Nearly two billion people across the world lack access to essential medicines, and improving access could save millions of lives each year. Yet while everyone agrees that drug access is a problem, there is no consensus on how to improve the situation. 

Activists, aid groups, and United Nations agencies have identified the high prices charged by pharmaceutical companies as the main problem. They also criticize the lack of R&D investment in killer diseases such as malaria and tuberculosis. Indeed, only 1 percent of new compounds marketed during the past 30 years were for developing-world diseases. For tuberculosis, which killed 1.6 million people worldwide in 2005, only three new drugs were marketed between 1975 and 2004; during that same period, 1,556 new drugs were marketed overall. The market, so the story goes, has failed to provide new drugs and failed to deliver existing drugs to the people who need them most. 

But the lack of affordable drugs in the developing world is the consequence of a limited market, not a failed one. The R&D necessary to develop and market drugs is expensive and risky—and because the vast majority of consumers in the developing world are poor, they are unable to pay drug prices sufficient to prompt companies to invest significantly in such R&D. 

Widespread patent abrogation in developing countries further exacerbates the problem, encouraging drug companies to make products for the more lucrative markets in the United States, the European Union, and Japan, which together account for over 85 percent of the world’s pharmaceutical market.

For diseases that affect people in both developed and developing countries, a commitment to transparently tiered prices can help. By allowing companies to charge different prices to people in different countries, according to their ability to pay, wealthier patients in developed countries effectively subsidize R&D for their poorer counterparts. More people have access to medicine, and the company continues to make a profit, some of which can be reinvested in research for newer and better drugs. But for diseases that affect only the developing world—or in cases where the costs of drug production are still too high for the poorest people to be able to afford them—such pricing is not practical. Companies cannot sell products in sufficient volumes at high enough prices to enable them to recoup their initial investments.

By allowing companies to charge different prices to people in different countries, wealthier patients in developed countries effectively subsidize R&D for their poorer counterparts.

Can public-private partnerships improve the situation, allowing companies to pursue neglected drug research even while helping their bottom lines? Pharmaceutical powerhouse Sanofi-Aventis recently partnered with the nonprofit Drugs for Neglected Diseases Initiative to bring the anti-malaria drug ASAQ to market. Although the long-term viability of this partnership is uncertain, it could have a significant humanitarian impact. It certainly has helped Sanofi-Aventis polish its reputation, affirm its commitment to help the poor, position itself strategically in an emerging market, and cultivate access to low-cost, skilled researchers in developing countries. 

To date, however, public-private partnerships have only brought one drug to market. Without more evidence of success, it would be unwise to rely on them to produce the next generation of drugs. The idea of offering financial prizes for new drugs that address developing-world diseases is also riddled with uncertainties. How big should a prize be? Which diseases should be targeted? How would one determine when a “cure” is found? 

Instead, governments and individuals should focus on effective demand, or the ability of consumers to pay the prices that spur companies to develop drugs. Over the long term, improving effective demand means encouraging economic development, reducing tariffs, and protecting patents. Indeed, permitting slightly higher drug prices today will guarantee incentives for innovation and development tomorrow. Over the short term, boosting effective demand means committing to purchase pharmaceuticals at the prices the market can bear. It may mean exploring other incentives, such as accelerated clinical trials and longer periods of patent exclusivity, both which have been leveraged successfully to encourage orphan drug development in the United States. Such orphan drug development has yielded drugs for several neglected diseases, including those affecting populations primarily outside the United States, such as malaria and tuberculosis. 

We must remember that, at root, the lack of drugs for the world’s poor is not a product of market failure or abusive patents (imperfect though our patent system may be). It is a product of poverty. 

Roger Bate is a resident fellow at the American Enterprise Institute. Karen Porter is a research assistant at the American Enterprise Institute and an editorial assistant at THE AMERICAN. This article is adapted from their new Health Policy Outlook, “More Drugs for More Developing World Diseases,” released this week.

Image by Darren Wamboldt/The Bergman Group.