has shown that its therapeutic vaccine reduce the viral set of baseline in patients significantly better than a placebo. this could offer an insurance policy to all people living with hiv who either have no access, as you mentioned, can't afford the treatments, no longer respond to them or who simply stop taking them. you can't stop taking a vaccine once it's in you, it's in you. i want to make two other last points. both of these cures, these beginning to new cures may fail because these companies do not have the money to really produce them. they do not have the money to produce them. the one in norway is actually working in human beings, but they do not have the money to produce them. we need to rethink, as you said, as this bill says, how we actually get pharmaceutical

companies to invest and incentivize companies to find new treatments. the national association of people with aids will be here as long as there are people living with hiv/aids. we want to be partners with senators, member ps of congress and industry representatives who are prepared to roll up our sleeves and make an honest assessment of what does and what does not work when it comes to incentivizing drug development in av. we applaud you, senator sanders, for thinking of results, we do not want to come back here 30 years from now without a cure. all options should be put on the table for discussion if we are ever going to incentivize this type of breakthrough that can provide a bridge to a complete cure. thank you so much, senator sanders. >> thank you very much, mr. oldham. our next panelist is dr. suerie moon who is research director and co-chair of the forum on

global governance for health, harvard global health initiative and she's also the co-director of the project access to technologies sustainable development sustainability science program harvard kennedy school of government. she previously worked for medicines sans franteers, doctors without borders and msf, oxfam, the patent pool, u.n. aids unite unit aid and dr. moon is a member of the board of directors of drugs for neglected diseases initiative north america. the proposal review community of unite aid and the world health organization project on local production for access to medical projects -- products. dr. moon, thank you very much for being with us. >> thank you very much, senator sanders. it's a real honor to be here. thank you for holding this hearing on this really crucial topic. i'm going to focus my comments today on the link between drug

prices here in the united states and the challenge of access to -- global access to medici medicines, two topics that are actually discussed separately but are actually interlinked. first a quick update on where we are today. global access to hiv medicines have increased over the last decade to reach a total of 7.4 million people as of 201090% of whom live in developing countries. this is an achievement unimaginable ten years ago. two of the enabling factors that were key for increasing access in developing counties in particular was first the dramatic reduction in the price of antiretroviral med since and second the inability of funding. in developing countries use has dropped from $10,000 per patient down to as low as $100 or less today. in other words, less than 1% of the patented u.s. price. these price reductions came about because of robust

competition between developers. americans can be proud of these accomplishments because the u.s. government has played a key role in three elements of this story. first, for major investments by the nih and to hiv in the 1980s which enabled the advances in retroviral treatment today. second is the fact that the u.s. is the largest single global provider through petfar and the global fund and these contributions have strengthened the public image of the u.s. overseas. unfortunately for the first time in five years it seems that the u.s. will be decreasing its contributions, and i urge you to do everything that you can to prevent this reversal. third, most recently, as was alluded to earlier, the nih funded research last year demonstrated that therapy can in fact reduce the risk of transmission of hiv by 96%. this research finding is the closest thing we have to an hiv vaccine. we're still unfortunately far from a vaccine as my colleagues have pointed out, but this was an amazing finding and it could

potentially bring benefits to millions more people and could potentially help the epidemic. ironically, and it's a painful irony, just as the science shows that we need to find way to reach more people with a.r.t. both domestically as well as internationally, international funding for hiv is in crisis and price in the u.s. as you pointed out yourself, are putting the drugs out of reach. too many americans living in our own backyard are unable to access treatment and the same drugs that cost about $220 overseas cost $25,000 here. the question is what explains this difference. in my view, the availability of low cost generic a.r.t.s in developing countries is part of an unwritten bargain and that goes as follows. people living in the u.s. and europe will continue to pay higher prices for medicine in order to reward companies for investments in r&d and the people living in the poorest countries or the donors that support them will pay for j

generic drugs. but that bargain is based on an assumption that people living in rich countries will be able to get access to care through government programs such as adap or private insurance. if this is no longer true and the prices are too high even in the wealthiest country of the world then that bargson not sustainable and that is a problem for people everywhere both in the u.s. as well as abroad. this crisis stems from the very way in which research and development for new medicines takes place and the fact that we recoup our r&d investments through high drug prices. this prices system has terrible consequences especially when we know the drugs can be manufactured for less than 1% of the patented price. but we know if everybody in the world paid that 1% generic price then the incentives for r&d would evaporate. is there a better system? what i find so promising about the price fund bill that you've put on the table is that in fact it would try to achieve both.

it would achieve both improved innovation as well as ensuring the broadest possible access to the fruits of scientific research. and that's through a powerful concept called delinkage which was introduced by an expert group of the w.h.o. looking at new r&d mechanisms. i'll leave it to other panelists to go into detail on how the prize fund would work, but i wanted to just highlight one feature of delinkage is that it would decrease the marginal costs -- excuse me it would dramatically decrease the marginal costs of -- of extending access to more people. and this is the critical principle we need to keep in mind when we're thinking about getting access to millions more people -- excuse me, how to get access to a.r.d. as well as to save lives. let me make one final comment at how this could function at the

level. you mentioned the possibility of a and the way that the donor prize fund could function is to insintivize companies to share their patents with the new initiative called the medicines patent pool. it would use generic firm to enter the lowest sustainable prices for medicines everywhere. the patent pool has been having difficulty getting all developing countries included in the scope of the pool and incentives such as those provided through your bill could make it easier to expand access to people living in all developing countries not just in some of them. so let me conclude my remarks there and thank you very much for hosting this panel, and i look forward to the other testimonies and to your questions. >> dr. moon, thank you very much for your testimony. our next panelist is dr. joseph stig litsz. a university professor at columbia and a winner of the 2001 nobel prize in economics as well as the 1979 john bates

clark medal. he served in the clinton administration as the chair of the president's council of economic advisers followed by an appointment of senior vice president and chief economist of the world bank. he's a co-founder of the initiative for policy dialogue current president at the international economic association chair of the u.n. commission studying ways to reform the financial system and a member of the sftc committee on emerging regulatory issues. last year foreign policy magazine named him one of the top 100 global thinkers. dr. stiglitz, thank you very much for being with us. >> thank you for holding these hearings. i welcome this opportunity to share with you my thoughts on senate bill 1138 and the broader subject of how we can best finance research on hiv/aids and for health more generally. i should begin by saying that the approach taken by the bill is exactly right. it reflects an approach that i have been arguing for years include my book "making globalization work" and the various policy roles that i've

been fortunate to play the last two decades. the timing of this hearing could not be better coming soon after the release of the report of a consultant expert working group on rerch search and development and advancing of the world health organization. i was able to present a keynote address to the geneva just over a week ago. interestingly but not surprisingly its core recommendations concerning the organization and finance of research and development coincide closely with this bill. the working group arrived at those conclusions after reviewing the wide range of alternative proposals. i would not spend time reiterating the seriousness of the hiv/aids problem both in america and around the world. medicines have made enormous progress in prolonging lives and alleviating some of the costs and suffering. the problem is that the medicines are very costly or, more accurately, the price charged for them is very high. but the cost of production is but a fraction of the price

charged. the point that the senator made earlier that the cost of production is less than 1% of the price charged. this is the inherent consequence of our current innovation system. the curious aspect of our recurring system is that the government directly or indirectly finances both health r&d through public support and indirectly through public searches of medicine both in the medicare and medicaid programs. given that government is financing most of the research it is especially important that it be done in a way that's efficient. there are two that i want to talk about today. the first is that once knowledge is acquired it should be used efficiently. thomas jefferson described knowledge as being like a candle. when one candle lights another, it doesn't diminish the light of the first. it should be disseminated and used as widely as possible. it can run counter to another concern, we have to have incentive to do research. our patent system attempts to

balance these concerns by providing a temporary monopoly power to innovators, the result of which is there's restricted use of the knowledge for a limited period of time. this is a large inefficiency. but increasingly we have become aware of other limits to the patent system. while it provides incentives it doesn't provide incentives that correspond to social returns. in the health care sector it may be more profitable to devote research to a drug than to a drug that makes a difference. it may have effects on innovation because the patent system encourages secrecy, just the opposite of the openness that's the hallmark of universities and academia more generally. there are way to square the circle which entail delinking sales from drug prices and that's precisely what s-138 proposes to do in the context of new medicines to treat hiv/aids. it does this through a simple

mechanism prizes. the patent system is, of course, a prize. it awards the first discover temporary monopoly power and that result in the distortions i described above. with the prize system, we use the power of competitive markets to ensure that once a drug is discovered, it's made available at the lowest possible price. competition insurances that the knowledge used as widely as possible in contrast with monopolies where prices are raised that restrict the benefits that acue from the knowledge. with a prize systemy rewards can better reflect the innovation, the true marginal contribution as opposed to the current system where it's directed at maximizing ranks often by taking away ranks from others. what's particularly innovative about this bill is section nine. it recognizes that there is an alternative open more collaborative approach to innovation that has proven itself successful in number of areas of research and not just

i.t. research bills provide incentive to ensure more knowledge is in the public domain, the bill will contribute to the advancement of knowledge in this vital area. finally the bill has an important provision for donor innovation prize fund. the united states recognized that aids is a global problem and must be addressed globally. our aid for aids is an humanitarian action but is also an action which in our self-interests. the united states can play a leadership role in reforming the global system of advancing, coordinating research and development to meet health needs including an especially in the developing countries. with this bill, the u.s. does this. i should emphasize in closing that especially in a time of budget strin jensy the need to increase the efficiency of america's system is compelling. the difference between what the drug companies charge and the government and the cost of production is in the tense of million billions of dollars a year. dean baker estimates the gap at

270 billion a year, money that goes to drugs could be far better spent. we need more of our health research budget to be spent on diseases that matter. much of the difference between the cost of production and what is charged does not go into research but advertising and marketing and much of that is not spent to transfer information but to decrease the demand of products thereby increasing monopoly power and products. moving to an effective prize system using the power of the competitive marketplace to ensure the dissemination of medicines is a critical step in making this more efficient innovation system. america is the most innovative country in the world, it has the best universities, attracting the best minds from around the world, but mrk also has the least efficient health care system in the world, spending in the advanced industrial countries spending more money per capita on the health care sector than any other country and getting far poorer outcomes

than countries that spend much less. we need to harness our innovation system to work to drive down costs and improve performance. it is not just a matter of economics. it is in many cases a matter of life and death. we can do it. an essential step in doing this is delinking the research and development incentives from the drug prices and promoting greater sharing of scientific knowledge. this bill does this in an area that is of critical importance. it will provide a model for further reforms in our health innovation system. thank you. >> thank you very much dr. stiglitz. our next panelist is lawrence lessig who is the royal professor of law at law school and center for ethics at harvard university. he founded claetive commons and the foundation for internet society in stanford law school and was previously on the faculty of chicago law school.

professor lessig serves on the boards of creative commons, maplelight, brave new film foundation, the american academy berlin, axa research fund and on the advisory board of the sunlight foundation. he's a member of the american academy of arts and sciences and has received numerous awards including the freedom award, fast cast 50 award and being named one of scientific american's top visionaries. >> thank you very much for the opportunity to testify. as you know, since the beginning of this republic, there has been a fierce debate about how best to create incentives for scientists and innovators to discover and to bring to market advances in science that address important public needs. on one side of that debate have been the supporters of exclusive rights secured by the government, the constitution gives congress the power to secure such rights, and since the earliest days of the republic congress has by law

established mechanisms which secure exclusive rights to invent inventors. on the other side of this debate have been skeptics about exclusive rights at least within some demands of innovation. these skeptics have not doubted the need for incentives, they have instead worried that the cost of the system of incentives secured through government granted monopolies sometimes outweigh the benefits. such monopolies are, of course, just property rights, but as another nobel prize winning economist ronald chost wrote all property rights interfere with the ability of people to use resources. what has to be ensured is that the gain from interference more than offsets the harm it produces, end quote. now these costs are many, and in my view too simply ignored. they include the kofs administering a patent or copyright system but the cost imposed on the environment of the discovery itself. many have worried that one

unintended cost of the act has to inhibit the sharing of knowledge among academics as technology offices have instructed researchers that secrecy is necessary to protect the patentability of inventions. if we have no way to be certain of the cost of such a change in incentives but we need to worry about whether such costs outweigh the benefits of the system. my view is that the patent system in general has provided important support for innovation but it is important that congress innovate with alternatives and test alternatives to see whether it is the best system in all areas of innovation and whether there aren't better systems for particular areas of innovation. now, i've been asked to address one particularly important part of this bill, what's called the open source fund in section nine. and this, of course, builds upon the insight that we've seen since the zbining of the internet where scientists have been experimenting with alternative ways to share scientific knowledge.

the traditional scientific journal provided important service but the process and constraints of journal production were grounded in the technology of physical printing. the significant investment in producing an access restriction were essential tools to provide the revenue necessary to support even nonprofit journal production, free access is simply not feasible. but as the traditional mode of scientific publication has moved to the internet, the temptation of at least some has been to exploit market power to radically increase the cost of access. in one study, for example, the american association of research libraries calculated that between 1986 and 2004, while the cpi increased just 73%, the unit cost of serial publications increased by 190%. likewise, in a study published in 2004, theodore bergstrom

found the average cost per page of a for-profit journal was 4 1/2 times the average cost of a not for profit journal and the cost of a citation was 9.2 times the cost of a not for profit journal. these differences don't reflect the inefficiencies of for profit journals. they reflect, instead, a business model that seeks to exploit inelastic demand that some have for for profit journals. for many publications, the benefit from the increase in that price to elite universities more than outweighs the loss from institutions that can no longer afford access. so the internet changes this dramatically by offering a flee digital platform for distributive work and not just publications data, as well. but this work, too, needs revenue to support its provisions. and so journals such as the public library of science medicines make published work

available for free, but the authors must pay publication fees in order to make that work available initially. and while these fees are often consumed within research projects, these research budgets could benefit from the support that the dividend prize authors so that more science can make themselves available in this particular way. finally, let my make one last comment on these bills. i've spent the last five years working on the cynical story of congress and that would predict such a bill and such a hearing would not occur. indeed, it's not surprising that we have a bill with one senator snonserring and a hearing where no senator accepts the sponsor present. so when jamie asked me to come, my initial reaction was, why waste my time? but i think it's extremely

important, and i commend you, senator, to give america a conception of how legislation could occur where it was cents and not campaign dollars that drove the bottom line 06 what congress did. so i thank you the opportunity to fling myself down here for this purpose, at least, and i strongly support the innovation you're trying to add to this field. thank you. >> thank you very much. last but certainly not least of our panelist is jamie love. james love is the winner of a mcarthur award. i get a little intimidated up here with you smart people. for creative infective institutions. mr. love is the cochair of the transatlantic consumer dialogue intellectual policy committee and chair tess board of directors. he serves as agencies and governmental organizations and not governmentan organizations on innovation and intellectual

property rights and has been working on the potential for prized fund for at least a decade and jamie is somebody i've known for a long time and many admire. jamie, thanks very much for being with us. >> thank you. i'd like to start saying, my prepared statement is 14 pages long and rather than attempt to read it in five minutes, i will provide a summary. today, we are asked that the congress should undertake a radical and transformative change in our incentive system for hiv/aids. and this is a big ask, of course. so why should congress consider something that is radical and transformative as it reflects to aids? part of the answer is that the current system is flawed in

important ways. many of which were referred to by the other speakers. but these flaws and works would be acceptable if there was no other way to stimulate innovation. i am here today to echo the views of several of the other witnesses and to say that the prize fund approach is better than the existing system and indeed, so much better that logic, evidence and duty compel the congress to make the change. as elected representatives, we ask you to improve our lives and to find better ways to solve old problems. the prize fund is a reform that builds on everything that is well known about the economics of innovation. it eliminates the artificial scarcity of new medicines and addresses well known flaws in the current system of granting

product monopolies. the current system places a crushing financial burden on patients in the broader public, often at the expense of the access itself. the current system does not appear to be sustainable or appropriate for dealing with the hiv pandemic which requires high levels of access to new drugs, not only in the united states, but throughout the world. others have referred to a number of basic facts, that the united states, for example, has 1.2 million persons living on hiv. and with new infections, that number is growing every year. i can remember when the size of the community was considered 200,000 people and now it's 1.2 million people. and five years from now, it will be more than 1.2 million people. you mentioned the cost of a triplet being $25,000 a year. that's a fairly inexpensive calculative in the current

environment in the united states. some of the more expensive regimes, even for treatment of these patients could be as much as $35,000 and for people that have developed drug resistance, which a lot of patients that will happen to them over there. the period of treatment is a lifelong treatment occur at present. the treatments could be $50,000 to $75,000 per year. i don't see how you take a country with 1.2 million people that have that condition and impose those kinds of astro knot nomiccal costs. the cdc currently says 64% of the people living in the united states are hiv positive, are not receiving drugs. recent studies also show that people, when they are taking drugs, looks at the risk of reinfection goes down by as much as 95%. some of the companies are trying to encourage people not even hiv positive to take drugs in order to prevent transmission if

they're high risk groups. there's no way you can do that at the current prices. now, the bill proposes a $3 billion reward fund for innovation split into three different types of innovations. and it has an end product prize which is similar to the economic incentive you have out of the economic present, but it's better because it rewards the innovations baseded upon the improvement of health drug outcomes and it stops rewarding the products which are comparable to the drugs. i will note that the 15 largest selling products in the united states for aids, 13 of the 15 were registered by the fda after 2003. i'm sorry, before 2003. they're like 9-year-old products in terms of the underlying products used in them. some of those are fixed combinations that come on them

marked earlier but they're made up of older drugs. we spend probably easily about $8 billion a year more every year than we have to for aids drugs in current prices right now to support the cost of the monopoly. with that, you've got approximately one drug a year out for the past 25 years of which most of them are minor variations on the same drug. just as fdc is almost an identical drug to 3tc, a product that is registered in 1995. so the prize fundincentive. by instead of just saying that you get money if you replicate what these other drugs do with minor improvements, it would say that -- it would look at what you do do improve health outcomes benchmarks against existing drugs.