AIDS and to prevent HIV infection are becoming big business. Merck and Gilead Sciences have just agreed to sell their new Atripla drug in developing counties. According to Merck, the drug was just approved by the FDA. Bristol-Myers Squibb already sells one of the components of the drug in the U.S. under the name Sustiva, according to Reuters. Merch sells the drug outside the U.S. under a different name.

A war is shaping up between the patent holders on some of the HIV and AIDS drugs and companies that are producing or planning to produce generic versions of the products. These generics may lower costs for treatment in poor nations, but the large pharmaceutical companies often do not want to part with their profits.

The battle is getting political. Recently, according to The Associated Press, Brazil threatened to market four AID drugs, effectively breaking the patents of the companies that developed them. One of these drugs was Merck's Efavirer. According to The Toronto Star, “Behind Brazil's success have been a strong pharmaceutical industry that makes knockoffs of old drugs and a government that engages in tough negotiations with big drug companies to cut the price of newer, imported medicines.”

Many AIDS medications cost patients several thousand dollars a year, and with 40 million people who may need these drugs, the revenue from the medicines runs into the billions of dollars for companies like Merck and Bristol-Myers. So, these companies face three alternatives. One is attractive, at least financially. That is to get maximum yield from each dose. This brings in the highest amount of revenue. The next alternative is to fight large countries like Brazil over patent violations that are done in the name of saving lives. The last is a two tiered system where drugs are sold a lower prices in developing countries and high prices in places like the U.S. Of course, patients and medical centers in the U.S. may object to that over time.

There is no easy answer for companies that have spent a great deal of time and money on developing these drugs, but, they may have to make their big money on other products.

For consumers worldwide, the conundrum is why Big Pharma should keep investing in important drugs that bring them little or no profit. If so, the fight against AIDS may become more difficult.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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